Month: August 2021

RBI tightens rules for payment companies outsourcing core activities, BFSI News, ET BFSI

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The Reserve Bank of India has formalised the framework for payment companies outsourcing payment and settlement related activities to third party operators. The central bank’s fresh guidelines come at a time when India’s tech ecosystem has seen several high-profile cyber attacks such as those at Juspay, Upstox and Mobikwik over last year targeting customers’ payments data.

As per the new rules, licensed non-bank Payment System Operators (PSOs), cannot outsource core management functions, including internal audits, and compliance with KYC norms to third-party service providers.

As defined by the central bank, core management functions include management of payment system operations such as netting and settlement, transaction management including reconciliation, reporting and item processing, managing customer data, risk management, information technology and information security management etc.

The central bank also added that the board of payment companies must “carefully evaluate” the need for outsourcing responsibilities.

“The PSO shall carefully evaluate the need for outsourcing its critical processes and activities, as well as selection of service provider(s) based on comprehensive risk assessment,” the central bank said. “The critical processes are those, which if disrupted, shall have the potential to significantly impact the business operations, reputation, profitability and / or customer service.”

The new rules also state that the liability of third-party losses would fall on the relevant board members and senior management of licensed payment operators. “Outsourcing of any activity by the PSO shall not reduce its obligations, and those of its board and senior management, who are ultimately responsible for the outsourced activity,” the central bank said.

The RBI had first announced the plan during the monetary policy announcement on 5 February 2021 with a view to enable effective management of attendant risks in outsourcing of payment and settlement activities.

“The resilience of the digital payment ecosystem to operational risks needs to be constantly upgraded,” RBI Governor Shaktikanta Das had said during his February MPC address.

“A potential area of operational risk is associated with outsourcing by payment system operators and participants of authorised payments systems,” he added. “To manage the attendant risks in outsourcing and ensure that code of conduct adhered to while outsourcing payment and settlement related service, RBI shall issue guidelines on outsourcing of such services by these entities,” RBI Governor has said.

In addition, the central bank has also asked non-bank PSOs to have clear contractual specifications on responsibilities being outsourced as well as conduct its own due diligence on technology and legal compliances when working with relevant third-party companies.



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3 Top Brokerages Are Betting On The Stock Of IOC With A “Buy”, Here’s Why?

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Price targets on IOC by different brokerages?

Current market price Target price
Sharekhan Rs 106 Rs 125
Motilal Oswal Rs 106 Rs 157
Emkay Global Rs 106 Rs 135

All the three brokerages are showing a bullish bias towards the stock of Indian Oil Corporation. While we have covered already what Sharekhan and Motilal Oswal have to say on the stock, let’s see some of the reasons for bullishness by all the three top broking firms in the country.

Sharekhan and Motilal Oswal have a buy on the stock

Sharekhan and Motilal Oswal have a buy on the stock

Sharekhan says that the big triggers for the stock is the BPCL divestment, and the attractive dividend yield of 10%. In fact, the brokerage also says that pipeline monetization could also act as a big trigger for the stock.

However, Motilal Oswal is the most bullish on the stock in terms of price targets of IOC among the three brokerages and has suggested to buy the same for a solid upside of 52% from the current market price of Rs 106. According to the firm, IOC reported a beat on its estimates, led by higher-than-estimated reported gross refining margins and marketing sales volumes, the brokerage has said. The brokerage said that it values Indian Oil at 1.1 times Sep’23 price to book value, to arrive at price target of Rs 157 and maintains a Buy.

Emkay Global says to buy the stock for target of Rs 135

Emkay Global says to buy the stock for target of Rs 135

According to Emkay Global, the management expects GRMs to be better as demand picks up. Refinery utilization in July was 90%, while the LPG receivables outstanding from the Govt is nil now. The IOC-Petronas joint venture is looking to expand into multiple areas, including transport fuels.

Emkay Global says it values Indian Oil on a SoTP basis with a 6 times blended target Sep’23E EV/EBITDA for the standalone business (unchanged) and investments at a 30% holding company discount to face value.

Several new projects

IOC is looking at new areas including Aluminum Air Battery (JV with Israel based Phinergy), hydrogen, used cooking oils and CBG.

According to Emkay Global, Phinergy Battery can be significant.

“The technology is there and if successful they would set up a factory in India. IOCL is also focused on fuel cells. Indian Oil was invited to join World Hydrogen Council,” the brokerage has said.

The company is planning (at a nascent stage now) a green hydrogen plant in Mathura refinery to run on windmill-based power. It will also run hydrogen-powered buses in Gujarat refinery area and Delhi-Agra, etc. It is looking to monetize two hydrogen plants at the Gujarat refinery this fiscal and five more after that.

“Other new energy projects include two ethanol plants (in Panipat, etc., 2G/3G) of Rs 7 billion capital expenditure each. Out of 5,000 CBG plants announced by Govt, Indian Oil has given offtake interest for 1,100. Each plant will cost Rs 500 million, but IOC is not involved in capex and it will only have offtake (agreement),” Emkay Global has said.

All in all, looking at valuations, dividend yields, solid track record and an impeccable retail fuel network, IOC remains a good pick.

Disclaimer

Disclaimer

The above stocks are based on the report of Motilal Oswal, Emkay Global, Sharekhan. Investing in stocks is risky and investors should do their own research. The author, the brokerage firms or Greynium Information Technologies are not responsible for any losses incurred due to a decision based on the above article. Investors should hence exercise due caution as are at record peaks. Please consult a professional advisor.



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RBI announces framework for outsourcing payment and settlement activities

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The Reserve Bank of India on Tuesday announced the framework for outsourcing payment and settlement-related activities by payment system operators (PSO). The objective is to put in place minimum standards to manage risks in outsourcing of payment and settlement-related activities including tasks such as onboarding customers and IT-based services.

“This framework is applicable to non-bank PSOs insofar as it relates to their payment and settlement-related activities,” the RBI said, adding that it is applicable to all service providers, whether located in India or abroad.

The central bank has set a deadline of March 31, 2022 for PSOs to ensure that all their outsourcing arrangements, including the existing ones, are in compliance with the framework.

Risk management

The framework has said PSOs will not outsource core management functions, including risk management and internal audit; compliance and decision-making functions such as determining compliance with KYC norms.

Core management functions would include management of payment system operations such as netting and settlement, transaction management like reconciliation, reporting and item processing, according sanction to merchants for acquiring, managing customer data, risk management, information technology and information security management.

The Statement on Developmental and Regulatory Policies released with the bi-monthly Monetary Policy Statement on February 5 this year had announced the plan for such a framework to enable effective management of attendant risks in outsourcing of such activities.

The service provider, unless it is a group company of the PSO, will not be owned or controlled by any director or officer of the PSO or their relatives.

The RBI framework has further said the PSO will carefully evaluate the need for outsourcing its critical processes and activities and also the selection of service providers based on comprehensive risk assessment.

“Outsourcing of any activity by the PSO shall not reduce its obligations, and those of its board and senior management, who are ultimately responsible for the outsourced activity,” it has said, adding that the PSO will be liable for the actions of its service providers and will retain ultimate control over the outsourced activity.

Further, to outsource any of its payment and settlement-related activities, the PSO will have a board-approved comprehensive outsourcing policy.

Ensuring confidentiality

The PSO will also ensure the security and confidentiality of customer information in the custody or possession of the service provider and will immediately notify RBI about any breach of security and leakage of confidential information related to customers, the framework said.

“In such eventualities, the PSO would be liable to its customers for any damage,” it stated.

The PSO will also maintain a central record of all outsourcing arrangements, which will be readily accessible for review by the board and senior management.

Further, the PSO will also put in place a management structure to monitor and control its outsourcing activities.

In the case of offshore service providers, the PSO will also closely monitor government policies and, political, social, economic, and legal conditions in countries where the service provider is based, both during the risk assessment process and on a continuous basis, and establish sound procedures for dealing with country risk problems.

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IOB asks Union Bank to buy its stake in Malaysian bank, BFSI News, ET BFSI

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Indian Overseas Bank (IOB) has asked the Union Bank of India to buy its 35 per cent holding in India International Bank, Malaysia, a top IOB official said on Tuesday.

The India International Bank was originally a three-way joint venture between the Bank of Baroda (40 per cent stake), the IOB (35 per cent) and Andhra Bank (25 per cent). The Andhra Bank was taken over by the Union Bank of India as a part of the megabank merger scheme last year.

“We have asked Union Bank of India to buy our stakes. The valuation exercise is going on,” IOB Managing Director & CEO Partha Pratim Sengupta told reporters.

According to him, the IOB had decided to exit the Malaysian joint venture as part of its plan to come out of the Reserve Bank of India‘s (RBI) Prompt and Corrective Action (PCA) fold.

Though Sengupta said the IOB is expecting to be out of the PCA fold as it fulfills the RBI’s conditions, the decision to exit the India International Bank continues to hold.

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IOB’s Q1 net profit jumps nearly three-fold to ₹327 crore

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Indian Overseas Bank (IOB) continues its profitable growth journey as the Chennai headquartered public sector bank reported a net profit of ₹327 crore for the quarter ended June 30, 2021 against a net profit of ₹121 crore in the year-ago quarter, helped by higher operating profit and lower provisions.

The bank’s operating profit grew to ₹1,202 crore in June 2021 quarter as against ₹1,094 crore in the year-ago quarter, on account of reduction in interest expenditure and higher non-interest income, according to a statement.

Total income stood at ₹5,155 crore as compared to 5,234 crore. Interest income fell to ₹4,063 crore as against ₹4,302 crore in Q1 of last fiscal, while non-interest income was higher at ₹1,092 crore (₹932 crore).

The turnaround story of Indian Overseas Bank

Provisions and contingencies were lower at ₹868 crore as compared to ₹970 crore.

Gross NPA declined to ₹15,952 crore as of June 2021 quarter when compared with ₹18,291 crore in June 2020 quarter and ₹16,323 crore in March 2021 quarter. Gross NPA ratio fell to 11.48 per cent from 13.90 per cent in the year-ago quarter and 11.69 in the year-ago quarter.

Net NPA ratio stood at 3.15 per cent, down from 5.10 per cent in Q1 of last fiscal and 3.58 per cent in Q4 of FY20. Its provision coverage ratio improved to 91.56 per cent from 87.97 per cent in the June 2020 quarter and 90.34 per cent in March 2021 quarter.

Indian Overseas Bank Q4 profit rises over 2-folds to ₹350 crore

Deposits increased to ₹242,941 crore in Q1 of this fiscal when compared with ₹225,546 crore in the year-ago quarter, while gross advances stood at ₹138,944 crore as compared to ₹131,565 crore.

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Income Tax Portal Levying Late Fee For ITR Filing: Is It Valid?

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Planning

oi-Roshni Agarwal

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In a usual case for filing ITR for the previous financial year i.e. currently FY 2021, Assessment year (2021-2022), the income tax return has to be mandatorily filed by July 31 or the due date for most cases/individuals barring few is July 31. Nonetheless, the CBDT taking into account the disruption caused due to the coronavirus pandemic has allowed various relaxations and hence the ITR filing can also be made by an extended date of up to September 30, 2021.

Income Tax Portal Levying Late Fee For ITR Filing: Is It Valid?

Income Tax Portal Levying Late Fee For ITR Filing: Is It Valid?

Nonetheless, the income tax portal is charging late fee despite the relaxation in income tax filing due date.

Is the late fee being charged for filing ITR for FY21 is valid?

It is being observed that despite the relaxation in ITR filing due date and even when the taxpayers have filed their ITR for FY21 in the last few days, the tax portal is charging a late filing fee. Tax-filers are taking the issue on the social media and asking the department to remove the same from the portal.Why is this happening?

Why the income tax portal is charging late fee for ITR filing despite relaxation?

Experts see it to be a technical error whereby the department of income tax has not updated the extended deadline to file ITR for the FY21 in the tax filing system.

What should tax-filers do?

Tax experts suggest to wait and watch till the Central Board of Direct Taxes (CBDT) resolves the issue. This is because as the tax filing of a return is not possible without paying the penalty in lieu of late filing of tax return, which is though not the case here.

Late ITR filing penalty rules in a usual case

–Interest under Section 234A

In a case if you have not filed the ITR by the due date or missed the deadline and when you have to make some outstanding tax payment to the department, and on the unpaid taxes amount you will be charged an interest of 1% per month or part of the month. The interest shall be levied or applicable from the due date that applies in your case till the time you actually file the return.

Illustration Mr. Kumar is running a medical store. The due date for filing the return of income in his case is 31st July. He filed his return of income on 3rd December. Tax liability of Mr. Kumar for the year is Rs. 28,400 (which is paid on 3rd December). Advance tax paid by him is Rs. 15,000 and he has TDS credit of Rs. 5,000.
Will he be liable to pay interest under section 234A, if yes then how much? Mr. Kumar has filed his return of income after the due date i.e. after 31st July and hence, he will be liable to pay interest under section 234A. Interest will be levied at 1% per month or part of the month. The due date of filing the return of income is 31st July and the return of income is filed on 3rd December and hence, there is a delay of 4 months and 3 days. Part of the month i.e. 3 days will be considered as full month and hence, interest will be charged for a period of 5 months. Interest will be levied at 1% per month on Rs. 8,400 (*) for 5 months. Thus, interest under section 234A will come to Rs. 420.

(*) Advance tax of Rs. 15,000 and TDS of Rs. 5,000 are to be deducted from the tax liability of Rs. 28,400, hence, net liability after deducting advance tax and TDS will come to Rs. 8,400. Thus, interest will be levied on Rs. 8,400.

Note the illustration is taken from Income tax web site.

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Need to devise better formula for setting States’ borrowings, says SBI report

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There is a need to devise a better formula for setting States’ borrowings and delink it from advance Gross State Domestic Product estimates, stated the State Bank of India’s economic research report, “Ecowrap”.

Referring to the Finance Commission’s (FC) recommendation that borrowings by States should be linked to the size of the GSDP, SBI’s economic research department observed that given the borrowings incentivisation, it also resulted in States projecting ambitious GSDP numbers during the budget presentations that are only revised downwards later.

“As a logical corollary, States get access to higher advance borrowing based on their higher GSDP Budget Estimate (BE) projections,” it said.

“Certain States including West Bengal, Maharashtra, Andhra Pradesh, Chhattisgarh, Uttar Pradesh, Tamil Nadu and Rajasthan have borrowed higher than 3 per cent of their actual GSDP in either or all the years ending FY21,” said Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI.

He underscored that even if the additional borrowing conditions set by the FC are considered for the years, the trend is only getting broad-based.

Recommendations

The report recommended that States that are better-behaved may be rewarded in terms of an increase in size of the permissible borrowing in the subsequent year where permissible borrowing is scaled up by the lower advance borrowings.

“This scale-up can also come at a rate lower than market rate of interest,” Ghosh said.

The report suggested that a similar scheme could be envisaged for States that are borrowing more, with a scale-down in the permissible borrowing or the higher advance borrowings may be resorted to only at a rate that is higher than market rate of interest.

Another possible solution could be linking of the State borrowing to its own tax revenue. Such conditional limit on State borrowings finds echo in 15th Finance Commission recommendations also, the report said.

According to Ecowrap, in FY22, based on the 15th Finance Commission’s recommendation, the Centre had allowed States net market borrowing of up to 4 per cent of GSDP, additional 0.5 per cent of GDP conditional borrowing on fulfilment of power sector reforms.

Besides, the total amount of grants given to local bodies has increased. Of the ₹2.2 lakh crore grants permitted for FY22, ₹1.54 lakh crore is unconditional and the remaining ₹67,105 crore for local bodies is conditional and based on reform of urban local bodies, the report said.

Devolution to States

As per Ecowrap, the fiscal situation as of now looks promising even with the added expenditure that the Government has recently announced. It is only the disinvestment figures which could be undershot, it added.

Referring to the Centre’s net tax collections at ₹5.58 lakh crore for Q1FY22, the report said the Q1FY22 tax collections are 36 per cent of the budgeted tax collections. This figure used to be around 26-29 per cent in the previous years.

The Centre has budgeted ₹6.66 lakh crore as the States’ share in the tax collections.

With improvement in direct tax collections, it is expected that Centre will be able to provide this amount to States, thereby, helping them manage their finances better, the report said.

In the last fiscal, the Centre had budgeted ₹7.84 lakh crore, while it could only provide ₹5.5 lakh crore to them, it added.

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PNB eyes ₹4,000-6,000 cr net profit in FY’21-22: CEO

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Punjab National Bank (PNB) expects its net profit for the current fiscal to be around ₹ 4,000-6,000 crore, S.S.Mallikarjuna Rao, Managing Director & CEO, said on Tuesday. This guidance is significant as the bank had closed fiscal 2020-21 with a net profit of ₹ 2,022 crore.

Rao said that he expects over 50 per cent of this guided net profit for 2021-22 to be contributed by write-back of provisions made on NPAs (bank has over 80 per cent provision coverage ratio).

The bottomline will also be bolstered by cost optimisation and branch rationalisation exercise the bank will continue to undertake this fiscal. PNB, which had rationalised (merged) over 380 branches in Q1, is looking to rationalise about 1000 branches by March end this fiscal and go in for setting up new smaller sized branches that are more digitally driven and expand in regions like South and Western India where PNB is not that strong in terms of branch distribution and needs to be strengthened, Rao said at a virtual press conference post the declaration of Q1 results of the bank.

This rationalisation is expected to give huge reduction in operational expenditure for PNB and thereby gain synergies out of the three-way amalgamation with United Bank of India and Oriental Bank of Commerce that comes into force from April 1 next year, he said.

75% hike in profit

PNB on Monday evening reported a 75 per cent increase in standalone net profit for the first quarter ended June 30 at ₹1,023.46 crore as against net profit of ₹586.33 crore in the March quarter. On a year-on-year basis, net profit grew 232 per cent when compared to net profit of ₹ 308.45 crore net profit recorded in the June quarter last year.

Going forward, Rao said that PNB expects to make cash recovery of ₹5,000 crore from NCLT itself this fiscal and reduce debt of ₹12,000 crore. “Apart from that, we get normal recovery ₹ 3,000 crore every quarter as normal recovery. So I am expecting cash recovery of ₹14,000 crore and much higher debt reduction of ₹ 20,000- 22,000 crore”, he said.

Also read: PNB Q1 net up 75% sequentially to ₹1,023 crore

For the quarter under review, PNB made recoveries of about ₹8,000 crore including realisation of ₹1,000 crore from the grounded Kingfisher Airlines.

Rao said that he expects credit growth to pick up from second quarter. The credit growth is expected to improve in the next three quarters compared to what has been so far this year and the bank expects overall credit growth to be 8-10 per cent this fiscal. PNB is looking to bring down its net NPA below 5 per cent by end March 2022.

Valuation controversy

Asked on the recent valuation controversy on PNB Housing Finance, a company in which PNB holds about 32 per cent stake, Rao said that he would wait for the Securities Appellate Tribunal (SAT) to come out with its order and then on the basis of that order the housing finance lender as well as PNB will look at various options. “This issue is a matter of interpretation of law. This can be put to conclusion decisively only by judiciary, non-judiciary and regulator. We are awaiting judgement of SAT and we are bound to follow the judgement given by SAT. I do not want to presuppose what kind of order will come and we will take a call only after the SAT order comes. We will go by the SAT order both in letter and spirit”, Rao said.

He made it clear that PNB had not asked PNB Housing to reconsider the Carlyle deal, but only asked the housing finance lender to follow the directions specified in SEBI’s letter to PNB Housing. “ It’s not a question of going diametrically opposite of what has been done in the deal. We (PNB) have only told them (PNB Housing) that SEBI’s communication to PNB Housing may be looked into in terms of reconstruction of the entire process. This is now in the domain of SAT and we will wait for the SAT order”, he said.

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5 Mutual Fund SIPs That Have More Than Doubled Investors Wealth In 5 Years

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1. ICICI Prudential Technology Fund-

Direct Plan: IT pack has been the outlier for many years and this is imminent from this ICICI Prudential fund i.e. invested into IT and technology dependent companies. The fund aims to offer capital appreciation to its investors. The fund with an asset size of over Rs. 3494 crore carries an expense ratio of over 1%.

Since its launch in 2013 the fund has provided a return of 26.95%. SIP in the fund can be started for Rs. 100, while for minimum lump sum payment one needs to shell out Rs. 5000.

Top holdings of the fund include Infosys, Tech Mahindra, TCS, HCL, Persistent Systems, IRCTC, Coforge etc.

Interestingly, Rs. 1 lakh investment as lump sum in this fund has trebled in value to Rs. 3.65 lakh in 5 years, while SIP of Rs. 10000, amounting to Rs. 6 lakh in 5 years is valued at Rs. 15.76 lakh.

2. Quant Small Cap-Direct Plan-Growth:

2. Quant Small Cap-Direct Plan-Growth:

This fund is a very high risk high return plan with 3/4th of the fund’s corpus put in small cap stocks. The Rs. 700 crore fund carries an expense ratio of 0.5% lower than the category average

Since its launch the fund has offered a return of over 17% and its benchmark is NIFTY Smallcap 250 TRI. Some of the top holdings of the mutual fund are The India Cements, Indiabulls Real Estate, EID Parry, Fortis, Shree Renuka Sugars, HFCL etc.

SIP in the fund can be started for Rs. 1000. And here as we talk of the returns, in 5-years time the fund’s SIP has yielded a return of 39.96%, fetching Rs. 15.67 lakh on an investment of Rs. 6 lakh ( started as monthly SIP of Rs. 10000 for 5 years). This fund is accorded a 4-Star rating by Morning Star.

3. Tata Digital India Fund - Direct Plan

3. Tata Digital India Fund – Direct Plan

This is again a thematic fund focused on technology. The IT fund from the Tata mutual fund commands a fund size of Rs. 1796.6 crore. The expense ratio of the fund is also lower than the category average at 0.67%. Tata Digital India fund was launched in the year 2015 and since then has offered a return of over 25%.

SIP in the fund can be started for just Rs. 150 and some of the top holdings of the fund include Infosys, TCS, Tech Mahindra, Persistent Systems and HCL among others.

Conclusion

Conclusion

Now as is noteworthy here that technology and small cap funds are the main categories that have generated the best five year returns in last 5-years. Though, IT sector will still see boom going ahead because of the heightened adoption of technology and will be generating multi-bagger returns. Investors who are not highly aggressive should rather avoid small cap funds and instead can go by multi-cap funds. Also, another thing when determining whether you should or not consider these top performing mutual funds can be the consistency in their returns.

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Disclaimer:

Disclaimer:

Mutual fund investments are market related and subject to risk. Returns on mutual funds for the last 5-years are provided just for knowledge sake and should not be construed as investment advice.

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Bank of India net declines 15% YoY in Q1FY22 to ₹720 cr

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Bank of India (BoI) reported a 15 per cent year-on-year (YoY) decline in standalone net profit at ₹720 crore in the first quarter ended June 30, 2021, due to a decline in net interest income and a rise in provisions towards bad & doubtful and standard assets.

The public sector bank had reported a standalone net profit of ₹844 crore in the year-ago quarter. However, the net profit in the reporting quarter soared about three times vis-a-vis the fourth quarter’s ₹250 crore.

Net interest income (difference between interest earned and interest expended) declined about 10 per cent YoY to ₹3,144 crore (₹3,481 crore in the year-ago quarter).

Total non-interest income (comprising income from commission, exchange & brokerage, profit from the sale of investments, profit from exchange transactions, recovery in written-off accounts, and other non-interest income) rose 39 per cent YoY to ₹2,377 crore (₹1,707 crore).

Within total non-interest income, profit from exchange transactions jumped 126 per cent YoY to ₹754 crore (₹333 crore) and recovery in written-off accounts soared 477 per cent YoY to ₹173 crore (₹30 crore).

Fresh slippages at ₹3,942 crore during the reporting quarter were lower vis-a-vis ₹7,368 crore in the fourth quarter (Q4) FY21 but substantially higher than year ago quarter’s ₹402 crore.

Provisions towards bad, doubtful, and standard assets together were up 16 per cent YoY at ₹1,771 crore (₹1,526 crore).

Gross non-performing assets (GNPAs) level improved to 13.51 per cent of gross advances as of June-end 2021 against 13.91 per cent as of June-end 2020.

Net NPA level too improved to 3.35 per cent of net advances against 3.58 per cent.

Global deposits were up about 5 per cent YoY to ₹6,23,385 crore. Global advances declined a shade (about 0.18 per cent YoY) to ₹4,14,697 crore.

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