Category: Banking & Finance

No interest on interest lockdown loan moratorium, rules SC; refuses to extend relief

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RBI had announced a loan moratorium on March 27 last year.
(Image: REUTERS)

The Supreme Court of India today ruled in favour of waiving compound interest, ie, interest on interest during the six-month moratorium announced by the Reserve Bank of India last year. The apex court said that banks will not charge compound interest or penal interest on any amount during the moratorium period for all borrowers, PTI reported. Along with this, the court has also rejected pleas by various trade associations to extend the loan moratorium that ended in August last year. Banking stocks on Dalal Street surged higher after the Supreme Court’s ruling and Bank Nifty jumped 1.4%.

The Supreme Court further directed banks to credit or adjust the amount already charged by them from borrowers. The court added that it cannot do a judicial review of the Centre’s financial policy decision unless it is malafide, arbitrary. The judgment was delivered by a Bench of Justices comprising Justice Ashok Bhushan, R Subhash Reddy and MR Shah. The bench had reserved the judgement on December 17.

Rejecting pleas for a complete waiver on interest the court opined that such a move would have consequences on the economy. The bench also said that interest waiver would affect depositors. Along with this, the court also rejected pleas for further relief in the matter.

“The Supreme Court judgment is very welcome,” said Mahesh Misra, CEO, IMGC (India Mortgage Guarantee Corporation). “Any other outcome would have created a potential moral hazard and also penalized conscientious borrowers. This creates the right precedent as well,” he added.

The decision to not waive off interest entirely is also being seen as a positive. “The apex court has also taken a very prudent view by not granting a complete waiver of interest which would have severely impacted the banking system,” said Siddharth Srivastava, Partner, Khaitan & Co. He added that interest on interest would have diluted the relief granted by the RBI.

Earlier the central government had told the apex court that waiving interest on all the loans and advances to all categories of borrowers for the moratorium period during the pandemic would result in Rs 6 lakh crore in foregone amount. The court was informed that waiving the amount would wipe out a substantial part of the net worth of banks.

The RBI had on March 27 last year announced a loan moratorium on payment of instalments of term loans falling due between March 1 and May 31, 2020, due to the pandemic, later the same was extended to August 31.

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Banks’ sigh relief as Supreme Court decides waiver of complete interest not possible, BFSI News, ET BFSI

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The Supreme Court of India in the extension of loan moratorium case has provided its verdict and the uncertainty over the actual stressed assets in the banking system will become more clear.

The Supreme Court noted that the scope of judicial review on economic policy decisions and policy decisions with affect on economy has to be considered. The apex court also noted that if only some sectors are not satisfied, court cannot intervene in such matters of policy.

Considering the reliefs independently the court decided that the complete interest is not possible as banks also have to pay interest to account holders and pensioners.

The court also noted that the it cannot be said the centre has not taken steps in the aftermath of Covid-19 pandemic and therefore petitioners will not be eligible for waiver of interest on interest, or demand extension of moratorium or sector specific reliefs.

On the waiver of interest on interest for loans upto Rs 2 crore, the apex court believes there’s no justification on the same.

The court also said that there shall be no interest on interest or compensation interest during the moratorium period irrespective of loan amount the same amount collected shall be refunded. If refund doesn’t seems possible the interest on interest collection can be adjusted in the next installment payable.

(The copy will be updated once the final judgement is out)



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Banks face hit on margins as deposit rates seen surging, BFSI News, ET BFSI

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Banks are likely to face a dent in their margins in the year ahead.

Net interest margins (NIM), a key indicator of profitability, which have improved for the banks in the last one year are likely to be compressed as borrowings pick up in the year ahead and deposit rates face pressure.

Rising margins

The banks have seen a sharp drop in credit offtake due to pandemic-led slowdown. On the other hand, they saw a huge rise in deposits.

helped with policy cuts, banks have cut interest rates heavily on deposits and lending. However, the drop in interest rates has been bigger than on lending. The weighted average term deposit rate has fallen 80 basis points in the first nine months of this fiscal, while the weighted average lending rate on outstanding loans has fallen by 62 bps. This has led to an increase in banks’ net interest margins in the last one year.

Fourth-quarter NIMs

Net interest margins, which is the difference between the interest income earned and the interest paid by a bank or financial institution relative to its interest-earning assets like cash, have remained in the above 3-percent bracket in the third quarter.

For the December quarter, NIM has remained stable for State Bank of India at 3.34%. For ICICI Bank, it expanded sequentially to 3.67%.

While for Axis Bank, NIM before interest reversals stood at 3.59%.

The year ahead

Credit offtake is expected to be robust in the coming financial year, which would mean a higher demand for deposit funds and hence, a higher rate of interest. This is expected to be driven by investment demand from infrastructure and real estate sectors as well as the release of pent-up consumer demand, thus resulting in high growth in retail finance.

However, experts have started questioning the ability of RBI to continue with its accommodative stance along with trying to achieve its macro-economic targets for inflation and fiscal deficit. All macro-economic indicators together point towards an inevitable rise in deposit rates starting from the second half of the FY 2021-22. Some banks and non-banking finance companies have already started increasing deposit rates across tenures, especially rates on longer-term FDs.

Credit offtake

Banks gave out credit at a faster rate during the fortnight ending February 12, as compared to the same period last year, helped by an increase in retail loans. The bank credit growth was recorded at 6.6%, marginally higher from the 6.4% recorded last year, a report by CARE Ratings showed. With this, the credit growth is back in the range that was last seen during the early months of the pandemic. The credit growth of banks ranged between 6.5% to 7.2% in April 2020.

Deposit growth

Deposits with banks have also increased during the period under review. deposits increased 12.06 during the fortnight ended February 12, 2021, compared with 11.1% growth registered during the fortnight ended January 29, 2021, and also as compared with the previous year,” CARE Ratings said. The report further added that the outflows in debt mutual fund and equity mutual fund could support the rise in bank deposits. Of these deposits, time deposits grew at 89% while demand deposits account for the remaining 11%.



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RBI committee to evaluate on-tap applications for universal and small finance banks licenses, BFSI News, ET BFSI

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The Reserve Bank of India has taken a step ahead ever since the guidelines on on-tap licensing were announced in early 2016.

The RBI has step up a standing external advisor committee (SEAC) under former deputy governor Shymala Gopinath to evaluate new banking licenses under on-tap application for universal and small finance banks.

The application will be scrutinised by a standing committee and NBFCs floated by corporates could be given licenses.
Apart from Gopinath as chairperson of the committee, the RBI has inducted four members Revathy Iyer who’s central board director of RBI, NPCI’s chairman B Mahapatra, Canara Bank’s former chairman T N Manoharan and SBI’s former MD & PFRDA’s former Chairman Hemant Contractor.

Recently the RBI”s internal working grou had floated a paper on the issue of new licenses to corporate groups wherein NBFCs owned by corporate groups should be allowed to set-up banks, where many in the industry saw it as opening the doors for corporates to get into the banking sector.

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‘RuPay’s market share by volumes is 34%’

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All those things are starting to fall in place and we are already seeing the trend of good success rates come back.

The problem of high transaction failure rates has been solved to a large extent, Praveena Rai, chief operating officer, National Payments Corporation of India (NPCI), told Shritama Bose and Shobhana Subramanian. RuPay cards now account for a third of the card payments market, Rai added. Edited excerpts:

In 2020 while digital payments surged, there was also the problem of high failure rates and outages. What have been the takeaways for the industry?

It’s a good place to be. It’s a fantastic problem to solve. The demand side really picked up so well in a situation where the country needed it so much. I’m on one hand really glad and happy that we have the core infra running the systems where the users were aware and a much higher level of awareness build-up, which was highly need-driven at a time when people were locked in and wanted to have their transactions in a safe way without exposing themselves and without having too much contact.

Really the discovery of digital payments for a lot of people happened. So that demand really created the supply-side challenges that you’re referring to. The learning is really that in India we have to be prepared for the exponential growth to continue and the inflexion points will surprise us.

The second thing is response and being able to get things back in shape quickly. We are seeing that in the ecosystem today. Institutions have done what they needed to do from an infrastructure standpoint. We’ve been very heavily involved in a lot of that activity, having technology that is not just scaling up in a linear fashion, but very efficient and effective manner.

All those things are starting to fall in place and we are already seeing the trend of good success rates come back. Some of the very large institutions in the last few days have shown success rates which are better than anything seen in the past.

UPI P2M volumes have really shot up. Do you think all the merchants who could have been acquired have already come under the fold?

No, I think we are still scratching the surface there. On one hand, we’ve seen the UPI volumes grow and on the other hand, the percentage of P2M transactions has also significantly increased. Earlier, we would have seen 35% of transactions on P2M and now that number is hovering closer to 43-45% in the last couple of months. So, a number of users who started out making small payments to each other whenever they needed are starting to use it for merchant payments.

E-commerce is a very significant driver, but we are also seeing a lot of other interesting categories emerge. For example, we now have some of the bus transport corporations going live on UPI. Canara Bank has done this in Bengaluru. So, there are a number of use cases still being discovered. So, there is still a long way to go before we can say we have addressed all the possible use cases.

With some shareholders of NPCI now setting up NUEs are you looking for new stakeholders?

NPCI is dedicated to India’s digital payments vision and whatever has happened in the last decade would not have happened if the ecosystem partners were not equally committed. There are two parts to this. One is the role that organisations may play wearing their investment hat. They may make various investments in the market. The other is the role they play in NPCI as key stakeholders. Whatever NPCI has brought to the market has been co-created with other stakeholders. That DNA will stay. We will remain committed to market participants. The role that organisations may play as investors will play out and we will take it up at that point in time. Our action plan is already in place. At this stage, we are in a wait, watch and observe mode.

Zero MDR is still a sticky point with the industry. How has it changed life for NPCI?

Having a revenue stream is important and ecosystem players need to have returns for whatever investments they have made. However, the market is looking at it from a relationship value standpoint. As long as the demand stacks up, that approach will drive support for the systems that are there. Our market share on RuPay has stayed flat. We are at about 34% by volumes and 30% by value. We are making an incremental push on the credit card side of the market. So, we have the full portfolio.

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Relief for MFs: SEBI eases norms on perpetual bonds

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In a major relief, the market regulator SEBI has allowed mutual funds to meet its norms on valuation of perpetual bonds in a time bound manner with the life span of bonds increasing over the years.

On March 10, SEBI had stated that the maturity of all perpetual bonds shall be treated as 100 years from the date of their issuance for the purposes of valuation.

Based on the representation of the mutual fund industry to consider a glide path for the implementation of the policy, it has been decided that the deemed residual maturity for the purpose of valuation of existing and new bonds issued under Basel III framework will be achieved over a period of two years.

In the financial year ended March 2022, the AT-1 bonds will be valued at 10 years or the call date mentioned in the bond. From April to September 2022, it will be valid at 20 years and from October 2022 to March 2023 it will have a life span of 30 years. Finally, from April 2023, the perpetual bonds will be valid at 100 years.

All Basel-III tier-two bonds will be valid at the contractual maturity.

Further, if the issuer does not exercise the call option for any of the perpetual bonds, then the valuation and calculation of duration shall be done considering a maturity of 100 years from the date of issuance for AT-1 bonds and contractual maturity for Tier-2 bonds, said SEBI.

If the non-exercise of call option is due to the financial stress of the issuer or if there is any adverse news, the same shall be reflected in the valuation, it said.

The Association of Mutual Funds in India has been advised to issue detailed guidelines with respect to valuation of bonds issued under the Basel III framework, which shall be implemented by April 1, 2021.

The change in rules comes after the Finance Ministry had raised concerns over the duration of perpetual bonds.

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RBI appoints panel for new universal bank & SFB licences

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RBI had last issued banking licence in 2014 to Kolkata-based Bandhan Bank and IDFC.

The Reserve Bank of India(RBI) on Monday constituted a committee headed by former deputy governor Shyamala Gopinath to evaluate applications for universal banks as well as small finance banks (SFB). The constitution of the committee is in line with regulator’s guidelines for ‘on-tap’ licensing.

The applications for universal banks and SFBs will be initially screened by the RBI to ensure prima facie eligibility of the applicants. Thereafter, the committee will evaluate the applications, RBI said. A universal bank is a bank that offers retail, wholesale and investment banking services under one roof.

The panel termed as Standing External Advisory Committee (SEAC) will have five members including Shyamala Gopinath. Revathy Iyer, director, central board of RBI; B Mahapatra, former executive director, RBI and current chairman of the National Payments Corporation of India (NPCI), will be part of the committee as per RBI. Similarly, TN Manoharan, former chairman of Canara Bank and Hemant G Contractor, former managing director (MD) of State Bank of India (SBI) will also be part of the committee.

RBI’s internal working group (IWG) had earlier suggested to allow large corporate and industrial houses to own banks by amending the Banking Regulation Act, 1949. However, former RBI governor Raghuram Rajan along with former RBI deputy governor Viral Acharya had severely criticised the suggestion by the IWG, calling it as “bombshell”.

RBI had last issued banking licence in 2014 to Kolkata-based Bandhan Bank and IDFC.

Similarly, in 2015 RBI had granted in-principle licence for small finance banks to 10 entities including Ujjivan Financial Services, Janalakshmi Financial Services and Equitas Holdings, among others. Later, the regulator had released separate guidelines for allowing on tap licensing of universal banks and small finance banks.

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Paytm payment gateway registers 750m monthly transactions, surpasses pre-Covid level, says company

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Paytm continued to remain the distant third player in UPI transactions in February 2021.

Paytm on Monday announced that its payment gateway is the largest processor of business payments with over 750 million monthly transactions now. Adoption of online payments for sectors such as BFSI, retail and direct-to-consumer (D2C) e-commerce, utilities, edtech, food delivery, digital entertainment, gaming and online shift of businesses during and post covid times had enabled growth for the payment gateway even as its transaction volume had long surpassed pre-covid levels, the company said in a statement.

Adoption of payment instruments issued by Paytm Payments Bank, including Paytm Wallet and Paytm UPI contributed about 60 per cent to the total transactions registered on the gateway. Also, Paytm PostPaid and EMI services which were launched last year registered 25 per cent month-on-month growth, Paytm said. “Our systems have the capacity to manage up to 2,500 transactions per second which ensure stability when our enterprise merchants see spikes during special events and sales,” said Praveen Sharma, Sr. Vice President, Paytm.

According to RedSeer’s August 2020 report on digital payments in India, Paytm is the largest player in the merchant payments space with a 50 per cent market share followed by Phonepe and Google Pay. However, as per the monthly UPI transaction data from the National Payments Corporation of India (NPCI), Walmart’s payment arm in India PhonePe continued to remain the dominant UPI app for a third straight month in February 2021, cornering an impressive 42.5 per cent share of the 2,292.90 million UPI transactions.

Also read: Digital lending: Government blocks 27 fraud lending apps offering instant credit online

Paytm remained the distant third player in February as well recording 340.71 million transactions involving Rs 38,493.52 crore. It had processed 332.69 million transactions worth Rs 37,845.76 crore in the preceding month. Google Pay, which had lost the top spot to PhonePe in December 2020, had retained the second-largest UPI app in February processing 827.86 million transactions worth Rs 1.74 lakh crore.

India’s digital payments are likely to grow at a CAGR of 27 per cent during the FY20-25 period. The digital transactions are expected to jump from Rs 2,153 lakh crore in FY20 to Rs 7,092 lakh crore in FY25, according to the India Trend Book Report 2021 launched last week by the Indian Private Equity and Venture Capital Association (IVCA) and Ernst & Young. The payment gateway aggregator market is expected to grow at around 19 per cent CAGR from Rs 9.5 lakh crore in FY20 to Rs 22.6 lakh crore in FY25 while the merchant payments segment is likely to see 52 per cent growth from Rs 4.7 lakh crore to Rs 33 lakh crore during the said period.

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Govt to cancel last G-Sec auction of FY21

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Our Bureau

The government has decided to cancel the last weekly Government Securities (G-Secs) auction of FY21, aggregating ₹20,000 crore. This could soften G-Sec yields in the run-up to the close of the fourth quarter and the financial year.

“As per the revised Issuance Calendar dated February 1, 2021, for Government of India-dated securities, the next auction is scheduled to be held on March 26, 2021.

“On review of position of cash balance, the Government of India has decided to cancel the above scheduled auction,” said the Reserve Bank of India (RBI) in a statement.

Direct tax collection

Last Thursday, BusinessLine had reported about the possibility of cancellation of the last weekly G-Sec auction of FY21 on rising expectations that the overall direct tax collection may exceed the revised target.

Softening of G-Sec yields due to cancellation of the auction could have a salubrious effect on valuation of bond portfolio of banks, said Marzban Irani, CIO-Fixed Income, LIC Mutual Fund.

The 10-year benchmark G-Sec (carrying 5.85 per cent coupon rate) thawed about a basis point to close at 6.1801 per cent (previous close: 6.1927 per cent), with its price moving up by 9 paise to close at ₹97.61 (₹97.52).

The 15-year G-Sec (6.22 per cent) softened 3 basis points to close at 6.7345 per cent (6.7673 per cent), with its price rising by about 28 paise to close at ₹95.3850 (₹95.10).

Bond yield and price are inversely related, moving in opposite directions.

CARE Ratings, in a report last Friday, said the Central government raised ₹33,000 crore in its scheduled weekly auction for the week ended March 19, 2021, which is ₹4,000 crore more than the notified amount and ₹8,767 crore more than the previous week.

“This is the second consecutive auction wherein no bids were devolved to the primary dealers,” said Sushant Hede, Associate Economist, in the report.

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Focus Financial, Hindujas join hands to launch Beryllus Capital

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Focus Financial Partners Inc, a leading wealth management firm, announced on Monday that it has launched Beryllus Capital in a joint venture with the Hinduja Group. Beryllus Capital is a multi-family office that will cater to some of the most prominent families in the world through offices in London, Geneva and Singapore.

The firm will provide advice and integrated strategies for managing its clients’ investments, philanthropic endeavours and legacies. Its services will include investment management, investment banking and real estate advisory. The firm will create access to diverse investment opportunities across public and private markets.

Beryllus Capital will be led by Amit Kotha, a founder and veteran senior wealth advisor, based in London.

GP Hinduja, co-Chairman, Hinduja Group, said Beryllus Capital will address the bespoke needs of ultra-high net worth families on a global scale, with outstanding professional and governance standards.

Amit Kotha, Founder and Managing Partner of Beryllus Capital, said its strength lies in the long-standing connections that founding partners have with some of the most influential families in the world.

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