Category: Banking & Finance

Australia’s central bank weighs digital currency, remains unconvinced, BFSI News, ET BFSI

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SYDNEY, – The Reserve Bank of Australia, like some other major central banks, has stepped up research into running its own digital currency, but remains unconvinced of the merits, its payments chief said on Thursday.

The comments, made at a financial services conference, follow an Australian Senate report last month that called for laws to be changed in ways that were more amenable to digital currencies.

Most major economies are now considering whether to issue a central bank digital currency (CBDC) – an internet-only cash equivalent that is different to cryptocurrency since it is not de-centralised – although none have done so yet, said Reserve Bank of Australia head of payments policy Tony Richards.

However, “given the possibility that the balance could shift towards a case for issuance of retail CBDCs, the Bank has been stepping up its CBDC research”, Richards said in a speech at the Australian Corporate Treasury Association.

Noting that the European Central Bank and Sweden appeared to be the most advanced of the major economies to consider a role for CBDCs, Richards said the U.S. Federal Reserve was more cautious.

“Reserve Bank (of Australia) staff have also not been convinced to date that a strong policy case has emerged in Australia for a CBDC,” he said.

“Australia’s existing electronic payments system already provides households and businesses with a wide range of safe, convenient and low-cost payment services.”

Amid the rush to internet-only money, which has been spurred along partly by the shift toward online living during the pandemic, Australia’s biggest bank also said this month that it was offering some cryptocurrency trading services via its smartphone app. (Reporting by Byron Kaye; Editing by Simon Cameron-Moore)



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Report, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank of India‘s digital currency may see its pilot launch in the first quarter of the next fiscal year, a senior central bank officer said at the State Bank of India’s Banking and Economic Conclave as reported by a local newspaper.

“I think somewhere it was said that at least by the first quarter of next year a pilot could be launched. So we are bullish on that,” the Business Standard newspaper quoted P. Vasudevan, chief general manager at the Department of Payment & Settlement of the RBI as having said.

Central bank digital currencies, or (CBDCs) are digital or virtual currencies are basically the digital version of fiat currencies, for India that would be its domestic currency rupee.

Previously, the central bank governor had said a soft launch of the CBDC could be expected by December but there has been no official timeline committed to by the RBI.

“We are on the job and we are looking into the various issues and nuances related to CBDC. It’s not a simple thing to just say that CBDC can be a habit from tomorrow on,” Vasudevan said, adding that a CBDC could have a useful role depending on how it is implemented and there should be no hurry to launch it.

Vasudevan said the RBI was examining various issues related to which segment the CBDC should target – wholesale or retail, the validation mechanism and also other issues including distribution channels.

“The central bank is also checking if intermediaries can be bypassed altogether, and most importantly, checking if the technology should be decentralized or should be semi-centralised,” the RBI CGM said.

The RBI has repeatedly raised concerns over cryptocurrencies posing macro-economic and financial stability risks.



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World Bank, BFSI News, ET BFSI

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India, the world’s largest recipient of remittances, received USD 87 billion in 2021 with the United States being the biggest source, accounting for over 20 per cent of these funds, according to the World Bank.

India is followed by China, Mexico, the Philippines, and Egypt, the Washington-based global lender said in its report released on Wednesday.

In India, remittances are projected to grow three per cent in 2022 to USD 89.6 billion, reflecting a drop in overall migrant stock, as a large proportion of returnees from the Arab countries await return, it said.

“Flows to India (the world’s largest recipient of remittances) are expected to reach USD 87 billion, a gain of 4.6 per cent – with the severity of COVID-19 caseloads and deaths during the second quarter (well above the global average) playing a prominent role in drawing altruistic flows (including for the purchase of oxygen tanks) to the country,” the World Bank report stated.

Remittances to low- and middle-income countries are projected to have grown a strong 7.3 per cent to reach USD 589 billion in 2021, the bank said.

This return to growth is more robust than earlier estimates and follows the resilience of flows in 2020 when remittances declined by only 1.7 per cent despite a severe global recession due to COVID-19, according to estimates from the World Bank’s Migration and Development Brief.

“Remittance flows from migrants have greatly complemented government cash transfer programs to support families suffering economic hardships during the COVID-19 crisis.

“Facilitating the flow of remittances to provide relief to strained household budgets should be a key component of government policies to support a global recovery from the pandemic,” said Michal Rutkowski, World Bank Global Director for Social Protection and Jobs.

India had received over USD 83 billion in remittances in 2020.



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India received $87 billion in remittances in 2021; US is the top source

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India received $87 billion in remittances in 2021, and the United States was the biggest source, accounting for over 20 per cent of these funds, the World Bank said in its latest report on Wednesday.

“Flows to India (the world’s largest recipient of remittances) are expected to reach $87 billion, a gain of 4.6 per cent — with the severity of Covid-19 caseloads and deaths during the second quarter (well above the global average) playing a prominent role in drawing altruistic flows (including for the purchase of oxygen tanks) to the country,” the World Bank report stated.

Growth in reminttances

India is followed by China, Mexico, the Philippines, and Egypt, the report said. In India, remittances are projected to grow three per cent in 2022 to $89.6 billion, reflecting a drop in overall migrant stock, as a large proportion of returnees from the Arab countries await return, it said.

Remittances to low and middle income countries are projected to have grown a strong 7.3 per cent to reach $589 billion in 2021, the bank said.

This return to growth is more robust than earlier estimates and follows the resilience of flows in 2020 when remittances declined by only 1.7 per cent despite a severe global recession due to Covid-19, according to estimates from the World Bank’s Migration and Development Brief.

“Remittance flows from migrants have greatly complemented government cash transfer programs to support families suffering economic hardships during the Covid-19 crisis. Facilitating the flow of remittances to provide relief to strained household budgets should be a key component of government policies to support a global recovery from the pandemic,” said Michal Rutkowski, World Bank Global Director for Social Protection and Jobs.

India had received over $83 billion in remittances in 2020.

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Small finance banks, microlenders stay away from IPO party, BFSI News, ET BFSI

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Kolkata: While Nykaa, Paytm and Policybazaar are the toast of the primary equity market now, lenders to the bottom of the pyramid which had earlier lured investors for their capacity to earn high margins remain laggards.

Half-a-dozen entities in the small finance bank and microfinance space that have received approval for raising funds through initial public offerings appear to be going slow because of valuation issues, people familiar with the matter said.

Among small finance banks, ESAF, Jana, Fincare and Utkarsh are said to be weighing investor interest for their proposed IPOs. Utkarsh Small Finance Bank received Securities & Exchange Board of India’s approval for IPO in June, Jana SFB got it in July and Fincare in August. ESAF Small Finance Bank received the regulator’s approval in October for the second time, after the one-year validity on the first lapsed in March.

Microfinance firm Arohan Financial Services received Sebi approval in April but has yet to hit the market. Northern Arc Capital, a non-bank lender with exposure to the financial inclusion space, got the approval in September.

“Many Lenders including those in the microfinance industry are not getting the kind of investor interest or valuation seen for primary issues of fintech firms,” said Donald D’Souza, managing director & co-head (investment banking) at Equirus.

“Some of these firms have done a few roadshows but have failed to attract investors at higher valuation. That’s the reason why some of these lenders are not seen in the IPO market despite the bull run. Even some small finance banks, which need to be listed within a specified time frame to meet regulations, are yet to be seen in this space,” D’Souza said.

Investors are apparently exercising caution as micro lenders are saddled with concerns over asset quality, high credit cost and squeezed margin following the pandemic-led stress on their borrowers.

The portfolio at risk for 30 days (PAR30+) for the microfinance sector remained high at 10.18% at the end of September, even after showing a sharp improvement from 16.56% three months earlier.

“The new-age companies are mostly making merry in the season of IPOs since investors are ready to pay huge premiums for new business models and fresh ideas. The party is on at least till Christmas. The valuations however are relatively muted for lending companies as investors are comparing them with the existing secondary market prices in the same segment,” said Dinesh Arora, partner and leader (deals) at PwC India.

As many as 52 companies have mobilised Rs 1.08 lakh crore from primary issuances in 2021 so far compared with Rs 26,600 crore raised by 15 companies last year. Foreign portfolio investors are said to have invested more than Rs 46,000 crore in IPOs this year.

Microfinance association Sa-Dhan said the average collection efficiency has increased to more than 95% in the quarter through September from 85% in the preceding quarter, even as 13 states and union territories including Chhattisgarh, Kerala, Tamil Nadu and West Bengal have their PAR30+ value higher than the industry average.



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Punjab & Sind Bank adjusts net loss for FY21 at Rs 2,750 cr after divergence in asset classification, BFSI News, ET BFSI

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Public sector Punjab & Sind Bank (P&SB) on Wednesday said it has adjusted the net loss for fiscal ended March 2021 slightly higher at Rs 2,750 crore due to divergence in asset classification. The bank had reported a net loss of Rs 2,733 crore in 2020-21.

Whereas the bank reported gross non-performing assets (NPAs) at Rs 9,334 crore, the Reserve Bank assessed it at Rs 9,363 crore, thus leading to a divergence of Rs 29 crore.

Similarly, the net NPAs too had a divergence of Rs 29 crore.

Based on the difference of the provisions for NPAs reported by the bank and that assessed by the RBI, the divergence in provisioning for the financial year 2020-21 stood at Rs 17 crore.

The adjusted (notional) net profit after tax (PAT) for the year ended March 31, 2021, after taking into account the divergence in provisioning stood at Rs 2,750 crore, the bank said in a regulatory filing.

The bank published the divergence in asset classification and provisioning in accordance with RBI’s Risk Assessment Report as on March 31, 2021.

P&SB stock closed at Rs 17.25 apiece on BSE, down 1.43 per cent from previous close. PTI KPM SHW SHW



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RBI, BFSI News, ET BFSI

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In the fortnight ended November 6, 2020, bank loans stood at Rs 104.19 lakh crore and deposits at Rs 144.03 lakh crore, according to the RBI‘s Scheduled Banks’ Statement of Position in India as on November 5, 2021, data released on Wednesday.

In the previous fortnight ended October 22, 2021, bank credit had grown by 6.84 per cent and deposits by 9.94 per cent. In FY2020-21, bank credit had risen by 5.56 per cent and deposits by 11.4 per cent.

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Private banks lead, overall NPA provisioning falls in Q2, BFSI News, ET BFSI

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The worst seems to be over for banks in the pandemic, going by the drop in bad loan provisioning numbers. The bad loan provisioning by banks fell sequentially for the second consecutive quarter in the three months ended September 2021, led by a significant drop in some of the private sector banks. The trend is likely to continue on account of improved collections and lower slippages.

The aggregate provisioning towards non-performing assets (NPA) or loan loss provision for a sample of 29 banks fell by 20.5 per cent sequentially and 10.9 per cent year-on-year to Rs 30,400 crore. It has softened over the past two quarters after peaking at Rs 65,986.9 crore in the March 2021 quarter when banks resumed accounting for slippages.

Private banks at the forefront

The fall in the September quarter was driven by a sharp 43.9 per cent drop in loan loss provisioning by the private sector banks at the aggregate level. Top banks including HDFC Bank, Axis Bank, Kotak Bank, and IndusInd Bank recorded a double-digit sequential drop in the NPA provisioning.

The public sector banks on the other hand reported a modest 1.6 per cent fall in the NPA provisioning. Their share in the sample’s NPA provisioning increased to 68.5 per cent from 55.3 per cent in the previous quarter.

Analysts expect the asset quality of banks to improve gradually in the coming quarters following a pick up in economic activity and recovery in collections.

“Banks slippage ratios reduced substantially by 100 basis points QoQ on an average in the September quarter. The asset quality situation is likely to improve further driven by a reduction in retail as well as SME nonperforming loans in the coming quarters,” a Macquarie Capital Securities (India) note said.

The banks’ net interest income increased by 3.7 per cent sequentially and 2.4 per cent year-on-year to Rs 1.3 lakh crore. The sequential growth was faster for PSU banks at 5 per cent compared with 2.1 per cent for the private sector banks.



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Payment channels show pick-up in Oct driven by festive spends

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However, the recovery in the economy is yet to become entrenched and broad-based, many believe.

Most digital payment channels recorded an increase in the value of transactions on a month-on-month basis in October as festive-season spending gave a boost to consumption.

According to data available on the Reserve Bank of India’s website, spends through the National Electronic Funds Transfer (NEFT) rose 2% MoM to Rs 24.76 lakh crore, Immediate Payment Service (IMPS) spends were up 14% to Rs 3.7 lakh crore, Unified Payments Interface (UPI) spends grew 18% to Rs 7.71 lakh crore, credit card spends rose 21% to Rs 76,274 crore and debit card spends grew 19% to Rs 61,416 crore. Electronic toll payments also recorded an increase. The value of transactions through prepaid payment instrument (PPI) cards, however, fell 16% MoM to Rs 2,498 crore.

Several indicators suggest a pick-up in consumption during October. The RBI said in its State of the Economy report for November that the outcome of improved mobility – both passenger and goods – was reflected in a surge in fuel consumption in October. The consumption of petrol touched pre-pandemic levels, while aviation turbine fuel (ATF) and diesel consumption exhibited sequential improvement.

Players in the payments ecosystem witnessed strong traction in volumes during the month. On Wednesday, PhonePe said it processed over two billion transactions on its platform in October on the back of rapid traction across tier II, tier III cities and beyond, which accounted for 80% of transactions. Banks, too, have reported an uptick in consumption. HDFC Bank said in an investor call that early results for the first 10 days of October showed a 42% growth in card spends over a similar time period in September, driven by festive spends.

However, the recovery in the economy is yet to become entrenched and broad-based, many believe. RBI governor Shaktikanta Das on Tuesday said that the Q1FY22 GDP data revealed that there still exists a significant gap in both private consumption and investment, relative to their pre-pandemic levels in FY20.

“Contributing the largest share of aggregate demand, around 56% of GDP, private consumption is critical for inclusive, durable and balanced growth of our country. Daily wage earners and workers at the lower rungs of the society have incurred significant losses of income and employment during the pandemic that will take time to repair,” Das said.

At the same time, he expressed confidence that consumption demand triggered by the festive season and the recent cut in levies on fuel by the central and state governments will augment purchasing power of people and create space for additional consumption.

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RBI may pilot digital currency in Q1 of FY23

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The Reserve Bank of India may do a pilot of its central bank digital currency (CBDC) in the first quarter of the next fiscal year.

“We are on the job and looking into the various issues and nuances related to CBDC. It’s not a simple thing to just say that CBDC can be a habit from tomorrow on,” said P Vasudevan, chief general manager at the RBI’s Department of Payment and Settlement, at a banking event here on Wednesday.

“The banking system has been taking the lead in terms of currency distribution as a tiered model, whether the same model should be accepted for CBDC as well, we will have to see,” Vasudevan added.

As now being explored by the RBI for retail and international trade payments, the CBDC could have a much larger impact on the financial ecosystem, according to industry experts. It will be instrumental in promoting grassroots-level financial inclusivity and modernising the banking sector apart from creating a cashless economy.

Digital replica

While many see CBDCs as a legalised replacement of cryptocurrencies, in reality, CBDCs could just be a digital replica of the physical cash in circulation.

Russia, Japan and China are already working on the same.

According to a 2021 BIS survey, quoted in the RBI report, 86 per cent of the central banks surveyed are actively researching the potential for CBDCs, 60 per cent were experimenting with the technology and 14 per cent were deploying pilot projects.

A major use case for CBDCs will likely be in the insurance and lending space and also for managing non-performing assets. Using digital currencies will bring in more transparency and traceability across levels for the financial services sector, according to experts.

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