Reserve Bank of India – Press Releases
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Month: September 2021
What are NARCL and IDRCL? How do they work and what is the plan?, BFSI News, ET BFSI
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Finance Minister Nirmala Sitharaman on Thursday announced the formation of a government-backed bad bank, National Asset Reconstruction Company Ltd (NARCL). The Union Cabinet has approved up to Rs 30,600 crore of securities receipts.
What is NARCL?
The NARCL has been incorporated under the Companies Act and has applied to the Reserve Bank of India for license as an Asset Reconstruction Company (ARC). NARCL is basically a bad bank created by the government in the mould of an asset reconstruction company.
The NARCL will pick up bad loans above a certain threshold from banks and would aim to sell them to prospective buyers of distressed debt. The NARCL will also be responsible for valuing bad loans to determine at what price they would be sold. The bad bank would provide government receipts to banks as it takes on non-performing assets from their books.
State-owned banks will hold 51% stake, while FIs or debt management companies will hold 49%.
What is IDRCL?
Along with NARCL, the government will also set up the India Debt Resolution Company Ltd (IDRCL). The IDRCL is a service company or an operational entity, which will manage assets and loop in market professionals and turnaround experts. Public Sector Banks (PSBs) and Public FIs will hold a maximum of 49% stake and the rest will be with private sector lenders.
Background
Last year, The Indian Banks’ Association had proposed to create a bad bank for swift resolution of non-performing assets (NPAs). Following this, the finance minister in the 2021-22 Union Budget proposed the setting up of an ARC, along with an Asset Management Company (AMC), to take over the stressed debt of banks.
During the Union Budget 2021-22, Sitharaman said the bad bank will manage and dispose the assets to alternate investment funds and other potential investors for eventual value realisation.
In August, IBA moved an application to the RBI seeking licence to set up the over Rs 6,000-crore bad bank. The NARCL was incorporated last month in Mumbai, following the registration with the Registrar of Companies.
The Plan
The government will not have any direct equity contribution to NARCL. It will guarantee securities receipts issued by NARCL, which will buy the bad loans from banks.
These receipts will be valid for five years, and condition precedent for invocation of guarantee will be resolution or liquidation.
NARCL is intended to resolve stressed loan assets above Rs 500 crore each, amounting to about Rs 2 lakh crore. In phase I, fully provisioned assets of about Rs 90,000 crore are expected to be transferred to NARCL, while the remaining assets with lower provisions would be transferred in phase II.
As per industry practice, it will pay up to 15% of the agreed value for the loans in cash and the remaining 85% would be securities receipts.
The NARCL will acquire assets by making an offer to the lead bank. Once NARCL’s offer is accepted, IDRCL will be looped in for management and value addition.
How is NARCL different from existing ARCs?
The proposed bad bank will have a public sector character and majority ownership is likely to rest with state-owned banks.
At present, ARCs typically seek a steep discount on loans. With the NARCL, the valuation issue is unlikely to come up since this is a government initiative.
The government-backed ARC will have deep pockets to buy out big accounts, and thereby free up banks from carrying these accounts on their books.
Watch: Bad bank can be only a warehouse of bad assets, says Siby Antony
What benefit do banks get from this new structure?
It will incentivize quicker action on resolving stressed assets, and help in better value realisation. This approach will also permit freeing up banks personnel to focus on increasing business and credit growth.
As holders of these stressed assets and securities receipts, banks will receive the gains. Further, it aims to bring improvement in banks’ valuations and enhance their ability to raise market capital.
Watch: Bad bank to preserve value, timely sale of stressed assets: IBA CEO
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RBI remains net purchaser of US dollar in July; buys USD 7.205 bn, BFSI News, ET BFSI
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The Reserve Bank of India (RBI) continued to remain net buyer of the US dollar in July 2021, after it net purchased USD 7.205 billion from the spot market, according to the latest data from the RBI. In the reporting month, the central bank purchased USD 16.16 billion while sold USD 8.955 billion in the spot market, the monthly RBI bulletin for September 2021, released on Thursday, showed.
In June 2021, the RBI net purchased USD 18.633 billion. It had bought USD 21.923 billion and sold USD 3.29 billion during the month.
In July last year, the central bank had net bought USD 15.973 billion.
During 2020-21, the RBI had net purchased USD 68.315 billion from the spot market. It had bought USD 162.479 billion from the spot market and sold USD 94.164 billion during the fiscal 2020-21, the data showed.
In the forward dollar market, the outstanding net purchase at the end of July 2021 was USD 49.01 billion, compared with a net purchase of USD 49.573 billion in June 2021, the data showed. PTI HV HRS hrs
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Mastercard ban boosts Visa’s biz, BFSI News, ET BFSI
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Mumbai: Visa is consolidating its leadership in the Indian credit card market with most issuers who had partnered with Mastercard earlier signing up with it to continue issuing credit cards.
Shares of RBL Bank, the latest to sign up with Visa, rose over 2% on Tuesday after the private lender announced that it has signed up with Visa to issue credit cards. RBL has a 5% share of the Indian credit card market, which is disproportionate to its size due to its partnerships for co-branded cards, particularly the one with Bajaj Finserv.
“We would like to thank Visa as well as Finserv, our technology partner, for enabling this journey. With this launch, we are confident of meeting our annual plan of issuing 1.2-1.4 million credit cards in FY22,” said RBL Bank head (retail, inclusion & rural business) Harjeet Toor.
Like RBL Bank, Yes Bank and Federal Bank have said that they will start issuing Visa credit cards. Both private lenders have said that they would also be issuing RuPay credit cards.
What will help Visa gain more market share is the lifting of the ban on HDFC Bank from issuing credit cards. The embargo on HDFC Bank on issuing cards was lifted soon after Mastercard received a ban from RBI for not adhering to norms that require customer data to be stored only in India. HDFC Bank is the largest issuer of credit cards in the country and the lifting of the ban is expected to spur pent-up demand from its customer base.
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Poonawalla Fincorp’s Managing Director, Abhay Bhutada, resigns after SEBI action, BFSI News, ET BFSI
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Poonwalla Fincorp managing director Abhay Bhutada has resigned from the non banking finance company (NBFC) a day after Securities and Exchange Board of India (SEBI) barred him from dealing in securities, for allegedly using price sensitive information in trading in the shares of Magma Fincorp before it was acquired by the Poonawalla Group.
Bhutada will step down with immediate effect after the company’s board accepted his Bhutada’s resignation, the company said in a statement to the exchanges. Group CEO Vijay Deshwal is likely to continue to run the operations of the company. In its order on Wednesday, SEBI said
Sebi said its surveillance alert system had detected suspicious trading pattern in the shares of Magma Fincorp around the announcement of Magma Fincorp’s acquisition by Rising Sun Holding Private Limited (RSHPL), a company controlled by Poonawalla Group, on February 10,2021.
On analysis of the alerts for the announcement, a group of connected entities were observed to have taken long position in the shares. Subsequently, these entities had squared off the long positions thereby generating substantial profits. The regulator said Bhutada was the contact person for the deal from the very beginning of the discussion and has been involved in the matter throughout the UPSI (unpublished price sensitive information) period.
Sebi’s probe, based on call data records and bank statement analysis revealed that Abhay Bhutada had passed on the inside information to his connected entities — Abhijit Pawar, Saumil Shah and Rakesh Bhojgadhiya, who in turn passed on this information to Amit Agrawal.
Seven people besides Bhutada have been barred from trading and their bank accounts have been impounded to the extent of Rs 13.58 crores. Earlier in the day in a notice to the stock exchanges Poonwalla Fincorp had said Bhutada had denied the allegations.
“With respect to above subject i would like to clarify as follows. 1. I am denying all allegations mentioned against me in the order. 2. I have not shared any unpublished price sensitive information (UPSI) directly or indirectly to the entities mentioned in the order except the official discussion with entity no 2 who was working as an advisor for the Acquisition transaction. 3. I have not received any kind of financial benefit directly or indirectly from the entities mentioned in the order. 4. My transactions with the entities mentioned in the order are genuine business transaction and legitimate in nature including few of the past transaction,” Bhutada said in a letter addressed to board of directors.
He also said that he will tak appropriate legal recourse.
Poonawalla shares fell 5% on Thursday to Rs 172 a piece as investors sold the company’s shares after the SEBI order on Wednesday night. Bhutada had set an ambitious target to increase the company’s loan assets by three times in the next four years.
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Kotak Mahindra Group acquires vehicle finance portfolio of Volkswagen Finance, BFSI News, ET BFSI
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Kotak Mahindra Bank on Thursday announced the acquisition of German carmaker Volkswagen‘s captive vehicle finance business for an undisclosed sum. The deal involves the private sector lender’s in-house NBFC Kotak Mahindra Prime acquiring the passenger car and two-wheeler portfolio, while Kotak Mahindra Bank Limited (KMBL) will acquire the commercial vehicles portfolio from Volkswagen Finance (VF), as per an official statement.
Kotak will gain access to over 30,000 high-quality customers with a total loan outstanding with VWFPL of around Rs 1,340 crore, the statement said, adding all these loans have been classified as “standard loans”.
Apart from this, the deal also involves the acquisition of VF’s non-performing assets, it said, without spelling out the size of the book.
“The strategic intent behind this acquisition is to further strengthen Kotak’s vehicle financing loan portfolio and expand our market share,” D Kannan, the bank’s group president for commercial banking, said.
He said VF, which had been in India since 2009, has built a strong portfolio, and added that the long term prospects of the Indian vehicle market are very attractive.
Kannan assured a seamless transition for VF customers to Kotak Group, and added that they will also get access to a wider suite of products and services.
“The sale of our retail portfolio aligns to our new strategic focus towards a refined digital strategy through our subsidiary, the digital platform KUWY,” VF’s managing director and chief executive Aashish Deshpande said.
This is a step towards the evolution of the customer journey in the digital space by offering a simplified and agile solution to both our customers and dealerships, while aligning effectively to support the VW India 2.0 strategy, he added.
The Kotak Mahindra Bank scrip closed 1.87 per cent higher at Rs 1,905.75 a piece on the BSE on Thursday, as against gains of 0.71 per cent on the benchmark.
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RBI nod to special committee to oversee operations at Ujjivan SFB, BFSI News, ET BFSI
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The Reserve Bank has given its go-ahead to Ujjivan Small Finance Bank (SFB) to form a special committee of directors to oversee operations in the absence of an MD and CEO. The Reserve Bank of India (RBI) in a letter dated September 15, 2021, has approved the constitution of ‘Special Committee of Directors’ with three independent directors as its members, Ujjivan SFB said in a regulatory filing on Thursday.
The committee will “oversee the operations and administration of the bank in the absence of the Managing Director and CEO with effect from September 16, 2021,” it said.
Last month, the Bengaluru-based company had appointed old hand Carol Furtado to take charge as officer on special duty (OSD) till September 30, 2021, following the resignation of Nitin Chugh as MD and CEO.
She will take charge as the interim CEO from October.
“The board of Ujjivan SFB, in parallel, will evaluate suitable candidates for the MD & CEO position, and submit two names to RBI for approval,” the lender had said.
Furtado has been associated with Ujjivan SFB since inception and has spearheaded the organisation on numerous occasions, playing critical roles.
She is the head of operations of the bank.
Ujjivan SFB, which began operations from February 2017, recently saw some top-level exits amid high level of bad assets and management issues, among others.
The lender’s overall recognised stressed pool stands at 15.6 per cent of the loan book. This includes gross non-performing assets of 9.8 per cent and restructured loans of 5.8 per cent.
Also, the portfolio-at-risk has swelled to 30 per cent as of June 2021.
The bank’s early-stage strategy to mobilise deposits from microfinance customers, higher dependence on the vulnerable microfinance business, among others, have led to the current troubles, according to experts.
Ujjivan SFB stock closed at Rs 20.60 apiece on BSE, up 1.23 per cent from the previous close.
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RBI study, BFSI News, ET BFSI
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The uptick in the credit growth in the recent months notwithstanding the second COVID-19 wave augurs well for the economy, said an article published in the RBI’s latest bulletin. Bank credit growth has witnessed significant fluctuations in the past one and a half decades.
The period between 2007-08 and 2013-14 could be characterised as a bank credit boom period in the Indian economy, as non-food credit registered double-digit growth, primarily driven by robust credit growth to the industrial sector, the article said.
“Both dominant-group and other-group of banks lent aggressively to the industrial as well as other sectors,” it said adding that within industries, infrastructure, and basic metal and metal product industries accounted for a major portion of credit offtake from both the bank groups during the credit boom period.
Thereafter, however, the credit cycle reversed along with a shift in the sectoral deployment of bank credit.
The article said that during 2014-15 to 2020-21, overall credit growth decelerated, primarily driven down by a reversal in credit growth to the industrial sector.
The overall non-food credit growth during 2014-15 to 2020-21 was almost entirely driven by the expansion of credit to the non-industrial sectors, particularly lending to the retail segment in the form of personal loans.
Active participation of both the dominant-group and the other-group of banks is driving credit growth to the non-industrial sectors, the article said.
The sharp slowdown in industrial credit warrants attention and steps to step up credit offtake commensurate with appropriate risk-taking, a number of which have already been taken by the government and the RBI, could de-freeze the credit market for the industrial sector. It can help in reviving the growth momentum derailed by the COVID-19 pandemic, it said.
“After witnessing a significant slowdown in credit offtake during 2019-20 and 2020-21, there has been some uptick in credit growth in the recent months notwithstanding the second COVID-19 wave, which augurs well for the economy,” the article said.
Another article published in the bulletin titled ‘Private Corporate Investment: Growth in 2020-21 and Outlook for 2021-22′ said the investment intentions of the Indian private corporates remained sluggish as reflected by lower numbers of new announcements and completions of projects.
The article highlighted that the pandemic uncertainties adversely impacted appetite for new projects during 2020-21 and posed impediments to the timely completion of pipeline projects.
In 2021-22, demand for new projects would shape the private investment outlook, along with the progress of the projects already in the pipeline, it added.
The central bank, however, said the views in the articles are of the authors and do not represent the views of the Reserve Bank of India.
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RBI study, BFSI News, ET BFSI
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The uptick in the credit growth in the recent months notwithstanding the second COVID-19 wave augurs well for the economy, said an article published in the RBI’s latest bulletin. Bank credit growth has witnessed significant fluctuations in the past one and a half decades.
The period between 2007-08 and 2013-14 could be characterised as a bank credit boom period in the Indian economy, as non-food credit registered double-digit growth, primarily driven by robust credit growth to the industrial sector, the article said.
“Both dominant-group and other-group of banks lent aggressively to the industrial as well as other sectors,” it said adding that within industries, infrastructure, and basic metal and metal product industries accounted for a major portion of credit offtake from both the bank groups during the credit boom period.
Thereafter, however, the credit cycle reversed along with a shift in the sectoral deployment of bank credit.
The article said that during 2014-15 to 2020-21, overall credit growth decelerated, primarily driven down by a reversal in credit growth to the industrial sector.
The overall non-food credit growth during 2014-15 to 2020-21 was almost entirely driven by the expansion of credit to the non-industrial sectors, particularly lending to the retail segment in the form of personal loans.
Active participation of both the dominant-group and the other-group of banks is driving credit growth to the non-industrial sectors, the article said.
The sharp slowdown in industrial credit warrants attention and steps to step up credit offtake commensurate with appropriate risk-taking, a number of which have already been taken by the government and the RBI, could de-freeze the credit market for the industrial sector. It can help in reviving the growth momentum derailed by the COVID-19 pandemic, it said.
“After witnessing a significant slowdown in credit offtake during 2019-20 and 2020-21, there has been some uptick in credit growth in the recent months notwithstanding the second COVID-19 wave, which augurs well for the economy,” the article said.
Another article published in the bulletin titled ‘Private Corporate Investment: Growth in 2020-21 and Outlook for 2021-22′ said the investment intentions of the Indian private corporates remained sluggish as reflected by lower numbers of new announcements and completions of projects.
The article highlighted that the pandemic uncertainties adversely impacted appetite for new projects during 2020-21 and posed impediments to the timely completion of pipeline projects.
In 2021-22, demand for new projects would shape the private investment outlook, along with the progress of the projects already in the pipeline, it added.
The central bank, however, said the views in the articles are of the authors and do not represent the views of the Reserve Bank of India.
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IPO-bound Pine Labs raises $100 million from US investment fund, BFSI News, ET BFSI
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Mumbai: Pine Labs, which plans to go public in the US next year, said on Thursday that it has raised $100 million from US-based Invesco Developing Markets Fund. The new funding comes just months after it raised $600 million in two tranches from a host of global and domestic investors, which valued the firm at $3.5 billion. Pine Labs’s valuation in its latest round could not be immediately determined.
ET reported earlier on Thursday that the firm had appointed Wall Street bankers Goldman Sachs and Morgan Stanley to steer its US listing and was in talks with investors to raise $100 million. Sources said the firm is eyeing a valuation of $6 billion for its IPO. The Noida-based firm is backed by Sequoia Capital, Temasek Holdings, Actis, PayPal and Mastercard, amongst others.
“Over the last 18 months we have scaled our prepaid issuing stack, online payments, and also the buy now pay later (BNPL) offering. We continue to make progress in the larger Asian markets with our BNPL platform. [We’re] very excited to have a marquee investor like Invesco join us in the journey,” B. Amrish Rau, chief executive officer of Pine Labs, said in a statement.
Pine Labs predominantly specialises in developing software and deployment solutions for point of sale (PoS) devices for storefronts. It has been diversifying its offerings on its newly developed software platform with enterprise solutions such as BNPL integration, invoice management, payment gateway and issuing prepaid cards. The third-highest-valued fintech firm in India behind Paytm and PhonePe, the startup posted a net revenue of Rs 800 crore in FY21, according to company estimates shared with ET in July.
Digital payments continue to see steady growth in India, fuelled by the Covid-19 pandemic. Consumer-focused fintech startups such as Paytm and Mobikwik have also filed their draft prospectuses to go public on domestic exchanges later this year.
Risk investors, both global and domestic, have flocked to the sector in India amid regulatory constraints in investing in China. Late last month, Prosus acquired digital payments processor BillDesk in a $4.7-billion all-cash deal.
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