Category: Banking & Finance

EU watchdog tells banks to have a 10-year climate plan, BFSI News, ET BFSI

Banking & Finance

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Banks in the European Union must have a 10-year plan spelling out how they will deal with environmental, social and governance (ESG) risks to their bottom line, the bloc’s banking watchdog said on Wednesday.

Increasing volumes of money are going into climate-friendly investments and regulators want investors to have a reliable snapshot of a company’s green credentials.

A report from the European Banking Authority (EBA) on Wednesday set out recommendations for banks and their supervisors for approaching ESG risks and help the EU meet its goals of cutting carbon emissions by 2050.

Banks should plan strategically over a period of at least 10 years to show their resilience to different scenarios, disclose strategic ESG objectives, and assess the need to develop sustainable products, EBA said.

Climate risks can include “physical” or weather-related events like floods, and “transition” risks from sudden changes in asset values.

The EBA report looks at the second pillar of core banking rules that assess how risks at a lender are managed.

It is expected to set out detailed guidance for the third pillar relating to disclosures of risks later in the year. Work on pillar one or whether actual capital requirements need changing to reflect ESG risks, is expected at a later date.

EBA ESG Graphic https://fingfx.thomsonreuters.com/gfx/mkt/rlgpddrqjpo/EBA%20ESG%20Graphic.PNG

The report builds on existing EU initiatives such as a taxonomy that defines a sustainable product, and disclosure rules for all types of companies.

The European Central Bank which regulates top euro zone lenders will use the report from the end of 2022 for updating its annual “SREP” review of whether banks hold enough capital to cover risks on their books.

All EU banking supervisors will be required to apply the report or explain any gaps.

“We are putting an initial emphasis on climate-related risks as data is more advanced, but banks should also advance their identification and understanding of social and governance risks,” said Fabien Le Tennier, a policy expert in EBA’s ESG Risks unit.

Banks typically plan strategically for up to five years ahead at present.

“Most of our recommendations will not come as a surprise for banks, but there will probably be a challenge for banks to meet all of them, at least in the near term,” Le Tennier said.



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BIS, BFSI News, ET BFSI

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Central bank digital currencies can offer “finality, liquidity and integrity”, and could provide strong data governance as well as privacy standards based on digital identities, the Bank for International Settlements (BIS) said on Wednesday. The backing for such currencies by the Switzerland-headquartered BIS, which is also known as the central bank of all central banks, also comes at a time when there are ongoing intense discussions in India and many other countries on crypto currencies.

Noting that central banks stand at the centre of a rapid transformation of the financial sector and the payment system, BIS said Central Bank Digital Currencies (CBDCs) represent a unique opportunity to design a technologically advanced representation of central bank money, one that offers the unique features of finality, liquidity and integrity.

“Innovations such as crypto currencies, stable coins and the walled garden ecosystems of big techs all tend to work against the public good element that underpins the payment system.

“The DNA (Data-Network-Activities) loop, which should encourage a virtuous circle of greater access, lower costs and better services, is also capable of fomenting a vicious circle of entrenched market power and data concentration. The eventual outcome will depend not only on technology but on the underlying market structure and data governance framework,” BIS said.

On Wednesday, BIS released a chapter titled ‘CBDCs: an opportunity for the monetary system’ that is part of its Annual Economic Report 2021.

To realise the full potential of CBDCs for more efficient cross-border payments, BIS said international collaboration will be paramount.

“Cooperation on CBDC designs will also open up new ways for central banks to counter foreign currency substitution and strengthen monetary sovereignty,” it

A few countries, including China, are working on CBDCs.

An analysis BIS found that CBDCs would best function as part of a two-tier system where the central bank and the private sector work together to do what each does well.

From a practical perspective, the BIS said the most promising CBDC design would be one tied to a digital identity, requiring users to identify themselves to access funds. A careful design would balance protecting users against the abuse of personal data with protecting the payment system against money laundering and financial crime, it added.



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RBI penalises three Maharashtra-based co-operative banks, BFSI News, ET BFSI

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The Reserve Bank of India on Wednesday imposed a total penalty of Rs 8 lakh on three Maharashtra-based co-operative banks for deficiencies in regulatory compliance. A penalty of Rs 4 lakh has been imposed on Excellent Co-operative Bank, Mumbai, and Rs 2 lakh each on Janseva Sahakari Bank Limited, Pune and The Ajara Urban Co-operative Bank, Ajara (Kolhapur).

The penalty on Excellent Co-operative Bank was imposed for contravention of the directions issued by RBI on ‘Maintenance of Deposit Accounts’ and ‘Know Your Customer (KYC)’.

Janseva Sahakari Bank was fined for contravention of the direction issued by on KYC.

The central bank said the penalty on The Ajara Urban Co-operative Bank has been imposed for contravention of direction on ‘Maintenance of Deposit Accounts’.

The RBI said the penalty was imposed on the three lenders based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by them with their customers.

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Asirvad Microfinance securitises Rs 262-crore loan in deal with PSB

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In May 2021, the company raised $15-million loan from WorldBusiness Capital, based in Hartford, Connecticut.

Asirvad Microfinance, a subsidiary of Manappuram Finance, said on Wednesday it has securitised microfinance loans worth Rs 262 crore in a deal with a public sector bank.

Raja Vaidyanathan, MD of Asirvad Microfinance, said, “This deal, closely on the heels of an ECB transaction with US-based WorldBusiness Capital, reaffirms the confidence leading lending institutions have in India’s microfinance sector and its prospects for growth.”

In May 2021, the company raised $15-million loan from WorldBusiness Capital, based in Hartford, Connecticut.

Proceeds from the loan availed will enable Asirvad to expand its business of providing small loans to low-income women business owners in rural areas to start and expand their busineses, he added.

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Borrowers to get option to repay a part of the Gold (Metal) Loan in physical gold

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The Reserve Bank of India (RBI) has asked banks to provide jewellery exporters/ domestic manufacturers of gold jewellery an option to repay a part of the Gold (Metal) Loan (GML) in physical gold in lots of one kg or more.

Currently, these loans are repaid in Rupees, equivalent to the value of gold borrowed, on the relevant date/s.

The option to the borrower to repay a part of the GML in physical gold in lots of one kg or more can be given, subject to conditions that the GML has been extended out of locally sourced/ GMS (Gold Monetisation Scheme)-linked gold; and repayment is made using locally sourced IGDS (India Good Delivery Standard)/ LGDS (LBMA’s Good Delivery Standards) gold.

Also read: How savings were impacted by Covid second wave

The other conditions that have been prescribed are that the gold is delivered on behalf of the borrower to the bank directly by the refiner or a Central agency, acceptable to the bank, without the borrower’s involvement; the loan agreement contains details of the option to be exercised by the borrower, acceptable standards and manner of delivery of gold for repayment; and the borrower is apprised upfront, in a transparent manner, of the implications of exercising the option.

The Central bank asked banks to suitably incorporate the above aspects into the board-approved policy governing GML along with concomitant risk management measures. The banks shall continue to monitor the end-use of funds lent under GML.

As per the extant instructions, nominated banks authorised to import gold and designated banks participating in Gold Monetization Scheme, 2015 (GMS) can extend Gold (Metal) Loans (GML) to jewellery exporters or domestic manufacturers of gold jewellery.

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CredAvenue facilitates ₹ 337.5-crore debenture issue from Spandana Sphoorty

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Chennai-based CredAvenue on Wednesday announced that it has facilitated the largest ever Market Linked Debenture (MLD) issuance of ₹337.5 crore in the microfinance (MFI) sector through its online bond platform “Plutus”.

The enterprise debt marketplace said, the MLD issue from Spandana Sphoorty Financial Ltd (SSFL) received very strong interest and participation from HNI investors, family offices and corporate treasuries. SSFL MLDs have been assigned a rating of IND PP-MLD A/ Stable by India Ratings, implying low credit risk.

“We are excited to partner with CredAvenue in this landmark transaction. It is good to see heightened interest from retail investors in both our company and the microfinance sector. Funds raised through this issuance will help us scale our business profitably at an accelerated pace,” Padmaja Reddy, Founder and MD, SSFL said.

“Plutus platform offers retail investors a unique opportunity to invest in various debt instruments catering to their lifecycle requirements. One of the products on the platform, Market Linked Debentures (MLDs) have seen strong traction with retail investors. Our platform has cumulatively placed around ₹2,500 crore of MLDs in less than nine months” the statement quoted Sarath Bhaskaran, Head, Outreach, Plutus as saying.

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Customer retention is a challenge for HFCs: Deepak Parekh

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HDFC Ltd Chairman Deepak Parekh has highlighted the challenge for housing finance companies to retain customers amidst low-interest rates being offered by several banks and increased loan amounts.

“It would be of great comfort for all HFCs to have this issue put to rest,” Parekh said in a letter to shareholders.

“Another niggling point for HFCs is retention of customers. Lenders are susceptible to losing their existing customers to other players who often lure them through lower interest rates or increased loan amounts. As there are no prepayment penalties on floating rate loans, a lender can take over a home loan rather effortlessly,” Parekh said in a letter to shareholders.

Balance transfers only shift assets from one player to another, he said, adding that it does not increase home loans or home ownership at a system level.

“Yet, this is par for the course in a competitive business landscape,” Parekh said, pointing out that onboarding a home loan customer takes a great deal of effort and entails costs as well.

Other regulatory issues

In his letter, which is a part of HDFC’s Annual Report 2020-21, Parekh also highlighted other regulatory issues but said these are his personal views.

Despite differences in interpreting regulations, Parekh said that non-banking financial companies, including HFCs,follow Indian Accounting Standards (IndAS), which is still not aligned with the prudential guidelines.

“This results in differences in opinions between the inspection teams, regulated entities and even the auditors,” he said, adding that it may be prudent to resolve these issues sooner than later.

Insurance loan

He also said that the insurance loan to a home loan customer should be considered as an integral component of a housing loan and be permitted to be classified accordingly.

“Currently, an insurance loan given to a home loan borrower is considered as a non-housing loan. Insurance is voluntary for a home loan borrower,” he said.

Parekh further said that the current regulatory framework might have the unintended consequence of penalising a HFC for maintaining excess liquidity.

“Larger amounts of liquidity are being held by HFCs out of abundant precaution,” he said, adding that a minor tweak which could exclude surplus liquid balances from total assets to arrive at prescribed limits would go a long way in helping HFCs.

Parekh also remained optimistic about the demand for home loans despite the resurgence of Covid infections.

“Despite the economy contracting 7.3 per cent in 2020-21, the demand for home loans surpassed all expectations. Going forward, the risks of recurring waves of infections may result in temporary set-backs, but the inherent demand for homes loans remains stronger than ever,” he said.

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DHFL creditors vote against higher distribution of funds to small investors

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The Committee of Creditors of Dewan Housing Finance Corporation Ltd (DHFL) has voted against the proposal for redistribution of funds to small deposit holders.

Sources said 89.19 per cent of the votes by financial creditors, including fixed deposit holders, were cast against the proposal. Only 2.96 per cent of votes were in favour of the proposal while 7.85 per cent abstained from voting.

This will mean that the current distribution pattern for DHFL will continue. Fixed deposit holders will get about ₹1,241 crore, that is 23 per cent of their admitted claims of about ₹5,400 crore.

The National Company Law Tribunal (NCLT), in its order on June 7, had suggested 40 per cent recovery to small deposit holders on the lines of that of financial creditors.

The Committee of Creditors had accordingly proposed higher distribution of funds to small investors, including fixed deposit and NCD holders and pension funds.

Admitted claims

According to the proposal put for voting, the entire admitted claims of Army Group Insurance Fund, Air Force Group Insurance Society and Navy Children School would be paid fully in cash.

Further, it was proposed that all fixed deposit holders will be paid additional amounts in cash in order to ensure that the entire amount paid to them is about 40 per cent of the admitted claims, similar to the recovery to secured financial creditors.

Unsecured NCD holders with investments up to ₹10 lakh were proposed to be repaid 40 per cent of the admitted claims like in the case of fixed deposit holders.

Outgo for lenders

The total outgo for lenders of DHFL on these proposals would have been ₹1,853.21 crore. Voting on the proposals took place between June 20 and June 22.

Both FD and NCD holders had previously expressed unhappiness with the revised proposals.

“Almost all NCD holders will be happy that the proposal got rejected. There are two other issues that NCD holders are mainly concerned about. No one can understand the slabs designed for repayment of NCD holders,” said a person familiar with the development.

Fixed deposit holders as well as NCD holder 63 Moons Technologies plan to challenge the NCLT order in the National Company Law Appellate Tribunal. Provident and pension funds are also likely to challenge the order.

“We are filing a petition challenging the order and to get 100 per cent of our funds back,” said Vinay Kumar Mittal, a lead petitioner in the court on behalf of FD holders of DHFL.

Meanwhile, the CoC approved another proposal to authorise State Bank of India, Union Bank of India and Catalyst Trusteeship to act on its behalf for the implementation of the resolution plan.

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HDFC Bank looks to grow investment banking business

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Private sector lender HDFC Bank is looking to grow its investment banking business and possibly double it over the next two years.

“We are investing in the business. Organically, we are growing and inorganically also we are happy to look at options of partnership and ways to grow this business,” said Rakesh Singh, Group Head – Investment Banking, Private Banking, Marketing and Products, HDFC Bank.

The focus will be more on the equity side as the bank has been doing well on the debt side. In an interaction with BusinessLine, Singh said the lender is hiring people and strengthening its teams in divisions including equity research and sales investment banking.

Also read: HDFC Bank creates Digital and Enterprise factories to roll-out new digital products

“The business will grow a couple of times. We hope it will double in two years,” he said. Singh said the bank will also be keen on working on government PSU disinvestment issues.

When asked about corporate credit demand, Singh said that there are signs of revival in the infrastructure sector. “We are seeing some levels of usual growth linked to newer infra in the market. Roads and highways, transmission, warehousing, renewable energy, solar, city gas distribution, oil and gas, ports are witnessing demand for credit,” he said.

Equity markets

Meanwhile, when asked about the bullishness of the equity markets, he said that it is reflecting the potential of the country in the medium term. “I don’t think stock markets are running far ahead of fundamentals,” Singh said, adding that there is enough economic momentum for the country to come out of the Covid-induced economic slowdown. This could however, take a slightly longer period of time of two to three years, he added.

“Macro numbers are just an aberration because of the Covid-19 pandemic. The underlying goods and services tax collections are very strong and show the robustness of the economy. A one time event driven fiscal pressure does not reflect poor economic fundamentals of the country,” he said.

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Kotak Mahindra Bank launches ‘Pay Your Contact’ service

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Kotak Mahindra Bank has announced launch of a new feature that enables its customers to send money or make payments to any of their contacts across all payment apps simply by the beneficiary’s mobile number.

The ‘Pay Your Contact’ service is available on the lender’s mobile banking app and uses the Unified Payments Interface (UPI) platform.

“The Pay Your Contact feature is interoperable across all payment apps and is available on both Android and iOS,” it said in a statement.

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