Reserve Bank of India – Press Releases
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Month: October 2021
Banks flag concerns over US rules on consumer data, seek govt guidance, BFSI News, ET BFSI
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India’s banks have approached the government with their concerns over the mandatory sharing of customer details with US authorities under that country’s expanded National Defense Authorization Act (NDAA), which took effect on January 1.
A government official confirmed that the Indian Banks’ Association (IBA) has sought government intervention and guidance on the issue. Banks have pointed out that the provision will raise costs and any compliance shortfall can have serious implications.
The NDAA incorporates parts of the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2019, significantly enhancing the reach of authorities over foreign banks if they have a correspondent account with an American financial institution.
It allows the Department of Justice and the Department of Treasury to subpoena records of such a foreign bank. Importantly, this provision can be invoked without regard to whether the correspondent account was used for potential violation of US law or not.
Application will be Selective, Feel Bankers
The correspondent bank accounts of US financial institutions first came under watch through the US Patriot Act of 2001 to prevent money laundering and terror financing. “The banks have raised some concerns which are being looked at. The issues will also be discussed with the Reserve Bank of India and accordingly any decision will be taken,” said the official cited above.
Although Indian banks are compliant with the Foreign Account Tax Compliance Act (Fatca), Indian regulators should guide banks on the provisions of the NDAA that apply to them, experts said.
- Banks raise concerns about customer confidentiality, data privacy and national security
- Reach out to the govt through IBA
- Banks already compliant with Fatca regulation
- Govt to engage with regulator RBI on issue
- Regulations allow US govt to subpoena foreign-located bank data if foreign bank has a US correspondent account
“This amendment will result in additional overheads on foreign banks that have correspondent accounts in the US for responding to any subpoenas with the risk of noncompliance being both financial penalty as well termination of correspondent relationships that essentially may cause loss of business share,” said Jaikrishnan G, partner, financial services consulting, Grant Thornton Bharat.According to Jaikrishnan, Indian banks that have correspondent accounts with banks in the US will need to consolidate and limit such accounts within the US to balance business volumes with compliance costs and legal exposure. “Banks will need to strengthen transaction scrutiny on such correspondent accounts to safeguard themselves against potential involvement in such investigations,” he said.
Bankers are of the view that the application of this amended provision will be selective and only relevant in cases where there is court intervention. “But clarity is needed and that is why we have approached the government,” said a bank executive aware of the developments.
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Moody’s revises Indian banks’ outlook to stable from negative, BFSI News, ET BFSI
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Moody’s Investors Service has revised the outlook for the Indian banking system to stable from negative. The credit rating agency expects the operating environment to be stable as the economy gradually recovers from pandemic. “We expect India’s economy to continue to recover in the next 12-18 months, with GDP growing 9.3% in the fiscal year ending March 2022 and 7.9% in the following year. The pickup in economic activity will drive credit growth, which we expect to be 10%-13% annually,” said Moody’s in a report.
Moody’s said that weak corporate financials and funding constraints at finance companies have been key negative factors for banks but now these risks have receded.
Moody’s expects asset quality to remain stable. In a report Moody’s said, “The deterioration of asset quality since the onset of the pandemic has been more moderate than we expected despite relatively limited regulatory support for borrowers. The quality of retail loans has deteriorated, but to a limited degree because large-scale job losses have not occurred. We expect asset quality will further improve, leading to decline in credit costs, as economic activity normalizes”.
In the report titled ” Banking system outlook – India : stabilizing asset quality and improved capital drive outlook change to stable” Moody’s said, “Capital ratios have risen across rated banks in the past year because most have issued new shares. Public sector banks’ ability to raise equity capital from the market is particularly credit positive because it reduces their dependence on the government for capital. However, further increases in capital will be limited because banks will use most of retained earnings to support an acceleration of loan growth”.
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Mudra NPAs rise as Covid hits MSMEs
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In the past too, Reserve Bank of India (RBI) officials underlined the rising levels of stress in Mudra loans
The ratio of gross non-performing assets (NPAs), or bad loans, in the loans outstanding under the Pradhan Mantri Mudra Yojana (PMMY) stood at 11.98% as on March 31, 2021, the Micro Units Development & Refinance Agency (Mudra) has said in response to a Right to Information (RTI) query.
In absolute terms, the value of gross NPAs in Mudra loans as on March 31, 2021, was Rs 34,090.34 crore, while the value of loans outstanding under the scheme stood at Rs 2.84 lakh crore on the same date. While comparable data on Mudra loan NPAs for the last two years are not publicly available, at the end of FY18, the bad loan ratio under the scheme was a much lower 5.38%, as per Mudra’s annual report for that year.
The pandemic has hit small businesses harder than their larger counterparts and that may be putting pressure on loans taken by them, including Mudra loans. On Tuesday, analysts at Crisil Ratings said that the micro, small and medium enterprises (MSME) segment, despite benefiting from the emergency credit line guarantee scheme, is likely to see asset quality deteriorate and will require restructuring to manage cash-flow challenges. “In fact, restructuring is expected to be the highest for this segment, at 4-5% of the loan book, leading to a jump in stressed assets to 17-18% by this fiscal end from ~14% last fiscal,” the agency said in a report.
Similarly, bankers have expressed concern about asset quality in the MSME segment. In an interview with FE in August, Bank of Baroda MD & CEO Sanjiv Chadha had said that the MSME segment has been more challenged than others because for the last one year, they have been impacted by lockdowns and demand disruption. However, he was hopeful of a pullback. “My own sense is that both for MSME and retail, the kind of slippages we saw in the last quarter (Q1FY22) was peak distress, and that should start diminishing over the next few quarters,” he added.
In the past too, Reserve Bank of India (RBI) officials underlined the rising levels of stress in Mudra loans. In November 2019, RBI deputy governor MK Jain had said that while a push as massive as the Mudra scheme would have lifted many beneficiaries out of poverty, there was some concern at the growing level of NPAs among these borrowers. “Banks need to focus on repayment capacity at the appraisal stage and monitor the loans through their life cycle much more closely,” he had said.
PMMY was launched on April 8, 2015, with the aim of aiding micro entrepreneurs to access credit from the formal financial system. The three categories of loans under the scheme are Shishu (less than Rs 50,000), Kishore (between Rs 50,000 and Rs 5 lakh) and Tarun (over Rs 5 lakh and up to Rs10 lakh). The agency Mudra offers refinance to commercial banks, non-banking financial companies and microfinance institutions against loans to micro enterprises.
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Meet festive demand, lend liberally, PSBs told
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The finance ministry believes that various sectors of the economy – including exports and the sunrise ones – need credit support and banks need to satiate this appetite
The finance ministry has advised state-run banks to start a nationwide loan outreach programme soon and take advantage of a potential rise in credit demand in the build-up to Diwali and thereafter, as the economy is on a path of “sustained recovery”, sources told FE.
The banks have been asked to set targets of loans to be sanctioned during the district-wise outreach programme and join hands with fintech firms and non-banking financial companies to step up disbursement to even small borrowers.
The move follows finance minister Nirmala Sitharaman’s instruction in August to state-run lenders to initiate the outreach programme, as the government sought to stir economic growth through sustained credit push, amid fears that bankers were increasingly turning risk-averse. Lenders had disbursed loans of as much as Rs 4.94 lakh crore through a similar outreach programme in various districts between October 2019 and March 2021, the minister had said.
Having remained muted for months together, non-food loan flow witnessed an uptick of late. Growth in non-food bank credit improved to 6.7% in August from 5.5% a year earlier. Loans to industry grew 2.3% from 0.4% but still remained low. That’s despite the fact that daily surplus liquidity in the banking system averaged as much as Rs 6 lakh crore in July and August, according to CARE Ratings.
The finance ministry has also asked ministries of agriculture, labour, housing, health and rural development to help bolster the number of beneficiaries for insurance as well as pension outreach as well.
The finance ministry believes that various sectors of the economy – including exports and the sunrise ones – need credit support and banks need to satiate this appetite. State-run banks have been asked to hold talks with exporters and various associations to support their loan requirements. This is also expected to provide a leg-up to the one-district-one-product export theme mooted by the Prime Minister.
The weekly average (net) liquidity surplus in the banking system, prevalent since June 2019, has jumped from Rs 4.5 lakh crore as of end-June 2021 to over Rs 7.5 lakh crore by October 5, according to CARE Ratings. “The increase in surplus can primarily be put down to the sustained lower credit disbursement from banks due to weak demand for credit as well as wariness of banks to lend,” it said in a report last week.
Similarly, public-sector banks (PSBs) were directed by the minister to firm up specific plans for each of the north-eastern states to boost credit flow there. Some of the eastern states, such as Odisha, Bihar, Jharkhand and even West Bengal, account for a sizeable chunk of PSBs’ CASA deposits but credit expansion for businesses development there remains muted. This needs to be addressed, the minister said.
State-run banks have turned the corner, with profits of Rs 31,820 crore in FY21, the highest in five years. The net bad loans of state-run banks dropped to 3.1% in FY21 from as much as 7.97% three years earlier, and their capital adequacy (CRAR) was about 14%, against the requirement of 10.875%. The improved financials have improved their ability to lend adequately, the finance ministry believes.
Already, to boost credit flow to Covid-hit businesses and professionals, the government last year introduced the Emergency Credit Line Guarantee Scheme (ECLGS). As of September 24, loans sanctioned under various avatars of the scheme (ECLGS 1.0, 2.0 and 3.0) stood at Rs 2.86 lakh crore.
Similarly, its Rs 7,500-crore credit guarantee scheme, announced on June 28, to facilitate concessional loans to an estimated 25 lakh small borrowers through micro-finance institutions was fully utilised within 75 days.
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Banking system set for positive times ahead
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Things seem to be looking up for banks, going by the assessment of credit rating agencies (CRAs) Moody’s Investors Service and Crisil Ratings.
Moody’s has revised the outlook for the Indian banking system to “stable” from “negative” on the back of stabilising asset quality and improved capital drive.
Crisil Ratings said the rise in bank NPAs will be muted (at 8-9 per cent in FY22 against 7.5 per cent in FY21) due to various Covid-19 pandemic-related dispensations such as the restructuring dispensation, and the Emergency Credit Line Guarantee Scheme (ECLGS).
This is well below the peak of 11.2 per cent seen at the end of fiscal 2018.
In its banking system outlook for India, Moody’s observed that the deterioration of asset quality since the onset of the coronavirus pandemic has been moderate, and an improving operating environment will support asset quality.
Moody’s view
The global credit rating agency opined that declining credit costs as a result of improving asset quality will lead to improvements in profitability. It assessed that capital will remain above pre-pandemic levels.
Moody’s expects India’s economy to continue to recover in the next 12-18 months, with GDP growing 9.3 per cent in the fiscal year-ending March 2022 and 7.9 per cent in the following year.
The agency noted that the pick-up in economic activity will drive credit growth, which it expects to be 10-13 per cent annually.
Weak corporate financials and funding constraints at finance companies have been key negative factors for banks but these risks have receded.
According to Moody’s, the deterioration of asset quality since the onset of the pandemic has been more moderate than it expected despite relatively limited regulatory support for borrowers.
The agency said the quality of corporate loans has improved, indicating that banks have recognised and provisioned for all legacy problem loans in this segment.
“The quality of retail loans has deteriorated, but to a limited degree because large-scale job losses have not occurred. We expect asset quality will further improve, leading to decline in credit costs, as economic activity normalises,” Moody’s said.
Crisil outlook
Crisil Ratings said Covid-19 related relief measures will help limit the rise in NPAs.
While loans in the retail and MSME segments are expected to be the most impacted, corporate loans are seen to be far more resilient. The agriculture segment is expected to remain relatively stable.
With about 2 per cent of bank credit expected under restructuring by the end of this fiscal, Crisil assessed that stressed assets comprising gross NPAs and loan book under restructuring should touch 10-11 per cent (against March-end 2021 estimate of about 9 per cent).
Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings, said: “The retail and MSME segments, which together form about 40 per cent of bank credit, are expected to see higher accretion of NPAs and stressed assets this time around.
“Stressed assets in these segments are seen rising to 4-5 per cent (from 3 per cent last fiscal) and 17-18 per cent (14 per cent), respectively, by this fiscal end. The numbers would have trended even higher but for write-offs, primarily in the unsecured segment.”
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Google Payment India reports ₹14.8 crore revenue in FY 21
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Google Payment India Private Limited reported its revenues for the financial year 2020-21 as ₹14.8 crore. The company further reported a net profit of ₹1.4 crore during the same fiscal. This is a 210 per cent increase from the last financial year.
The company’s total expenses for the fiscal were reported as ₹12.8 crore. The company’s assets stood at ₹118.9 crore for FY21 compared to ₹85 crore same time last year whereas its liabilities stood at ₹109 crore for the fiscal compared to ₹75 crore same time last year. The documents were submitted to the Ministry of Corporate Affairs, were assessed by Tofler, and reviewed by BusinessLine.
The payments company’s net worth stood at ₹12 crore for FY21 compared to ₹10 crore at the same time last year. Its return on equity for the fiscal grew by 11.70 per cent for the fiscal.
Informing its stakeholders regarding the outbreak of Covid-19 and its impact, it said: “The outbreak of the novel coronavirus (Covid-19) is leading to global market disruption. The Company expects to recover the carrying amount of all its assets as of March 31, 2021 and no adjustments are required as of March 31, 2021 in relation to Covid-19, considering various internal and external information up to the date of approval of these financial statements.”
It further added that the future impact of the current economic situation is uncertain and difficult to predict. The company will continue to closely monitor any material changes to future economic conditions.
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Fintech records $4.6 b of investments in the first three quarters of 2021
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In the first three quarters of 2021, investments worth $4.6 billion were recorded in India’s fintech space, compared to $1.6 billion in 2020.
According to a PwC India report titled, ‘Start-up Perspectives – Q3CY21’, investments worth $2.4 billion for 53 closed deals were recorded in Q3CY21 alone across various stages of investment. Going forward, analysts expect exits in the fintech sector to increase, both in terms of IPOs and acquisitions.
“M&A activity is likely to grow considerably as corporates look to expand their capabilities and offerings and fintechs look to scale up. Cross-border activity is also likely to be robust as fintechs look to become global or regional leaders,” noted Amit Nawka, Mohit Chopra, Vinisha Lulla Sujay, Kushal Jain and Raghav Aggarwal, analysts with PwC India, in the firm’s latest report.
The analysts also predicted that there could be more ‘Big Tech’ partnerships in fintech space as a critical means of expanding service offerings and leveraging their vast incumbent customer base. Recently, Amazon has invested in wealth management start-up, Smallcase, and Google has entered into a partnership with Equitas Small Finance Bank for fixed deposit offerings.
Top investments
Top fintech investments ($100+ million rounds) of Q3CY21 include Pine Labs’ $600 million, BharatPe’s $370 million, OfBusiness’s $207 and $160 million, Digit Insurance’s $217 million, Khatabook’s $100 million, and consumer internet group Prosus’s payment arm PayU’s acquisition of the Indian payment gateway service provider BillDesk for $4.7 billion.
Sequoia Capital, Tiger Global, Softbank, Falcon Edge, IIFL VC and 3one4 Capital were some of the active investors in late-/growth-stage investments ($30+ million rounds), and Blume Ventures, Elevation Capital and Matrix Partners India were most prominent in early-stage (<$30 million rounds) fintech deal activity.
Overall, the Indian start-up ecosystem reported an investment totalling $10.9 billion across 347 deals in Q3 of CY21. This is the first-time investments in a quarter have crossed the $10 billion mark.
Further, 89 per cent of funding activity in CY21 (value terms) was driven by growth- and late-stage companies. However, these represented 39 per cent of the total deal activity (count terms). In the first three quarters of CY 21, 29 Indian start-ups attained unicorn status, majorly across the SaaS, fintech and edtech sectors.
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ICICI Prudential Life posts 47% rise in Q2 net profit
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ICICI Prudential Life Insurance reported a 46.6 per cent jump in its net profit for the second quarter of the fiscal, aided by robust growth in premium income.
For the quarter-ended September 30, 2021, the private sector life insurer posted a net profit of ₹444.57 crore as against a net profit of ₹303.22 crore in the same period last fiscal.
Net premium income increased by 8.33 per cent to ₹9,286.53 crore in the second quarter of the fiscal from ₹8,572.19 crore a year ago.
Net income from investments surged by 70.4 per cent on a year-on-year basis to ₹13,545.83 crore in the July-September 2021 quarter.
Claims and benefits
Claims and benefits paid in the second quarter of the fiscal amounted to ₹8,022 crore compared to ₹5,668 crore in the first quarter of the fiscal and ₹4,909 crore in the second quarter of 2020-21.
“Claims and benefit payouts increased by 82.4 per cent from ₹7,504 crore in the first half of 2020-21 to ₹13,690 crore in the first half this fiscal primarily on account of increase in surrender and withdrawals and death claims. The company had Covid-19 claims (net of reinsurance) of ₹862 crore,” ICICI Prudential Life Insurance said in a statement on Tuesday.
The insurer’s solvency ratio was 199.9 per cent as on September 30, 2021 versus 193.7 per cent as on June 30, 2021 and 205.5 per cent as on September 30, 2020.
Its 13th month persistency ratio was 81.3 per cent as on September 30, 2021 versus 80.5 per cent a year ago.
NS Kannan, Managing Director and CEO, ICICI Prudential Life Insurance said, “The improvement in the pandemic situation with each passing month, increased consumer awareness on the need for life insurance and our suite of customer-centric products have enabled us to grow new business by 62 per cent sequentially this quarter. Significantly, we posted our best ever September on monthly sales for any year since inception, aided by our well-diversified product and distribution channel mix.”
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Utkarsh Small Finance Bank forays into Tamil Nadu
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Utkarsh Small Finance Bank on Tuesday announced the inauguration of its first branch at Chennai in Tamil Nadu.
The branch is located at Ashok Nagar in the city.
“We are pleased to set our footprint in the state of Tamil Nadu with our first branch in the vibrant city of Chennai. The location augurs well and is of prime importance in the overall strategic plan of expansion and growth of the Bank. The city has been the hub of trade, manufacturing, and commerce and has numerous factors that contribute towards the growth of commerce and trade in the country,” Govind Singh, MD & CEO, Utkarsh Small Finance Bank said in a press release.
In the last week of September, the bank announced the inauguration of its first branch at Kochi in Kerala.
With the current launch, the bank has a network of 601 branches in 202 districts across 19 states and two union territories.
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