Category: Banking & Finance

Bank of England urges banks to wait out EU pressure over euro clearing, BFSI News, ET BFSI

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Banks should hold their nerve in the face of European Union pressure to shift euro derivatives clearing from London to the bloc, Bank of England Governor Andrew Bailey said on Tuesday.

Since Britain fully left the EU last December, the bloc has asked banks to move euro clearing from London, which accounts for the bulk of activity, to Frankfurt.

So far, banks and their customers have put on a united front against relocating clearing, saying it would bump up costs by splitting markets.

Bailey said banks were waiting rather than shifting euro positions as a June 2022 deadline looms when temporary permission for London clearers to serve EU customers ends.

“The right thing to do is to wait for the moment. The cost of moving and fragmenting are too large,” Bailey told a Bloomberg event.

“While waiting is sensible from the point of view of the banks, it puts the responsibility on the authorities to sort the thing out,” Bailey said.

However, negotiations with the EU at the present time have not been particularly intense, but the BoE was happy to give EU regulators the assurances they need, he said.

“If they want to take a decision to break the system up, then it’s important to consider the risks to financial stability that come with fragmentation.”

Clearers in the United States already have EU permission to serve customers in the bloc.

“We could see some clearing of euro instruments switch to New York from London if this does not get sorted out,” NatWest bank chairman Howard Davies told the same event.



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IDFC’s reverse merger with bank faces hurdles, BFSI News, ET BFSI

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Mumbai: IDFC Ltd, the parent of IDFC Bank, on Tuesday indicated to investors that it faced challenges in pursuing a reverse merger with IDFC First Bank.

According to analyst present in the meeting the management said that the parent company’s holds stake in IDFC Mutual Fund and two ventures one with the Delhi government and one with Karnataka Government would need to be exited and there are challenges in exiting these two firms. Shares of IDFC was down 3%, while shares of IDFC First Bank rose 2% following the analyst meet. Although neither had announced merger plans in the past, the same has often been speculated by analyts. There expectation of the holding company merging into the bank got a boost after the Reserve Bank of India in July clarified that IDFC can exit as the promoter of IDFC First Bank.

The central bank had also allowed small finances banks, which came under a holding company structure to reverse merge with their parent. Following this a couple of SFBs merged with the parent.

For IDFC shareholders the merger with the bank is beneficial considering that there have been reports that the company is selling its mutual fund arm. If post-sale the proceeds are distributed to shareholders it would be very tax inefficient as IDFC would be paying capital gains as well as dividend distribution tax. In the event of a merger the sale proceeds need not be distributed but can be infused into the bank as capital. As the bank’s equity is trading at higher multiples compared to the parent there is an upside for IDFC shareholders if there is a merger. However, IDFC First Bank already has enough capital and may not be able to deploy the fund immediately.

During the call IDFC’s non-executive chairman Vinod Rai said that there were challenges in unwinding the complex corporate structure of IDFC. He also said that the corporation had initiated the process of divesting stake in non-core subsidiaries.

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Yes Bank, 6 others settle case with Sebi; pay Rs 1.65 crore, BFSI News, ET BFSI

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NEW DELHI: Private sector lender Yes Bank and six persons on Tuesday settled with Sebi a case pertaining to alleged selective disclosure of asset quality, after paying Rs 1.65 crore towards settlement amount.

Apart from the bank, the six persons who settled the case are — Ashish Agrawal, Niranjan Banodkar, Sanjay Nambiar, Devamalya Dey, Rajat Monga and Shivanand Shettigar.

The order comes after the entities approached Sebi to settle the proceedings initiated against them “without admitting or denying the findings of fact and conclusions of law”, through a settlement order. In a settlement order on Tuesday, Sebi said,” the instant adjudication proceedings initiated against applicants vide SCN (show cause notice) dated October 26, 2020 are disposed of”.

The regulator conducted an investigation in the affairs of Yes Bank during February 2019 to ascertain the possible violation of provisions of Sebi Act and PFUTP (Prohibition of Fraudulent and Unfair Trade Practices).

Pursuant to the investigation, Sebi observed certain violations were allegedly committed by the bank and the six persons and issued show cause notice to them in this regard in October 2020.

In the show cause notice, it was alleged that Yes Bank made a selective disclosure on February 13, 2019, highlighting “nil” divergence which had significant positive impact on the price movement and had not disclosed other issues mentioned in the Risk Assessment Report (RAR) as observed by RBI such as lapses and regulatory breaches in various areas of its functioning.

It was alleged that announcement made by Yes Bank to exchanges were “incomplete as only selective disclosures highlighting nil divergence in bank’s asset classification and provision from RBI norms were disclosed as per the RAR of RBI.”

“However, other lapses and regulatory breaches in various areas as identified in the RAR were not disclosed,” the order noted.

The announcement resulted in misleading the investors as the price of the scrip increased by around 30 per cent and volume of trading the scrip also increased substantially the next trading day i.e. February 14, 2019.

It was alleged that the bank and six persons, who were involved in the decision making process to make the information public, have violated the provisions of PFUTP norms.

The six persons were either a member of the Reputational Risk Management Committee (RRMC) or part of the decision making process in relation to the disclosures made on February 13, 2019. Pending adjudication proceedings, the applicants proposed to settle the proceedings initiated against them and filed settlement applications.

Thereafter, Sebi’s committee recommended that the case may be settled upon payment of Rs 1.65 crore by applicants on jointly and several liability basis and accordingly they remitted the amount. Consequently, the Securities and Exchange Board of India (Sebi) settled the case.



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Yes Bank, 6 others settle case with Sebi; pay Rs 1.65 crore, BFSI News, ET BFSI

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NEW DELHI: Private sector lender Yes Bank and six persons on Tuesday settled with Sebi a case pertaining to alleged selective disclosure of asset quality, after paying Rs 1.65 crore towards settlement amount.

Apart from the bank, the six persons who settled the case are — Ashish Agrawal, Niranjan Banodkar, Sanjay Nambiar, Devamalya Dey, Rajat Monga and Shivanand Shettigar.

The order comes after the entities approached Sebi to settle the proceedings initiated against them “without admitting or denying the findings of fact and conclusions of law”, through a settlement order. In a settlement order on Tuesday, Sebi said,” the instant adjudication proceedings initiated against applicants vide SCN (show cause notice) dated October 26, 2020 are disposed of”.

The regulator conducted an investigation in the affairs of Yes Bank during February 2019 to ascertain the possible violation of provisions of Sebi Act and PFUTP (Prohibition of Fraudulent and Unfair Trade Practices).

Pursuant to the investigation, Sebi observed certain violations were allegedly committed by the bank and the six persons and issued show cause notice to them in this regard in October 2020.

In the show cause notice, it was alleged that Yes Bank made a selective disclosure on February 13, 2019, highlighting “nil” divergence which had significant positive impact on the price movement and had not disclosed other issues mentioned in the Risk Assessment Report (RAR) as observed by RBI such as lapses and regulatory breaches in various areas of its functioning.

It was alleged that announcement made by Yes Bank to exchanges were “incomplete as only selective disclosures highlighting nil divergence in bank’s asset classification and provision from RBI norms were disclosed as per the RAR of RBI.”

“However, other lapses and regulatory breaches in various areas as identified in the RAR were not disclosed,” the order noted.

The announcement resulted in misleading the investors as the price of the scrip increased by around 30 per cent and volume of trading the scrip also increased substantially the next trading day i.e. February 14, 2019.

It was alleged that the bank and six persons, who were involved in the decision making process to make the information public, have violated the provisions of PFUTP norms.

The six persons were either a member of the Reputational Risk Management Committee (RRMC) or part of the decision making process in relation to the disclosures made on February 13, 2019. Pending adjudication proceedings, the applicants proposed to settle the proceedings initiated against them and filed settlement applications.

Thereafter, Sebi’s committee recommended that the case may be settled upon payment of Rs 1.65 crore by applicants on jointly and several liability basis and accordingly they remitted the amount. Consequently, the Securities and Exchange Board of India (Sebi) settled the case.



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European banks book 20 billion euros, or 14% of their profits, in tax havens annually, BFSI News, ET BFSI

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Europe’s biggest banks are booking an average of 20 billion euros ($23.7 billion) in tax havens every year, which is about 14% of their profits, according to a report by report from the EU Tax Observatory.

The report looked into the activities of 36 systemic European banks, headquartered in 11 countries across Europe, that have been subject to mandatory country-by-country reporting on their actions since 2015.

The tax havens looked into include Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Gibraltar, Hong Kong, Ireland, Isle of Man, Jersey, Kuwait, Luxembourg, Macao, Malta, Mauritius, Panama and Qatar.

About 25% of the banks’ profits were booked in countries where the effective tax rate was lower than 15%.

“Bank profitability in tax havens is abnormally high: 238,000 euros per employee, as opposed to around 65,000 euros in non-haven countries,” the authors added. “This suggests that the profits booked in tax havens are primarily shifted out of other countries where service production occurs.”

The profits

HSBC booked a mean 58% of its pre-tax profits in tax havens between 2014 and 2020, according to the study, making it the lender funneling the largest percentage of profits into the EUTO’s list of tax havens.

Standard Chartered booked an average of around a third of its pre-tax profits in tax havens, according to the report, while Deutsche Bank, Nord LB and RBS all booked, on average, more than 20% of their pre-tax profits in tax havens between 2014 and 2020.

Bankia BFA, Erste, Nykredit Realkredit, Swedbank and Banco Sabadell booked none of their profits in tax havens during the seven-year sample period.

Curbs needed

Taxes have become a sensitive issue, with cash-strapped governments plugging holes in the economy due to COVID seeking to agree on a common rate for taxing Big Tech, in particular.

Country-by-country reporting to shed light on the inner workings of banks has failed to change behaviour despite the rise of tax issues on the public agenda, the report said.

“More ambitious initiatives — such as a global minimum tax with a 25% rate — may be necessary to curb the use of tax havens by the banking sector.”



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Union Bank of India inks first $1.50b sustainability-linked overseas loan

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Union Bank of India (UBI) on Tuesday said it has syndicated a “sustainability-linked loan” facility aggregating $1.50 billion for a Singapore-based global trading corporate.

The syndicated loan is of three years tenor and the coupon rate is LIBOR (London Inter-Bank Offered Rate) plus 155 basis points.

The public sector bank, in a statement, said the facility includes three Key Performance Indicators (KPIs) relating to a reduction in greenhouse gas emissions, responsible sourcing of metals and growing renewable power portfolio.

Key performance indicators

Under this structure, the interest rate paid by the borrower on the credit facilities will decrease or increase based on the group’s progress on the KPIs, it added.

The sustainability-linked KPIs will have to be tested annually and verified by a third-party expert.

UBI said sustainability-linked financing demonstrates its commitment towards environmental and responsible lending, reducing its carbon footprint, and diversifying its asset base towards renewable energy.

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IDFC losing investor confidence over delay in value unlocking

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Investors’ patience with IDFC’s drawn out restructuring exercise seems to be wearing thin, going by their feedback to its Board and management at a pre-annual general meeting conference call.

While one investor wanted IDFC to immediately divest its stake in its asset management company (AMC), failing which he said he will reach out to other investors’ to seek a change in management, another investor, referring to the performance of the stock, alleged value destruction for shareholders.

Vinod Rai, Non-Executive Chairman, IDFC, explained that it has taken the company the last three-four years to try and simplify the entire corporate structure and it has managed to remove all the other entities, except the Bank, AMC and the Foundation. “Now, what we are grappling with today is the IDFC Foundation. It has two joint ventures under it — one is with the Government of Delhi and another is with the Government of Karnataka.”

Also read: To remain on IDFC board, Vinod Rai gives up independent director’s post

In his statement to the shareholders in the latest annual report, Rai observed that in pursuit of creating maximum value for shareholders, over the last few years the Board has been focused on cleaning up the corporate structure of the IDFC Group while awaiting the expiry of the 5-year lock in period for the Group as promoter of IDFC FIRST Bank.

The Reserve Bank of India vide their letter dated July 20, 2021, has clarified that after expiry of the ‘lock in’ period of 5 years, IDFC can exit as promoter of IDFC FIRST Bank.

Rai, who was the Comptroller and Auditor General of India between 2008 and 2013, emphasised that IDFC has engaged a security advisor in October 2020 for disinvestment of non-core activities and for drawing up a strategy, roadmap ahead, etc. The single term of reference for the advisor was maximisation of shareholder value, he added.

In the report, IDFC Chairman noted that alienation of the investments by IDFC Foundation and detachment of Foundation are a prerequisite for the optimum restructuring of IDFC for creating maximum value for shareholders.

IDFC management has been making full efforts in this direction but progress on this front has been slow in view of challenging nature of specific conditions that exist in the joint venture agreements, he added.

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RBI, Singapore Monetary Authority link payment systems for fast funds transfer

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In a bid to make cross-border transactions easier and cheaper, the Reserve Bank of India and the Monetary Authority of Singapore (MAS) have announced a project to link their respective fast payment systems, UPI and PayNow, by July 2022.

The UPI-PayNow link will allow users to make instant, low-cost fund transfers on a reciprocal basis without the need to get onto any other payment system, the RBI said on Tuesday. Cross-border payments and remittance flows between India and Singapore exceed $1 billion each year currently.

PayNow is a fast payment system that enables peer-to-peer fund transfer by retail customers through participating banks and non-bank financial institutions (NFIs) in Singapore. UPI, on the other hand, has proved to be one of the most popular digital payment systems in India, clocking 355 crore transactions worth ₹6.39-lakh crore in August. It processes transactions valued at over ₹15,000 crore daily.

“The UPI-PayNow linkage builds upon the earlier efforts of NPCI International Private Limited (NIPL) and Network for Electronic Transfers (NETS) to foster cross-border interoperability of payments using cards and QR codes between India and Singapore and will further anchor trade, travel and remittance flows between the two countries,” the RBI said.

Fund transfers

According to a statement by MAS, when implemented, fund transfers can be made from India to Singapore using mobile phone numbers, and in the other direction by using the UPI virtual payment addresses (VPA).

“The experience of making a PayNow transfer to a UPI VPA will be similar to that of a domestic transfer to a PayNow VPA,” the RBI said.

Industry players say it will lead to convenience for users, both individuals and businesses, including in investments, trade and travel. “The reduced time and charges for cross-border payments will help grow the trade between India and Singapore,” said Asheesh Chanda, Founder and CEO of Kristal.AI.

Currently, inter-bank charges of up to ₹3,000 are levied over and above the LRS processing fees by banks. This discourages small investors from accessing global markets as it eats into their returns, he added. NIPL has been working to promote the use of UPI overseas. It has partnered with cross-border digital payments provider Liquid Group to enable UPI QR-based payments acceptance in 10 markets across North and South-East Asia.

NIPL has also tied up with the Royal Monetary Authority of Bhutan for enabling and implementing BHIM UPI QR-based payments and has partnered with Mashreq to get UPI accepted in the UAE.

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Weathering challenges of 2nd Covid wave, microfinance industry grows in Q1FY22

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The regional lockdowns across various parts of the country induced by the second wave of Covid notwithstanding, the microfinance industry witnessed a surge in disbursements in the April-June 2021 quarter.

Loan disbursals

Loan disbursals jumped to ₹25,503 crore during Q1FY-22 compared to ₹6,186 crore in the same period last year. The number of loans disbursed also increased to 71 lakh as against just around 21 lakh last year, MFIN (Microfinance Institutions Network) said in its latest issue of Micrometer report for April-June 2021.

As on June 30, 2021, the microfinance industry served 5.68 crore unique borrowers, through 10.30 crore loan accounts. The overall industry currently has a total gross loan portfolio (GLP) of ₹2,37,369 crore, an increase of over 4 per cent compared to ₹2,27,727 crores as on June 30, 2020.

Also read: Outlook for non-banks and housing financiers shifts to ‘improving’ from ‘stable’: Ind-Ra

According to Alok Misra, CEO and Director of MFIN, both loan portfolio and disbursements rose in Q1FY-22 on a Y-o-Y basis. The growth was however muted sequentially in comparison to Q4FY-21.

“This growth, despite difficult operating environment due to second wave of Covid-19, shows the ability of the industry to learn quickly and adapt to challenges. The Credit Guarantee Scheme for microfinance institutions with focus on small and medium-sized MFIs would ensure growth of MFIs in the short term as fresh loans need to be disbursed using the funds received under this scheme. In the medium to long-term, the asset-class based regulations proposed in the RBI’s consultative document, expected soon, would provide the much-needed impetus to industry to transform for a better future, leveraging on the past experience,” Misra said.

Share of loan portfolio

Banks (numbering around 13) hold the largest share of the portfolio in micro-credit with a total loan outstanding of ₹1,02,405 crore, accounting for a little over 43 per cent of the total micro-credit universe.

NBFC-MFIs are the second largest provider of micro-credit with a loan amount outstanding of ₹75,021 crore, accounting for 32 per cent. NBFC-MFIs witnessed close to 7 per cent increase in loan outstanding on a year-on-year basis against ₹71,301 crore as on June 30, 2020. The GLP includes owned portfolio of ₹65,206 crore and managed portfolio of ₹11,031 crore. Loan amount of ₹6,511 crore was disbursed by NBFC-MFIs in Q1FY-22 through 17.97-lakh accounts compared to ₹561 crore disbursed during the same period last year through 1.99-lakh accounts.

Average loan amount disbursed per account during the quarter under review was ₹36,243, which is an increase of around 29 per cent compared to the same quarter last financial year.

Small finance banks have a total loan amount outstanding of ₹38,624 crore with a total share of around 16 per cent. NBFCs account for another 8 per cent, and other MFIs for around one per cent of the total microcredit portfolio.

In terms of regional distribution of GLP, East, North-east and South continue to account for 66 per cent of the total portfolio.

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UCO Bank sees ‘improved investor appetite’

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UCO Bank, which recently came out of the purview of the Reserve Bank’s Prompt Corrective Action, is expecting an “improved investor appetite”, which is likely to help its proposed capital raising plan.

The bank had recently received the board approval to raise close to ₹3,000 crore capital in 2021-22. The fundraise can take place through various modes, such as follow-on public offer, qualified institutional placement and preferential issue, subject to necessary approvals, it had said in a regulatory notification to stock exchanges.

According to Atul Kumar Goel, MD and CEO, UCO Bank, it would go for capital raising plans at an “opportune time”. “Earlier when we were in PCA there was less appetite from investors but now it is better. We have the board approval to raise around ₹3,000 crore and we will go for it when the market is right. We may look at QIP or preferential issue for raising funds,” Goel told BusinessLine.

As on June 30, 2021, the bank’s capital adequacy ratio stood at 14.24 per cent and CET-I ratio at 11.32 per cent.

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

The bank has been witnessing an improvement in profitability as well as asset quality.

Its net NPA reduced to 3.85 per cent (4.95 per cent) as on June 30.

Credit growth

The bank is expecting 8-10 per cent growth in advances during the current fiscal primarily on the back of a good demand from retail, MSME and agriculture sectors. During Q1FY22, the bank witnessed five per cent growth in advances at ₹1,20,849 crore as against ₹1,15,236 crore same period last year.

It has achieved 75 per cent of a targetted ₹2,500 crore loans by end September.

“We have seen a better response and demand for credit for housing loan and gold loan as compared to last year. There is also a demand from NBFC and infrastructure sectors. We are expecting 8-10 per cent growth in credit this year,” he said.

Loan restructure

UCO Bank, Goel said, has restructured loans to the tune of ₹2,500 crore upto June this year under RBI’s resolution framework 2.0.

Under the framework, banks and non-banking financial companies (NBFCs) can restructure loans of up to ₹50 crore.

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