Category: Banking & Finance

RBI norms: No bank licences for large corporates yet

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However, RBI has allowed promoters to retain a 26% shareholding in banks, higher than the current cap of 15%, bringing relief to bankers like Kotak Mahindra Bank’s Uday Kotak.

Reserve Bank of India (RBI) has refrained from permitting corporate ownership of banks, putting on hold a working group recommendation that said large corporate and industrial houses may be allowed to promote banks post amendments to the Banking Regulations Act, 1949. The central bank has also not accepted a recommendation to allow well-run, large NBFCs, including those owned by a corporate house, to become banks. Both suggestions, it said, on Friday, are “under examination”.

However, RBI has allowed promoters to retain a 26% shareholding in banks, higher than the current cap of 15%, bringing relief to bankers like Kotak Mahindra Bank’s Uday Kotak. The 26% is in line with the ceiling on the voting rights of a shareholder and in keeping with the current FDI policy. The PJ Nayak Committee had in 2014 recommended a promoter holding of 25%, on the grounds that low promoter shareholding could make banks vulnerable by weakening the alignment between the management and shareholders.

Post the five-year lock-in, promoters can choose to lower holdings to below 26%. In the initial five-year lock-in period, the promoter’s stake must be a minimum of 40%.

RBI has simplified the ownership rules for non-promoter shareholders specifying a cap of 15% for all categories of financiaI Institutions, supranational institutions, PSUs and the government. It has retained the cap of 10% on the shareholding of non-promoter shareholders who are natural persons and non-FIs.

Though the preferred structure, an NOFHC (Non-mandatory Non-operative Financial Holding Company) will be mandatory only where the individual promoters, promoting and converting entities have other group entities, provided these promoters and entities are eligible to set up a Universal Bank or a Small Finance Bank (SFB). Banks that currently operate under an NOFHC can dismantle it if they do not have other group entities in their fold.

The initial minimum capital requirements for new bank licences have been raised to `1,000 crore for a universal bank from `500 crore at present and `300 crore for an SFB from `200 crore.

Future SFBs must be listed within ‘six years from the date of reaching the net worth equivalent to the prevalent entry capital requirement prescribed for universal banks’ or ‘10 years from the date of commencement of operations’, whichever is earlier. The internal working group constituted on June 12 last year, under the chairmanship of PK Mohanty, director, central board of RBI, had submitted its report in November 2020.

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PSB privatisation: New Bill may provide for 26% minimum govt holding

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Presenting the Budget for 2021-22, finance minister Nirmala Sitharaman had announced the privatisation of two PSBs and one general insurer, as part of the Centre’s disinvestment plan to rake in Rs 1.75 lakh crore.

The Banking Laws (Amendment) Bill, 2021, which will be introduced in the Winter Session of Parliament starting November 29, will likely propose that the minimum government holding in public sector banks (PSBs) be trimmed to 26% from 51%, an official source said.

The move is aimed at facilitating the privatisation of two PSBs, in sync with the announcement in the Budget for 2021-22. On Wednesday, shares of Indian Overseas Bank (IOB) and Central Bank of India rallied, amid speculations that the government had made a decision to privatise these two lenders, as suggested by the Niti Aayog. However, the Centre is yet to formally name the privatisation candidates.

While the draft Bill provides for the lower shareholding, a final call will be taken by the Cabinet, which will clear the Bill before it can be introduced in Parliament, added the source.

“(However) If it’s found, after consultations with investors, that they are not interested unless the government sells its entire stake in the select PSBs, the government is open to consider complete privatisation as well. But initially, it may opt for retaining a 26% stake,” said another source who is privy to discussions.

Analysts fear any government proposal to retain 26% stake in the PSBs may not go down well with potential suitors. For instance, the government was forced to put its entire stake in state-run Air India on the block after its initial plan to hold at least 26% in the national carrier didn’t elicit any response from investors.

The new Bill proposes to “effect amendments in Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980 and incidental amendments to Banking Regulation Act, 1949 in the context of Union Budget announcement 2021 regarding privatisation of two Public Sector Banks”, according to the list of legislative business for the winter session of Parliament.

These laws had led to the nationalisation of banks, so relevant provisions of these laws have to be changed to pave the way for the privatisation.

Presenting the Budget for 2021-22, finance minister Nirmala Sitharaman had announced the privatisation of two PSBs and one general insurer, as part of the Centre’s disinvestment plan to rake in Rs 1.75 lakh crore.

Already, Parliament had in its last session cleared a Bill to facilitate the privatisation of state-run general insurance companies by removing the requirement of the central government to hold at least 51% stake in an insurer.

Niti Aayog has already recommended the sell-off of IOB and Central Bank of India to the core group of secretaries on disinvestment, headed by the Cabinet Secretary. This core group will send its recommendation to the alternative mechanism (AM), headed by the finance minister, for its approval. Finally, it will be cleared by the Cabinet.

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RBI imposes ₹1 crore penalty on SBI

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The Reserve Bank of India has imposed a monetary penalty of ₹1 crore on the State Bank of India (SBI) for contravention of a provision in the Banking Regulation (BR) Act, 1949, relating to the extent of shares a Bank can hold in borrower companies.

The central bank said this action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the State Bank of India with its customers.

Also see: ARSS Infrastructure Projects case: SEBI rejects ‘acted in good faith’ rule for SBI nominee

RBI said its statutory inspections for supervisory evaluation (ISE) of SBI with reference to its financial positions as on March 31, 2018, and March 31, 2019, and the examination of the risk assessment reports, inspection report and all related correspondence pertaining to the same, revealed contravention of sub-section (2) of section 19 of the BR Act. The contravention is to the extent that the State Bank of India held shares in borrower companies, as pledgee, of an amount exceeding 30 per cent of paid-up share capital of those companies, the central bank said in a statement.

In furtherance to this, a notice was issued to the bank advising the State Bank of India to show cause as to why penalty should not be imposed on it for contravention of the aforesaid provisions of the Act, as stated therein, RBI added.

Also see: Private bank ownership: RBI accepts recommendations of internal working group

After considering the State Bank of India’s reply to the notice, oral submissions made during the personal hearing, and additional submissions made by the bank, RBI came to the conclusion that the charge of contravention of the aforesaid provisions of the Act was substantiated and warranted imposition of monetary penalty on the bank to the extent of contravention of the aforesaid provisions of the Act.

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Bank of Maharashtra eyes a total business size of ₹5-lakh crore by the end of FY24

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Bank of Maharashtra (BoM) is planning to have a presence in most of the 727 districts in the country as part of its strategy to achieve a total business size (deposits plus advances) of ₹5-lakh crore by March-end 2024 against about ₹2.97-lakh crore at September-end 2021.

In an interaction with BusinessLine, MD & CEO, AS Rajeev, underscored that his bank has put in place systems and processes to ensure that the quality of sanctions improve, slippages are reined in, and costs associated with the outsourcing of ATMs and IT, rent, and electricity, among others, are cut.

Rajeev — who has been at the helm of the Pune-headquartered public sector bank (PSB) for close to three years — said his team is striving to ensure that BoM will be among the top three banks in the country in terms of efficiency parameters by March-end 2022. Excerpts:

How would you characterise BoM?

Though we are a public sector bank (PSB), we have private sector bank (PvSB) characteristics. When it comes to financial parameters such as net interest margin (NIM/3.27 per cent), return on asset (RoA/0.53 per cent), current account saving account (CASA) deposits (54 per cent of total deposits), we are as competitive as PvSBs. Our overall loan growth rate (about 11 per cent year-on-year) matches that of PvSBs.

We are competing with PvSBs on all the parameters except asset quality.

If we bring down Gross Non-Performing Assets (GNPAs) and Net Non-Performing Assets (NNPAs), we will be among the top three banks in the system, including PSBs and PvSBs. We are likely to improve our NNPA and GNPA position to 1 per cent (from 1.73 per cent as of September-end 2021) and 4 per cent (5.56 per cent), respectively, by March-end 2022.

Also see: Bank of Maharashtra launches digital lending platform for retail loans

We aim to be among the top three banks in terms of efficiency parameters, including NIM, net interest income (NII) growth, cost to income (C-I) ratio, credit growth, CASA ratio, GNPA and NNPA, by March 2022.

We are expecting 14-15 per cent credit growth in FY22. Next year also, we are expecting the same level of growth.

Given that the government wants to have four to five SBI-sized banks in the public sector, how does BoM figure in the scheme of things?

We are also trying to become big. Our aim is to grow our balance sheet to ₹5-lakh crore by 2024. In the last one-and-a-half years, we have opened 200 branches. Of this, 150-160 branches were in States outside Maharashtra. Our pan-India branch network has expanded to 2,000 after the recent opening of the Tirumala branch. Before the end of the current financial year, 100 branches will be opened. The board has decided that we should have at least one branch in each district. Now, we are growing organically. But in the next phase we may see inorganic growth if the requirement comes. Once our financial position improves further, we will try for that.

What changes have you brought about in the working of the bank in the last three years?

We have made structural and policy changes. As far as structural changes go, the main changes we made is in the credit administration area.

For example, we have set up retail loan processing cells and centralised sanctions to ensure quality. Further, we have engaged external agencies to conduct due diligence on loan proposals. A due diligence certificate has to be in place for every loan. This minimises the possibility of frauds.

So, sourcing, processing, and sanctioning of loans is compartmentalised. A proposal can get rejected at any point of time. So, the quality of sanctions has improved. This has helped check slippages.

Also see: BoM reduces repo-linked lending rate by 10 basis points to 6.80%

We have revisited pricing in the case of all advances – fund-based as well as non-fund based. Earlier, there were certain issues relating to lower pricing of Bank Guarantees (BGs) and non-fund based exposure. Risk-adjusted pricing was not there.

For example, if we are giving BGs, the bank should be earning 2 per cent commission as per risk-adjusted pricing. But the pricing went down to 20-25 basis points because of competition. So, now we have made it risk-adjusted pricing, irrespective of the borrower. So, interest income has improved in the case of advances and other income in the case of non-fund based exposure.

Sanctions position, as per delgated powers, and turnaround time are being monitored closely. The figures will speak for themselves. For example, branches earlier used to average ₹2 crore to ₹3 crore sanctions a year. Now, this has gone up three to four times in the past two to three years.

Three years back, the operating profit per quarter was ₹250 crore to ₹300 crore. Now, this has increased almost four times to ₹1,200 crore per quarter.

What cost saving measures have you put in place?

We have revisited all the cost centres such as rent and electricity. For example, the rent we are paying now is much less compared to what we were paying three years back. Earlier, some of the branches were spread over 5,000 to 6,000 sq.ft. Now, the area of the branches has been brought down to ₹1,300-1,500 per sq.ft.

Earlier, a number of operational areas were on outsourced mode. We have changed the ATM installation model from operating expenditure/opex (whereby a managed service provider deploys and operates ATMs for the bank) to capital expenditure/capex (the Bank installs its own ATMs).

Also see: BoM opens 2,000th branch at Tirumala

The cost of an ATM is only ₹3.50 lakh. So, if the useful life of the ATM is seven years, the capital cost is only ₹50,000 per year. The branch staff loads cash in onsite ATMs. For example, if 500 transactions happen a day at an ATM, we have to pay about ₹6,000 to the service provider. So, the outgo on this account was almost ₹2 lakh per month. Now, we have capital cost of only about ₹5,000 per month and there are no other costs because staff is loading the cash. So, the cost on this account has come down drastically from ₹2 lakh per month to ₹5,000.

By going in for e-surveillance at ATMs, the cost of security has declined to ₹4,000 per ATM per month against ₹1 lakh (about ₹30,000 per security guard for three shifts) earlier for physical security.

We used to outsource some of the functions within IT. The cost of outsourced employees is three times more than our own employees. So, we have recruited almost 250-300 IT experts in the last two years, substituted the outsourced people and, because of this, there has been an improvement in quality and reduction on costs.

Earlier (three years back), ₹250 crore to ₹300 crore was the operating profit per quarter. Now, that has increased almost four times to ₹1,200 crore per quarter.

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ARSS Infrastructure Projects case: SEBI rejects ‘acted in good faith’ rule for SBI nominee

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In a rare case, markets regulator SEBI has disallowed protection under the rule of ‘acted in good faith’ to 75-year old Krishna Chandra Raut, a nominee of government-owned State Bank of India (SBI) on the board of ARSS Infrastructure Projects (AIPL). Government employees or its nominees on the board of companies are protected from prosecution or legal proceedings by any authorities unless it has proved that they acted in a ‘bad faith’.

Raut is a retired SBI official who was put as a nominee by the bank on AIPL board in 2013 after the company went into CDR (corporate debt restructuring).

SEBI has barred Raut from the stock markets for six months and imposed a fine of ₹1.5 lakh on the charges that AIPL misrepresented its books of accounts. SEBI has also took action against key board members of AIPL including the CFO and CEO for misrepresenting the financials of the company and misusing the funds. Raut was just a nominee director on AIPL board and not involved in any of the day-to-day activities of the company.

“It is strange that the regulator has gone to the extent of charging a nominee director of SBI for misrepresenting the books of accounts but has yet to take any action against the auditors. The matter could be surely challenged in SAT (Securities and Appellate Tribunal). Also, this order of SEBI is in contrast to its past behaviour where the regulator has not acted against senior stock and commodity exchange officials on grave matters citing the rule of ‘acted in good faith’ despite the fact that forensic audit reports pointed fingers in their direction for wrong doings,” a SEBI lawyer told BusinessLine.

Raut’s resignation

In July, Raut resigned as SBI’s nominee on the AIPL board. Raut told SEBI that he became a director of AIPL on May 11, 2013, and had no role to play in the affairs or day to day management of the company. He submitted further that there was no question of proceeding against any nominee director of a public sector bank in respect of any act done or omitted to be done in discharge of its duties as a director/unless it was established that he had acted in bad faith and was complicit in commission of any such offence.

Raut also told SEBI that he had joined SBI as a probationary officer on December 24, 1970, and retired as Chief General Manager from SBI Kolkata local head office on April 30, 2005 with an unblemished service record.

But SEBI’s reasoning in pressing charges against Raut was that he was not just a director of AIPL but a member of the audit committee and had attended 2 of the 4 audit committee meetings in FY2015-16 and all the 4 meetings during FY2016-17. “Hence, the noticee (Raut) cannot take the plea that he acted in good faith as a director of the board in approving the financials that were provided to him by the audit committee, as the noticee himself was a member of the audit committee whose role under Regulation 18(3) read with Part C of Schedule II of the LODR (Listing Regulations) was inter alia to review the financial statement and auditors report with reference to disclosure of any related party transactions etc. and to ensure that the financial statement is correct, sufficient and credible.”

SEBI has said that AIPL presented true and fair financial statements and had executed transactions which are non-genuine in nature tantamounting to misrepresentation of the accounts/financials statement and misuse of account/funds of the company.

SEBI has said that AIPL had misused funds/misrepresented books of accounts which are detrimental to the interests of genuine investors and are fraudulent in nature. It was also alleged that the directors, CEO and CFO had failed to exercise duty of care, by misrepresenting the financials/misusing the funds. It was alleged that transactions which are non-genuine in nature were executed.

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A sudden and complete ban on crypto trading unlikely: Experts

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In a possible relief to investors, a sudden and complete ban by the government on cryptocurrencies is unlikely according to experts who point out that a brief transition phase would be needed.

“Disposing off cryptocurrency assets is not so easy. I don’t think it is practically possible to ban or dispose of existing cryptocurrency. A ban may have been possible a few years ago when things were getting started. In today’s situation, there would have to be regulations,” said Ajeet Khurana, Founder, Genezis Network.

Difficult to monitor

Further, the nature of cryptocurrency is such that it would be impossible to monitor if the ban is in place and there could continue to be peer-to-peer transactions.

Also see: Crypto should be allowed only as an asset: IAMAI

“A complete and sudden ban on cryptocurrency may not be possible because of the complex nature of crypto assets. The only way the government can monitor crypto-asset movement is through prevalent platforms. Once there is a ban, there will not be a system to monitor such transactions,” said Rashmi Deshpande, Partner, Khaitan & Co.

10 crore investors

The government expected to table The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 in the Winter Session of Parliament The bill is expected to call for a complete ban on crypto trading and investments and so, there has been a lot of panic selling by investors.

India holds over ₹6 lakh crore in crypto assets. The country is also home to about 15 home-grown cryptocurrency exchange platforms consisting of more than 10 crore investors, according to a note by Motilal Oswal.

Breathing room

While the huge amount of funds invested in crypto at present is not a defence, people would need some breathing room to offload it, Deshpande said, adding that many companies and countries do accept cryptos and a complete ban would impact the competitiveness of Indian business globally.

Also see: Crypto prices stable in India as investors await details of new Bill

Experts point out that even previous versions of the cryptocurrency bill floated by the government had given a 90-day transition period for cryptocurrency holders.

Large ecosystem

According to Mikkel Morch, Executive Director and Risk Management at ARK36 (a crypto and digital assets hedge fund), an outright ban on such investments might be difficult to implement.

“The digital asset ecosystem in India extends far beyond cryptocurrencies and includes other investable assets such as NFTs which are becoming increasingly popular in India,” Morch said.

Regulation required

However, experts agree that some amount of regulation is required.

Also see: Scammers stole “millions” in cryptocurrency in last month: Report

“It is also necessary to bring about regulations for platforms and for investor protection,” Deshpande said, adding that we must wait for the proposed Bill to be tabled before jumping to any conclusions.

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RBI stays mum on allowing corporate entities to own banks, allows raising of minimum holding, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank of India on Friday has accepted the majority of the recommendations made by the internal working group on the review of ownership guidelines and corporate structure of private sector banks.

The central bank has accepted 21 out of the 33 recommendations made by the internal panel with certain modifications.

However, the central bank has kept under examination one of the most crucial recommendations by the internal working group pertaining to allowing corporate entities to own banks.

Among the most important recommendations accepted by the RBI is raising the long-term holding cap of promoters in private sector banks to 26 per cent from 15 per cent currently. Further, under the same recommendation, existing promoters with holdings below the 26 per cent threshold will be allowed to raise their stake.

“The promoter, if he/she so desires, can choose to bring down holding to even below 26 per cent, any time after the lock-in period of five years,” the RBI circular said.

The regulator has also modified the long-term cap on non-promoter shareholding in banks. The RBI said that long-term non-promoter shareholding will be capped at 10 per cent for natural persons and non-financial entities. However, the same for financial entities will now stand at 15 per cent of the paid-up voting equity share capital.

The RBI has also accepted the working group’s recommendations to allow banks that have a non-operative financial holding company structure to exit the same if they do not have any other group entities. However, the structure of NOFHC will continue to prevail for new licensees with other group entities.

In a setback for payments banks hoping to convert into small finance banks, the RBI said that the criteria of 5 years of experience as a payments bank to get an SFB license will continue along with other requirements mentioned in on-tap licensing for SFBs.

The regulator has also accepted the recommendation that will allow promoters to pledge their shareholding in the bank during the lock-in period. The central bank also said that a new reporting requirement will be brought for disclosures pertaining to pledging of holdings by bank promoters.

The RBI has also raised the minimum capital requirement for applicants for various types of banks. The initial capital for universal banks has been raised to Rs. 1,000 crore from Rs. 500 crore, for SFBs it has been raised from Rs. 200 crore to Rs. 300 crore and for UCBs transitioning to SFBs to Rs. 150 crore from Rs. 100 crore.

The central bank said that the circulars, amendments and instructions for the implementation of the accepted recommendations of the internal working group be notified in “due course”.



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Bank of Baroda raises ₹1,997 crore via AT-1 bonds

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Bank of Baroda (BoB) has raised ₹1,997 crore via an issue of Additional Tier 1 bonds at a coupon rate of at 7.95 per cent. Bonds of ₹1 crore are unsecured, rated, listed, subordinated, non-convertible, fully paid-up Basel III compliant perpetual bonds.

Bids of ₹5,308 crore

The public sector bank informed exchanges that it has received total bids aggregating ₹5,308 crore against issue size of ₹2,000 crore. The issuance was finalised for ₹1,997 crore.

The Bank of Baroda has allotted the bonds to 21 investors.

Also see: BoB’s arm launches credit card powered by mobile app

Recently, the Union Bank of India had mopped up ₹2,000 crore via AT-1 bonds on private placement basis at a coupon rate of 8.70 per cent.

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Private bank ownership: RBI accepts recommendations of internal working group

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The Reserve Bank of India has accepted 21, some with partial modifications, out of the 33 recommendations of the Internal Working Group set up to review the extant guidelines on ownership and corporate structure for Indian private sector banks.

The key recommendations accepted include that the cap on promoters’ stake in long run of 15 years may be raised from the current levels of 15 per cent to 26 per cent of the paid-up voting equity share capital of the bank.

“This stipulation should be uniform for all types of promoters and would not mean that promoters, who have already diluted their holdings to below 26 per cent, will not be permitted to raise it to 26 per cent of the paid-up voting equity share capital of the bank,” the RBI said.

Listing in future

Small finance banks set up in future would be expected to list within eight years of commencement of operations, while universal banks would list within six years of operations.

Significantly, the criteria to assess the ‘fit and proper’ status of promoters or major shareholders as prescribed in the ‘Guidelines for on tap Licensing of Universal Banks in the Private Sector – 2016’ are appropriate and may be continued.

“Going forward, a harmonised approach may be adopted in various guidelines,” the RBI has said.

The RBI said, the consequential amendments in instructions, circulars, master directions, and licensing guidelines following the acceptance of the recommendations (with or without modifications) are being carried out and will be notified in due course.

However, during the interregnum, all stakeholders may be guided by these decisions, it further said.

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Exim Bank commits $100 million loan for Covid vaccines in FY 22

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Export-Import Bank of India (Exim Bank) has committed loans worth $100 million for domestic manufacturers of Covid-19 vaccines or related products.

“These loans are being extended to about half a dozen drug makers in the country during the present financial year,” N Ramesh, Deputy Managing Director, Exim Bank told newspersons here on Friday.

The loans for vaccines are also being extended to other countries. “Our vaccine portfolio in Africa is a significant one with a size of $250 million,” Ramesh said.

This will be an advantage for Indian firms as the financing mandates Africa to source vaccines and related products only from India.

Borrowings

The national export credit agency has already borrowed $2.25 billion through International bonds in 144A – Reg S format.

When asked on the possible size of borrowings for FY22, Ramesh said: “We will be calibrating our borrowings with international economic factors and domestic developments.”

The bank had earlier indicated borrowings to the tune of $3 billion in the current fiscal.

Also read: Exim Bank lists billion-dollar 10-year bond on AFRINEX

Exim Bank is targeting to achieve financing of $7 billion of project exports over next five years through funds received from Government of India, he said.

Earlier in September this year, the Centre had approved a corpus infusion of ₹1,650 crore National Export Insurance Account.

Credit growth

The bank expects a credit growth of 10 per cent this year, according to Ramesh. This will be driven by ‘good’ demand from EPC, textiles, pharma and petroleum sectors, among others, he added.

Its loan portfolio increased 4.43 per cent year-on-year to ₹1,03,851 crore as on March-end 2021.

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