Category: Banking & Finance

How RBI’s current a/c norms have put smaller banks at a disadvantage, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India‘s (RBI) insistence on companies opening current accounts with banks is among the factors that have helped large lenders such as HDFC Bank, ICICI Bank and SBI raise their shares of the competitive corporate banking market in 2020, according to a report.

Apart from the RBI rules, the government’s mega merger to reduce the number of state-owned banks has also helped in the trend, rating agency Crisil said on Wednesday in the report.

In mid-2020, the RBI had come up with the circular that specified which bank can open a current account for a borrower, in order to check any misuse through multiple current accounts.

A fourth of the large and medium corporates said they were banking with at least one among ICICI Bank, Axis Bank and HDFC Bank as against 17 per cent in 2016, it said adding that the private sector banks have grown at over 25 per cent per year.

In most of the four-year period, SBI defended its market-leading penetration levels but in 2020, the lender expanded its footprint. Now, nearly a third of corporates do business with the largest lender and 30 per cent name it as their cash management provider.

The RBI circular

In its August 6, 2020, circular, the regulator had mandated that no bank shall open current accounts for customers who have availed credit facilities in the form of CC/OD from the banking system, and all transactions shall be routed through the CC/OD account. The RBI moved was targeted to ensure greater discipline and transparency in the way large borrowers move funds.

It had said that in case where a bank’s exposure to a borrower was less than 10% of the banking system’s exposure to that borrower, debits to the CC/OD account can only be for credit to the CC/OD account of that borrower with a bank that has 10% or more of the exposure of the banking system to that borrower.

“Several trends have contributed to the pick-up in market penetration among the leading banks, including the ‘mega merger’ of the country’s public sector banks and the Reserve Bank of India’s ‘circular on current accounts’, which essentially rules that banks can only open current accounts for companies to whom they are also major credit providers, the report said.

Consolidation

It said the pressures exerted by the pandemic will accelerate the consolidation of the Indian corporate banking industry, as the market’s biggest banks prove themselves best-positioned to help large- and middle-market companies overcome crisis disruptions.

“When the pandemic sent the country into lockdown last year, companies needed immediate assistance from banks, at first to ensure financial stability, and then to keep businesses running,” says Gaurav Arora, head of Asia at Coalition Greenwich, part of Crisil, said.

The 2021 ‘Coalition Greenwich’ research study mentioned State Bank of India, along with leading private sector banks Axis Bank and HDFC Bank, and foreign banks Citi and HSBC, as companies’ top sources of support during the crisis.

The report said that even before the start of the global pandemic, India’s corporate banking market was on a consolidation path, driven by decisive steps by regulators to solidify the country’s banking sector, and the rapid evolution and growth of the leading private banks.



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Restriction on Mastercard: Co-branded cards, exclusive bank-tie ups to get impacted

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Lenders such as Yes Bank and RBL Bank with exclusive tie-ups with Mastercard will now have to look for new partners, which could translate into an advantage for RuPay and Visa. Further, co-branded cards with Mastercard will also be impacted.

Private sector lender RBL Bank on Thursday said it has entered into an agreement with Visa on July 14 to issue credit cards enabled on the Visa payment network.

“RBL Bank expects to start issuance of credit cards on the Visa payment network post the technology integration which is expected to take eight to 10 weeks,” it said in a stock exchange filing.

Data storage issue: RBI stops MasterCard from adding new customers

Changing equations

Meanwhile, the bank’s current run rate of about 1 lakh new credit card issuances per month could potentially be impacted till such time that there is clarity from the regulator on issuing new credit cards on the Mastercard network or till the technical integration with Visa is complete, RBL Bank further said.

RBL Bank currently issues credit cards on the Mastercard network only. It has about 30 lakh credit card customers and is the fifth largest credit card issuer in the country with nearly five per cent market share.

A report by ICICI Securities said that RBL Bank and Yes Bank issue only cards with Mastercard. Other lenders like Axis Bank, Kotak Mahindra Bank and Citi have atleast two tie ups – with Mastercard and Visa.

Meanwhile, State Bank of India and HDFC Bank have tied up with more payment networks.

“The issuance of co-branded cards with Mastercard will also stop due to the RBI restriction. If a particular Mastercard co-branded credit card has high contribution to the overall mix of a credit card player, it will have a higher impact on the issuer’s business growth,” the report noted.

HDFC Bank has three co-branded cards with Mastercard, while SBI has two such cards.

The RBI on July 14 took supervisory action against Mastercard and barred it from acquiring new customers (debit, credit or prepaid) from July 22 for not complying with data localisation requirements.

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RBL Bank’s credit card issuance rate to be impacted post RBI’s Mastercard ban

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RBL Bank on Thursday said its credit card issuance rate will be impacted post the Reserve Bank barring Mastercard Asia Pacific from onboarding new credit, debit and prepaid cards customers with effect from July 22 as it failed to comply with data storage norms.

RBL Bank, which currently issues credit cards on the Mastercard network only, said it has entered into an agreement with Visa Worldwide on Wednesday to issue credit cards enabled on the Visa payment network. “Our bank’s current run rate of approximately 1,00,000 new credit card issuances per month could potentially be impacted till such time that there is clarity from the regulator on issuing new credit cards on the Mastercard network or till the technical integration with Visa is complete,” RBL Bank said in a regulatory filing.

Technology integration

The bank expects to start issuance of credit cards on the Visa payment network post the technology integration which is expected to take 8-10 weeks. It said the company awaits further information from Mastercard on RBI’s supervisory action. “The debit and prepaid cards issued by the bank are already enabled on other payment networks in addition to the Mastercard network,” RBL Bank said.

Also read: Co-branded cards, exclusive bank tie ups to get impacted

It said, as of date, it has approximately 3 million credit card customers and is the fifth largest credit card issuer in the country with approximately 5 per cent market share.

Reserve Bank of India (RBI) imposed restrictions on Wednesday on Mastercard Asia/Pacific (Mastercard) from on-boarding new domestic customers (debit, credit or prepaid) onto its card network from July 22, 2021. The supervisory action will not impact existing customers of Mastercard.

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Mastercard: Will work with RBI to provide any additional details

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Mastercard said it is disappointed by the action by the Reserve Bank of India but said it will continue to work with them to provide any additional details required to resolve their concerns.

“Mastercard is fully committed to our legal and regulatory obligations in the markets we operate in. Since the issuance of the RBI directive requiring on-soil storage of domestic payment transaction data in 2018, we have provided consistent updates and reports regarding our activities and compliance with the required stipulations,” it said in a statement.

 

It also re-iterated its commitment to working with customers and partners in advancing on the government’s Digital India vision.

The RBI on July 14 took supervisory action against Mastercard and barred it from acquiring new customers (debit, credit or prepaid) from July 22 for not complying with data localisation requirements.

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Fullerton India appoints Rahul Bhardwaj as CIO, BFSI News, ET BFSI

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Fullerton India Credit Company Limited (Fullerton India), a leading Non-Banking Financial Company, today announced the appointment of Rahul Bhardwaj as their Chief Information Officer and Head of Operations & Customer Service. He will be reporting to Pavan Kaushal, Chief Operating Officer.

Bhardwaj re-joins Fullerton India from Jio Payments Bank, where he was a part of the founding team and led the operations for Jio Payments Bank and Reliance Payments Solutions Ltd. During his 25 years work experience, Bhardwaj has worked with leading financial and technological institutions such as ICICI Bank, Aptech Internet and Globus Stores.

Bhardwaj was previously with Fullerton India for 11 years, where he held leadership positions in multiple roles, heading Operations, Customer Service and Technology. He played a key role in strategizing, designing and implementing the first full suite of technology applications at the company. During his role in Operations, Rahul led the creation of a regional structure and instituted a metrics-driven delivery culture.

Speaking on the appointment, Shantanu Mitra, CEO and MD, Fullerton India, said, “On behalf of the Fullerton India family, we are delighted to welcome back Rahul. Rahul has previously been with us for over a decade and helped the company grow immensely, while holding multiple leadership roles. We are certain he will draw from his past experiences in the industry and add value with his ideas to strengthen and help lead Fullerton India’s business and technological transformation during his tenure.”

“I am delighted to be back at Fullerton India. It had been an enriching and rewarding experience working for this organization. Through my current role, I look forward to not just enhancing the company’s Ops and Tech space but to take it to the next level of Digitization and business growth by deepening our technology adoption and expanding our digital footprints. We hope that this transformation will help us reach our customers more effectively and serve them better,” Bhardwaj said.



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RBL Bank taps Visa to issue credit cards as RBI barred Mastercard from issuing new cards, BFSI News, ET BFSI

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Private lender, RBL Bank has entered into an agreement with Visa Worldwide Pte Limited (Visa) to issue credit cards on the Visa payment network.

The bank informed the exchanges about the agreement with Visa as RBI had barred Mastercard from issuing new cards due to non-compliance of data storage norms.

RBL Bank in the exchange notificiation said, “We await further information from Mastercard on RBI’s supervisory action. RBL Bank currently issues credit cards on the Mastercard network only. The debit and prepaid cards issued by the Bank are already enabled on other payment networks in addition to the Mastercard network.”

The bank said the integration with Visa will take another 8-10 weeks post which they will start issuing credit cards on Visa’s payment network. It’s current run rate of approximately 100,000 new credit card issuances per month could potentially be impacted till the integration with Visa gets over and regulatory clarity on the Mastercard network.

The bank currently has 3 million credit card customers and is the fifth largest credit card issuer in the country with roughly 5% market share.

On July 14, RBI had directed Mastercard to not issue any new cards on its network from July 22 onwards over non-compliance with data storage norms.

Mastercard said in a statement that it was disappointed with the stance taken by the regulator.

The payment giant in the statement said, “Mastercard is fully committed to our legal and regulatory obligations in the markets we operate in. Since the issuance of the RBI directive requiring on-soil storage of domestic payment transaction data in 2018, we have provided consistent updates and reports regarding our activities and compliance with the required stipulations. While we are disappointed with the stance taken by the RBI in their communication dated July 14, we will continue to work with them to provide any additional details required to resolve their concerns. Building on our considerable and continued investments in India, we remain committed to working with our customers and partners in advancing on the Government’s Digital India vision.”



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Biggest U.S. banks smash profit estimates as economy revives, BFSI News, ET BFSI

Banking & Finance

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By Michelle Price

WASHINGTON – The four largest U.S. consumer banks posted blockbuster second-quarter results this week, after pandemic loan losses failed to materialize and the U.S. economy began roaring back to life.

Wells Fargo & Co, Bank of America Corp, Citigroup Inc and JPMorgan Chase & Co posted a combined $33 billion in profits, buoyed by the release of $9 billion in reserves they had put aside last year to absorb feared pandemic losses.

That was beyond analyst estimates of about $24 billion combined, compared with $6 billion in the year-ago quarter.

Consumer spending has climbed, sometimes beyond pre-pandemic levels, while credit quality has improved and savings and investments have risen, the banks said.

Thanks to extraordinary government stimulus and loan repayment holidays, feared pandemic losses have not materialized. A national vaccination roll-out has allowed also Americans get back to work and to start spending again.

Sizzling capital markets activity has also helped the largest U.S. banks, with Goldman Sachs Group Inc reporting a $5.35 billion profit, more than double its adjusted earnings a year ago.

“The pace of the global recovery is exceeding earlier expectations and with it, consumer and corporate confidence is rising,” Citigroup Chief Executive Officer Jane Fraser said.

That was reflected in a pick-up in consumer lending.

For example, JPMorgan said combined spending on its debit and credit cards rose 22% compared with the same quarter in 2019, when spending patterns were more normal.

Spending on Citi-branded credit cards in the United States jumped 40% from a year earlier, but with so many customers paying off balances its card loans fell 4%.

Citigroup Chief Financial Officer Mark Mason said the bank expects more customers to go back to their pre-pandemic pattern of carrying revolving balances as government stimulus programs wind down later this year.

Wells Fargo posted a 14% gain in credit-card revenue compared with the second quarter of 2020, due to higher point-of-sale volume. Revenue was up slightly on the first quarter, the bank said.

“What we’re seeing is people starting to spend and act more in a way that seems more like it was before the pandemic started and, certainly on the consumer side, spending is up quite a bit, even when you compare it to 2018,” Wells Fargo chief financial officer Mike Santomassimo told reporters.

While loan growth is still tepid, which is usually bad for bank profits, there were signs that demand is creeping back.

Excluding loans related to the U.S. government’s pandemic aid program, loan balances at Bank of America, for example, grew $5.1 billion from the first quarter.

“Deposit growth is strong, and loan levels have begun to grow,” Bank of America CEO Brian Moynihan said in a statement.

JPMorgan, the country’s largest lender, on Tuesday reported profits of $11.9 billion compared with $4.7 billion last year.

Citigroup’s second-quarter profit rose to $6.19 billion, up from $1.06 billion last year, while Bank of America’s profit jumped to $8.96 billion from $3.28 billion.

Wells Fargo posted a profit of $6 billion compared with a loss of $3.85 billion last year, which was largely related to special items.

While the results indicate good news for consumers and businesses, low interest rates, weak loan demand and a slowdown in trading will probably weigh on results going forward, analysts said.

The U.S. Federal Reserve is staying the course, with an inflation target of 2% and no plans to tighten monetary policy by, for instance, raising interest rates, Fed Chair Jerome Powell said in prepared remarks for a congressional appearance on Wednesday.

That suggests banks will have to deal with low rates for an extended period of time.

(Reporting by Michelle Price; additional reporting by Noor Zainab Hussain, David Henry and Matt Scuffham; Editing by Lauren Tara LaCapra and Nick Zieminski)



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Microfinance sector hit as defaults surge in pandemic

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Small loan specialists in India that typically cater to people without bank accounts are facing a jump in pandemic-related defaults that could force some of them out of business, industry experts warn.

Loans overdue by 30 days are expected to reach 14-16 per cent of all so-called microfinance loans in the immediate aftermath of the second Covid-19 wave sweeping India, said Krishnan Sitaraman, senior director at credit rating agency Crisil.

That’s higher than 6-7 per cent in March, before the second wave took hold, and also above the 11.7 per cent reached in March 2017 after the demonetisation drive — an attempt to boost digital transactions and crack down on undeclared money that also hit microfinance lenders hard.

ALSO READ MFIs need bold policy support

“Older loans that were taken in 2019 or early 2020 are at a higher risk of defaults and they form about 60-65 per cent of the loanbook for lenders,” said Harsh Shrivastava, former head of the Microfinance Institutions Network, an association representing the sector in India.

Rahul Johri, chair of Vector Finance, a microfinance firm that provides loans to small enterprises, said many support measures brought in by the government had only helped larger institutions, while smaller players had struggled.

“It has become an existence issue for several small and mid-sized microfinance institutions as business has been severely impacted and collections are down,” said Johri.

Loan collection efficiency across the total loan pool has fallen to about 70 per cent from a peak of nearly 95 per cent in March, analysts say, indicating a potential build up in stress.

The gross loan portfolio of India’s microfinance lenders stood at ₹2.6-lakh crore ($35 billion) as of March 31, according to Crisil.

ALSO READ NBFC-MFIs: Sector sees nearly 25% decline in FY21

Bumpy road ahead

Despite the short-term challenges, some remain bullish on the sector and expect it to bounce back if an anticipated third wave is not so severe.

“About 55 per cent of the market is still untapped which means there is huge market opportunity … so things will look up soon,”said Johri.

But for now, many smaller microfinance firms are struggling.

Such companies, typically with loan books of less than ₹5-lakh crore ($67 million), have also seen their cost of funds rise by 100-150 basis points as banks and companies have become less willing to lend to them, said one industry executive, speaking on condition of anonymity.

Some microfinance firms have had to scale back capital raising plans due to tepid interest from investors, said the heads of two firms that have been looking to raise funds.

As smaller players falter, some have stopped paying salaries, or incentives to employees in recent months, they added, asking not to be identified due to the sensitivity of the matter.

“We are now only getting basic salaries, incentives have completely stopped in the last few months as collections are down,” said a collection agent.

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Global big banks plot back-to-office plans as vaccines roll out, BFSI News, ET BFSI

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The biggest banks in the world plan to re-open their offices, emboldened by aggressive vaccination drives and falling COVID-19 cases in major financial hubs, after sending most employees home early last year to help stem the spread of the coronavirus.

Banks globally are adopting different methods to ensure a successful back-to-office plan including hybrid working models and vaccination drives.

Here is the state of play with back-to-office plans in various regions:

UNITED STATES

Wells Fargo & Co

The bank said in March it plans to start bringing workers back to its offices after Labor Day due to the increasing availability of vaccines. The company is evaluating whether to allow certain businesses or functional subgroups in the U.S. to return to the workplace before Labor Day.

Goldman Sachs Group Inc

The bank planned to bring U.S. employees back to the office by mid-June.

JPMorgan Chase & Co

The largest U.S. bank will bring its employees in the United States back to the office on a rotational basis from July and plans to maintain a 50% occupancy cap during the return-to-office phase.

The bank also plans to step up the return of all of its employees in England to working at least part of their week in its offices from June 21.

Citigroup Inc

CEO Jane Fraser said in a memo in March that post-pandemic, most of the employees would be able to work in a “hybrid” setting, allowing them to work from home for up to two days a week.

Morgan Stanley

The bank’s chief executive officer, James Gorman, said if most employees are not back to work at the bank’s Manhattan headquarters in September, he will be “very disappointed”.

Gorman said his bank’s policy will vary by location, noting the firm’s 2,000 employees in India will not return to offices this year.

The bank’s staff and clients will not be allowed to enter its New York offices if they are not fully vaccinated, according to a source familiar with the matter. Employees, clients, and visitors will be required to attest to being fully vaccinated to access the bank’s offices in New York and Westchester, the source said.

Bank of America Corp

The lender expects all of its vaccinated employees to return to the office after Labor Day in early September, and will then focus on developing plans to bring back unvaccinated workers to its sites, Chief Executive Officer Brian Moynihan told https://bloom.bg/3gyALn3 Bloomberg News in an interview.

UNITED KINGDOM

Barclays

CEO Jes Staley has said the bank will adopt a hybrid working model and will reduce its real estate footprint but maintain its main offices in London and New York.

HSBC Holdings

HSBC has said it plans to cut its global office footprint by around 40% as it moves to a hybrid working model for most employees. The lender moved 1,200 call center staff in Britain to permanent home working contracts, Reuters reported in April, going further than some rivals in cementing changes to working patterns.

Lloyds Banking Group

Britain’s biggest domestic bank is hoping to resume office-based trials and experiments with around 5,000 of its staff this summer, once government restrictions allow. The lender has said it plans to cut 20% of its office space over two years.

Standard Chartered

StanChart said it will make permanent the flexible working arrangements introduced during the pandemic, and that it could cut a third of its office space in the next three to four years.

NatWest

CEO Alison Rose has said the bank is likely to adopt a hybrid working model, but has stressed offices will remain important as a place to bring people together to collaborate.

GERMANY

Deutsche Bank

Deutsche Bank in London plans to bring more staff back from June 21, assuming the city’s lockdown restrictions are loosened, according to a person with knowledge of the matter.

Germany’s largest lender has also told its investment bankers in the U.S. that it expects them to resume working from office no later than Labor Day, according to a memo seen by Reuters. The bank earlier said it was following a regional approach to the pandemic and return to the office issues, reflecting the different situations in individual countries.

SWITZERLAND

Credit Suisse

Credit Suisse in July 2020 launched a global program evaluating various work-from-home options, which are expected to shape its post-pandemic working models. It has been monitoring and adapting work arrangements since launching work-from-home globally in March 2020, taking into account local guidelines.

UBS

UBS Chairman Axel Weber in May said flexibility would remain part of work arrangements at Switzerland’s biggest bank going forward, where roles allow. Return to office plans vary from region to region, in accordance with local government guidelines.

CANADA

Royal Bank of Canada, the country’s largest lender, is exploring a flexible and hybrid work arrangement to bring its employees back to the office, Chief Executive Officer David McKay said.

Source: Company statements, memo, sources (Reporting by Noor Zainab Hussain and Niket Nishant in Bengaluru, Iain Withers and Lawrence White in London, Tom Sims in Frankfurt and Oliver Hirt in Zurich, and Matt Scuffham and Elizabeth Dilts Marshall in New York; Editing by Anil D’Silva and Ramakrishnan M.)



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