Category: Banking & Finance

RBI suggests startups to convert ‘innovative ideas’ into breakeven, profits, BFSI News, ET BFSI

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Mumbai: At a time when startups and new-age companies are garnering huge investor interest along with robust responses for IPOs, the Reserve Bank of India (RBI) has said that the interest will sustain only if the companies are able to breakeven, increase cash flow and turn profitable.

In its Bulletin for August, RBI has lauded the recent IPOs of tech-based companies such as Zomato which received enthusiastic investor interest and said that 2021 could well turn out to be India’s year of the initial public offering (IPO).

Debut offerings by Indian unicorns — unlisted start-ups — kicked off by a food delivery app’s stellar IPO that was oversubscribed 38 times, have set domestic stock markets on fire and global investors in a frenzy.

“Yet, this explosion of interest in these companies will only be sustained if they are able to convert innovative ideas into metrics such as breaking even at the level of earnings before interest, taxes, depreciation and amortisation (EBITDA) level without expensing business development costs, followed by cash flows and profits,” it said.

Expanded and dynamic exploitation of innate advantages such as data and logistics will be essential to live up to investors’ starry-eyed expectations, as per the Bulletin.

“The jury is still out. Investors will closely scrutinise their stories. Analysts will put it down to stock markets’ idiosyncratic behaviour, investors’ greed and bandwagon effects, including myopic pursuit of listing day gains.”

It noted that there are already warnings of systemic risks to financial stability that monetary policy authorities should not ignore as the unicorn IPO party gets going.

The bursting of the dotcom bubble in 2001 showed that many startups could go bust, but risk management practices have changed to diffuse this risk over many newcomers, it said, adding that, those that survive can go on to become the Googles, Facebooks and Amazons of the future.

The RBI report also noted that IPOs of new age companies arrive as bullishness about India mounts, especially around Indian tech

“These listings coincide with a broader rush by Indian companies to tap the market and the fomo (fear of missing out) factor driving investors, which have taken the benchmark indices to records.”

It is estimated that India has 100 unicorns, with 10 new ones created in 2019, 13 in 2020 in spite of the pandemic and 3 a month in 2021 so far, it added.

The platform is being readied by Sidbi, which already manages a fund for startups, with LIC and EPFO evincing interest during a meeting of the National Startup Advisory Council chaired by commerce and industry minister Piyush Goyal.



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Federal Bank plans to buy microfin co to expand biz, BFSI News, ET BFSI

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Mumbai: Federal Bank MD & CEO Shyam Srinivasan has said that the private bank sees an opportunity to grow both organically and through acquisition. The bank is interested in acquiring a microfinance business as part of its focus on growing the retail high-margin category.

Srinivasan said that Federal Bank is now on a par with any new-generation bank in terms of digital capability and operations and had sound asset quality due to its focus on retail. “Financially we have done very well. There are some metrics around return on asset (RoA) expansion that we are targeting. This essentially means a change in margin profile,” said Srinivasan.

Federal Bank had said that its RoA would grow from 0.76 to 1.25 in five years and were on course to achieve it, but Covid has delayed it by one year to FY23. The bank will also be launching its credit cards shortly and expanding personal loans.

According to Srinivasan, in the banking sector, half the market is concentrated among the top 7-8 lenders. The remaining 50% is highly fragmented with 17-18 banks having a 1% to 3% market share, which throws up consolidation opportunities. “In Kerala, we have a 17% share, but the state is only 3% of the market. Outside Kerala, we are 1%. In the long term, I see a huge opportunity for growth and consolidation,” he said.

Srinivasan said that Federal Bank has invested a lot in its platform and people, and now it was time to leverage the investment and capability. He said that to explore acquisition opportunities in microfinance, the bank would wait for a quarter as the current stand-still on the classification of loans as non-performing assets (NPAs) did not give a clear picture of asset quality. Srinivasan, who was hired from StanChart Bank in 2010, adopted a strategy of ‘digital at the fore, human at the core’, which meant upscaling technology, going slow on branch expansion but expanding their footprint by having more customer-facing employees. Federal Bank has also many fintech partnerships. It is about to launch two neobank partnerships that will enable it to get access to a new segment of customers for its personal loans and credit card products.

In the last decade, the bank has raised capital only once through a Rs 2,500-crore qualified institutional placement in 2017. “We have been meeting our capital adequacy largely through internal accruals. This has led to a level of trust in the bank and, if Federal Bank comes to the market, there is good reason to believe that we will be able to raise the money,” said Srinivasan.



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HDFC Bank sets ambitious target for card issuance, source says, BFSI News, ET BFSI

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India’s most valuable lender HDFC Bank has set out an ambitious plan to more than double monthly card issuance from September after the central bank lifted a temporary ban imposed on HDFC in December, according to a source.

“The sales teams have been asked to meet a target of issuing 500,000 cards a month starting September for the next few months,” said the source with direct knowledge of the matter.

HDFC Bank, which in September 2020 had issued nearly 200,000 cards, did not immediately respond to a request seeking comment.

The latest target is a big jump from a year ago but some analysts said it was achievable given the number of “liability” or savings accounts it has opened this year. Savings account holders are typically sold credit cards and loans by lenders.

“Having added close to 3.65 million liability accounts from Jan 2021 to June 2021, it can easily capture market share in the credit card space,” Macquarie said in a research note.

Earlier the bank said in a regulatory filing that India’s central bank had relaxed restrictions placed on it last year on issuing new credit cards, following outages in the bank’s digital payment services.

The relaxation was welcomed within the company.

“All the preparations and strategising that we have put in place to ‘come back with a bang’ (on credit cards) will now be rolled out,” HDFC Bank Chief Executive Sashidhar Jagdishan said in an internal email to employees, a copy of which was seen by Reuters.

“In the coming months, we will aggressively go to the market with not just our existing suite of credit cards but also new offerings in the form of co-brands and partnership,” Jagdishan said in the email.

With nearly 15 million credit cards in issue, HDFC Bank is the largest lender in the segment with nearly 24% market share. Yet over the last eight months peers such as ICICI Bank and SBI Cards have gained ground.

As of June, ICICI Bank had 11 million credit cards, up from about 10 million in January.

“Lifting of RBI (Reserve Bank of India) restrictions before the festive season augurs well and we expect HDFC bank to turn more aggressive on credit cards over the next few months,” brokerage Motilal Oswal said.

HDFC Bank is the seventh most valuable lender in Asia-Pacific with a market capitalisation of 8.37 trillion rupees ($112.7 billion).



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RBI against dropping card data storage clause in new rules, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) has rejected a demand by India’s payment gateways for exemptions on select new regulatory norms that are set to prohibit merchants from storing card details and payment operators from offering one-click checkout service to consumers from January 2022, three sources aware of the matter told ET.

The new Payment Aggregator/Payment Gateways (PA/PG) rules will mandate every online merchant processing transactions for customers to only have access to a ‘tokenised’ key linked with the consumer’s cards instead of the entire card file. While authorised card operators will be allowed to store card details for seamless processing of redressals and chargebacks, the new rules will prohibit the usage of this data even by authorised operators for auto checkouts.

This means millions of card holders – both debit and credit – making payments online in 2022 may have to enter their 16-digit card numbers every time they make a payment online as opposed to just authenticating these transactions through the CVV (card verification value) and the one-time password (OTP) as is the current norm.

“The RBI’s new rules have been framed keeping security of the consumers as paramount,” said an industry official aware of the matter. “The current system, while seamless, is prone to breaches and cyber risks as customer card details are being stored in the servers of merchants not directly under the supervisory purview of the central bank.”

The Payments Council of India (PCI) lobby group has suggested alternative solutions beyond encryption through tokenisation–such as secure reference on file–to minimise customer inconvenience. They argue that as licensed aggregators are storing card data on isolated servers for chargeback references, these may be used for allowing one-click checkouts subject to consumer consent.

PCI has also sought a further extension of the deadline for compliance in its letter to the RBI.

“To allow regulated entities to develop and implement solutions that meet the criteria, as well as to ensure consumers are informed, we request sufficient time to be allowed to ensure the entire card ecosystem is prepared to handle card transactions under new solutions without adverse unintended consequences,” said the letter reviewed by ET.

To be sure, the rules were initially set to be enforced from July 2021. The RBI extended this by six months after the industry lobbied for it.

The RBI didn’t respond to queries.

The gateways say customers will see experience friction in subscription-based services that require storage of card data to bill them on a recurring basis. Without the customer data, merchants will have to ask for the card information in every billing cycle, which will result in business disruption, they say.

“While this directive from the RBI is right in intent, it leads to a blanket prohibition for service provider merchants from storing customers’ financial information, even when the said merchants may have the requisite security norms in place or may intend to have one for the same, thereby affecting smooth flow of online payments,” said Rameesh Kailasam, CEO and president of IndiaTech, an industry grouping of startups.

Earlier in the year, IndiaTech had made representations to both the RBI and the finance ministry to allow merchants with adequate security compliances to handle customer data without encryption to prevent disruption to seamless checkouts. Kailasam said IndiaTech is preparing another representation to reiterate this point to the central bank ahead of the deadline.

“It is important to understand here that from a practicality standpoint, device tokenisation may not work in all use cases, like subscription businesses and payments that are device agnostic,” he said.

ET reported Thursday that at least 30 firms including Tata Group, Amazon, Zomato and PhonePe have applied for PA/PG authorisation under the new RBI rule, which was formally introduced in March 2020. The widespread interest among internet firms to apply for an aggregator licence can also be explained by their intent to convert themselves from merchants to payment processors to ensure reduced friction in payment processing for customers.

“The central bank is firm on its stand to not allow any more extensions as of now as the ecosystem has seen several high-profile breaches, mostly at the end of merchants and unauthorised payment aggregators,” said the chief executive of a payment gateway present at the meeting with RBI representatives earlier this month. This year has seen high-profile cyberattacks such as those on JusPay, Mobikwik, Air India and Upstox.



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Court allows return of confiscated assets of Nirav Modi to PNB, BFSI News, ET BFSI

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Mumbai: A special court has allowed “restoration” of properties worth Rs 440 crore of fugitive jeweller Nirav Modi, confiscated by the Enforcement Directorate (ED), to the Punjab National Bank (PNB).

Nirav Modi and his uncle Mehul Choksi are accused of committing a Rs 14,000 crore scam by obtaining credit facilities fraudulently from the PNB, a public sector bank. The order was passed by V C Barde, special judge for Prevention of Money Laundering Act, last week. The detailed order became available on Thursday.

The PNB in July 2021 had filed multiple applications seeking release of the properties mortgaged with the bank against the credit facilities extended to Nirav Modi’s two firms, Firestar Diamond International Private Ltd (FDIPL) and Firestar International (FIL).

The applications were filed by PNB as an individual claimant and also as lead bank of the PNB consortium and authorized representative of the UBI consortium. The court allowed two pleas seeking the release of properties of FIL worth Rs 108.3 crore and those of FDIPL worth Rs 331.6 crore.

“The claimants’ (banks) quantifiable loss has been recognized by the DRT (Debt Recovery Tribunal) who has passed judgments in their favor,” the court noted.

During its probe, the ED attached several properties owned by Nirav Modi though his family members and these companies. Several of the properties were confiscated after he was declared a “fugitive economic offender” in December 2019.

The bank and lenders’ consortium had objected to the confiscation, as the properties had been mortgaged with them when Modi and Choksi availed of Letters of Undertaking (LOUs).

The court has now also directed the PNB to give an undertaking to return the properties or their value if directed in future. PTI



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Govt appoints Lalit K Chandel on Bank of Maharashtra board, BFSI News, ET BFSI

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The government has appointed Lalit Kumar Chandel, Economic Adviser, Department of Financial Services, on the board of Bank of Maharashtra. He is appointed as Government of India nominee director on the board with effect from August 18, Bank of Maharashtra said in a statement on Thursday.

Chandel replaced Hrisheekesh Arvind Modak.

Chandel has served at various levels in different departments of Government of India, including banking, insurance, capital markets, external assistance, rural development, power, irrigation and health, it said.

He has held key positions of Director (Insurance), Department of Financial Services, Ministry of Finance; Executive Director, CVO and Financial Adviser, Insurance Regulatory and Development Authority of India, and Whole Time Director Finance, Telangana State Power Generation Corporation.



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Exim Bank extends soft loans worth USD 210 mn to Guinea, BFSI News, ET BFSI

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Exim Bank has extended soft loans worth USD 210.73 million on behalf of the Indian government to Guinea to support various projects in the African country. A USD 170 million line of credit (LOC) has been extended to finance and strengthen the drinking water supply project of Grand Conakry-Horizon 2040 in Guinea, the RBI said in a release on Thursday.

This agreement was inked in December 2019 between Exim Bank and the Government of Guinea. The agreement under the LOC is effective from August 11, 2021, it said.

Separately, USD 20.51 million line of credit has been provided for financing a project for construction and upgradation of regional hospitals in Kankan and Nzerekore. A USD 20.22 million LOC is for financing two solar projects in the country.

Giving the break-up, the statement said the solar project for supply of electricity and drinking water for seven public universities in Guinea will cost USD 14.40 million, while the solar project for electrification and refrigeration in 200 health facilities is to cost USD 5.82 million.

These two LOC agreements have also come into effect from August 11, 2021. ban



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Enforcement Directorate arrests MD of company in Hyderabad, BFSI News, ET BFSI

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The Enforcement Directorate (ED) on Thursday said it arrested the MD of a Hyderabad-based company last week in a money laundering case linked to an alleged fraud of Rs 3,316 crore at a consortium of public sector banks. Vuppalapati Satish Kumar, the managing director of Prithvi Information Solutions Limited (PISL), was arrested on August 12 and a special Prevention of Money Laundering Act (PMLA) Court later sent him to ten days custody of the agency.

This is the second arrest in this case after his sister V Hima Bindu, the “prime accused” and managing director of a city-based telecom equipment manufacturing company VMCSL, was taken in custody by the ED earlier this month.

“Although V Satish Kumar claimed that he had no link with the non-performing asset (NPA) of VMCSL, more than 40 hard disks of this company were recovered from his residence during the search carried out on July 20.”

“On forensic examination of the digital devices, it was found that he (Satish Kumar) indulged in benami transactions and was involved in efforts to transfer fraud amounts to off-shore entities,” the ED alleged in a statement issued here.

He was, it claimed, non-cooperative during the investigation and was not supplying documents of his own business entities on one pretext or the other.

The ED case of money laundering against VMCSL and its promoters is based on a CBI FIR earlier filed against them.

“VMCSL had taken loans from a consortium of banks and the present dues outstanding to all the banks is Rs 3,316 crore.”

“Forensic audit revealed that VMCSL circulated loans to various related entities to inflate its books of accounts,” the ED had alleged earlier.

It said the audit also revealed that its related entity PISL was given 3 per cent commission by VMCSL for all receipts from BSNL “without any specific role” of PISL in BSNL tenders.

“Forensic audit found VMCSL had opened various Letters of Credit worth Rs 692 crore in the name of fake or dummy entities which were subsequently devolved,” it alleged.

Bindu, the ED had claimed, through her company VMCSL and with the “active assistance” of her brother V Satish Kumar, in order to dodge the banks, created false and exaggerated operational revenues by generating fake sales and purchase invoices through the companies controlled by their directors and family members.”



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What made HDFC Bank’s big boss write the Reserve Bank a thank-you note, BFSI News, ET BFSI

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The boss of India’s largest private bank can’t thank RBI enough for the eight-month ban on issuing new credit cards. HDFC Bank‘s CEO Sashidhar Jagdishan in a company-wide communique said the central bank RBI’s embargo enabled the bank to reimagine its IT systems and processes and “turbo-charge” the pace of its technology transformation.

Jagdishan reiterated the bank’s plan to be “back with a bang” in the card space and regain lost market share.

As per Macquarie’s analysis, HDFC Bank lost nearly 180 basis points of market share as of May 2021 since end of November 2020 when the ban on launch of new credit cards came into effect. Their market share slipped to 24% while ICICI Bank and SBI Cards gained 130bps and 37bps to 17.4% and 19.2%, respectively.

The lender also has vast ground to gain and can easily capture back the space it lost after it added 36.5 lakh liability accounts from January to June 2021,1.5-2 lakh credit cards per month pre-Covid.

“I am thankful for the rap on the knuckles from the regulator. This rap has opened our eyes to the world of possibilities,” Jagdishan was quoted as saying in a TOI report. “In the coming time, we will be able to demonstrate the technology transformation that we have embarked on.”

Jagdishan also wrote of HDFC’s future credit card rollout plans. He added that business generation activities would continue under the Digital 2.0 initiative until further review. He plans to scale operations safely by building a ‘digital factory’ and an ‘enterprise factory’.

“Overall, lifting of RBI restrictions before the beginning of festive season is a positive development as HDFC Bank has usually been aggressive during festive season and offers various discounts on consumer products,” said Nitin Aggarwal, research analyst, Motilal Securities.



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What HDFC Bank re-entry means for the credit card market, BFSI News, ET BFSI

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HDFC Bank‘s return to issuing new credit cards is likely to shake up and start a war, which may see customers showered with new offers and discounts.

The credit card market is already subdued with the American Express still under ban, Citi looking to sell its credit card business and MasterCard ban hitting new card issuances

HDFC Bank plans

HDFC Bank’s managing director and chief executive Sashidhar Jagdishan has already sounded the bugle by saying that said the largest private sector bank will be aggressive and “come back with a bang” as it seeks to win back lost market share in the credit card segment.

“With the lifting of the restriction on cards acquisition, all the preparations and strategising that we have put in place to ‘come back with a bang’ will now be rolled out,” Jagdishan said in an email to its over 1.2 lakh employees.

Conceding that the bank has lost customer market share in the over nine months of the ban, Jagdishan said it will go aggressively to the market with its existing products and also launch new ones in the form of co-brands and partnerships.

“I am confident that we will regain and grow our customer market share and revenue market share in the time to come. We have the resources and plans in place to further reinforce our pole position in the credit card segment,” he said.

The bank is likely to be aggressive in its upcoming annual Festive Treats for retail customers, wherein it offers discount, cashbacks, reward points, and reduction in processing fees and foreclosure charges. “Overall, lifting of RBI restrictions before the beginning of festive season is a positive development as HDFC Bank has usually been aggressive during festive season and offers various discounts on consumer products,” Motilal Oswal Securities said.

The number game

HDFC Bank had the highest 14.8 million outstanding credit cards as of June 30, which was down by 558,545 from November 30 figures, when the RBI banned new card issuances.

Since then State Bank of India‘s outstanding credit cards have increased by 748,707 to 12 million, while those of ICICI Bank rose by as much as 1.3 million to 11 million. Axis Bank has added 0.3 million cards during the same period. ICICI Bank and SBI Cards have sharply ramped up their incremental market share at 49% and 28% during this period.

According to Macquarie Capital Securities (India) HDFC bank added close to 3.65 million liability account in January-June and hence, it could easily capture market share in the credit card space. It added that HDFC Bank roughly used to add 1.5-2 lakh credit cards per month before the pandemic, which translates into 1.4-1.8 million loss of credit card addition due to the ban. “There is a large customer base to which it can cross-sell,” Macquaire Capital said.



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