Month: February 2021

Our Bureau

The Reserve Bank of India, on Friday, announced the setting up of a 24×7 helpline for digital payment services as well as enabling participation in CTS clearing across all bank branches in the country.

Noting that its Payment Systems Vision document envisages the setting up a 24×7 helpline for addressing customer queries on various digital payment products, the RBI said the helpline will, in addition to building trust and confidence, also reduce expenditure on both financial and human resources otherwise incurred for addressing queries and grievances.

“The major payment system operators would be required to facilitate setting-up of a centralised industry-wide 24×7 helpline for addressing customer queries in respect of various digital payment products and give information on available grievance redress mechanisms by September 2021,” said the Statement on Developmental and Regulatory policies.

Going forward, the facility of registering and resolving the customer complaints through the helpline shall be considered.

Risk management

Further, to manage the attendant risks in outsourcing and ensuring that a code of conduct is adhered to while outsourcing payment and settlement related services, the Reserve Bank shall issue guidelines to operators and participants of authorised payment systems.

Meanwhile, the RBI also proposed to bring all bank branches under the Cheque Truncation System (CTS) clearing mechanism by September 2021.

Separate operational guidelines will be issued in a month’s time, it said, noting that this would help bring operational efficiency in paper-based clearing and make the process of collection and settlement of cheques faster, resulting in better customer service.

About 18,000 bank branches are still outside any formal clearing arrangement, although CTS has been in use since 2010 and covers around 1,50,000 branches across three cheque processing grids.

All the erstwhile 1,219 non-CTS clearing houses have since been migrated to CTS.

The Reserve Bank of India, on Friday, proposed to provide funds from banks under the TLTRO ‘on tap’ scheme to NBFCs for incremental lending to identified stressed sectors.

Reserve Bank of India Governor Shaktikanta Das noted that NBFCs are well recognised conduits for reaching out last-mile credit and act as a force multiplier in expanding credit to various sectors.

“With a view to support revival of activity in specific stressed sectors that have both backward and forward linkages and have multiplier effects on growth, the RBI had announced the TLTRO on tap scheme for banks on October 9, 2020,” Das said on Friday.

The scheme is available up to March 31, 2021.

“In addition to the five sectors announced under the scheme on October 21, 2020, 26 stressed sectors identified by the Kamath Committee were also brought within the ambit of sectors eligible under on tap TLTRO on December 4, 2020,” noted the Statement on Developmental and Regulatory Policies.

Liquidity availed by banks under the scheme is to be deployed in corporate bonds, commercial paper, and non-convertible debentures issued by entities in these sectors, it further said.

Players expect the move to help NBFCs boost lending and tide over liquidity problems.

Credit delivery

Welcoming the announcement, VP Nandakumar, Managing Director and CEO, Manappuram Finance, said it will enable NBFCs to significantly step up their lending and expand credit delivery at the last mile.

Shachindra Nath, Executive Chairman and Managing Director, U GRO Capital, said it will usher in effective liquidity for NBFCs, which would work hand-in-hand with the new co-lending guidelines.

“The positive impact is that it would enhance the NBFCs’ ability to provide a credit lifeline to capital-starved MSMEs, including the NTC small businesses, supporting not only their revival and stabilisation but also help look at growth. The credit impact can be further expanded significantly with the extension of the Partial Credit Guarantee Scheme for portfolio purchase of loans for these sectors,” he said.

Tirthankar Datta, Partner, J Sagar Associates, said this will be a much needed fillip for the NBFC sector after it had been reeling from a liquidity crunch since the IL&FS default in 2018, which was exacerbated by the pandemic.

“This is a great growth oriented and stabilising measure and in line with the NBFC sectors demands, instead of trying to stem the liquidity to address inflation concerns,” he said.

The decision to leave the policy rates unchanged is on expected lines and the announcements by the Reserve Bank of India reflect support to growth and focus on maintaining liquidity, said bankers.

“RBI reposes confidence in the buoyancy in economic activities across the segments and thrust given in the Budget for higher capital expenditure leading to higher economic growth. One of the positive news in this context is both fiscal and monetary policies are in the same page of ‘pro-growth’, which is indeed the need of the hour,” said Rajkiran Rai, Chairman, Indian Banks’ Association and Managing Director and CEO, Union Bank of India.

Rai also highlighted that the Governor has reiterated the RBI’s resolve to maintain comfortable liquidity position in the market which they have successfully managed through out the challenging period of pandemic.

Liquidity management

State Bank of India Chairman Dinesh Khara said the RBI policy is an acknowledgement and continuation of doing whatever it takes to maintain an orderly, seamless and non-disruptive liquidity management policy to support debt management. “Towards this end, an extension of enhanced HTM limit, relaxation of funds availability under MSF, an extension of on tap TLTRO to NBFC, deduction of credit disbursed to ‘new MSME borrowers’ from their NDTL for calculation of the CRR will calibrate credit flow and liquidity management,” he said.

SS Mallikarjuna Rao, Managing Director and CEO also noted that the policy has complemented the Budget in supporting growth impulses. “The normalisation of CRR in a phased manner would smoothen the liquidity absorption process,” he said.

With inflation expected to be lower, bankers said they expect rates to be stable.

“Coming after a growth-oriented Budget, the monetary policy stance augurs well for economic growth. Expect rates to be stable with an upward bias depending on inflation trajectory,” said Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank.

Economists also said they expect yield management by the RBI to continue.

“The RBI is likely to continue with normalising liquidity conditions, in line with underlying growth and inflation fundamentals. However, they will make the process as non-disruptive as possible by continuing to keep liquidity in surplus. Yield management by the RBI is likely to continue; however it is likely to be more comfortable with a higher band for yields than 2020,” said Abheek Barua, Chief Economist, HDFC Bank.

“The central bank did its bit today by promising an accommodative liquidity stance to help the bond market absorb elevated government borrowing. The aim of the central bank, in our view, will be to ensure that financial conditions do not tighten too sharply over the foreseeable future,” said a note by HSBC Global Research.

Our Bureau

The Reserve Bank of India (RBI), on Friday, said that it is looking to review the regulatory framework for microfinance which would be uniformly applicable to all lenders in the microfinance space, including scheduled commercial banks, small finance banks and other such entities. Currently, RBI guidelines on microfinance regulate NBFC-MFIs primarily.

In his monetary policy statement on Friday, RBI Governor, Shaktikant Das, said: “The microfinance sector plays an important role in last-mile delivery of credit to needy segments. In view of the evolving role of the sector and the need for a robust framework for enhanced delivery of last-mile credit and strengthening consumer protection, the Reserve Bank will come out with a consultative document harmonising the regulatory frameworks applicable to various regulated lenders (NBFC-Micro Finance Institutions, Scheduled Commercial Banks, Small Finance Banks and NBFC–Investment and Credit Companies) in the microfinance space.”

The MFI industry, which includes banks (universal banks and small finance banks included), NBFCs and NBFC-MFIs, had a total loan portfolio of ₹2,31,778 crore as of September 30, 2020. The industry served 5.71 crore unique borrowersthrough 10.50 crore loan accounts.

Banks hold the largest share of the portfolio in micro-credit, with a total loan outstanding of ₹94,355 crore, accounting for nearly 41 per cent of the total loan portfolio. NBFC-MFIs are the second largest provider of micro-credit, with a loan amount outstanding of ₹69,933 crore, accounting for around 30 per cent. SFBs have a total loan amount outstanding of ₹43,142 crore, with a total share of 18.61 per cent per cent; NBFCs account for another 9.52 per cent, and other MFIs account for 0.99 per cent of the total loan portfolio, according to information available from MFIN Micrometer.

Sustainable growth

Welcoming the proposed move by theRBI, MFIN, the association for microfinance entities and the self-regulatory organization for NBFC-MFIs, said this would help bring a sustainable growth for the sector.

“This is indeed a welcome step for the sector. Considering the diversity of players in microfinance today, it is the need of the hour, and MFIN has been proactively working on this through its Code of Responsible Lending (CRL) and also requesting the RBI on the need for asset class-based regulation. This is a very important move as it will augur well for the sector as a whole and further safeguard the interests of the customers. MFIN looks forward to working closely with the RBI on this important initiative,” said Alok Misra, CEO and Director, MFIN.

MFIN had developed the CRL to bring differently regulated entities, including NBFC-MFIs, Banks, SFBs, NBFCs and Non-profit/Section 8 MFIs, to agree and adopt a uniform common code for customer conduct and ensure a level-playing field. The CRL has as many as 113 signatories, representing 70 per cent of the market.

Risk mitigation

According to Chandra Shekhar Ghosh, MD and CEO, Bandhan Bank, the Malegam committee on microfinance, about 10 years back, played a huge role in strengthening the foundations of the Indian microfinance industry by setting up policy contours around a host of areas, including lending process, pricing of interest rates, increasing transparency, capital and provisioning norms, and reducing the problems of multiple lending and over borrowing.

“Since over a decade has passed since the Malegam committee, a fresh and comprehensive review of the sector will certainly be a timely and relevant initiative towards harmoniszing the regulatory framework for the industry for various kinds of entities that can be followed uniformly across the country. This will put the industry in a position of further strength to help millions of poor Indian households with better risk mitigation and stronger financial inclusion,” he said.