Category: Banking & Finance

UCBs fear disruption as RBI’s deadline on the appointment of MDs looms large

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Hundreds of urban co-operative banks (UCBs) may have to change their Managing Directors by August 25, 2021, if the Reserve Bank of India (RBI) does not give them leeway on its directions on the appointment of Managing Director (MD) and Whole-Time Director (WTD), according to an apex body of co-operatives.

The National Federation of Urban Cooperative Banks and Credit Societies (NAFCUB) has requested the RBI to allow incumbent MDs of UCBs to complete their tenure and make its directions on appointment of MD/WTD applicable only to fresh appointments.

The Federation emphasised that the aforementioned arrangement will be least disruptive and also give banks time to comply with the RBI directions.

Jyotindra Mehta, President, NAFCUB, feared that if RBI insists on adherence to the timeline prescribed in the directions, it could lead to a situation where hundreds of banks will need to change their MDs within two months. He emphasised that it will be not easy for the banks to find suitable candidates.

Cooperative vs corporate structure

He observed that while making most of the provisions of the Banking Regulation Act, 1949, applicable to UCBs, RBI has to keep in mind that the directions/ guidelines it issues under these provisions are compatible with the democratic structure of the cooperative banks and their essential cooperative character.

In a letter to RBI Governor Shaktikanta Das, Mehta underscored that this was an assurance given by the Minister in the Parliament during the discussion on the Bill to amend the Banking Regulation Act, 1949, when some members raised apprehensions that the provisions of Bill would allow authorities to undermine cooperative character of cooperative banks.

He opined that this challenge is most evident when it comes to the provisions regarding constitution and powers of board, appointment of chairman and managing director.

“However, it appears that RBI has largely brought about changes through the directions (on Appointment of MD/ WTD) without visualising the disruption it would cause in the sector.

“It has practically incorporated same provisions that are prescribed for banks that have corporate structure,” Mehta said.

Directions

As per the directions, while MDs of UCBs appointed with prior RBI approval in terms of its guidelines on constitution of Board of Management can continue till completion of his/ her tenure or for a period of three years from the date of initial appointment, whichever is earlier, other UCBs have to review the ‘Fit and Proper’ status of the existing MD in terms of the directions.

Such UCBs have to confirm the same, with the approval of Board of Directors, to RBI’s regional offices within a period of two months from the date of the directions, which were issued on June 25, 2021.

The directions prescribe eligibility and propriety criteria, tenure of MD/WTD, procedure for obtaining RBI approval for appointment/ re-appointment/ termination of MD/WTD, among others.

While NAFCUB appreciated the need for steps to be taken to upgrade professionalism and bring in more transparency in the managements of many of the UCBs, it also stated that about 90 per of these Banks are very small sized entities in comparison to commercial banks and pose no major risk to the banking system.

As at March-end 2020, there were 1,539 UCBs in the country. About 88 per cent of these Banks had deposits of less than ₹500 crore and about 93 per cent had advances of less than ₹500 crore.

Appointment vs election of directors

Referring to UCBs management structure being decades old and, in some cases, even over a century old, Mehta said they will need time to change and to adopt concepts such as “appointment” of directors, (as against elected) “CMD”, “WTD” and so on, which are totally alien to them, as they do not exist in cooperative lexicon

The NAFCUB chief feared that suddenly forcing the banks to implement all these concepts all at once would be highly disruptive, inviting chaos.

He said stretching the appointment exercise over a period of time of, say, 4-5 years or more in stages will help the sector.

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IBBI puts more onus on RP, says dutybound to find frauds, BFSI News, ET BFSI

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Seeking to enhance transparency in the insolvency process, IBBI has amended regulations for corporate insolvency proceedings wherein a resolution professional will be required to provide details about his or her opinion about avoidance transactions pertaining to a corporate debtor.

The Insolvency and Bankruptcy Board of India (IBBI) has amended the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations.

The amendments to the regulations are aimed at enhancing “the discipline, transparency, and accountability in corporate insolvency proceedings”.

A resolution professional is duty-bound to find out if a Corporate Debtor (CD) has been subject to avoidance transactions, namely, preferential transactions, undervalued transactions, extortionate credit transactions, fraudulent trading and wrongful trading, and file applications with the adjudicating authority seeking appropriate relief.

This not only claws back the value lost in such transactions increasing the possibility of reorganisation of the CD through a resolution plan, but also disincentivises such transactions preventing stress to the CD.

“For effective monitoring, the amendment requires the RP to file Form CIRP 8 on the electronic platform of the Board, intimating details of his opinion and determination in respect of avoidance transactions,” the release said.

The IBBI has put out the format of form CIRP 8 and it needs to be filed in respect of every CIRP ongoing or commencing on or after July 14.

Intimation of changes

With the amended regulations, an insolvency professional conducting CIRP will also have to disclose all former names and registered office address(es) so changed in the two years preceding the commencement of insolvency along with the current name and registered office address of the CD, in all its communications and records.

CIRP refers to the Corporate Insolvency Resolution Process.

The amendment takes into account the possibility where a CD may have changed its name or registered office address prior to commencement of the insolvency process. In such cases, the stakeholders may find it difficult to relate to the new name or registered office address and consequently fail to participate in the CIRP.

Roping in professionals

Under the insolvency regulations, an interim resolution professional or a resolution professional may appoint any professional, including registered valuers, to assist him in the discharge of his duties in the conduct of the CIRP.

“The amendment provides that the IRP/RP may appoint a professional, other than registered valuers if he is of the opinion that the services of such professional are required and such services are not available with the CD.

“Such appointments shall be made on an arm’s length basis following an objective and transparent process. The invoice for a fee shall be raised in the name of the professional and be paid into his bank account,” the release said. The amendments have come into effect from July 14.



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IDFC reverse merger in IDFC First Bank likely as RBI allows exit, BFSI News, ET BFSI

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The Reserve Bank of India had allowed IDFC to exit the IDFC First Bank.

In a regulatory filing, IDFC said that the RBI on July 20 clarified that “after the expiry of lock-in period of five years, IDFC Ltd can exit as the promoter of ‘IDFC FIRST Bank Ltd”.

Accordingly, the company can now exit as the promoter of IDFC First Bank, as the five year lock-in period has ended.

The IDFC Bank was created by the demerger of the infrastructure lending business of IDFC to IDFC Bank in 2015.

The RBI clarification could potentially lead to a reverse merger, which would be beneficial to IDFC Limited shareholders by increasing shareholder value.

Reverse merger

IDFC First Bank, which started operations in October 2015, completed five years on September 30, 2020. Under the rules then, a non-operating financial holding company, IDFC Financial Holding Co Ltd was mandated to hold a minimum of 40% of the paid-up capital of the bank for five years. IDFC holds 100% stake in the holding company, and in turn 36.56% in the bank.

The board may consider a reverse merger between IDFC and the bank, and collapse the holding company structure.

An application would have to be submitted for such a reverse merger. The RBI had mandated a holding company structure to ring-fence the bank from other financial services businesses of the group. A reverse merger, which has been in talks, would be beneficial to the shareholders of IDFC as it would remove the holding company discount. While the 2013 rules mandated it, in the 2016 guidelines for “on-tap” bank licensing, the RBI had not sought the requirement of holding a company for promoter if there are no other group entities.

IWG suggestions

The RBI’s internal working group on ownership of private banks had also recommended allowing banks, currently under holding company structure, to exit if they do not have other group entities. Recently, the RBI allowed Equitas Small Finance Bank and Ujjivan Small Finance Bank to apply for the merger of the holding company with the bank.

While the suggestions of the internal working group have not yet been implemented, the regulations are clear in terms of the holding company quitting only if it has no other organisations in its fold, paving an alternative road to departure for corporations like IDFC.



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Globally, Indian Banks lead the way in adopting new technologies, BFSI News, ET BFSI

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Mumbai: While the banking sector has been adapting to digital disruption for several years, COVID-19 has accelerated this transformation, opening up access and opportunity to millions of unbanked and under-banked consumers.

Leveraging technology to its fullest potential will not only stimulate growth but will enable Indian Banks to emerge as global leaders that will be among the strongest, resilient and most dynamic in the world.

Indian banks are leading all other banks around the world in adopting technologies. This was the collective opinion of leading bankers and experts in the BFSI sector who participated in a virtual discussion at the IMC Chamber of Commerce and Industry’s 11th Banking & Finance Conference on”How Technology is Reshaping Banking and Finance,” on July 15 & 16, 2021.

SBI Chairman Dinesh Khara spoke of SBI working towards launching the next version of Yono, adding that the bank had onboarded 40,000 overseas customers on the Yono platform by end of March 2021.

Speaking at the Conference, Guest of Honour, N. S. Vishwanathan, Former Deputy Governor, Reserve Bank of India said, “The government’s move to privatise two State-owned lenders, presents an ‘exciting opportunity’ for investors looking to get into the business.”

“The government has already been brave while presenting the Union budget and has confirmed that it is willing to stretch the deficit to make sure that the country continues to be on a growth path,” said K V Kamath, while speaking at an event.

Abizer Diwanji, Partner & Head – Financial Services, E&Yis of the opinion that defaults are bound to happen in the banking business, but one has to deal with them upfront rather than taking 5-7 years to deal with it.

Narendra Ostawal, MD, Warburg Pincus‘ said, “Private equity firms like his will be interested in investing in the bank privatisation process and see it as a ‘huge opportunity’.”

Arjit Basu, Chairman, Banking and Finance Committee in his introductory address affirmed that Technology is the core of global economy and we should fearlessly embrace new technologies and innovations. Diversion between Banks and financial institutions are slowly going away and Fintechs are the emerging banks of tomorrow.

In his welcome remarks, Rajiv Podar, President, IMC mentioned that the Indian economy has undergone a radical transformation in the last decade. The confluence of technology and finance, or Fintech as it is commonly known, has been at the centre of this change. India has emerged as one of the biggest Fintech hubs in the world, as new-age companies leveraged technology to change the way people and businesses avail banking and financial services.

Other sessions focused on the importance of ‘Corporate Governance’ in the banking systems, opportunities and risks involved in investing in the Indian banking and financial services, role of Fintechs and Payments Banks in the financial systems, and on how technology will help banking and financial services in future.

Also discussed were problems encountered by customers and banks due to the rapid digitization of the banking and finance sector, and how central banks can and should take the lead to ensure a Green Economy.MDs and CEOs of many other banks, Fintech companies, Private Equity Firmsalso participated in the conference.



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At Rs 8 lakh crore, PSB write-offs more than double the capital infusion by govt, BFSI News, ET BFSI

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Public sector banks have written off a massive Rs 8 lakh crore worth of loans since 2014, more than double the capital of Rs 3.37 lakh crore infused by the government in them.

The highest infusion was in fiscal 2019 when rs 1.06 lakh crore were infused while in 2020-21, the government put in Rs 14,500 crore into four public sector banks.

The maximum write-offs were in fiscal 2019 at Rs 1.83 lakh crore, following by FY20 at Rs 1.75 lakh crore.

Reduction in non-performing assets due to write-offs for public sector banks stood at Rs 1,31,894 crore during fiscal 2020-21.

In FY2019-20, the number stood at Rs 1,75,877 crore, the RBI said

In the last seven years, bank credit to the industrial sector dropped to 28.9% in 2021 as compared to 42.7% in 2014. Credit to the retail sector grew from 16.2% to 26.3% in the last seven years.

The comparison

The loans write-off between 2015 and 2019 were more than three times compared to the figures of bad loans written off during the previous Congress-led UPA regime from 2004-2014, as per an RTI revelation.

During the UPA’s 10-year rule, around Rs2,20,328 crore was written off by various banks, and this figure shot up to Rs7,94,354 crore during the NDA regime from 2015-2019, resulting in a corresponding reduction in the banks’ NPAs.

The RTI reply figures around two-dozen public sector banks (PSBs), some three-dozen in the private sector, nine scheduled commercial banks, a four-dozen foreign banks, and several in each category not written off any loans.

Of the loan write-offs in the UPA decade (2004-2014), the PSBs accounted for approximately Rs 1,58,994 crore, while the private banks’ amounts were Rs41,391 crore and for foreign banks it was Rs 19,945 crore, with no write-offs by Scheduled Banks.

Later, in the NDA regime (2015-2019), the PSBs accounted for a stupendous Rs 6,24,370 crore loan write-off, with the private banks writing off Rs 1,51,989 crore and the foreign banks shared the remaining 17,995 crore, (Total—Rs7,94,354 crore), besides an additional write-off by scheduled banks totalling Rs 1,295 crore (Total – Rs 7,95,649 crore).

During the NDA rule, there was some recovery from the write-offs between 2015 and 2019— Rs 82,571 crore, or roughly 12% of the total Rs 7,94,354 crore, were written off.



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Borrowers fear bank watch list, avoid govt guaranteed loans, BFSI News, ET BFSI

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The emergency credit line guarantee scheme (ECLGS ), which was a major driver of loan uptake in the first phase of the pandemic, is seeing a lacklustre response from borrowers.

The scope of the scheme which was increased to Rs 4.5 lakh crore, has seen Rs 2.7 lakh crore sanctioned as of July 2. Of this, Rs 2.1 lakh crore has been disbursed.

The ECLGS aimed to provide and government-guaranteed loans to mitigate the economic distress faced by micro, small and medium enterprises ( MSMEs) and other entities due to the Covid-induced lockdowns. The government has extended the scope of

Why tepid response

According to bankers, borrowers eligible and in need of additional have already availed of the loans in the first two rounds. Borrowers do not want to be under a watchlist for stressed loans.

The number of applicants has been dropping with the new version and bankers see fresh demand of loans during the festive season.

ECLGS 4.0

In June Finance Minister Nirmala Sitharaman on Monday announced a slew of measures, including Rs 1.1 lakh crore (Rs 1.1 trillion) credit guarantee scheme for improving health infrastructure, and enhancing the limit under the ECLGS by 50 per cent to Rs 4.5 lakh crore for the MSME sector facing a liquidity crunch.

Sharing the details of the stimulus package, the finance minister said this comprises eight relief measures and other eight measures to support the economic growth.

She announced Rs 1.1 lakh crore loan guarantee scheme for Covid-affected sectors, including the health sector, which includes guarantee cover for expansion or for new projects.

Besides, she said, additional Rs 1.5 lakh crore limit enhancement has been done for ECLGS.

Besides, the validity of the scheme was extended by three months to September 30 and or till guarantees for an amount of Rs 3 lakh crore are issued.

The last date of disbursement under the scheme has been extended to December 31.

Under the ECLGS 4.0, 100 per cent guarantee cover was given to loans up to Rs 2 crore to hospitals, nursing homes, clinics, medical colleges for setting up on-site oxygen generation plants.

The interest rate on these loans has been capped at 7.5 per cent, which means the banks can offer loans less than this ceiling.



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RBI allows IDFC to exit as promoter of IDFC First Bank, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank of India (RBI) allowed IDFC to exit as the promoter of IDFC First Bank.

In a regulatory filing made to the BSE, IDFC said that the RBI on July 20 clarified that “after the expiry of lock-in period of 5 years, IDFC Limited can exit as the promoter of IDFC First Bank Limited.”

Accordingly, the company can now exit as promoter of IDFC First Bank, as the five year lock-in period has ended.

The IDFC Bank was created by demerger of the infrastructure lending business of IDFC to IDFC Bank in 2015.

“After the lock-in period, the RBI has allowed IDFC to withdraw as a promoter of IDFC First Bank. The above clarification could potentially lead to a reverse merger, which would be beneficial to IDFC Limited shareholders by increasing shareholder value,” said Sonam Chandwani, managing partner at KS Legal Associates.

“Also, while the suggestions of the internal working group have not yet been implemented, the regulations are clear in terms of the holding company quitting only if it has no other organisations in its fold, paving an alternative road to departure for corporations like IDFC.”



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Bajaj Finserv will enter asset management business: Sanjiv Bajaj

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Bajaj Finserv reported a 31.5% year-on-year drop in consolidated profit after tax for Q1FY22 to Rs 833 crore while total income was down 1.7% YoY to Rs 13,949 crore.

Bajaj Finserv will enter the asset management business, Sanjiv Bajaj- chairman and managing director, Bajaj Finserv, said on Wednesday at the company’s annual general meeting. The company has applied for a licence to start an asset management company and is awaiting approval from the Securities and Exchange Board of India. Through this, they would first launch mutual funds and later, portfolio management services business, Bajaj said. The business would leverage the digital platform to provide low-cost, but high-value services, he said.

The MD is looking forward to be a market player offering all financial services, and deliver them seamlessly through an app-based platform. The company at present has three main businesses — finance and two insurance ventures. The company added housing finance business and also entered retail stock broking services with demat, broking and margin trade financing. It has forayed into healthtech with Bajaj Finserv Health that combines technology, healthcare and financial services for corporate and individual customers.

Bajaj said the two insurance joint ventures with Allianz, the Bajaj Allianz Life and Bajaj Allianz General Insurance, were completing 20 years this year and both had built solid businesses with combined gross premium of Rs 24,000 crore and assets under management of around Rs 1,00,000 crore as on March 31, 2021. The partners have no plans of going public and listing these insurance companies, Bajaj said.

Announcing the Q1FY22 results, Bajaj said during Q1FY22 the performance of Bajaj Finance was muted because of lockdowns, but the company had made higher provisions to stay solid as a company. The current quarter would be better than the last. The general insurance business saw significant increase in claims because of Covid-19 while the life insurance business grew 45% in the first quarter and started the year very strong, Bajaj said.

Bajaj Finserv reported a 31.5% year-on-year drop in consolidated profit after tax for Q1FY22 to Rs 833 crore while total income was down 1.7% YoY to Rs 13,949 crore. The drop in PAT was largely attributed to mark-to-market changes. The consolidated results of Bajaj Finserv included the results of its wholly owned subsidiaries Bajaj Finance, Bajaj Allianz General Insurance and Bajaj Allianz Life Insurance Company. Bajaj Finance profits were at Rs 1,002 crore while the general insurance PAT was at Rs 362 crore and life insurance shareholders’ PAT was Rs 84 crore during Q1FY22.

Loan losses and provisions for Bajaj Finance in Q1FY22, including expected credit loss, was Rs 1,750 crore as against Rs 1,686 crore in Q1FY21. The Covid-19 claims in the general insurance business had gone up to Rs 238 crore during the quarter compared to Rs 14 crore in Q1FY21. The life insurance business, too, saw Covid-19 claims of Rs 288 crore during the quarter compared to Rs 1 crore in Q1FY21.

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IDFC says can exit as promoter of IDFC First Bank since five-year lock-in period over

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IDFC said it can exit as the promoter of IDFC First Bank since the five year lock-in period has ended. This is based on the communication with the Reserve Bank of India.

“… the RBI vide its letter …dated July 20, 2021, clarified that after the expiry of lock‐in period of five years, IDFC Limited can exit as the promoter of IDFC First Bank,” it said in a stock exchange filing on Wednesday.

Under RBI rules, the shareholding of the non-operative financial holding company, which is the promoter of the bank, will be locked in for a period of five years from the date of commencement of the business of the bank. IDFC Bank was set up in 2015. This means that the five year lock-in period is now completed.

As on June 30, 2021, IDFC Financial Holding Company held 36.56 per cent stake in IDFC First Bank.

IDFC First Bank was founded by the merger of IDFC Bank and Capital First on December 18, 2018.

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Banks review settlement processes for deposit accounts of deceased customers in view of Covid-19

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Banks are reviewing their processes relating to the settlement of deposit accounts of deceased customers in view of the adverse impact of the Covid-19 pandemic, which as per official figures has claimed about 4.18 lakh lives so far.

They are weighing the possibility of quick settlement of partial deposit amount to provide an immediate relief to family members of the deceased and extending a helping hand in filing insurance claims if the deceased was covered by a life insurance scheme sold through them, among others.

In an advisory, the Indian Banks’ Association emphasised that banks need to sensitise their staff at various levels and particularly at the branch level, to handle death settlement cases sympathetically in the light of the pandemic.

The Association said all possible steps should be taken to mitigate sufferings of survivors of the family of the deceased depositor.

Quick settlement

Through the review, banks are expected to make their processes flexible and smooth by stipulating shorter settlement time. This could accelerate the process of settlement of the deposit accounts of the deceased.

Banks may also consider higher delegation to the branch level managerial staff or the delegation power may be reviewed for enabling quick settlement of a partial/limited amount of, say, up to ₹1 lakh to provide immediate relief to the family members of the deceased in cases where all the required compliances are in place.

In cases where nomination is available and there are no challenges in KYC (know your customer) compliance of the nominee, banks can make the claim format brief and compact. As per the advisory, production of legal representation from nominee may not be insisted upon up to a limit of ₹2 lakh.

Banking expert V Viswanathan underscored that when a nominee is available, there should be no delay in the settlement of the deposit account.

“Only two documents — death certificate of depositor and KYC document of the nominee for identity verification — are needed to credit the amount,” he said.

Further, an evidence of the nominee maintaining an account with a bank — a cancelled cheque leaf or passbook (this is to avoid credit to the wrong account) — to credit the money to his/her account is required.

Minor survivors

In case of the unfortunate death of both the parents or account holder and the nominee, branch managers may make discreet enquiries to ensure genuineness of the claimants/natural guardian. This is aimed at helping the minor survivors.

In the aforementioned case, banks may devise Standard Operating Procedures for extending some immediate help within the legal framework depending on the degree of reliance on the circumstances.

Viswanathan observed that in cases where minors lose their parents, one of the relatives of one of the parents can step in as an administrator and receive the money as guardian for them. Legal heirship certificate will be the only requirement.

If there are other legal heirs to the deceased, they should give a no-objection certificate (NOC) for releasing the money to children, he added.

Insurance claim

While handling cases of settlement of deposit accounts of deceased customers, banks can check whether a customer was covered under any insurance policy facilitated by them so that the family members can be advised suitably and necessary help can be extended in filing of insurance claims.

Banks have facilitated insurance cover under the Pradhan Mantri Swasthya Bima Yojana/ Pradhan Mantri Jeven Jyoti Bima Yojana and also under many schemes launched by the respective State governments and annual premiums in such cases are paid by debiting savings accounts of customers.

Grievance redressal

Appointing grievance redressal officers at Administrative Offices (AOs) and displaying their contact details on website can help in reducing the visits of the claimants to the branches and AOs for knowing the status of their requests, as per the advisory.

Banks can also explore introduction of non face-to-face processes like ‘Video-based Customer Identification Process’ to accommodate claims made by nominees unable to visit the branch.

Further, they can consider putting in place digital applications for processing, monitoring and accelerating the process of settlement. This can help in keeping the claimants informed about the claim status.

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