Category: Banking & Finance

Soma Sankara Prasad likely to be next UCO Bank MD, BFSI News, ET BFSI

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New Delhi, The government is considering appointing Soma Sankara Prasad, the deputy managing director of State Bank of India, as managing director of Kolkata-based UCO Bank. The Banks Board Bureau (BBB) has suggested the name of UCO Bank Managing Director Atul Kumar Goel for heading Punjab National Bank as MD. The managing director position of PNB will fall vacant after the superannuation of S S Mallikarjuna Rao in January.

According to sources, since Prasad was in the reserve list when the interview for appointment for managing director of Indian Bank took place earlier this year, he has been recommended to head UCO Bank subject to various clearances including vigilance.

The final view in this regard would be taken by the Appointments Committee of the Cabinet (ACC) headed by the Prime Minister, sources said.

The BBB, the headhunter for state-owned banks and financial institutions, in May had conducted interviews for the position of MD of Indian Bank. Post interview, Shanti Lal Jain was recommended for the post while Prasad was the candidate on the reserve list.

Last month, the Reserve Bank removed UCO Bank from its Prompt Corrective Action (PCA) Framework following improvement in various parameters and a written commitment that the state-owned lender will comply with the minimum capital norms.

The lender also apprised the RBI of the structural and systemic improvements that it has put in place, which would help the bank in continuing to meet the financial commitments. The public sector bank plunged under PCA in May 2017.

PCA is triggered when banks breach certain regulatory requirements such as return on asset, minimum capital and quantum of the non-performing asset.

The restrictions disable banks in several ways to lend freely and force them to operate under a restrictive environment that turns out to be a hurdle to growth.

UCO Bank had posted over a four-fold jump in its net profit to Rs 101.81 crore for the first quarter of the fiscal ended June 30, as bad loans fell significantly.

The lender trimmed its gross non-performing assets (NPAs or bad loans) significantly to 9.37 per cent of the gross advances as of June 30, 2021, as against 14.38 per cent at June-end 2020.

The net NPAs were down at 3.85 per cent (Rs 4,387.25 crore) from 4.95 per cent (Rs 5,138.18 crore). PTI DP ANZ MR



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China’s hidden debt, a major problem for borrowers, BFSI News, ET BFSI

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Different countries owe at least USD 385 billion amount of debt to China which has slipped through scrutiny of international lenders such as the World Bank and the International Monetary Fund (IMF).

The “hidden debt” is due to an increasing number of deals struck not directly between governments through central banks but through often opaque arrangements with a range of financing institutions, hence “the debt burdens were kept off the public balance sheets,” Radio Free Asia reported citing a four-year study by AidData.

“Chinese debt burdens are substantially larger than research institutions, credit rating agencies, or intergovernmental organizations with surveillance responsibilities previously understood,” the study said.

The study also added that nearly 70 per cent of China’s overseas lending “is now directed to state-owned companies, state-owned banks, special purpose vehicles, joint ventures, and private sector institutions in recipient countries” rather than sovereign borrowers which are central government institutions, Radio Free Asia reported.

Meanwhile, China is also using confidentiality clauses barring borrowers from revealing terms and conditions of the engagement or even the existence of the debt itself.

International Forum for Right and Security (IFFRAS), reported that recent joint research by the Peterson Institute for International Economics, Kiel Institute for the World Economy and the Centre for Global Development & Aid Data concluded that it uses these contracts to debt-trap the borrowing nations.



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China’s hidden debt, a major problem for borrowers, BFSI News, ET BFSI

Banking & Finance

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Different countries owe at least USD 385 billion amount of debt to China which has slipped through scrutiny of international lenders such as the World Bank and the International Monetary Fund (IMF).

The “hidden debt” is due to an increasing number of deals struck not directly between governments through central banks but through often opaque arrangements with a range of financing institutions, hence “the debt burdens were kept off the public balance sheets,” Radio Free Asia reported citing a four-year study by AidData.

“Chinese debt burdens are substantially larger than research institutions, credit rating agencies, or intergovernmental organizations with surveillance responsibilities previously understood,” the study said.

The study also added that nearly 70 per cent of China’s overseas lending “is now directed to state-owned companies, state-owned banks, special purpose vehicles, joint ventures, and private sector institutions in recipient countries” rather than sovereign borrowers which are central government institutions, Radio Free Asia reported.

Meanwhile, China is also using confidentiality clauses barring borrowers from revealing terms and conditions of the engagement or even the existence of the debt itself.

International Forum for Right and Security (IFFRAS), reported that recent joint research by the Peterson Institute for International Economics, Kiel Institute for the World Economy and the Centre for Global Development & Aid Data concluded that it uses these contracts to debt-trap the borrowing nations.



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UPDATE 3-Wells Fargo must face shareholder fraud claims over its recovery from scandals, BFSI News, ET BFSI

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(Adds comment from lawyer for ex-CEO Sloan, changes dateline from Sept. 30)

NEW YORK, – A federal judge on Thursday rejected Wells Fargo & Co’s bid to dismiss a lawsuit claiming it defrauded shareholders about its ability to rebound from five years of scandals over its treatment of customers.

The fourth-largest U.S. bank has operated since 2018 under consent orders from the Federal Reserve and two other U.S. financial regulators to improve governance and oversight, with the Fed also capping Wells Fargo’s assets.

Shareholders said bank officials falsely claimed in TV interviews, analyst calls and congressional testimony that the bank was mending its ways, when regulators actually viewed its progress as “deficient” and “unacceptable.”

U.S. District Judge Gregory Woods in Manhattan said the shareholders plausibly alleged that some statements by various bank officials, including former Chief Executive Tim Sloan, were “deliberately or recklessly false or misleading.”

According to shareholders, San Francisco-based Wells Fargo lost more than $54 billion of market value as the truth was gradually revealed over a two-year period ending in March 2020.

Woods also dismissed claims against current Chief Executive Charles Scharf, saying he was not culpable for the challenged claims.

The scandals prompted Warren Buffett‘s Berkshire Hathaway Inc to shed nearly all of its 10% stake in the bank.

“We will continue to vigorously defend the litigation and strongly disagree with the claims,” Wells Fargo said in an email.

Sloan’s lawyer Josh Cohen said in an email on Friday that his client’s statements were truthful, and that Sloan “worked tirelessly to bring Wells Fargo into compliance with consent orders and regulatory demands.”

The decision is a setback for Wells Fargo’s rebound from revelations including that it opened about 3.5 million accounts without customer permission, and charged hundreds of thousands of borrowers for auto insurance they did not need.

Wells Fargo has paid more than $5 billion in fines, and the Fed’s $1.95 trillion asset cap restricts the bank’s growth.

Sloan stepped down abruptly as chief executive after 2-1/2 years in March 2019. One year later, Wells Fargo canceled a $15 million bonus for him.

In his 61-page decision, Woods did not decide whether bank officials intended to defraud shareholders.

But he said it would have been “nearly impossible” for Sloan to be unaware of the regulators’ criticisms.

“Based on the facts on the ground, Mr. Sloan knew or, more importantly, should have known that he was misrepresenting material facts related to the corporation,” Woods wrote.

The shareholders are led by the state of Rhode Island, and pension funds in Louisiana, Mississippi and Sweden.

Their lawyer Steven Toll said he was pleased they can sue over the “vast majority of the alleged fraudulent statements.”

The case is In re Wells Fargo & Co Securities Litigation, U.S. District Court, Southern District of New York, No. 20-04494. (Reporting by Jonathan Stempel in New York; editing by Jonathan Oatis, Aurora Ellis and Cynthia Osterman)



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Term insurance premium set to rise as reinsurers tighten norms due to pandemic

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The term insurance premium is set to rise by anywhere between 15 per cent to 40 per cent after reinsurers tightened underwriting norms in the wake of the Covid-19 pandemic.

While Munich Re has tightened underwriting norms, GIC Re had hiked rates earlier this year.

“GIC, which is our reinsurance company, had hiked rates in March and it came into effect from April. While till now we have not passed on the increased rates to customers but now we feel the need to increase rates on term plans taking into consideration our profitability. We will be increasing our rates on the term side this calendar year in the range of 15 to 20 per cent, depending on age, sum assured and quality of life of the individual,” said Rushabh Gandhi, Deputy CEO, IndiaFirst Life Insurance.

Vighnesh Shahane, MD and CEO, Ageas Federal Life Insurance, pointed out that over the last 18 months of the pandemic, and especially during the second wave, reinsurers have been badly hit by the surge in claims, and there has been a lot of pressure on them to hike rates.

“We estimate that term plan prices are likely to rise by around 20 per cent to 40 per cent across the board. However, the exact rise will vary from company to company, and from reinsurer to reinsurer. It will also depend on the amount of business that the life insurance company does with the reinsurer,” he said.

Wait and watch mode

Meanwhile, some life insurers are still on a wait and watch mode in the expectation that reinsurers’ rates would come down later once the pandemic passes in six months to a year.

While the pandemic has increased awareness and demand for life insurance products, particularly term life products, insurers have also paid out high claims, especially after the second wave of the pandemic. Claims for the sector in the second wave were up by two to three times of the first wave of the pandemic.

“The life insurance sector witnessed significant claims in the first quarter of the fiscal due to the second wave of the pandemic and profitability suffered as companies made provisions or reserves to alleviate the impact of the claims,” Care Ratings had said recently, adding that the life insurance premiums are expected to witness significant movement over 2021-22.

However, key risks such as a delay in the economic recovery and resurgence of Covid cases with a third wave could negatively impact premium growth, and rise in term plan premium rates.

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CBDCs are designed to be very stable: IMF

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“About 80–100 Central Banks around the world, including in G20 nations, are exploring central bank digital currencies (CBDC) and are in some sort of pilot or testing stages,” said Tobias Adrian, Financial Counsellor and Director – Monetary and Capital Markets Department, IMF at the Global FinTech Fest.

The three-day Fest, which concluded on September 30, was attended by over 26,000 delegates from 121 countries. Policymakers, technocrats, investors, founders, economists, bankers, participated in the Fest. The event was organised by National Payments Council of India (NPCI), Fintech Convergence Councill (FCC), and Payments Council of India (PCI) of Internet and Mobile Association of India (IAMAI).

Differ from bitcoin

“CBDCs are designed to be very stable, stable in value, with a low transaction cost and backed by the Central Bank for added consumer confidence, very different from bitcoins which fluctuate in value and are more like an investment asset,” Tobias Adrian said.

Also see: The time for central bank digital currencies has come

There could be a lot of innovations in Central Bank issued digital currencies, especially across payments and lending platforms.

“CBDCs could indeed be somewhat similar, not necessarily the same, to bitcoin assets, could be based on blockchain technology, could be available in wallets. It depends on whether the design is based on existing payment systems or using very powerful blockchain technologies,” he added.

Drawbacks

Meanwhile, he warned that cybersecurity could be a major challenge for CBDCs. “You need to make sure that the system is resilient against cyberattacks.” It’s not the technology alone, but the intersection of technology and human.

Also see: Central bank digital currency can boost innovation in cross-border payments: RBI Deputy Governor

Secondly, CBDCs might undermine existing banks so banks need to upgrade their technologies to compete.

Finally, the lack of universal cellphone access may limit CBDC penetration.

On expensive cross-border payments, Adrian envisioned that cross-border transfers would be a lot cheaper for a small amount of payments. There are some wallet exchanges available that allow one to convert US dollar into rupee stable coin, with an implicit fee that is cheaper. However, there are a lot of discussions going on between Central Banks of various countries to make cross-border payments cheaper.

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Crypto assets pose financial stability challenges: IMF report

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The rapid growth of the crypto ecosystem presents new opportunities, the IMF has said, but also cautioned that the digital currency assets pose financial stability challenges. Cryptocurrencies are digital or virtual currencies in which encryption techniques are used to regulate the generation of units and verify the transfer of funds, operating independently of a central bank.

“The rapid growth of the crypto ecosystem presents new opportunities. Technological innovation is ushering in a new era that makes payments and other financial services cheaper, faster, more accessible, and allows them to flow across borders swiftly,” it said in a chapter of its latest report Global Financial Stability Report.

Innovative financial services

Crypto asset technologies have potential as a tool for faster and cheaper cross-border payments. Bank deposits can be transformed to stable coins that allow instant access to a vast array of financial products from digital platforms and allow instant currency conversion, said the IMF in its chapter titled The Crypto Ecosystem and Financial Stability Challenges.

Decentralised finance could become a platform for more innovative, inclusive, and transparent financial services, it added.

Volatile currency

“Despite potential gains, the rapid growth and increasing adoption of crypto assets also pose financial stability challenges,” the IMF said.

In a recent interview with PTI, Tobias Adrian, the Financial Counsellor and Director of the Monetary and Capital Markets Department of IMF, said that Bitcoin could lead to instability because it is extremely volatile. It was trading above 65,000 earlier this year, and then it came down to below 30,000.

“It might go back up, it might go back down. So if you’re a merchant, and you’re quoting in Bitcoin, you’re exposed to this massive volatility. It is much more volatile than equities or commodities or even exchange rates. It’s a very, very volatile asset, and that is introducing instability,” he said.

“It’s fine as an investment asset. But as a monetary aggregate, it just doesn’t have the right properties,” he added.

Also see: Indian cryptocurrency market likely to reach up to $241 million by 2030: Nasscom

“And let me just add two more problems with that. One is that transaction costs can be fairly expensive and compared to digital money, as it’s the case in India for example, where you have a real-time gross settlement payment system, it’s actually slow because it’s a distributed ledger, and to know that the transaction has gone through, it has to be verified on all of these different computers. So, it’s not that instantaneous, and it can be expensive to transact and it’s extremely volatile. It doesn’t have the properties that you want money to have,” Adrian said.

Destabilise capital flows

The IMF in its report said that challenges posed by the crypto ecosystem include operational and financial integrity risks from crypto asset providers, investor protection risks for crypto-assets and DeFi, and inadequate reserves and disclosure for some stable coins.

“In emerging markets, the advent of crypto assets has benefits but can accelerate cryptoisation and circumvent exchange and capital control restrictions. Increased trading of crypto-assets in these economies could destabilise capital flows,” it said.

Need for regulation

“Policymakers should implement global standards for crypto-assets and enhance their ability to monitor the crypto ecosystem by addressing data gaps. As the role of stable coins grows, regulations should correspond to the risks they pose and the economic functions they perform. Emerging markets faced with cryptoisation risks should strengthen macroeconomic policies and consider the benefits of issuing central bank digital currencies,” the report said.

Also see: China declares all cryptocurrency transactions illegal

In a joint blog post, three IMF officials Dimitris Drakopoulos, Fabio Natalucci, and Evan Papageorgiou wrote that as crypto assets take hold, regulators need to step up.

“Crypto-assets offer a new world of opportunities: Quick and easy payments. Innovative financial services. Inclusive access to previously “unbanked” parts of the world. All are made possible by the crypto ecosystem,” they wrote. “But along with the opportunities come challenges and risks,” it added.

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RBI may signal policy normalisation on Oct. 8, StanChart says, BFSI News, ET BFSI

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The Reserve Bank of India is likely to signal the start of an unwinding of its accommodative monetary policy, introduced to cushion the economic impact of the pandemic, at a meeting next week, economists at Standard Chartered Bank wrote in a research note on Friday.

The consensus view is that the RBI will leave interest rates unchanged at its Oct. 8 MPC meeting and only start to unwind its accommodative monetary policy by reducing the gap between the repo and reverse repo rates early next year.

Some economists, including those at StanChart, however have brought forward their policy normalisation expectations amid concerns of rising domestic inflation from high oil and global commodity prices and a sharp increase in the pace of vaccination.

“We now expect India‘s Monetary Policy Committee (MPC) to hike the reverse repo rate by 40 basis points to 3.75% at the December 2021 and February 2022 policy meetings; we had earlier expected the hikes in February and April 2022,” the Standard Chartered economists said.

They expect the MPC to raise the key repo rate only in August 2022 but said the risk of an earlier hike has increased. They also acknowledged the risk of a nominal increase in the reverse repo rate on Oct. 8, on account of the higher cut-offs at recent variable rate reverse repo auctions.

“Unlike VRRR cut-offs/sizes and tenor, a reverse repo rate hike is a firmer signal of policy normalisation, in our view,” the economists said.

“We think a firmer signal is warranted when the risk of another surge in infections is largely ruled out. Additionally, with India entering the festival season, supportive monetary policy is likely to help sentiment and demand,” they added.

Nomura also expects a 40 bps reserve repo rate hike in December and a total of 75 bps repo and reverse repo rate hikes throughout 2022.

“We still believe that RBI’s normalisation strategy will hinge upon the growth outlook, and not inflation,” Rahul Bajoria, economist at Barclays said in a research note.

“Macro indicators show that India’s activity levels have begun to normalise, and with the economy recovering faster than anticipated, the RBI has more options to calibrate an exit, both through communication and actions, in our view,” he added. (Reporting by Swati Bhat. Editing by Jane Merriman)



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HSBC, Yes Bank join rate cut war; foreign lender to offer mortgage from 6.45%, BFSI News, ET BFSI

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Mumbai, HSBC on Friday reduced rates on its home loan products, offering mortgages at 6.45 per cent – one of the lowest in the industry – for balance transfers. For fresh loans, the British lender’s local branches will offer lending at 6.70 per cent, which is at par with sector leaders like SBI and HDFC.

Yes Bank also cut its rate to the same level in a review and is aiming for doubling the book size during the limited period offer.

Last month, private sector lender Kotak Mahindra Bank cut its interest rates to offer home loans from 6.50 per cent onwards, forcing others to also review their rates. Credit growth is at low levels amid a flush of liquidity which is leading to the rate cuts.

HSBC India said its rate has been reduced by 0.10 per cent to 6.45 per cent for balance transfers, wherein existing borrowers being served by rivals are enticed to switch the remaining loan amounts to a newer lender by aggressive offerings.

Home loans are generally considered safer bets because of the underlying security, and waning of COVID infections has also prompted healthy pick-up in home buys.

In a statement, the bank said it has also waived the processing fee for these loans and added that the rate offering will be applicable only till December 31.

“We believe this reduction in the home loans rates will help reduce the interest burden of customers and make homeownership more affordable,” its head of wealth and personal banking, Raghujit Narula said.

The bank currently offers home loans of up to Rs 30 crore to all customer at 6.70 per cent.

Meanwhile, private sector lender Yes Bank also announce a cut in its offering to 6.70 per cent, as per a statement, which also said salaried women will get credit at 6.65 per cent.

“Given our focus on further building the retail book, home loan is segment we are looking at expanding and envisage growing the book size by 2X over the next three months,” its chief executive and managing director Prashant Kumar said. PTI AA ANU ANU



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J&K Bank gets shareholders’ nod to raise up to Rs 2,000 cr via equity, debt, BFSI News, ET BFSI

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Jammu and Kashmir Bank on Friday said it has received shareholders‘ nod to raise up to Rs 2,000 crore through equity and debt to fund its business. The shareholders at the annual general meeting on Friday approved the plan to raise equity and debt capital of up to Rs 1,000 crore each.

They approved raising of equity capital of up to Rs 1,000 crore in one or more tranches by way of rights issue/preferential allotment/private placement or qualified institutional placement (QIP) or any other approved mode, the bank said in a regulatory filing.

Also, shareholders approved raising up to Rs 1,000 crore by issuing Basel III compliant tier-II bonds in the nature of non-convertible debentures on a private placement basis.

Shareholders also cleared the appointment of Nitishwar Kumar and Mohmad Ishaq Wani as directors. PTI DP ABM ABM

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