Category: Banking & Finance

Our Bureau

The Reserve Bank of India (RBI) has imposed a monetary penalty of ₹15 lakh on Fedbank Financial Services Ltd (Fedfina), Mumbai, for non-compliance with certain provisions of the central bank’s directions on monitoring of frauds.

“This penalty has been imposed in exercise of powers vested in RBI under the provisions of …the Reserve Bank of India Act, 1934.

“This action is based on deficiencies in regulatory compliance, and is not intended to pronounce upon the validity of any transaction or agreement entered into by the company with its customers,” said the RBI in a statement.

Fedfina is a subsidiary of Federal Bank. The bank has 74 per cent stake in the non-banking finance company (NBFC).

The central bank observed that the statutory inspection of the company, with reference to its financial position as on March 31, 2019, revealed, inter alia, non-compliance with certain provisions of the directions issued by the Reserve Bank of India contained in ‘Monitoring of Frauds in NBFCs (Reserve Bank) Directions, 2016’.

In furtherance to the same, a notice was issued to the company advising it to show cause as to why penalty should not be imposed for failure to comply with the directions issued by RBI, the statement said.

After considering the company’s reply to the notice and oral submissions made during the personal hearing, the RBI came to the conclusion that the charge of non-compliance with aforesaid RBI directions was substantiated and warranted imposition of monetary penalty, the RBI added.

The Reserve Bank of India (RBI) has set up a five-member committee, headed by former Deputy Governor Shyamala Gopinath, for evaluating applications for Universal Banks as well as Small Finance Banks.

The other members of the Standing External Advisory Committee (SEAC), whose tenure will be for three years, are: Revathy Iyer, Director, Central Board, Reserve Bank of India; B Mahapatra, former Executive Director, RBI and presently Chairman, National Payments Corporation of India (NPCI); TN Manoharan, former Chairman, Canara Bank; and Hemant G Contractor, former MD, State Bank of India and former Chairman, Pension Fund Regulatory and Development Authority (PFRDA).

The RBI’s guidelines for ‘on-tap’ Licensing of Universal Banks in the Private Sector (August 1, 2016) and Guidelines for ‘on-tap’ Licensing of Small Finance Banks in the Private Sector (December 5, 2019) indicated that the applications for Universal Banks and Small Finance Banks will be initially screened by the Reserve Bank to ensure prima facie eligibility of the applicants.

The guidelines also stated that a SEAC comprising eminent persons with experience in banking, financial sector and other relevant areas, will evaluate the applications thereafter and that the constitution of the SEAC will be announced by Reserve Bank.

The RBI, in a statement, said secretarial support to the committee would be provided by its Department of Regulation.

Our Bureau

Mumbai, March 22

Moody’s Investor Service has affirmed the long-term local and foreign currency deposit ratings of IndusInd Bank at ‘Ba1’ and has revised its outlook to ‘stable’ from ‘negative’.

“Moody’s has also affirmed its baseline credit assessment (BCA) and adjusted BCA at Ba2,” it said in a statement on Monday.

Strong capital

The agency said the affirmation of the BCA and the deposit ratings takes into consideration the bank’s strong capital and core profitability, as well as a relatively modest funding.

“The change in outlook to stable from negative is driven by improvement in its funding and capital, and marginal asset quality deterioration because of the economic disruptions from the pandemic,” it further said.

The BCA and ratings of the private sector lender could be upgraded if there is a significant improvement in its funding, such that the share of sticky retail deposits in its funding and depositor concentration becomes comparable to that of other large-rated private sector banks in India, and credit costs normalise to pre-pandemic levels, said Moody’s.

It, however, warned that the bank’s BCA and ratings could be downgraded if there is a deterioration in its funding or asset quality, such that either NPL ratio or credit costs increase significantly from the current levels.

For the quarter ended December 31, 2020, IndusInd Bank reported a 34 per cent drop in its standalone net profit of ₹852.76 crore from ₹1,300.20 a year ago.

Moody’s, however, noted that despite the economic disruption, the asset quality deterioration was moderate. Gross and net non-performing loan (NPL) ratios, after including those benefiting from the Supreme Court order on loan classification, stood at 2.93 per cent and 0.22 per cent, respectively, as of the December-end 2020, compared to 2.18 per cent and 1.05 per cent, a year earlier.

IndusInd Bank also raised capital, resulting in a significant increase in the core equity tier 1 ratio to around 15 per cent from 12.1 per cent at the end of 2019, it further said.

Finance Minister Nirmala Sitharaman on Monday introduced a Bill to set up a dedicated institution in the Government as well in the private sector to provide finance for the infrastructure sector.

The institution to be set up by the Government will be called National Bank for Financing Infrastructure and Development. The Government has already committed ₹20,000 crore as equity capital and ₹5,000 crore as grant for the institution

“Its aim is to address market failures that stem from the long-term, low margin and risky nature of infrastructure financing. The Institution shall be wholly owned by the Central Government to begin with in order to foster confidence on its stability and sustainability and to raise resources at competitive rates,” the statement of objects and reasons for the Bill said.

How to make the DFI model work

Key objectives

The Government will provide the Institution with grants and contributions, guarantees at concessional rates for foreign borrowings and any other concessions. “Dilution or sale of stake may be considered once the Institution has achieved stability and scale in its business operations, but the Government would at all times hold 26 per cent of the paid-up voting equity share capital of the Institution,” the Bill stated.

Key objectives of the Bill include enabling the Central government, multilateral institutions, sovereign wealth funds, and such other institutions to hold equity in the Institution. It will enable the Institution to provide financial assistance to infrastructure projects located in India, or partly in India and partly outside India. It will provide adequate safeguards for decision making to address risk aversion.

To fund infra, Cabinet clears DFI Bill with ₹20,000-crore initial govt equity

Another objective is “to make provision for the establishment of other development finance institution, in addition to the Institution established under the proposed legislation.”

The Bill provides that the Central government may support the Institution through grants or contribution, as and when necessary, in the form of cash or marketable Government securities.

It provides for the protection of action taken in good faith by the institution or its Chairperson or other directors, employees or officers. It prescribes that no investigation agency will conduct any enquiry or investigation into any offence alleged to have been committed under any law, “in relation to any recommendation made or decision taken by the Chairperson or other directors, employees or officers of the Institution in discharge of his official functions or duties, without the previous approval of the competent authority specified therein.”

‘Will enhance lending’

Commenting on the Bill, Siddharth Srivastava, Partner with Khaitan & Co, said that it will definitely fill the existing gaps in long-term infrastructure financing, enhance lending in infrastructure sector and boost economic growth. Indian DFCs will also give the much-needed acceleration to infrastructure sector with lower cost of funding and lending arrangements with considerably longer tenure compared to commercial banks in general. That said, “in order to ensure success of DFIs in India, transparent management and strict adherence to legal and policy prescriptions is a must since public money is involved,” he said.