Category: Banking & Finance

Trustees must get unit-holders’ consent before winding up a scheme, rules SC

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The Supreme Court on Wednesday held that trustees of a mutual fund scheme have to take the consent of the unit-holders, who have invested their money, before deciding to wind up the scheme or prematurely redeeming the units.

Trustees cannot give themselves the air of “domain experts” and treat unit-holders as “lay persons” whose consent is not necessary before winding up.

“The argument that the unit-holders are lay persons and not well-versed with the market conditions is to be rejected. Investments by the unit-holders constitute the corpus of the scheme. To deny the unit-holders a say debilitates their role and right to participate,” a Bench of Justices S. Abdul Nazeer and Sanjiv Khanna observed in a judgment.

The Bench was hearing an appeal by Franklin Templeton Trustee Services Private Limited on the winding up of its six mutual fund schemes. The judgment harmoniously interprets Regulation 18(15)(c) with Regulation 39 (2) (a) of the Securities and Exchange Board of India (Mutual Funds) Regulations of 1996.

Regulation 18 mandates that trustees seek the consent of the unit-holders, while Regulation 39 allows a close-ended mutual fund scheme to be wound up if the trustees give that opinion. The latter Regulation is silent about getting unit-holders’ consent.

The Supreme Court opted for a middle path between the two Regulations. “The Principle of Harmonious Construction should be applied in the context of the Regulations in question… This would mean the opinion of the trustees would stand, but the consent of the unit-holders is a pre-requisite for winding up,” Justice Khanna observed.

The court said that unlike the trustees of a mutual fund scheme, unit-holders may not be domain experts. But they are “discerning investors who are perceptive and prudent”.

“…Thus, the contention that the trustees, being specialists and experts in the field, their decision should be treated as binding and fait accompli has to be rejected,” Justice Khanna wrote.

Like shareholders

The court compared unit-holders of a mutual fund scheme with the shareholders of a company. “The waterfall mechanism under the Companies Act, or the Indian Bankruptcy Code, gives primacy to the dues of the creditors over the shareholders. Identical is the position of the unit-holders… the argument that unit-holders should be treated pari passu with the creditors is far-fetched,” the court noted.

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Data storage issue: RBI stops MasterCard from adding new customers

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The Reserve Bank of India (RBI) has barred MasterCard from acquiring new customers (debit, credit or prepaid) from July 22 for not complying with data localisation requirements.

In a statement, the central bank said that MasterCard is required to advise all card-issuing banks and non-banks to conform to these directions.

“Notwithstanding lapse of considerable time and adequate opportunities being given, the entity has been found to be non-compliant with the directions on Storage of Payment System Data. This order will not impact existing customers of MasterCard,” the RBI statement said.

The RBI, through an April 23 order, had imposed similar restrictions on American Express Banking Corp and Diners Club International Ltd from on-boarding new domestic customers onto their card networks from May 1.

Mandatory data storage

The central bank had made it mandatory for banks to store all the data relating to payment systems in India. For the foreign leg of the transaction, if any, the data could also be stored abroad, if required. The data includes end-to-end transaction details, information collected, carried and processed as part of the message/payment instruction.

Further, they were also required to report compliance to the RBI and submit a Board-approved System Audit Report conducted by a CERT-In empanelled auditor within a set timeline.

MasterCard did not comment on the RBI action.

The RBI action may benefit homegrown payment gateways especially those running on the UPI platform. Market experts said that there won’t be any impact on consumers as banks can switch to Visa or RuPay for issuing cards. Existing MasterCard users can continue to use their cards.

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RBI allows UCBs to refund share capital to members

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The Reserve Bank of India (RBI) plans to permit Urban Co-operative Banks (UCBs) refund the share capital to their members, or nominees/ heirs of deceased members, on demand, subject to conditions, as per its draft guidelines for issue and regulation of share capital and securities by UCBs.

Also, UCBs issuing regulatory capital instruments such as preference shares and debt instruments may be required to get a specific sign-off from the investors that they have understood the features and risks of the instruments.

On refund of share capital, the RBI said UCBs can do so only if their capital to risk-weighted assets ratio (CRAR) is 9 per cent or above, both as per the latest audited financial statements and the last CRAR as assessed bythe central bank during statutory inspection.

Banks’ CRAR

The central bank emphasised that the refund should not result in the CRAR of the bank falling below regulatory minimum of 9 per cent.

For the purpose of computing CRAR, accretion to capital funds after the balance sheet date, other than by way of profits, may be taken into account. Any reduction in capital funds, including by way of losses, during the aforesaid period will also be considered.

The RBI said that for floating rate instruments, banks cannot use their Fixed Deposit rate as benchmark. UCBs have to obtain a specific sign-off from investors, stating that they have understood the terms and conditions of the issue of the share/security being issued by the bank as disclosed in the Prospectus and Offer Document.

These banks need to ensure that all the publicity material / offer document, application form and other communication with the investor clearly state how the regulatory capital instruments are different from a fixed deposit, and that these instruments are not covered by deposit insurance.

Share-linking

The RBI said share-linking to borrowing norms shall be discretionary for UCBs, which meet the minimum regulatory CRAR criteria of 9 per cent and a Tier 1 CRAR of 5.5 per cent, as per the latest audited financial statements and the last CRAR as assessed by the RBI during statutory inspection.

Such UCBs shall have a board-approved policy on share-linking to borrowing norms, which shall be implemented in a transparent, consistent and non-discriminatory manner. Currently, borrowings from UCBs are linked to shareholdings of the borrowing members – 5 per cent of the borrowings if on unsecured basis – and 2.5 per cent of the borrowings in case of secured borrowings.

The RBI said where a member already holds 5 per cent of the total paid-up share capital of a UCB, it would not be necessary for him / her to subscribe to any additional share capital on account of the application of extant share-linking norms.

In other words, a borrowing member may be required to hold shares for an amount that may be computed as per the extant share linking norms or for an amount that is 5 per cent of the total paid-up share capital of the bank, whichever is lower.

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RBI extends implementation timeline of ATM cassette swap

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The Reserve Bank of India (RBI) has extended the timeline for implementation of cassette swap in all ATMs till March 31, 2022.

This comes in the wake of the Indian Banks’ Association making a representation on behalf of various banks, expressing difficulties in meeting the March 31, 2021 timeline.

Based on the recommendations of the Committee on Currency Movement (CCM), RBI, in April 2018, had advised that banks may consider using lockable cassettes in their ATMs, which shall be swapped at the time of cash replenishment. This is aimed at mitigating risks involved in open cash replenishment/ top-up.

The RBI then said cassette swap in ATMs may be implemented in a phased manner, covering at least one third ATMs operated by the banks every year, such that all ATMs achieve cassette swap by March 31, 2021.

As at March-end 2021, banks had 2.14 lakh ATMs and white label ATM operators had 25,000 ATMs across the country.

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Bandhan Bank appoints Kamal Batra as Head–Assets

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Bandhan Bank has appointed Kamal Batra as Head – Assets to bolster its goal of building a robust and granular retail assets franchise.

The bank’s ‘Vision 2025’ envisages a well-diversified and high-quality asset portfolio, strategically spread across secured and unsecured advances. This appointment is aimed at providing the necessary leadership direction and support towards the same, said a press statement issued by the bank.

The four pillars of the bank’s asset base would comprise Emerging Entrepreneurs Business (erstwhile known as microbanking), housing finance, commercial banking and other retail assets.

Also read: Bandhan Bank acquires branding rights of Kolkata metro station

New focus

Batra will assume the responsibility for growing the bank’s commercial banking (comprising SME lending and NBFC lending) business and retail assets (comprising gold loans, personal loans, auto loans, among others) portfolios.

The growth of these verticals will help the bank capitalise on its robust liabilities franchise and cater to the needs of all customers through an entire suite of offerings spanning deposits, business and retail loans, and third-party products such as mutual funds and insurance, across physical and digital banking.

A veteran of the financial services sector with over twenty five years of experience, Batra, in his last role, was Executive Vice President and Head, Business Banking and Secured Assets at IndusInd Bank. His responsibilities included establishing the SME lending business and scaling up other businesses, including Loan Against Property, unsecured business loans, channel finance, warehouse finance and gold loans among others.

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PNB moves court seeking restoration of assets of Nirav Modi’s firms seized by ED

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The Punjab National Bank (PNB) on Wednesday moved multiple applications before a special PMLA court here, seeking restoration of the assets of two firms owned by fugitive diamond merchant Nirav Modi, who is accused of duping the bank.

The bank submitted the applications before special judge V C Barde under the relevant provisions of the Prevention of Money Laundering Act (PMLA).

The Enforcement Directorate (ED) had earlier confiscated assets worth over ₹329.66 crore of Nirav Modi under the fugitive economic offenders law. The confisticated property includes assets of Firestar Diamond International Pvt Ltd and Firestar International Limited, firms owned by Modi.

Nirav Modi and his uncle Mehul Choksi, both prime accused in the case, along with others are being probed by the Enforcement Directorate (ED) on money laundering charges for allegedly perpetrating an over $2 billion (more than ₹13,000 crore) bank fraud in connivance with bank officials and by issuance of fraudulent Letters of Undertaking (LoUs) at the Brady House PNB branch in Mumbai.

The court has asked the ED to file its reply on July 28.

Nirav Modi (49) was declared a fugitive economic offender by the PMLA court in December 2019. Following that, the court had authorised the ED to confiscate the assets under the provisions of the Act. He is currently lodged in a UK jail after being arrested in London in March 2019 and is currently fighting extradition to India.

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Longevity finance: Gift-City regulator IFSCA sets up expert committee

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Gift-City regulator IFSCA has set up an expert committee to recommend approach towards development of Longevity Finance Hub in the Gift-City in Gujarat and provide a road map for the same.

The expert committee is being co-chaired by Kaku Nakhate, President and Country Head (India), Bank of America, and Gopalan Srinivasan, Ex-CMD, New India Assurance Company Limited.

The committee members comprise leaders from the entire longevity finance ecosystem including from areas such as banking, insurance, wealth management, fintech, legal, compliance and management consultancy, an official release said.

Global estimates suggest that there are one billion people in the silver generation (a global cohort of individuals aged 60 and older) with a combined spending power of $15 trillion and the size is ever expanding.

Development in medicinal science and technology will support extending of lifespan and longevity of the silver generation. It is estimated that by 2040, there will be more members of the silver generation than people under 20. This demographic change will throw open new challenges and opportunities especially in the areas of wealth management, health, insurance, and other investment products, the release added.

This has prompted the International Financial Services Centre Authority to set up an expert committee.

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RBI bars Mastercard from onboarding new customers over data storage norms, BFSI News, ET BFSI

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The Reserve Bank of India has asked Mastercard to not onboard domestic customers in India on debit, credit or prepaid platforms on to its card network from July 22, 2021.

RBI said, “Notwithstanding lapse of considerable time and adequate opportunities being given, the entity has been found to be non-compliant with the directions on Storage of Payment System Data. This order will not impact existing customers of Mastercard. Mastercard shall advise all card issuing banks and non-banks to conform to these directions. The supervisory action has been taken in exercise of powers vested in RBI under Section 17 of the Payment and Settlement Systems Act, 2007 (PSS Act).”

Mastercard is a payment system operator (PSO) authorised to operate a card network in the country under PSS Act.

As per RBI norms on Sotrage of Payments System Data dated April 6, 2018 all system providers were directed to ensure that within a period of six months the entire day which was related to payment system operated by them is stored in a system in India only.

Further, they were also required to report compliance to RBI and submit a Board-approved System Audit Report conducted by a CERT-In empanelled auditor within the specified timelines.

Previously in April 2021, RBI had barred American Express and Diners Club International from onboarding new domestic customers over non-compliance of data storage norms.



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Bandhan Bank appoints Kamal Batra to lead the commercial banking strategy, BFSI News, ET BFSI

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Bandhan Bank has appointed Kamal Batra as Executive President and Head – Assets, on Wednesday.

Kamal will assume the responsibility for growing the Bank’s Commercial Banking (comprising SME lending and NBFC lending) business and Retail Assets (comprising Gold Loans, Personal Loans, Auto Loans, among others) portfolios. Kamal will be based out of the Bank’s headquarters in Kolkata and will report to the MD & CEO.

The growth of these verticals will help the Bank capitalise on its robust liabilities franchise and cater to the needs of all Indians through an entire suite of offerings spanning deposits, business and retail loans, and third party products such as mutual funds and insurance, across physical and digital banking.

Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank said, “I am pleased to welcome Kamal to Bandhan Bank and wish him the best for his new role. Commercial Banking and other Retail Assets are key pillars of growth for the Bank and I hope Kamal’s leadership will enable the creation of a diversified and high-quality assets franchise”.



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Karnataka plans common software for PACS, DCC banks in State

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The Karnataka Government is planning to implement common software for all the PACS (primary agricultural credit societies), DCC (district central cooperative) banks and the Karnataka State Cooperative Apex Bank Ltd, according to Karnataka Cooperation Minister, ST Somashekhar.

Addressing mediapersons during his visit to Mangaluru on Wednesday, he said the Karnataka Budget for 2021-22 had proposed the implementation of a common software for PACS, DCC banks and the Apex cooperative bank in the state. The State has around 5400 PACS and 21 DCC banks.

The implementation of a common software would help in the smooth functioning of the activities of all these institutions, he said, adding it will aid in the effortless disbursal and recovery of loans to farmers.

Estimated cost of ₹198 crore

The software is estimated to be implemented at a cost of ₹198 crore. While the Centre will share 60 per cent of the cost, the State government will share the rest, he said.

The minister said that the Covid pandemic has taken the lives of more than 10,000 members of PACS and DCC banks in the State. There was a demand from cooperative members to waive loans of those who died due to Covid. An amount of around ₹81 crore is needed for the total loan waiver of these 10,000-plus borrowers. The minister said he would convene a meeting of the chairpersons and managing directors of DCC banks and Apex cooperative bank to discuss this matter.

Also read: Thaawarchand Gehlot takes oath as 19th Governor of Karnataka

Somashekhar said that the Cooperation Department has set a target of disbursing ₹20,810 crore loans at zero per cent interest rate to 30 lakh farmers, through PACS and DCC banks, in the State during 2021-22.

Around 24.5 lakh farmers were given these loans to the tune of ₹16,795 crore during 2020-21. The loan disbursal target for 2020-21 was around ₹15,300 crore, he added.

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