Category: Banking & Finance

Will not haul up RBI for declaring loans as NPAs, says Apex Court

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“Economy is booming in the country after the second Covid wave,” said the Supreme Court on Friday as it refused to entertain a batch of pleas seeking contempt action against the Governor of Reserve Bank of India and senior officials of other banks for declaring loan accounts as Non-Performing Assets (NPA).

The top court said that contempt is between court and contemnor and it is not inclined to initiate contempt action against senior officials of banks.

“In our considered view, we are not inclined to exercise our contempt jurisdiction, since it is not in the interest of justice,” said a bench of Justices DY Chandrachud, Vikram Nath and Hima Kohli.

The bench said that petitioners are at liberty to seek remedy under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi Act), 2002.

Advocate Vishal Tiwari, appearing in a batch of petitions said that despite the top court’s order of September 3, 2020 that the accounts which were not declared NPA till August 31, 2020 shall not be declared NPA till further orders, banks unilaterally declared the accounts as NPA under the Act.

‘Not going to haul up RBI’

At the outset, the bench said, “Economy is booming in the country after the second Covid wave. That’s what we have read in newspapers. Since the second wave, when these orders were passed, a lot of development has taken place. We are not going to haul up the RBI for this. Contempt is between court and the contemnor”.

Tiwari said that RBI has itself issued a notice in March, last year after the nationwide lockdown granting moratorium from paying the instalment for loan.

‘Several petitions’

Several traders have moved the top court against declaration of their account as NPA by the banks and seeking contempt action against the senior officials of the banks. One of the pleas, filed by Ajay Hotel and Restaurants through its proprietor has contended that it was availing various credit facilities by way of financial assistance against various assets creating security interest in favour of the State Bank of India and timely payment of the instalments of the loan were made and its Account was not turned NPA till August 31, 2020.

“That on May 18, 2021 the State Bank of India (R-3) issued a demand notice under section 13 (2) of the Sarfaesi Act, 2002 to the petitioner demanding the Amount…as on May 18, 2021 inclusive of interest”, the plea said.

It added that the bank had unilaterally classified the petitioner as NPA on November 30, 2020 and no show cause notice was given. The plea said that despite the express order of the top court on September 3, 2020, the banks continued to proceed under provisions of the Act.

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Bom Mercantile bank fined Rs 50L for violating RBI regulations, BFSI News, ET BFSI

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Mumbai: Reserve Bank of India has fined Bombay Mercantile Cooperative Bank Rs 50 lakh for sanctioning unsecured advances and offering higher rates on non-resident deposits as compared to domestic deposits.

In a statement, RBI said it observed these violations while inspecting the bank’s books for the financial year ended March 2019.

“A notice was issued to the bank advising it to show cause as to why penalty should not be imposed for contravention of the directions issued by RBI. After considering the bank’s reply to the notice and oral submissions made in the personal hearing, RBI came to the conclusion that the aforesaid charge of non-compliance with RBI directions was substantiated and warranted imposition of monetary penalty,” RBI said.

The bank, which was founded in 1939, has 52 branches in 10 states. It was the first cooperative bank to be granted a scheduled status in 1988 by the RBI.tnn

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RBI nod to Jammu & Kashmir govt to acquire over 16.76 cr shares in J&K Bank, BFSI News, ET BFSI

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New Delhi: The Reserve Bank has accorded approval to Jammu & Kashmir government to acquire over 16.76 crore shares in J&K Bank on preferential basis. “The RBI vide its letter dated September 2, 2021 has accorded approval to Government of Jammu & Kashmir to acquire 16,76,72,702 fully paid-up equity shares on preferential basis, i.e., up to 74.24 per cent of the post issue paid-up voting equity capital of the bank subject to compliance of regulatory requirements,” J&K Bank said in a regulatory filing.

In August, the lender had said that Sebi had exempted the Jammu & Kashmir government from complying with its norms on substantial acquisition of shares and takeovers in the proposed acquisition of 16,76,72,702 equity shares (6.06 per cent) of the bank during 2021-22.

Earlier on April 1, the bank had said the Jammu & Kashmir government, as its promoter shareholder, has committed to infuse capital of up to Rs 500 crore in the bank.

In a separate filing, the lender said it has extended the issue closing date of J&K Bank Employee Stock Purchase Scheme, 2021 (JKBESPS 2021) to September 7, 2021 due to “prevailing circumstances”.

The issue under the employee stock purchase scheme (ESPS) was to close on September 3. The issue opened on August 27.

Under the ESPS, J&K Bank aims to raise up to Rs 150 crore by issuing 7.5 crore equity shares, in one or more tranches, to eligible employees of the bank.



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ICICI Lombard gets final IRDAI approval for Bharti Axa acquisition, BFSI News, ET BFSI

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India’s largest private sector general insurer ICICI Lombard late Friday said that it has received the final nod from the Insurance Regulatory and Development Authority of India (IRDAI) for its acquisition of Bharti Axa General Insurance.

The insurance regulator IRDAI’s final approval for the merger of the two general insurance businesses comes over a year after ICICI Lombard bought out Bharti Axa in an all-stocks deal that reportedly valued the latter at over Rs 2,500 crore.

“IRDAI, through its communication dated September 3, 2021, has granted its final approval with respect to the said transaction,” ICICI Lombard said in a statement on Friday.

“The demerger and transfer of general insurance business, as envisaged in the scheme, shall be effective within 3 days from the date of the final approval,” the insurer said.

IRDAI has also granted approval to ICICI Bank for bringing down its stake in ICICI Lombard to 30 per cent from the current 52%, subject to compliance with requisite regulations.

Separately, the insurance regulator has also asked the merged entity to maintain solvency requirements above the mandated 150% as well as permitted private lender ICICI Bank to infuse capital as necessary proportionate to new shareholding structure, in a letter on Friday as per stock exchange disclosures.

“The proposed transaction is expected to result in value creation for all stakeholders through meaningful revenue and operational synergies. Further, policyholders and partners should benefit from an enhanced product suite and deeper customer connect touch points,” ICICI Lombard added in the statement. “The employees of both the businesses will also benefit via greater opportunities across functions and geographies.”

Last year, ICICI Lombard entered into a definitive agreement to acquire Bharti Enterprises-promoted Bharti AXA General Insurance in an all-stock transaction.

The shareholders of Bharti AXA shall receive two shares of ICICI Lombard for every 115 shares of Bharti AXA held by them. Bharti Enterprises currently owns 51 per cent stake in Bharti AXA General Insurance, while French insurer AXA has 49 per cent.



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ICICI Lombard gets final IRDAI approval for Bharti Axa acquisition, BFSI News, ET BFSI

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India’s largest private sector general insurer ICICI Lombard late Friday said that it has received the final nod from the Insurance Regulatory and Development Authority of India (IRDAI) for its acquisition of Bharti Axa General Insurance.

The insurance regulator IRDAI’s final approval for the merger of the two general insurance businesses comes over a year after ICICI Lombard bought out Bharti Axa in an all-stocks deal that reportedly valued the latter at over Rs 2,500 crore.

“IRDAI, through its communication dated September 3, 2021, has granted its final approval with respect to the said transaction,” ICICI Lombard said in a statement on Friday.

“The demerger and transfer of general insurance business, as envisaged in the scheme, shall be effective within 3 days from the date of the final approval,” the insurer said.

IRDAI has also granted approval to ICICI Bank for bringing down its stake in ICICI Lombard to 30 per cent from the current 52%, subject to compliance with requisite regulations.

Separately, the insurance regulator has also asked the merged entity to maintain solvency requirements above the mandated 150% as well as permitted private lender ICICI Bank to infuse capital as necessary proportionate to new shareholding structure, in a letter on Friday as per stock exchange disclosures.

“The proposed transaction is expected to result in value creation for all stakeholders through meaningful revenue and operational synergies. Further, policyholders and partners should benefit from an enhanced product suite and deeper customer connect touch points,” ICICI Lombard added in the statement. “The employees of both the businesses will also benefit via greater opportunities across functions and geographies.”

Last year, ICICI Lombard entered into a definitive agreement to acquire Bharti Enterprises-promoted Bharti AXA General Insurance in an all-stock transaction.

The shareholders of Bharti AXA shall receive two shares of ICICI Lombard for every 115 shares of Bharti AXA held by them. Bharti Enterprises currently owns 51 per cent stake in Bharti AXA General Insurance, while French insurer AXA has 49 per cent.



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HDFC Life acquires Exide’s insurance arm for Rs 6,687 crore, BFSI News, ET BFSI

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MUMBAI: HDFC Life has agreed to buy Exide Life Insurance for Rs 6,687 crore, of which Rs 726 crore would be paid in cash. The rest would be paid by issuing 8.7 crore shares of HDFC Life to the target company’s parent. This makes it the biggest insurance M&A deal in India.

Announcing the acquisition, HDFC Life Insurance CEO Vibha Padalkar said that the core reason behind the deal was its decision to grow its proprietary distribution channel. HDFC Life has developed scale largely on the back of the distribution strength of HDFC Bank. While initially banks were allowed to sell policies of only one company, Irdai has relaxed the rule in recent years.

“Adding 40% to our agency force would have taken 2-3 years. Today, our propriety channel is 15% of our business and we want to increase that to 30-35%. If you look at other parts of Asia, the proprietary channels dominate. Over a period of time, the reliance on bancassurance has gone down and companies have built their tied agency model. That is the core of this deal… to grow our own proprietary channel,” said Padalkar.

The acquisition will add 10% to HDFC Life’s embedded value (EV) — a measure for the worth of a life company that takes into account future earnings from policies that the company has issued. The acquisition price is less than 2.5 times the EV of Exide Life. Also, given that Exide Life has a sound solvency position of 225%, it will add to HDFC Life’s solvency. However, the cash payout, when it happens, will have a 15% impact on solvency margins.

“There is an advantage if one is trading at expensive valuations. Acquiring a company using your stock becomes less onerous and less of a drag…so, HDFC Life, trading at about 6x trailing EV, used largely its stock, resulting in just 4% dilution and got Exide life which added 10% to EV,” said Macquarie Capital research analyst Suresh Ganapathy.

According to Padalkar, the company has a good deal as the average valuation of listed and proxy listed companies (excluding HDFC Life) is 3.5 times their EV, while the deal values Exide Life at less than 2.5. She said that the business would complement that of HDFC Life in terms of geographical distribution as well, since Exide Life is present in tier-3 cities where the acquirer is yet to make inroads.

She said that the company was open to more acquisitions as long as it had a credible distribution, a decent sized EV and strong risk management in its DNA. Padalkar said that the first stage of the transaction — turning Exide Life into a wholly owned subsidiary — would take place by December-January. Thereafter, she expected consolidation to take 8-9 months.

Exide Life Insurance has its origins as ING Vysya Life Insurance. The company lost both its original promoters — ING, which decided to exit a few years after the global financial crisis in 2013, and Vysya Bank which was acquired by ING and later by Kotak Mahindra Bank. After ING’s exit, the Rajan Raheja-owned auto battery-maker Exide became the owner of Exide Life Insurance. The company was seen to be an acquisition target for several years as it had not managed to achieve scale. Exide on Friday informed the stock exchanges that the total investment of the company in the life subsidiary was Rs 1,679 crore.



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South India’s first currency museum opens in Bengaluru, BFSI News, ET BFSI

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BENGALURU: From a pre-Independence era currency note with a message for the British to ‘Quit India’, to a much recent political message, ‘Jai Telangana’, scribbled on a demonetised Rs 1,000 note, a new museum in the city houses them all.

Businessman Rezwan Razack on Saturday unveiled the Museum of Indian Paper Money at Prestige Falcon Towers on Brunton Road. This is the second such museum in the country; the first was established by RBI in Mumbai.

Filled with paper notes that evolved in the country even before the British Rule, the museum has over 700 artefacts collected over a span of 20 years. It also houses artefacts contributed by several numismatists.

The museum was conceptualised three years ago, and a team worked to ensure it matched international standards. It has a special lighting system and data-logging facility in each of the exhibit sections. The exhibits are placed in a temperature and humidity-controlled environment to make sure the paper does not wither.

“If we ask our elders for an old coin, they can easily produce one. But not a currency note, which is tougher to maintain. This museum ensures that history is preserved through paper notes. Visitors will get to witness how the country changed through the years,” Razack told reporters.

Curated in chronological order, the currency includes early notes of private and presidency banks, uniface notes of Colonial India, portrait notes of British monarchs and the recently released ones. One of the oldest notes is from 1812 and another is a high-denomination note of Rs 10,000. Razack said, “Every note tells a story. One was given to me by a Portugal man who contacted me through email. It took me over six months to get it.”

A Hyderabad Rs 10 note which was lost in a shipwreck in 1932 and was salvaged later was the cynosure of all eyes on Saturday. It is autographed by the team of rescuers belonging to an Italian vessel.

Bazil Shaikh, author and former RBI secretary, said the museum is comprehensive when it comes to documentation and research. The museum will have orientation panels for kids and a souvenir shop; it will have an online presence. Entry fee is Rs 100.

SLICES OF HISTORY: The oldest currency note on display at the Museum of Indian Paper Money is from 1812; (inset) Rs 50 and Rs 500 notes issued by Portugal in Goa in 1924



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Experian CEO Singhal to head SVC Co-operative Bank, BFSI News, ET BFSI

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Mumbai: Mumbai-headquartered SVC Co-operative Bank has appointed Ashish Singhal as its new MD. Singhal replaces Ajit Venugopalan, who retired on August 31, 2021.

Singhal has over 25 years of experience in the financial sector including with GE Capital TFS, Standard Chartered and ICICI Bank in various roles. Before joining SVC Bank, Singhal was the MD & CEO of Experian Credit Information Company.

“SVC Bank is fast evolving into a new-age phygital bank and Singhal will lead this transformation,” the bank’s chairman Durgesh S Chandavarkar, said.

“Banking industry is on the cusp of transforming itself and I look forward to strengthening the brand and franchise of SVC Bank by enhancing value creation for our customers, shareholders and employees,” said Singhal.

The 15-year old co-operative bank has a presence across 11 states. The bank ended FY21 with a total business of Rs 29,659 crore and a net profit of Rs 150 crore. Its deposits grew to Rs 17,331 crore from Rs 16,500 in the previous financial year. While total advances grew to Rs 12,328 crore as against Rs 11,608 crore. It is one of the few co-operative banks to have an authorised dealer Category I License from the RBI.



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DBT, no common IFSC for Kerala Bank cause delay, BFSI News, ET BFSI

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A combination of two factors, the Centre’s decision to disburse crop insurance claims under direct benefit transfer (DBT) mode and delay in Kerala Bank getting its own IFSC code, are delaying the delivery of insurance claims of about 20,000 farmers across the state.

About Rs 21 crore to be disbursed to farmers as insurance claims for 2019-20 was returned by the insurance company as the farmers were unable to submit their account numbers and matching IFSC codes. Claims of Rs 70 crore are pending for 2020-21.

The farmers were getting compensation for crop loss due to adverse weather or other factors under Pradhan Mantri Fasal Bima Yojna (PMFBY). Most farmers (60-80%) have their accounts in primary agriculture cooperative societies (PACS). Earlier, the farmers were made to open mirror accounts in district cooperative banks (DCBs), and agriculture insurance company (AIC) of India was allocating the lumpsum amount of the total claims from a district to the DCB there. The DCB would then transfer the claim amount to the farmers through the mirror accounts. The DCBs were then giving utilisation certificates to AIC .

However, with Centre’s decision to enforce DBT, indirect transfer of insurance claim amounts became impossible. While trying to upload the claims in the DBT portal, the farmers submitted their account number in PACS and the district cooperative bank’s IFSC code. However, their claims bounced as these two data did not match. The compensation to farmers has not been disbursed for the last two years, said K K Kochumuhammed, president of Kole Karshaka Sangam.

Besides, Kerala Bank, formed by merging 13 DCBs, was yet to get a common IFSC code. “Once our software integration is over we will get a common IFSC code. We have requested AIC to retain the earlier practice till then, and clear the pending claims,” said Anita Abraham, DGM, Kerala Bank.

“We had a video conference on Thursday with Union agriculture ministry officials, and requested them to defer DBT implementation till the amalgamation process of DBCs and Kerala Bank are completed, and they have responded positively,” said George Alexander, additional director of agricultural department.



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Macquarie Capital, BFSI News, ET BFSI

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Private lender HDFC Bank is expected to more than double its technology spends as it improves digital capabilities in line with global peers. The bank could also see rise in cost to income ratio by 3-4% as it looks to compete with tech companies.

“Currently technology spends as a % of opex is around 8-9%, this in our view, will double to 18-20% if management is going to significantly increase investments and is in line with some global peers,” said Suresh Ganapathy, associate director, Macquarie Capital. “Cost/Income ratio may go up from current 36% to 39-40%.”

Ganpathi added that the focus is to decouple monolithic legacy backend systems; improve digital capabilities and UI/UX (user interface), partner with Fintechs and enhance customer offerings.

Analysts are viewing the bank’s renewed focus on technology as a positive step in maintaining and possible improving their market leadership across payments, cards and various lines of businesses. Hiring also will be accordingly tailored to get more tech people giving them a conducive open working environment.

As per Macquarie’s sensitivity analysis, increase in tech expenditure and eventually cost-income ratio can impact its FY22-24E (estimated) earnings estimate by nearly 8%.

HDFC Bank recently partnered with India’s largest fintech company PayTM for payments, lending and point of sale solutions and are likely to get into more such partnerships with many Fintechs in future.

“The bank continues to be a leader in giving EMI-based products at the point of purchase outlets,” Ganapathy said. “When it comes to credit, the bank will be calling the shots and apart from their own strict underwriting criteria, the bank will also use additional surrogate data provided by the Fintechs.”



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