Category: Banking & Finance

SBI’s Ecowrap revises FY22 GDP projection to 7.9% from 10.4%

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State Bank of India’s economic research department has revised it real GDP projection for FY22 to 7.9 per cent from 10.4 per cent earlier, with its analysis showing a disproportionately larger impact of the second wave of Covid-19 pandemic on the economy.

The Department, in its report “Ecowrap”, imparted an upward bias to this number with the fervent hope of 1 crore vaccinations per day beginning mid-July as per government projections.

“However, our analysis shows a disproportionately larger impact on economy this time and given that rural is not as resilient as urban, the pick up in pent-up demand is unlikely to make a large difference in FY22 GDP estimates, and hence it could only be a modest pick up,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

For the current financial year, GDP outlook will be impacted by the trajectory of international commodity prices which have risen sharply during the year, as per Ecowrap.

Consumption impact

Further, the pass-through impact of higher commodity prices will be visible in domestic prices thus impacting consumption during the year.

Also read: Moody’s pegs India GDP growth at 9.3% in FY22

The report observed that the overall consumption trajectory will depend on the recovery in services “Trade, hotels, transport, communication & services related to broadcasting” which supports roughly 25 crore households. Corporate, in the listed space, reported better growth numbers across parameters in Q4 (January-March) FY21, but this trend may soon reverse.

The report observed that after registering nominal loss of ₹13.4-lakh crore in H1 (April-September) FY21, the gain in H2/October 2020 – March 2021 (of ₹7.3-lakh crore) resulted in overall annual loss of ₹6.1-lakh crore. Real loss on the other hand stood at ₹10.6-lakh crore in FY21.

“This is a peculiar characteristic that is being exhibited in FY21 data. Normally, the annual increase in nominal GDP is more than the annual increase in real GDP, which is quite obvious given the fact that inflation is always in positive territory in India. However, in FY21 the contraction in real GDP was more than the contraction in nominal GDP,” Ghosh said.

Third wave

Meanwhile, the report assessed that the average duration of third wave for top countries is 98 days and that of second wave is 108 days, with third wave peak as a multiple of second at 1.8 and second wave as a multiple of first at 5.2 (for India it was at 4.2).

Also read: Manufacturing PMI slides to 50.8, job shedding accelerates

International experience thus suggests that the intensity of third wave is as severe as the second wave, according to Ecowrap. However it is also observed that in third wave, if we are better prepared, the decline in serious case rate will lead to less number of deaths.

The department’s analysis shows that if serious cases decline from 20 per cent to 5 per cent (due to better health infrastructure and rigorous vaccination) in the third wave, then the number of deaths in the third wave could significantly reduce to 40,000 as compared to current deaths of more that 1.7 lakh.

“So vaccination should be the key priority, especially for the children who could be the next vulnerable group. With around 15-17 crore children in the 12-18 age bracket, India should go for an advanced procurement strategy like that adopted by developed nations to inoculate this age-group,” emphasised Ghosh.

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Haircut under IBC rises to 60% in fiscal 2021, half the closes cases liquidated, BFSI News, ET BFSI

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More than half of the total 4,376 cases under the Insolvency and Bankruptcy Code have been closed with the rest undergoing resolution.

Almost half of the 2,653 cases closed by lenders under IBC in fiscal 2021 have ended in liquidation while only 13 per cent were resolved, according to the quarterly bulletin of the Insolvency and Bankruptcy Board of India.

About 23 per cent of the closed cases are either under review or under appeal.

In 16 per cent of cases, the companies were handed back to the promoters after they cleared part of their dues under Section 12A of the insolvency act.

About 43 per cent of cases admitted so far are filed by the financial creditors while the rest 51 per cent of the admitted cases were initiated by operational creditors.

Haircut rises

In the resolved cases, the haircut, or the loss to banks on their claims, rose to 60 per cent in fiscal 2021, from 55 per cent average in the previous years.

In the March 2021 quarter alone, haircut rose to a whopping 74 per cent of the claims made by the lenders against the defaulters.

About 79 per cent of the ongoing cases till March this year have already passed 270 days since admission. Experts say delay causes erosion in the value of assets and increases chances for liquidation.

The IBC saw an addition of 499 new cases in the last financial year, where the process was suspended due to the Covid pandemic.

Liquidation

About 80% of bankruptcy proceedings involving a default of less than Rs 1 crore were initiated by operational creditors, while 80% of the cases with defaults of over Rs 10 crore were initiated on applications by financial creditors.

Around three-fourths of all bankruptcy proceedings started by operational creditors resulted in the liquidation of the corporate debtor while in case of proceedings initiated by financial creditors that have been concluded, nearly half of the businesses have faced liquidation.

About 74.37% of the corporate insolvency resolution process ending in liquidation (946 out of 1272 for which data are available) were earlier with BIFR and / or defunct.

During the quarter January-March 2021, 149 corporate insolvency resolution process (CIRPs) ended in orders for liquidation, taking the total CIRPs ending in liquidation to 1277, excluding 10 cases where liquidation orders have been set aside by NCLT, NCLAT or courts.

Of these, a final report has been submitted in 240 cases. There are 1,037 ongoing liquidation processes.

During January-March, 2021, 34 more liquidation processes were closed, taking the total number of closures by dissolution, sold as a going concern or compromise or arrangement to 138.

Growing stress

The corporate sector has pitched for a fresh suspension, arguing that there will be additional stress in the wake of the lockdown announced across most states to check the surge in cases, which are still rising by over three lakhs daily.

Industry body Assocham has urged the government to reimpose a moratorium on taking debt-ridden firms to the NCLT under the IBC till December this year following the severe second wave of coronavirus. In a representation to the Finance Ministry, the chamber said that given the increasing pressure on businesses, it would be imperative to extend the NCLT (National Company Law Tribunal) moratorium to ensure that the pandemic “does not wreak havoc” on the economy.



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RBI raises heat on foreign banks over data storage norms violations, BFSI News, ET BFSI

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After social media firms, it’s time for foreign banks to strictly comply with rules in India.

The Reserve Bank of India (RBI) has pulled up several multinational banks operating in the country for not providing a board-approved system reporting certifying compliance with its data-localisation norms.

Last month, the central bank had barred American Express Bank and Diners Club from on-boarding new customers citing violation of data storage norms.

In a recent communication, the RBI said that a majority of banks are yet to submit system audit reports certifying compliance to storage norms even after three years since the issuance of the circular.

Many banks have said that the audit norms did not apply to them and this was not acceptable. The central bank had asked banks to submit their compliance along with a plan of action on or before May 15, 2021.

The RBI norms

According to the RBI’s norms, data on payments has to be stored in systems located “only in India” and data processed abroad has to be brought back to the country within 24 hours.

The central bank said Payment System Operators (PSO) can process transactions outside India, but “the data should be deleted from the systems abroad and brought back to India not later than the one business day or 24 hours from payment processing, whichever is earlier”.

“The complete end-to-end transaction details should be part of the data,” the RBI had said.

What foreign banks say?

Several foreign banks have been unable to issue an audit report stating that all personal and non-personal transaction data which has been sent overseas for processing has been permanently deleted.

Many banks had responded to the RBI’s directive and said that much of their processing was centralised and it was not feasible to restructure global operations and create a separate hub in India. The RBI then clarified that while data can be stored only locally, it can be sent intraday for processing but should be deleted from offshore servers in 24 hours.

Banks are required to provide a system audit report certifying compliance with the RBI rules. The audit has to be conducted by auditors empanelled by the Indian Computer Emergency Response Team (CERT-In, in the ministry of electronics.)

American Express, Diners Club

In April, the RBI has restricted American Express Banking Corp and Diners Club International from on-boarding new domestic customers onto their card networks from May 1 for violating data storage norms.

American Express Banking Corp and Diners Club International Ltd are Payment System Operators authorised to operate card networks in the country under the Payment and Settlement Systems Act, 2007 (PSS Act).

The RBI has imposed the restrictions on American Express Banking Corp and Diners Club International by an order dated April 23, 2021.

“These entities have been found non-compliant with the directions on Storage of Payment System Data,” the RBI said.

The supervisory action, it added, has been taken in the exercise of powers vested in RBI under the PSS Act.



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RBI data, BFSI News, ET BFSI

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Non-food bank credit grew at 5.7 per cent in April 2021 as against 6.7 per cent in the year-ago month, RBI data showed.

The growth in advances to agriculture and allied activities accelerated to 11.3 per cent in April 2021 as compared to a 4.7 per cent growth in April 2020, the data on Sectoral Deployment of Bank Credit – April 2021, released by the Reserve Bank of India on Monday, showed.

Credit growth to industry decelerated to 0.4 per cent in April 2021 from 1.7 per cent in April 2020.

However, credit to medium industries registered a robust growth of 43.8 per cent in April 2021 as compared to a contraction of 6.4 per cent a year ago, the data showed.

Growth in loans to micro and small industries accelerated to 3.8 per cent in April this year as compared to a contraction of 2.2 per cent a year ago, while credit to large industries contracted by 1.9 per cent as compared to a growth of 2.7 per cent a year ago.

Within industry, credit to food processing; textiles; gems and jewellery; paper and paper products; glass and glassware; infrastructure; leather and leather products; and wood and wood products registered an accelerated growth in April 2021 as compared to the corresponding month of the previous year, RBI data showed.

However, credit growth to mining and quarrying; beverages and tobacco; petroleum, coal products and nuclear fuels; rubber, plastic and their products; vehicles; vehicle parts and transport equipment; basic metal and metal products; cement and cement products; all engineering, chemicals and chemical products; and construction decelerated.

Growth in loans to the services sector decelerated to 1.2 per cent in April 2021 from 10.6 per cent in April 2020, mainly due to deceleration in credit growth to NBFCs and marginal contraction in credit to transport operators, the data showed.

However, credit to trade segment continued to perform well, registering accelerated growth of 10.5 per cent in April 2021 as compared to 8.7 per cent a year ago.

The data showed that the personal loans registered an accelerated growth of 12.6 per cent in April 2021 as compared to 12.3 per cent a year ago, primarily due to accelerated growth in vehicle loans, loans against gold jewellery and credit card outstanding.



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RBI extends banking license of Rupee Co-operative Bank till August 31, BFSI News, ET BFSI

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The Reserve Bank of India has extended the banking license of the Rupee Co-operative Bank till August 31. Till March-2021, the Bank has made total recovery of Rs.263.93 crores and aggregate operating profit of Rs.70.70 crores during the last five years, a release from the Bank said.

“The Bank has taken steps like attachment of properties of defaulter borrowers, public auctions of the same, filing criminal suits against defaulter borrowers/guarantors, etc. The Bank has also informed the names of its defaulter borrowers/guarantors to other banks for effective recovery,” said Sudhir Pandit, administrator, Rupee Bank.

Till March-2021, the Bank had paid Rs.366.54 Crores to 92602 needy depositors under the Hardship Scheme. “The proposal for merger with The Maharashtra State Co-op. Bank Ltd., (MSC Bank) is pending with RBI. In the meantime, the Bank is exploring the possibility of various options such as merger with any other strong bank including co-operative banks, conversion into a Small Finance Bank with the help of a strategic investor and Reconstruction or Revival of the Bank. The Bank has requested the RBI to extend its co-operation and guide to explore these options which also require a significant amount of cooperation from high value depositors,” said Pandit.

“The Bank has five lakh depositors with aggregate deposits of Rs.1297 crores out of which around 99% depositors i.e.4,84,336 have deposits less than insurance cover limit of Rs 5 lakh. Their total deposits are to the tune of Rs.714 crores. While hardly 1% i.e. 4562 depositors have total deposits of Rs.583 crores which are above the deposit insurance cover. Therefore, RBI thinks it logical to liquidate the bank and fully refund deposits under insurance cover. Moreover RBI/DIC may get hold of banks liquidity of Rs.870 crores consisting of Government securities and banks’ own premises. Hence in the process, it has to lose very negligible funds of its own. If the bank is liquidated, high value depositors having deposits of more than Rs 5 lakh may lose around 65% of their total deposits irrespective of the option to save the bank ,” a release from the Bank said.



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RBI cancels licence of Pune-based Shivajirao Bhosale Sahakari Bank, BFSI News, ET BFSI

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The RBI on Monday said it has cancelled the licence of Shivajirao Bhosale Sahakari Bank, Pune as the lender does not have adequate capital and earning prospects. As per data submitted by Shivajirao Bhosale Sahakari Bank, more than 98 per cent of the depositors will receive full amount of their deposits from the Deposit Insurance and Credit Guarantee Corporation (DICGC), the RBI said in a release.

On liquidation, every depositor would be entitled to receive deposit insurance claim amount of his/her deposits up to a monetary ceiling of Rs 5 lakh from the DICGC.

Giving details, the RBI said the bank does not have adequate capital and earning prospects and as such, it does not comply with the certain provisions of the Banking Regulation Act, 1949.

“The continuance of the bank is prejudicial to the interests of its depositors,” it said, adding that the bank with its financial position would be unable to pay its present depositors in full.

While cancelling the licence, effective close of business hours on Monday, the RBI said public interest would be adversely affected if the bank is allowed to carry on its banking business any further.

The Registrar of Cooperative Societies, Maharashtra has also been requested to issue an order for winding up the bank and appoint a liquidator.

The release further said consequent to the cancellation of its licence, Shivajirao Bhosale Sahakari Bank is prohibited from conducting the business of banking, including acceptance of deposits and repayment of deposits, with immediate effect.



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RBI asks banks not to cite its 2018 cryptocurrency circular

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The Reserve Bank of India (RBI) on Monday asked regulated entities to desist from citing or quoting from its April 2018 circular on “Prohibition on dealing in Virtual Currencies (VCs)” as it is no longer valid following the Supreme Court setting the circular aside in March 2020. The regulated entities include all Commercial and Co-operative Banks, Payments Banks, Small Finance Banks, Non-Banking Finance Companies, and Payment System Providers.

The central bank said it has come across media reports that certain banks/ regulated entities have cautioned their customers against dealing in virtual currencies by making a reference to the RBI circular on “Prohibition on dealing in Virtual Currencies (VCs)”dated April 06, 2018. “Such references to the above circular by banks/ regulated entities are not in order as this circular was set aside by the Hon’ble Supreme Court on March 04, 2020 in the matter of Writ Petition (Civil) No.528 of 2018 (Internet and Mobile Association of India v. Reserve Bank of India),” RBI said in a statement.

Also read: RBI cancels licence of Pune-based Shivajirao Bhosale Sahakari Bank

The central bank said the regulated entities may, however, continue to carry out customer due diligence processes in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT) and obligations of regulated entities under Prevention of Money Laundering Act, (PMLA), 2002. Further, they should ensure compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances.

Banks issue warnings

Recently, many banks warned domestic crypto currency investors about virtual currency transactions being done through their bank accounts and have said it is not permitted by RBI.

Many crypto investors tweeted that HDFC Bank has sent them a cautionary email stating that their account reflects probable virtual currency transactions, which is not permitted by the RBI based on their 2018 circular. SBI Card too has sent a similar advisory to customers and said that usage of credit cards for transaction on virtual currency merchant platforms may lead to suspension or cancellation of the credit card.

Private digital currencies/ virtual currencies/ crypto currencies (CCs) have gained popularity in recent years. RBI is exploring the possibility as to whether there is a need for a digital version of fiat currency and in case there is, then how to operationalise it.

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RBI cancels licence of Pune-based Shivajirao Bhosale Sahakari Bank

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The Reserve Bank of India (RBI) has cancelled the licence of Pune-based Shivajirao Bhosale Sahakari Bank. The RBI said the bank ceases to carry on banking business, with effect from the close of business on May 31.

With the cancellation of licence and commencement of liquidation proceedings, the process of paying the depositors of the bank as per the Deposit Insurance and Credit Guarantee Corporation (DICGC). Act, 1961, will be set in motion, the central bank said in a statement.

“As per the data submitted by the bank, more than 98 per cent of the depositors will receive full amounts of their deposits from DICGC.

“On liquidation, every depositor would be entitled to receive deposit insurance claim amount of his/her deposits up to a monetary ceiling of ₹5 lakh from the DICGC subject to the provisions of the DICGC Act, 1961,” RBI said.

Liquidator for the bank

The Registrar of Cooperative Societies, Maharashtra, has been requested to issue an order for winding up the bank and appoint a liquidator for the bank, it added.

“The bank does not have adequate capital and earning prospects. As such, it does not comply with the provisions…of the Banking Regulation Act, 1949.

“…The continuance of the bank is prejudicial to the interests of its depositors,” the statement said.

The RBI observed that the bank with its present financial position would be unable to pay its present depositors in full.

According to the central bank, public interest would be adversely affected if the bank is allowed to carry on its banking business any further.

The bank was placed under RBI Directions from the close of business on May 4, 2019.

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Canara Bank appoints S K Majumdar as CFO

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Canara Bank has designated S K Majumdar, General Manager of the Bank as Chief Financial Officer (CFO) with effect from May 31, 2021 in place of V Ramachandra, Chief General Manager.

“Majumdar, aged 52 years, Chartered Accountant and Cost Accountant by qualification has vast banking experience of more than 21 years in various branches and administrative offices in various capacities. He has been associated with the bank since January 2000,” the bank in a regulatory filing to exchanges said.

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PNB Housing Fin board approves capital raise of up to ₹4,000 crore

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PNB Housing Finance Limited (PNBHFL), on Monday, announced that its board has approved a capital-raise of up to ₹4,000 crore, led by entities affiliated to The Carlyle Group.

Pluto Investments S.a.r.l., an affiliated entity of Carlyle Asia Partners IV, LP and Carlyle Asia Partners V, LP (together, ‘Carlyle’) has agreed to invest up to ₹3,185 crore through a preferential allotment of equity shares and warrantsat a price of ₹390 per share.

Existing shareholders of PNBHFL, funds managed by Ares SSG and General Atlantic, are also participating in the capital-raise. PNB will continue to be the promoter and key stakeholder in the company. PNB had earlier conveyed it will not be participating in any capital-raise of PNBHFL.

Mandatory open offer

The proposed Carlyle-led transaction will trigger a mandatory open offer by Pluto Investments S.a.r.l. for the purchase of up to 26 per cent equity shares of PNBHFL from public shareholders.

PNB on track to achieving proit of ₹ 2,000 crore this fiscal despite Covid-19 challenges

As part of this transaction, Salisbury Investments Pvt Ltd, the family investment vehicle of Aditya Puri, Senior Advisor for Carlyle in Asia and the former CEO & Managing Director of HDFC Bank, will also invest in the capital raise.

Aditya Puri is expected to be nominated to the PNBHFL Board as a Carlyle-nominee director in due course.

Hardayal Prasad, Managing Director and CEO of PNB Housing Finance, said in a statement: “This fund raiseand Carlyle’s continued support puts us in a strong position to benefit from the growing opportunities in the housing finance sector, including in the affordable housing loans and self-employed segments, where we have developed differentiated capabilities in terms of distribution, underwriting and customer service. The current fund raise and planned strengthening of the board and management team will enable us to accelerate our strategic priorities, including further expanding our footprint, driving the company’s digitalisation, improving our operating model and customer engagement.”

PNB to exit Canara HSBC Oriental Bank Life

Sunil Kaul, Managing Director of the Carlyle Asia advisory team, said: “We have developed a strong partnership with PNB Housing Finance since our investment six years ago, leveraging our industry expertise and networks to help the company navigate sector headwinds, strengthen its business, and position it for future growth. This substantial additional investment reflects Carlyle’s strong commitment to India as a core market. We look forward to continuing our partnership with a leading bank like PNB to support the company as it embarks on a new growth journey.”

Mallikarjuna Rao, Managing Director and CEO of Punjab National Bank, said: “This capital-raise will significantly strengthen PNB Housing Finance’s capital base. We’re delighted for them to reach this milestone, and to see the encouraging improvement in industry dynamics. We are strongly committed to supporting PNB Housing Finance’s future success, and look forward to continuing our partnership with Carlyle and PNB Housing Finance.”

Key objective

The key objective of raising capital is to augment capital adequacy, reduce gearing and accelerate growth with a focus on retail housing, including self-employed and affordable housing loans such as the Unnati segment.

On Monday, the shares of PNBHFL hit upper circuit at ₹525.65, which was 20 per cent higher over the previous close of ₹438.05 on the national stock exchange.

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