Category: Banking & Finance

IBA fears precedent, wants govt to pay ‘interest on interest’, BFSI News, ET BFSI

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The Indian Banks’ Association (IBA) has sent a communication to the Finance Ministry to pay the compound interest charged to borrowers with loans above Rs 2 crore during the moratorium period of March 1 to August 31, 2020.

Though most private banks have provided for the compound interest waiver, bankers are of the view such a move will set a precedent and want the government to foot the bill. They are expecting a reversal benefit on the interest on interest payment, according to a report.

The Supreme Court order

The Supreme Court in its order last month had directed the government and the RBI to waive penal interest charges on all loans, while rejecting the demand of borrowers to extend the repayment moratorium beyond August 31 and for a complete interest waiver. The loan moratorium scheme was aimed at giving temporary relief to borrowers.

In November last, the government decided to waive interest-on-interest for borrowers below loan exposure of Rs 2 crore. It paid nearly Rs 6,000 crore to lenders to compensate them for the income loss.

Bank provisions

After waiting for the government to burden the compound interest on loan waivers, top banks have provided for payment in the fourth-quarter results.

HDFC Bank has provided Rs 500 crore for interest on interest while ICICI Bank said it has kept Rs 175 crore aside for it, according to the Q4 results announced by these banks. Axis Bank has provided Rs 160 crore while Mahindra Finance has made a provision of Rs 32 crore.

How much does it cost?

Waiving compound interest on loans above Rs 2 crore could cost nearly Rs 4,000 crore to public sector banks, Rs 2,500 crore to private banks and another Rs 1,000 crore to non-bank lenders.

While ICICI Securities had put the total compound interest burden on loans above Rs 2 crore at Rs 11,700 crore, other analysts have put it between Rs 7,000 crore and Rs 10,000 crore. As per rating firm ICRA, compound interest for six months of moratorium across all lenders is estimated at Rs 13,500-14,000 crore.

The Indian Bank Association has recently finalised a methodology for the calculation of the interest on interest component.

Under the norms, borrower accounts which were standard as on February 29, 2020, including SMA­0, SMA­1 and SMA­2 will be eligible for the refund. All loans, working capital, trade products, outstanding during the moratorium period shall be considered for the compound interest waiver.

The government stand

The government had reimbursed banks for forgoing compound interest, or interest on interest, on loans up to Rs 2 crore outstanding during March-August last year, when borrowers had the option to seek a moratorium on repayments.

Lenders have been charging compound interest on larger amounts, but the Supreme Court order means they must now refund it to borrowers. Banks were hoping that the government will take on the burden by enhancing the scope of the ex-gratia scheme to cover the additional refund after the apex court order.



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Fintech start-up QPS launches services in the UK

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Mumbai-based fintech start-up QPS has announced its expansion in the European continent by launching its services in the United Kingdom. The start-up will invest £10 million and create 100 new jobs, including several high skilled positions in the tech and fintech industry.

QPS is a leading B2B service provider offering a fully managed card issuance and processing platform, which is integrated with the banks as well as payment servers. Incorporated in February 2019 by Vinay Kalantri, the company is headquartered in Mumbai and a back-office stationed in Chennai.

“The United Kingdom is one of the fastest growing fintech markets in the world and is ideal for QPS to showcase its technological prowess. We truly believe that technology could be the defining factor that would enable us to capture 20 per cent of card issuing market within the first two years. We are also looking at clocking up revenues to the tune of £100 million in the next three years by targeting the overall BFS industry of The United Kingdom.

“We are truly grateful to the Government of United Kingdom for giving us this opportunity and look forward to a fruitful business association with them” said QPS founder and CEO, Vinay Kalantri. Listed among 50 Most Promising Entrepreneurs of 2017, Kalantari has been a part of the Fintech fraternity for more than two decades.”

Having already established itself in the card issuing ecosystem of India, QPS has now set its eyes on the fast growing European market. By optimising its secure open API issuer processing platform, QPS would be focussing on the real needs of the end user and would enable companies to customise their unique card programmes.

In a statement, UK Prime Minister, Boris Johnson said, “Trade and investment between the UK and India is creating good jobs and sustaining livelihoods in both of our countries. I’m very pleased that QPS has decided to join the legions of Indian companies investing in the UK, boosting our FinTech sector and driving economic growth.”

QPS is focused on breaking the mould of the legacy ecosystem by constantly evolving its backend technology. With the help of world-class APIs along and a dedicated developer portal with a modern core banking platform, QPS provides an instantly accessible private sandbox environment for its clients. Companies could now have a modern card system showing real time data points on credit limits, reward points, transactions, etc. It also gives companies a unique plug-and-play model that would enable them to launch new features with absolute ease.

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RBI to purchase higher amount of G-Secs at 2nd auction under G-SAP

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The Reserve Bank of India (RBI) has decided to increase the amount of government securities (G-Secs) it will purchase at the second auction under the G-Sec Acquisition Programme (G-SAP 1.0) to ₹35,000 crore against ₹25,000 crore it purchased at the first auction.

The second purchase of G-Secs for an aggregate amount of ₹35,000 crore under G-SAP 1.0 will be conducted on May 20, 2021, Governor Shaktikanta Das said.

This announcement had a immediate effect with the yield on the benchmark 2030 G-Sec thawing about 2 basis points to 5.99 per cent, with its price moving up about 15 paise to Rs 98.96.

The first purchase of G-Secs for an aggregate amount of ₹25,000 crore under G-SAP 1.0 was conducted on April 15, 2021.

The Governor emphasised that the first auction under G-SAP 1.0 elicited an enthusiastic response as reflected in the bid-cover ratio of 4.1.

“G-SAP has engendered a softening bias in G-sec yields which has continued since then.

“Given this positive response from the market, it has been decided that the second purchase of government securities….” Das said.

The Governor observed that with system liquidity assured, the RBI is now focusing on increasingly channelising its liquidity operations to support growth impulses, especially at the grassroot level.

Under G-SAP 1.0, the RBI has committed upfront to a specific amount (₹1 lakh crore in the first quarter of FY22) of open market purchases of government securities with a view to enabling a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.

The endeavour will be to ensure congenial financial conditions for the recovery to gain traction, Das said last month.

For Q1 of 2021-22, therefore, it has been decided to announce a G-SAP of ₹1 lakh crore. The first purchase of government securities for an aggregate amount of ₹25,000 crore under G-SAP 1.0 will be conducted on April 15, 2021.

“RBI Governor Shaktikanta Das in an unscheduled speech today provided more liquidity support and a larger tranche of G-SAP 1.0. We think the RBI’s normalisation cycle is likely to be on hold, unless the outlook for growth improves,” said Rahul Bajoria, Chief India Economist, Barclays Securities (India) Pvt Ltd, and Shreya Sodhani, Research Analyst, Barclays Investment Bank, Singapore, in a report.

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RBI announces rationalisation of compliance to KYC norms

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The Reserve Bank of India on Wednesday announced the rationalisation of compliance to Know Your Customer (KYC) norms.

The measures include extending the scope of video KYC for new categories of customers such as proprietorship firms, authorised signatories and beneficial owners of Legal Entities and for periodic updation of KYC as well as the introduction of more customer-friendly options, including the use of digital channels for periodic updation of KYC details of customers.

It has also announced the conversion of limited KYC accounts opened based on Aadhaar e-KYC authentication in non-face-to-face mode to fully KYC-compliant accounts as well as enabling the use of KYC Identifier of Centralised KYC Registry (CKYCR) for video-based customer identification process and submission of electronic documents (including identity documents issued through DigiLocker) as identity proof.

“Keeping in view the Covid related restrictions in various parts of the country, Regulated Entities are being advised that for the customer accounts where periodic KYC updating is due or pending, no punitive restriction on operations of customer accounts shall be imposed till December 31, 2021 unless warranted due to any other reason or under instructions of any regulator/enforcement agency or court of law, etc,” RBI Governor Shaktikanta Das said.

However, account holders are requested to update their KYC during this period.

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Citi commits ₹200 crore more to support India’s Covid relief efforts

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Citi, on Wednesday, announced an additional ₹200 crore ($27 million) pledge over the next three financial years towards India’s recovery and relief efforts against Covid-19, as the country experiences a surge in cases.

Of the total pledged amount, ₹75 crore ($10 million) is being allocated immediately towards the procurement of oxygen supplies, adding beds to hospitals, diagnostic testing systems, personal protection kits and other supplies for India’s frontline healthcare workers, it said in a statement.

The funds will also be utilised towards food and hygiene supplies for low-income families.

Citigroup to exit consumer banking operations in India, 12 other markets

“We have been in India for more than 100 years, and the country is home to over 20,000 of our colleagues. We are determined to support India through this unprecedented health crisis,” said Peter Babej, Asia Pacific CEO of Citi.

₹75 crore deployed earlier

“Our efforts in India are an important part of our global commitment to fight Covid. Since the onset of the pandemic, we have focused on assisting communities around the world, including through financial support of $100 million from Citi and the Citi Foundation.”

DBS in ‘advanced talks’ to buy Citi’s consumer banking business in India

The additional pledged amount for India will also be used to fund public and private healthcare infrastructure and to impart employable skills to the youth, thereby promoting economic revival, important for India’s recovery.

“The resurgence in India, which is now overwhelming the country’s healthcare system, calls for efforts from all sections of our society to come together to bring India back on track. This is an extraordinary situation and while the need of the hour is for medical equipment, it is equally important to reinforce the country’s healthcare infrastructure for citizens’ health and safety,” said Ashu Khullar, India CEO of Citi.

Today’s announced commitment builds on the ₹75 crore Citi has already deployed in India towards pandemic relief efforts.

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Breather for borrowers and small businesses as RBI allows Restructuring 2.0, BFSI News, ET BFSI

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The Reserve Bank of India has brought back the restructuring scheme for retail and small business borrowers allowing the lenders and borrower to brace the impact of the ongoing severe second wave of Covid-19 across the country.

RBI Governor, Shaktikanta Das said, “Small businesses and financial entities at the grassroot level are bearing the biggest brunt of the second wave of infections.”

He added, “The resurgence of COVID-19 pandemic in India in recent weeks and the associated containment measures adopted at local/regional levels have created new uncertainties and impacted the nascent economic revival that was taking shape. In this environment the most vulnerable category of borrowers are individual borrowers, small businesses and MSMEs.”

Under the Resolution Framework 2.0 for COVID Related Stressed Assets of Individuals, Small Businesses and MSMEs, borrowers who have aggregate exposure upto Rs 25 crore and have not availed restructuring in previous framework and who are classified as standard as of March 31, 2021 will be eligible for restructuring. The proposal has to be invoked up to September 30, 2021 and shall be implemented within 90 days after invocation.

Borrowers who have availed restructuring in the earlier framework where the resolution plan is permitted for less than two years are being permitted to use this window to modify their plans to extend the period of moratorium or tenor of the loan up to a total of 2 years.

For small businesses and MSMEs restructured earlier the central bank has allowed lending institutions as a one-time measure to review the working capital sanctioned limits based on a reassessment of working capital cycle, margins and other parameters.

Aashit Shah, Partner at J Sagar Associates said, “Restructuring guidelines for MSMEs, small businesses and individuals will assist them tide over the uncertainties caused due to the second wave. These guidelines as well as the recently introduced pre-arranged insolvency resolution process will enable MSMEs to restructure their debts without the looming fear of losing or liquidating their businesses.”

“Opening a one-time restructuring window for individuals and MSME till September 2021 will give an impetus to scale up their business without worrying about financial destitution,” said Rajesh Sharma, MD at Capri Global Capital Ltd.



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RBI announces additional Covid regulatory measures

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The Reserve Bank of India (RBI) on Wednesday announced a host of measures, including a special ₹50,000 crore term liquidity facility for banks for on-lending to entities such as vaccine manufacturers involved in the fight against Covid-19, a special ₹10,000 crore long-term repo operation to support small finance banks to on-lend to MSEs, and a resolution framework 2.0 for individuals, small businesses and MSMEs.

The special ₹50,000 crore term liquidity facility for banks to create a Covid loan book will be three years tenor and available at the repo rate. This facility will be available to Banks up to March 31, 2022.

Banks’ creating Covid loan book by lending to entities such as vaccine manufacturers, importers of life-saving equipment, hospitals and clinics will be incentivised by giving such lending the priority sector lending (PSL) tag.

Further, they will also be allowed to park an amount equivalent to the amount deployed in the aforementioned activities in the reverse repo window and earn 40 basis points higher interest rate than the current reverse repo rate of 3.35 per cent.

Small Finance Banks can tap a special ₹10,000 crore long-term repo operation of three years tenor to on-lend to MSE up to ₹10 lakh per MSE. This facility will be available up to October 31, 2021.

Further, SFBs loans to micro-finance institutions (with asset size of up to ₹500 crroe) will be recognised as priority sector lending. This move is aimed at enhancing the flow of credit to MFIs.

RBI has brought in a resolution framework 2.0 for vulnerable borrowers — individuals, small businesses and MSMEs.

In order to incentivise new credit flow to the micro, small, and medium enterprise (MSME) borrowers, Banks will be allowed to deduct credit disbursed to ‘New MSME borrowers’ from their net demand and time liabilities (NDTL) for calculation of cash reserve ratio (CRR) up to December 31, 2021. This exemption will be available for exposures up to ₹25 lakh per borrower.

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Govt asks PSBs to protect dollar assets on Cairn concern

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Indian authorities asked state-run banks to protect their dollar deposits on concern they could be frozen if Cairn Energy Plc moves to seize India’s offshore assets as part of a tax dispute.

Lenders aren’t committing to U.S. dollar purchases in the forwards market since this guidance last week, the people said, asking not to be identified discussing private deliberations. U.K.-based Cairn Energy can push authorities to impound Indian assets if the South Asian nation declines to honour an arbitration ruling in a $1.2 billion tax dispute, according to a letter the company sent to the Indian High Commission in the U.K. earlier this year.

The advice from Indian authorities came ahead of a summit on Tuesday between Prime Minister Narendra Modi and his U.K. counterpart Boris Johnson.

Cairn had said in March it’s considering three options, including talks with the government, preparation for possible enforcement, and potential to monetize the award, either partially or in full, to a third party. “As yet, no decision has been taken,” a spokesman for the company said Tuesday.

The banks’ decision to avoid adding more dollars to their offshore account has roiled India’s exchange rate in recent days because state-run banks are the usual counterparties who swap rupees into dollars and their absence makes the forward trade more expensive. The one-month USD/INR premium rose to as much as 10% on Tuesday on an annualized basis, from 5.41% on Thursday.

The surge in India’s USD/INR premium has been worsened by an abundance of dollars from IPO-related inflows.

The Reserve Bank of India didn’t immediately reply to an email seeking comment. A call to a finance ministry spokesman outside business hours wasn’t answered.

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RBI Governor Shaktikanta Das to make unscheduled speech today, BFSI News, ET BFSI

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By Jeanette Rodrigues

Reserve Bank of India said Governor Shaktikanta Das will make a speech Wednesday, an unscheduled appearance as ferocious new coronavirus wave devastates the country.

The address will be broadcast at 10 a.m. local time, the RBI said on Twitter, without providing further details.

The Covid-19 wave that has slammed India in recent weeks will probably worsen before it starts to taper off sometime later this month, forecasters warn. Pressure from industry groups has begun mounting on Prime Minister Narendra Modi to impose lockdowns to stem its spread, a move he has so far resisted to avoid the economic damage suffered last year.

RBI Governor @DasShaktikanta at 10:00 am today, May 05, 2021.YouTube: … https://t.co/mK8nIUhfjW” data-createdat=”1620178540000″ data-id=”1389755643620298754″>

The RBI has augmented fiscal support measures from Modi’s government with loan holidays and cash injections, as well as by cutting interest rates. It has pledged to keep monetary policy loose though its room to act has been constrained by inflation concerns.

Read: RBI steps up fight against Covid-19 second wave

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RBI Governor to deliver an unscheduled speech at 10 a.m.

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Reserve Bank of India said Governor Shaktikanta Das will make a speech Wednesday, an unscheduled appearance as ferocious new coronavirus wave devastates the country.

The address will be broadcast at 10 a.m. local time, the RBI said on Twitter, without providing further details.

The Covid-19 wave that has slammed India in recent weeks will probably worsen before it starts to taper off sometime later this month, forecasters warn. Pressure from industry groups has begun mounting on Prime Minister Narendra Modi to impose lockdowns to stem its spread, a move he has so far resisted to avoid the economic damage suffered last year.

The RBI has augmented fiscal support measures from Modi’s government with loan holidays and cash injections, as well as by cutting interest rates. It has pledged to keep monetary policy loose though its room to act has been constrained by inflation concerns.

Das has been meeting with with bankers and shadow lenders since last month to discuss topics including the current economic situation, potential stress to balance sheets, credit flows and liquidity. CNBC reported Tuesday that bankers have requested relief, including payment moratoriums, citing banking sources.

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