Category: Banking & Finance

Shares of HDFC Bank rise as RBI lifts credit card ban, BFSI News, ET BFSI

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NEW DELHI: Shares in HDFC Bank Ltd jumped after the Reserve Bank of India (RBI) said it would allow the lender to issue new credit cards, partially removing a months-long ban.

The lender will roll out the preparations and strategies it has put in place to “come back with a bang” in credit cards, it said in a statement. It will also “continue to engage with RBI and ensure compliance on all parameters,” it said.

The stock gained as much as 3.4%, the most since May 21, after the bank confirmed the easing of curbs in a stock exchange filing Wednesday, following a Bloomberg News report. Shares were trading 0.6% higher at 1:55 pm in Mumbai.

Still, the central bank will retain a ban on the lender launching new digital products “until further review.”

While recommending a ‘buy’ for HDFC Bank given its attractive valuation, Jefferies India analyst Prakhar Sharma wrote that the bank needs to enhance investment in its technology capacities and strengthen backend monitoring. This will give the RBI greater comfort for lifting the remaining restrictions.

Online glitches

About eight months ago, the country’s most valuable lender was penalized by the RBI for repeated online glitches that hurt its 50 million customers. Following the curbs, the bank, India’s top credit card issuer, lost out to peers including State Bank of India, ICICI Bank Ltd and Axis Bank Ltd.

HDFC Bank’s credit card outstandings shrank by 6.5% in the June quarter from the previous three months, hurting its overall retail portfolio.

The bank has been in the process of setting up digital and enterprise units to strengthen its online infrastructure and handle a larger volume of transactions.

In February, the banking regulator appointed an external audit firm to look into the recurring outages.



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Secondary loan market may help banks exit stressed loans, BFSI News, ET BFSI

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Ten lenders, including the State Bank of India and ICICI Bank, have set up a secondary loan market association to promote the growth of the secondary market for loans in India.

The Secondary Loan Market Association (SLMA) is a self-regulatory body that has been set up with the help of the Reserve Bank of India.

Such a body was recommended by the RBI’s task force on the development of the secondary market for corporate loans headed by Canara Bank chairman T N Manoharan.

The other members of SLMA are Canara Bank, Standard Chartered Bank, Kotak Mahindra Bank, Deutsche Bank, Bank of Baroda, Punjab National Bank, Axis Bank and HDFC Bank.

The SLMA role

The SLMA will facilitate, promote and set up an online system for the standardisation and simplification of primary loan documentation, and standardisation of documentation for the purchase and sale/assignment documentation and other trading mechanisms for the secondary loan market and its documentation.

Banks can sell specific loans which could open up more lending opportunities, manage asset-liability mismatches, reduce concentration risk and comply with the RBI’s large exposure framework. The market can provide lenders to exit stressed loans even before a default.

The RBI task force recommendations

The task force recommended that loan documentation be standardised, plus the setting up of a Central Loan Contract Registry (CLCR), an ecosystem for enabling virtual information-sharing with various repositories, and the development of an appropriate menu of benchmark rates to be commissioned by the SRB.

It proposed that, for each corporate account, the SRB stipulate a minimum ticket size for trading as a percentage of the loan outstanding.

The task force has flagged roadblocks and these need to be speedily removed. One is the glaring absence of a systemic loan sales platform, another is the lack of an ‘effective, reliable and diligent’ price discovery mechanism, and, not least, the reality of insufficient participants.

Other issues include stamp duty during due diligence and transfer, and regulatory restrictions too.

The bottom line is that an efficient secondary market for corporate loans would have clear-cut benefits for both borrowers and lenders and lead to an active corporate bond market as well.



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DICGC can now fix risk-based deposit insurance premium

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The Deposit Insurance and Credit Guarantee Corporation (DICGC) can usher in a differential premium system (DPS) for banks, based on their risk profile, following an amendment to the DICGC Act.

A sub-section inserted in the Act allows the corporation to increase the deposit insurance premium for a bank. Currently it charges a flat rate premium of 12 paise per ₹100 deposit.

According to the amendment, “the Corporation may, having regard to its financial position and to the interests of the banking system of the country as a whole, and with previous approval of the Reserve Bank of India (RBI), from time to time, raise the aforesaid limit of fifteen paisa per annum for every hundred rupees of the total amount of the deposits in that bank.”

Prior to the amendment, Section 15(l) of the Act had said: “…Provided that the premium payable by any insured bank for any period shall not exceed fifteen paise per annum for every hundred rupees of the total amount of the deposits in that bank at the end of that period…”

Empowering the DICGC

The amended DICGC Act replaces the “shall not exceed fifteen paise per annum for every hundred rupees” clause with “raise the aforesaid limit of fifteen paisa per annum for every hundred rupees”.

Though the corporation currently has a one-size-fits-all approach to collecting deposit insurance premium, the amendment empowers it to create a differential premium system based on the risk profile of banks.

The flat rate premium had been upped from 10 paise to 12 paise per ₹100 of assessable deposits since April 1, 2020, to mitigate the impact of the hike in insurance cover on the corporation’s Deposit Insurance Fund (DIF).

All you wanted to know about the new changes in deposit insurance

DICGC, a wholly-owned subsidiary of RBI, had upped the limit of insurance cover for bank deposits fivefold to ₹5 lakh per depositor with effect from February 4, 2020.

D Krishna, former advisor and chief executive of the National Federation of Urban Co-operative Banks and Credit Societies, said the amended DICGC Act empowers the corporation and RBI to prescribe higher rates of premium for co-operative banks vis-a-vis commercial banks.

Flat rate premium: The moral hazard

To address the moral hazard inherent in flat rate premiums irrespective of risk profile, DICGC is examining the recommendations of an internal committee on risk-based premium.

Of the total claims settled by DICGC since inception, around 94.3 per cent pertained to co-operative banks that were liquidated, amalgamated, or restructured, according to RBI.

As per the report of the RBI committee on DPS, the categories for assigning premium rates should be limited to four or five. Further, the ratings system, as far as possible, should be ownership-neutral.

DPS: Level playing field needed

Krishna observed that public sector banks, which have implicit government guarantee and/or backing, get recapitalisation support and private sector banks are not allowed to fail when they get into trouble as they are either revived or merged with another bank.

Exempt public sector and commercial banks from Deposit Insurance Scheme: AIBEA

In contrast, a number of urban co-operative banks have been liquidated as there was no support from any quarter.

“Therefore, it would be unfair for RBI to think of differential premium without having a level playing field or to allow DICGC to hike the premium just because the Act now permits them to do both,” Krishna said.

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Satya MicroCapital raises ₹135 crore from BlueOrchard and responsAbility Investments

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Satya MicroCapital Ltd, a Delhi-based NBFC-MFI, has raised about ₹135 crore through Non-Convertible Debentures (NCDs) from impact investment fund manager responsAbility Investments and Swiss impact investor, BlueOrchard Finance Limited.

“This will enable Satya to achieve its vision of providing financial assistance to 5 million households by the year 2025 with an exponential speed,” Vivek Tiwari, MD, CIO & CEO, Satya MicroCapital Ltd, said in a statement.

About ₹55 crore funds managed by Blue Orchard was disbursed in June and July and the remaining ₹80 crore was made available by responsAbility Investments, the company statement said. This will not only act as a catalyst in socioeconomic upliftment of the MSME sector but will also help in the much-needed economy revival of the country, it added.

LLG Model

This NBFC-MFI offers collateral-free credit to micro enterprises based on strong credit assessment and a centralised approval system. The company has adopted a unique Limited Liability Group (LLG) Model for extending loans and ensuring repayment. The group lending model allows groups of borrowers to share the liability and responsibility to repay loans, while helping them build a strong credit profile to avail finance from traditional financial institutions.

Through the model, the company aims to add a social touch to lending by integrating modern technology into the micro finance industry. Satya primarily caters to women who own businesses or are looking for business expansion.

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RBI, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank of India (RBI) has said that there was a 24% improvement in financial inclusion (FI) as measured by RBI’s FI-Index between March 2017 and March 2021.

The FI-Index incorporates details of banking, investments, insurance, postal as well as the pension sector in consultation with government and respective sectoral regulators. In April this year, the RBI had announced that it would launch the FI-Index to capture the extent of financial inclusion.

On Tuesday, the RBI announced the first numbers of the FI-Index, and will henceforth publish the data once a year in July. The highest weightage in the index (45%) is given to the usage of various financial services, followed by access (35%) and quality (20%).

The index captures information on various aspects of financial inclusion in a single value, ranging between 0 and 100, where 0 represents complete financial exclusion and 100 indicates full financial inclusion.

One of the biggest drivers of financial inclusion in the country has been the Pradhan Mantri Jan Dhan Yojana (PMJDY). There are about 42.6 crore PMJDY account holders with more than 55% being women. While the JDY was launched in 2014, the usage of the accounts picked up with the increase in direct benefit transfers (DBTs), which were facilitated by digital platforms and Aadhaar.

The impact of the digital payment in DBT can be discerned from the fact that Rs 5.5 lakh crore was transferred digitally across 319 government schemes spread over 54 ministries during 2020-21.

Since the pandemic, financial inclusion got a boost due to the increased usage of digital platform by small merchants and peer-to-peer payments.

“Lessons from the past and experiences gained during the Covid pandemic clearly indicate that financial inclusion and inclusive growth reinforce financial stability,” RBI governor Shaktikanta Das had said, speaking at the financial inclusion summit.

“As of March 2021, banks have achieved a digital coverage of 95.9% of individuals, while the achievement for businesses stood at 89.8%,” Das said in the summit.

The rise of the fintech’s have also supported financial inclusion as they innovated to simplify and promote digital payments like the UPI (Unified Payments Interface).

According to a report by Macquarie, while the retail payments (by value) have grown at an 18% CAGR over FY15 to ’21, UPI has grown at a CAGR of around 400% over FY17-21 and now forms 10% of overall retail payments (excluding RTGS) from 2% seen couple of years ago.

“Despite being a late entrant, UPI’s FY21 annual throughput value of around Rs lakh crore was almost 2.8x that of credit and debit card (at POS) combined largely,” the report said.



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ICICI, HSBC, Standard Chartered strike India’s first swaption deals, BFSI News, ET BFSI

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Two years after RBI allowed them, ICICI Bank, HSBC and Standard Chartered Bank have cut the first swaption deals, giving new risk management tools to borrowers in rapidly changing interest rate scenarios.

The ‘swaption’ interest-rate derivative product helps both local borrowers and investors to rein in funding costs in a rising rate scenario and retain investment returns in a falling rate scenario. In June, 2019, the Reserve Bank of Indiaissued guidelines for ‘swaption’ deals.

What is swaption?

A swaption contract gives the buyer the right, but not the obligation, to enter into an interest-rate swap deal.

If a borrower raises local bonds with a ‘put’ option, investors could well surrender those papers in a rising rate scenario, forcing a borrower to issue new bonds at higher rates. This is where the utility of the instrument is evident for the borrower.

If the borrower buys a swaption contract, the instrument will protect the borrower against any losses from rate movements in the event of investors exercising their put options.

Similarly, if a borrower raises bonds with call options, and exercises them in a falling interest market, the investor has to invest at lower rates. If s/he buys a swaption contract, it will shield for any rate losses.

The transaction

ICICI Bank and the two overseas lenders transacted ‘swaptions’ on Overnight Index Swap (OIS) for a total notional sum, which formed a significant majority of the total worth of transactions reported on day one. Trading in the instrument began Tuesday on a Clearing Corporation of India (CCIL) platform, which showed six separate deals for a total notional sum of Rs 700 crore.

The demand for interest rate swaptions from domestic clients to increase in the short to medium term as the proportion of external benchmark linked lending by banks continues to rise.



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Will be “back with a bang” on credit card rollout, says HDFC Bank, BFSI News, ET BFSI

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Private lender HDFC Bank on Tuesday said that all preparations are in place to be back with a bang on credit cards and new schemes will be rolled out soon. The bank had earlier stated that it has lined up a series of new card launches in anticipation of RBI lifting its ban.

Eight months after a ban was imposed, in a letter to the HDFC Bank board on Monday, the RBI communicated that it has decided to lift restrictions on launching new credit cards while the restrictions on launching new projects under digital 2.0 was still in place. Last month the lender’s chief Sashidhar Jagdishan had stated that the bank has complied with 85% of the requirements of RBI on the technology front.

“All the preparations and strategies that we have put in place to ‘come back with a bang’ on credit cards will be rolled out in the coming time,” the lender said in a press statement. “We would like to inform all that the Reserve Bank of India has lifted the restriction placed on sourcing of new credit cards. We thank the regulator for this. The board has taken note of the same and the bank is committed to full compliance of the regulatory directions.”

The bank added that it will continue to engage with the regulator and ensure compliance on all parameters, so that the restrictions imposed on new launches of the Digital Business generating activities planned under Digital 2.0 could be lifted soon.

The RBI has asked the bank to submit a board-approved letter indicating continued compliance with its IT examination report.

“The ban has come before the festive season which starts from September onwards in India, so the juggernaut can roll with full force and launch credit cards, attractive schemes within their ecosystem partners and be a force to reckon with,” said Suresh Ganapathy, associate director, Macquarie Capital.

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.

“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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HDFC Bank ready with strategy on credit cards after RBI revokes ban

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Private sector lender HDFC Bank on Wednesday said it is ready with strategies to ‘come back with a bang’ in the credit card space.

“As stated earlier, all the preparations and strategies that we have put in place to ‘come back with a bang’ on credit cards will be rolled out in the coming time. We are happy that we will be able to serve our customers again with the same dedication and humility,” it said in a statement.

Noting that the restrictions on all new launches of the digital business generating activities planned under Digital 2.0 will continue till further review by the regulator, the bank said it will continue to engage with the regulator and ensure compliance on all parameters.

Also read:Reserve Bank allows HDFC Bank to sell new credit cards

The statement comes after the Reserve Bank of India (RBI) relaxed curbs on the private sector lender on sourcing new credit cards. “…the RBI vide its letter dated August 17, 2021 has relaxed the restriction placed on sourcing of new credit cards. The Board of Directors of the Bank has taken note of the said RBI letter,” HDFC Bank said in a stock exchange filing.

The RBI had in December last year directed HDFC Bank to temporarily halt sourcing of new credit card customers as well as launches of digital business generating activities planned under its proposed programme‐Digital 2.0.

HDFC Bank is the largest credit card issuer with 1.48 crore outstanding cards as of June 2021. The temporary halt on sourcing of cards had to some extent, impacted its business and also enabled competitors such as ICICI Bank and SBI to increase their market share.

Analysts said the RBI decision before the beginning of festive season is a positive development. “…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 said in a research note.

Also read: New credit cards: RBI partially lifts curbs on HDFC Bank

It pointed out that HDFC Bank had nearly lost about 6 lakh cards since the date of embargo. On the other hand, ICICI Bank, SBI Cards and Axis Bank almost added 13 lakh, 7.5 lakh and 3 lakh cards respectively over the similar period.

“Other players such as ICICI Bank and SBI Cards have sharply ramped up their incremental market share at about 49 per cent and 28 per cent during this period,” it said.

During recent quarters HDFC Bank has reported moderation in fee income/NII, due to the RBI restriction on credit cards sourcing as this segment contributes about 25 per cent to 33 per cent of the total fee income for the bank. HDFC Bank scrip was up 1.83 per cent in morning trade at BSE.

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Reserve Bank allows HDFC Bank to sell new credit cards

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HDFC Bank on Wednesday said Reserve Bank of India (RBI) has relaxed the restrictions placed on the bank to issue new cards.

RBI had issued orders in December and February to HDFC Bank on certain incidents of outages in the internet banking /mobile banking/payment utilities of the bank over the past two years.

“As a further update to the above intimations, we wish to inform you that the RBI vide its letter dated August 17, 2021, has relaxed the restriction placed on sourcing of new credit cards,” it said in a regulatory filing.

Also read:New credit cards: RBI partially lifts curbs on HDFC Bank

The board of directors of the bank has taken note of the said RBI letter, it said. HDFC Bank said the restrictions on all new launches of the digital business generating activities planned under Digital 2.0 will continue till further review by RBI.

“We will continue to engage with RBI and ensure compliance on all parameters,” the bank said. Stock of HDFC Bank traded 2.06 per cent up at ₹1,546.00 apiece on BSE.

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RBI partially lifts ban on HDFC Bank, allows it to sell new credit cards, BFSI News, ET BFSI

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Eight months after barring the country’s largest private sector lender HDFC Bank from selling new credit cards, the Reserve Bank of India (RBI) has lifted the ban.

However, the ban on launching new technology initiatives remains.

In December last year, the RBI had come out with an unprecedented action implementing both the bans, after repeated instances of technological outages at the lender, which is the market leader in the credit cards segment.

Rivals ICICI Bank and SBI Cards seized the opportunity to narrow the gap with HDFC Bank.

The bank’s existing users were not impacted by the ban and it had 1.48 crore credit card customers as of June.

The impact

On July 17, the bank’s Chief Executive and Managing Director Sashidhar Jagdishan had said it has complied with 85 per cent of the RBI’s requirements on the improvements desired, and the ball is now in the regulator’s court to re-allow the bank.

Earlier, its technology and credit card vertical had said the time off the market has been utilised to re-draw processes and the teams are raring to go.

Jagdishan had said a technology audit is also over and the RBI will now be “independently” taking a view on when to lift the penal actions taken against the bank.

“We have given a milestone to the regulator in terms of what are the things we are doing on technology, complying with their advisories and directives.

The progress

“We have covered a significant portion as we speak. Almost 85 per cent of what we had to do has been covered,” Jagdsihan, who has been with the lender for over two decades and worked as the ‘change agent’ in the years leading to his elevation, said.

He added that the ball is in the regulator’s court. “As they deem fit, as they see that we are on the right track, I am sure at some point of time, they will lift the embargo.”

Acknowledging that the bank has lost market share in the credit card segment due to the ban, Jagdsihan said tech outages are a global phenomenon but it is the time taken to recover from a setback where the bank erred, leading to the “rap on the knuckles” from the regulator.

The action against HDFC Bank has been followed with a ban on card companies Mastercard and American Express from selling any new cards because of a failure to adhere to data localisation rules.

Also read : HDFC Bank episode shows that digital banking is not easy



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