Category: Banking & Finance

Telangana HC directs IRDA to promote overlooked senior official

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Can the chairman of the Insurance Regulatory Development Authority of India (IRDA), which oversees the country’s multibillion-dollar insurance sector, change the qualification terms of appointment of senior officials? On September 1, the Telangana High Court (HC) passed an order against the decision of former IRDA chairman TS Vijayan to relax the minimum qualification for the appointment of a senior official. Vijayan relaxed the requirement from chartered accountant (CA) to chartered financial analyst (CFA) in 2014. A CA degree is more rigorous compared to CFA.

IRDA under Vijayan promoted Mamta Suri as the Chief General Manager (CGM) instead of Jayasimhan Sathyamangalam, who then approached the court. Calling the appointment as one without jurisdiction, arbitrary and contrary to law, the HC directed the promotion of the ignored candidate retrospectively. Sathyamangalam is currently a general manager.

Revitalising insurance

The court ruled that the power of relaxing the required qualification — namely, fellow chartered accountant (FCA) — is not vested with the Chairman since no resolution to that effect has been passed. “Hence the action of the Chairman in relaxing FCA as CFA / ICWAI providing appointment to the unofficial respondent is one without jurisdiction and is arbitrary action and it is also contrary to law,” said Justice T Amarnath Goud in his order.

Insuring the insurers

Apart from terming Suri’s promotion as illegal with effect from 2014, the court asked IRDA to inter-alia delete ICWAI and CFA as eligible qualifications. The order stated that CFA means chartered financial analyst and FCA means fellow chartered accountant. CFA is an investment and financial management course offered by the Institute of Chartered Financial Analysts of India (ICFAI), whereas an FCA is a qualification attained by an associate chartered accountant after five years of practice as an accountant after qualifying as an associated chartered accountant (ACA).

The method of recruitment for the post of Senior Joint Director (CGM) is by promotion from among Joint Directors (GM) after four years, subject to merit, suitability and seniority. The appointment of Suri is illegal as her qualification is CFA, and also for the reason that, as on the date of the notification (October 23, 2013) the un-amended Executive Rules 2009 were in force, which stipulate only FCA as the eligible qualification, the court pointed out, thus allowing the writ petitions and setting aside the impugned orders.

As Jayasimhan is the only person qualified for the vacancy, the respondents can consider him for the vacancy with all consequential benefits, the court added.

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HDFC announces special offer for festival season

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Mortgage financier HDFC on Tuesday unveiled its special limited period offer for the upcoming festival season. Under this special offer, customers can avail HDFC Home Loans starting at 6.7 per cent per annum effective September 20.

Last week, SBI as part of festival bonanza offered a concessional home loan rate of 6.70 per cent under its festive offer. This was followed by other lenders like Punjab National Bank and Bank of Baroda.

“Housing is much more affordable today than it ever was. In the last couple of years, property prices have more or less remained the same in major pockets across the country while income levels have gone up. Record low interest rates, subsidies under PMAY and the tax benefits have also helped,” said Renu Sud Karnad, Managing Director, HDFC Ltd. Record low interest rates, subsidies under PMAY and the tax benefits have also helped, she said.

Low interest rates

Under the festive scheme, HDFC said, “Customers can avail HDFC Home Loan starting at 6.70 per cent per annum effective September 20, 2021. This offer will be applicable to all new loan applications irrespective of the loan amount or employment category,” HDFC said in a statement.

The special festive offer at 6.70 per cent is for all loan slabs and for all customers with credit score of 800 and above.

Before this special offer, the rate for salaried customers for loan above ₹75 lakh and credit score of 800 and above was 7.15 per cent and for self employed was 7.30 per cent. Hence, effective cut for these customers could be up to 45 bps for salaried and up to 60 bps for self employed.

This is a close ended scheme and will be valid till October 31, 2021.

Also see: HDFC Bank, Paytm set to launch co-branded credit cards

Other lenders including State Bank of India and Kotak Mahindra Bank have also recently announced cut in home loan rates for the festive season.

SBI is offering credit score linked home loans at 6.7 per cent, irrespective of the loan amount. Similarly, Kotak Mahindra Bank has reduced home loan rates to 6.5 per cent for a limited period.

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Banks face significant margin pressure despite surfeit of liquidity

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Banks are facing significant margin pressures despite surfeit of liquidity in the banking system, according to the State Bank of India’s economic research report Ecowrap.

A back of envelope estimate by SBI’s economic research department suggests that the core funding cost of the banking system that includes cost of deposits, negative carry on Statutory Liquidity Ration (SLR) and Cash Reserve Ratio (CRR) and Return on Assets is currently at 6 per cent, while the reverse repo rate is at 3.35 per cent.

Additionally, if the cost of provisions is added to the core funding cost, the total cost comes to around 12 per cent, the report said.

Also see: FinMin to soon issue circular on intermediary services under GST

“Clearly, banks are facing significant margin pressures. This apart, market sources point out that risk premia over and above core funding cost are not fairly acknowledging the inherent credit risk,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

The report said the conundrum of weak credit demand and excess liquidity is evident from the average reverse repo at ₹7 lakh crore since April and Government of India cash balances with RBI at ₹3.4 lakh crore.

Is credit risk adequately reflected in pricing?

The report cited the example of 15 years loans, which are being priced at even lower than 6 per cent, linking with repo / treasury bill rates. It emphasised that 10-year Government Security (G-Sec) is currently trading at 6.2 per cent and by the current pricing trends this could even gravitate towards 6 per cent again.

“This anomaly not only negates the concept of tenor premium but may create a material risk with regard to sustainability of such rates in long term, on which borrowers and banks are basing their financial calculations.

“The only good thing is that such pricing war is mostly restricted to AAA borrowers,” Ghosh said.

According to the report, three year term loans are being quoted at close to 4 per cent repo rate and seven year term loans for borrowers below AAA are also quoting a risk premium of 15-20 basis points over the 10 year rates. Working Capital Loans (WCL) are currently being quoted at a notch above reverse repo rate at 3.35 per cent.

Referring to RBI proposing the concept of normally permitted lending limit (NPLL) for specified borrowers, which is meant to nudge them to move towards corporate bonds market, Ghosh felt that this may lose its importance.

Also see: Hiring activity in August up 14% y-o-y: Report

In the current situation, corporate bond rate and bank lending rate are showing huge differential, he said.

CP market: significant churn

Ghosh observed that the commercial paper (CP) market is also witnessing significant churn with banks now almost absent.

“Non-Banking participants like mutual funds who do not have access to RBI Reverse Repo window are creating pricing pressure in CP market as they are sometimes quoting below RBI reverse repo rate.

“In fact, the CP market reflects the huge pricing gap between better and lower rated borrowers,” he said.

Asset Liability mismatch risk

The report underscored that the industry is replacing its long-term debts by very low-priced CP/working capital demand loan (ECDL) and this will obviously act as an enabler once the investment cycle revives. However there is the risk of an asset liability mismatch if the liquidity is withdrawn quickly.

Ghosh said, “As of now, the inflation numbers may not warrant such a decision from RBI, but if core inflation persists in the current range of 6 per cent or above, that might act as a hindrance to continued liquidity abundance.”

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Retail depositors earning negative returns; relook taxation on interest: SBI economists

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In a note, which pegged the overall retail deposits in the system at Rs 102 lakh crore, the economists led by Soumya Kanti Ghosh said: "If not for all the depositors, the taxation review should be carried out for at least the deposits made by senior citizens who depend on the interest for their daily needs."

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Credit card war hots up ahead of festive season; cos announce a slew of tie-ups, BFSI News, ET BFSI

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Consumers are set to get a flurry of new credit card offers as banks are stepping up on customer acquisitions. Banks are gearing up to grab a bigger share of the market which is set to grow as the economy opens up.

New card additions were the highest for ICICI at 655,000 during this fiscal while added 198,000 cards being the highest in the past 16 months.

HDFC Bank

HDFC Bank, on which RBI recently lifted a ban of issuing new credit cards, has announced a tie-up with leading payments company Paytm to start selling co-branded plastics before the onset of the festive season. The credit cards will be powered by Visa and will include offerings targeted at millennials, business owners and merchants, an official statement said.

Paytm has a reach of over 330 million consumers and 21 million merchants, while HDFC Bank has over 5 million debit, credit and prepaid cards, and serves 2 million merchants through its offerings.

HDFC Bank, the largest private-sector bank which also leads the credit card segment, was banned from issuing new credit cards for over eight months as a penalty for frequent outages. After the lifting of the ban, it outlined aggressive plans to regain lost market share in up to a year.

The bank had said that it will focus on distribution partnerships to achieve its target, under which it envisages ramping up new credit card sales to 5 lakh a month by end of the fiscal from 3 lakh in November 2021.

HDFC Bank and Paytm had last month announced a tie-up on the payments side. Paytm already has a tie-up with foreign lender Citi under which co-branded credit cards are issued. Citi is looking to exit retail banking activities in the country.

The launch of the HDFC Bank-Paytm co-branded cards is slated for next month, ahead of the festive season which typically sees a spurt in spends, the statement said, adding a full suite of products will be available by December.

Yes Bank ties up with Visa

Yes Bank has tied up with Visa to issue credit cards to its customers on the payment platform, which includes a suite of nine credit card variants. The Yes Bank card issuances were hit after RBI had banned Mastercard from issuing cards.

“The transition has been achieved within a record time of less than 60 days, ensuring ease for customers across segments,” the bank said.

Yes Bank and RBL Bank were hit the most by the Mastercard ban as their entire card network was on it. RBL Bank had announced a tie-up with Visa the day after the curbs on Mastercard were announced and resumed issuing cards from September 15. Yes Bank’s Visa credit cards, announced today, will service all segments–consumer cards, business cards, and corporate cards across YES First, YES Premia and YES Prosperity.

AU Small Finance Bank

AU Small Finance Bank (SFB) has issued over 40,000 credit cards since its launch a few months back, and more than half of them are first time users. The Jaipur based lender said it is the first SFB to enter semi-urban and rural areas with its own credit cards. It also offers a special Altura plus credit card to empower women to experience a limitless living.

In future, the bank is also working on bringing out its limited-edition cards, featuring the bank’s brand ambassadors Aamir Khan and Kiara Advani.

“The forthcoming festive season will lend further support to the picked-up momentum in the spends and new customers sourcing. However, a possible Covid 3.0 remains a key risk. We continue to believe that Citi Bank’s exit from the credit cards business along with the domestic corporate loan recovery cycle yet to pick up, provides good growth opportunities for the credit cards business, supported by improving macro-conditions,’ Axis Securities said in a note.



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Bank lending hit as corporates head to bond St, fintech firms poach retail borrowers, BFSI News, ET BFSI

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Overall bank lending could drop during this fiscal as corporate loan demand slumps and other sources of borrowings emerge.

Bank credit flow during April to August has shrunk over the same period a year ago, according to data from the Reserve Bank of India. This is despite the private-sector lenders such as HDFC Bank and ICICI Bank reporting double-digit growth in lending in the first quarter.

The overall fund flow into the economy grew by 10% in FY21 despite the pandemic. However, the incremental bank lending shrank 1.6% in FY21, while non-bank sources grew 30%.

Corporates reluctant

Banks are hoping for a lending spurt with the revival of capital expenditure, but it remains doubtful due to uncertainty over Covid.

Also, corporates are looking at cheaper avenues for funds. They raised Rs 1.8 lakh crore from the bond market this fiscal so far. Foreign direct investment and ECB have been also been strong, which has been bad news for banks. The buoyant equities market has seen corporates raising over Rs 1 lakh crore from the avenue during this fiscal till August.

In July

The total outstanding loans to large industries by the banking sector has shrunk for the 11th straight month in July 2021 as companies continue to deleverage and shift to cheaper options such as bonds. Most of the bank credit is driven by the retail and agri segments as sanctioned limits of corporates remain unutilised to the extent of 25%. The credit to large industries shrank 2.9% in July.

The credit growth in the last two months is being led by is led by MSMEs, agriculture and retail as corporate lending stays tepid.

PSU banks hit

The deleveraging has led to a drop in corporate loan demand for banks, especially PSU ones.

The domestic corporate loans by the State Bank of India fell 2.23 per cent to Rs 7,90,494 crore in the quarter ended June 30, 2021, compared to Rs 8,09,322 crore in the same quarter last year. In the first quarter of FY21, SBI reported 3.41 per cent growth in corporate advances.

Union Bank of India‘s share of industry exposure in domestic advances dropped to 38.12 per cent at Rs 2,40,237 crore from 39.4 per cent at Rs 2,47,986 crore in the same quarter a year ago. Corporate loans dropped 3% at Indian Bank during the last quarter. At PNB, corporate loans fell 0.57 per cent at Rs 3,264,66 crore in June quarter 2021 compared to Rs 3,28,350 crore a year ago.

Retail front

Banks, which have been relying on the retail sector, are facing competition. Non-banking financial companies that were reeling after the collapse of IL&FS have bounced back and emerged out of the pandemic relatively less hurt. Banks are facing competition from fintech firms, which have made borrowing a seamlessly easy experience.

with the advent of account aggregators, transaction details of borrowers can be open to lender, which may lead to poaching of customers.



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PayNearby cash collection crosses ₹350 crore in monthly GTV

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PayNearby on Tuesday said its enterprise offering that facilitates ‘cash collection’ as a service has crossed ₹350 crores worth transactions in monthly Gross Transaction Value (GTV).

The company offers cash collection as a service to over 50 clients across sectors such as NBFC, microfinance (MFI), OTTs, food delivery aggregators, cab aggregators, FMCG, and logistics among other digital services. However, a large section of their current portfolio is dominated by NBFCs and MFIs.

Also see: Auto debit transactions: Bounce rates in August near pre-second wave levels

“Our retail partners have served as cash disbursal points and are now outlets for secure cash disposal. While our collection process is seamless, it also gives companies deep in-roots to areas that were not serviced earlier,” said Anand Kumar Bajaj, Founder, MD and CEO, PayNearby.

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HDFC launches festive offer; home loan at 6.7 pc, BFSI News, ET BFSI

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Country’s biggest mortgage lender HDFC on Tuesday announced a festive offer in line with peers like SBI with home loans starting from 6.70 per cent. Last week, SBI as part of festival bonanza offered a concessional home loan rate of 6.70 per cent under its festive offer. This was followed by other lenders like Punjab National Bank and Bank of Baroda.

“Housing is much more affordable today than it ever was. In the last couple of years, property prices have more or less remained the same in major pockets across the country while income levels have gone up,” said Renu Sud Karnad, managing director, HDFC Ltd.

Record low interest rates, subsidies under PMAY and the tax benefits have also helped, she said.

“Customers can avail HDFC Home Loan starting at 6.70 per cent per annum effective September 20, 2021. This offer will be applicable to all new loan applications irrespective of the loan amount or employment category,” HDFC said in a statement.

The special festive offer at 6.70 per cent is for all loan slabs and for all customers with credit score of 800 and above.

Before this special offer, the rate for salaried customers for loan above Rs 75 lakh and credit score of 800 and above was 7.15 per cent and for self employed was 7.30 per cent.

Hence, effective cut for these customers could be up to 45 bps for salaried and up to 60 bps for self employed.

The special rate is linked to borrower’s credit score, it said, adding that this is a close ended scheme and will be valid till October 31.



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PFRDA’s board okays sponsor licence for Tata Asset, Max Life

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Pension regulator PFRDA’s board has given the nod to award licences to Tata Asset Management Company and Max Life Insurance to become sponsors of a pension fund to manage the National Pension System (NPS).

The letter of awarding licences, however, is yet to be formally sent to both of them, said sources close to the development.

Once the licence-award process is completed, there will be 10 Pension Fund Managers in the country to manage the NPS. It maybe recalled that Tata Asset Management Company was among the 10 applicants who had responded to PFRDA’s Request for Proposal (RFP) for the selection of sponsors of pension funds.

Post the RFP, eight fund managers, including Axis Asset Management (new one), were awarded licences this year. The other seven were the pension arms of SBI, UTI, LIC, ICICI, HDFC, Aditya Birla SunLife and Kotak. All these seven were fund managers of NPS in the erstwhile regime.

Besides throwing open the door to more pension fund managers, the RFP had introduced at least five-fold jump in their fees, making it lucrative to undertake this activity.

The revamp of the pension funds management structure is part of PFRDA’s efforts to position the industry for strong decadal growth that could take the overall assets under management (AUM) of NPS to ₹30-lakh crore by 2030.

Pension AUM

As of last week, India’s pension AUM had crossed the ₹6.5-lakh crore mark. With India’s pension assets growing at a frenetic pace of over 30 per cent, the PFRDA expects the overall AUM at this growth rate to touch ₹30-lakh crore by 2030. By March-end 2022, PFRDA expects pension AUM to touch ₹7.5-lakh crore.

Meanwhile, PFRDA is expected to firm up by this month-end the consultant who will help design a Minimum Assured Return Scheme (MARS) under the National Pension System, said sources.

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RBI to conduct G-SAP auctions on Sept 23

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The Reserve Bank of India (RBI) on Monday announced that it would conduct open market purchase of Government Securities (G-Secs) under its “G-Sec Acquisition Programme (G-SAP) 2.0” along with a simultaneous sale of G-Secs on September 23.

So far, under G-SAP, the RBI has only conducted standalone G-Sec purchases. But this time round, it is simultaneously conducting sale of G-Secs in view of ample liquidity in the banking system.

RBI will purchase three G-Secs of seven to 14 years tenor, aggregating ₹15,000 crore, under G-SAP 2.0 on September 23.

Simultaneously, the central bank will sell three short-term G-Sec, all maturing in 2022, aggregating ₹15,000 crore.

In the second quarter so far, the RBI has bought G-Secs aggregating ₹90,000 crore in four G-SAP auctions. After the September 23 G-SAP auction, it may conduct one more auction for ₹15,000 crore.

Marzban Irani, CIO-Fixed Income, LIC MF, said the simultaneous conduct of G-Sec purchase under G-SAP and sale of G-Sec will be liquidity neutral. However, it may push up short-term yields.

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