Sops for FPI investment in defaulted bonds to boost liquidity

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In order to further boost foreign portfolio investments in the corporate bond segment, the RBI has proposed to exempt FPI investment in defaulted corporate bonds from the short-term limit and the minimum residual maturity requirement under the Medium Term Framework.

Detailed guidelines are being issued separately, said the RBI. At present, foreign portfolio investors can invest in security receipts and debt instruments issued by Asset Reconstruction Companies and debt instruments issued by an entity under the Corporate Insolvency Resolution Process, as per the resolution plan approved by the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016, and these investments are exempted from the short-term limit and minimum residual maturity requirement under the Medium Term Framework for investment by FPIs in corporate bonds.

Vidisha Krishan, Partner, MV Kini & Co, said the bonds issued under a resolution plan have an issuer whose debt and restructuring has been resolved and is ideally under a fresh management free from its earlier baggage. To enable FPI investment in defaulted bonds, Krishan said the full disclosure on underlying nature of the issuer and on the rating and other adverse factors needs to be disclosed.

Niranjan Hiranandani, Managing Director, Hiranandani Group, said exemption to FPI investment in defaulted corporate bonds to boost further investment in recaptured economic revival and firming up consumer protection.

The new policy’s paramount objective of economic revival were addressed by innovative measures such as enhancing liquidity by allowing NBFC to tap TLTRO under on tap scheme and allowing additional credit for small MSME borrower’s up to ₹25 lakh, he added.

Sandeep Agarwal, Senior Fund Manager, Sundaram Mutual, said encouraging foreign stressed assets funds to buy defaulted bonds would mean more buyers in this segment and better liquidity in defaulted bonds.

This would help market participants such as mutual funds and insurance to find exit from defaulted bonds at better prices, he added.

In March, the RBI hiked the FPI investment limit in corporate bonds to 15 per cent of outstanding stock for FY21.

At present, FPIs can invest ₹3.17-lakh crore in Indian corporate bonds. With the enhanced limit, they can hold ₹4.29-lakh crore of corporate bonds for the half-year ended September 2020 and ₹5.41-lakh crore for the half-year ending March 2021.

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‘One Nation One Ombudsman’ approach for grievance redressal

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The Reserve Bank of India, on Friday, proposed the ‘One Nation One Ombudsman’ approach for grievance redressal, in a move aimed at enhancing consumer protection.

“To make the alternate dispute redress mechanism simpler and more responsive to the customers of regulated entities, it has been decided to implement, inter alia, integration of the three ombudsman schemes and adoption of the ‘One Nation One Ombudsman’ approach for grievance redressal,” said the Statement on Developmental and Regulatory Policies.

This is intended to make the process of redress of grievances easier by enabling the customers of the banks, NBFCs and non-bank issuers of PPIs to register their complaints under the integrated scheme, with one centralised reference point, it said.

The Integrated Ombudsman Scheme will be rolled out in June 2021.

As an alternative dispute resolution mechanism, three ombudsman schemes – Banking Ombudsman Scheme, Ombudsman Scheme for Non-Banking Financial Companies and Ombudsman Scheme for Digital Transactions – are in operation from 22 ombudsman offices of the RBI located across the country.

The RBI had operationalised complaint management system portal as a one-stop solution for alternative dispute resolution of customer complaints not resolved satisfactorily by the regulated entities.

“The proposed Integrated Ombudsmen Scheme combining the schemes of banks, NBFCs and Non-Bank Prepaid Payments Issuers will help in easy lodging of customer grievances and addressal. It is a step in the right direction for improving the customer service in banks,” said Rajkiran Rai, Chairman, Indian Banks’ Association and Managing Director and CEO, Union Bank of India.

‘A welcome move’

Mandar Agashe, Founder and MD, Sarvatra Technologies, said with interoperability among various payment systems on the rise, the RBI’s new ombudsman approach is a welcome move. “It’s a big step to bring more effectiveness and speed similar to one nation one card,” he said.

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RBI proposes 24×7 helpline for digital payment services

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The Reserve Bank of India, on Friday, announced the setting up of a 24×7 helpline for digital payment services as well as enabling participation in CTS clearing across all bank branches in the country.

Noting that its Payment Systems Vision document envisages the setting up a 24×7 helpline for addressing customer queries on various digital payment products, the RBI said the helpline will, in addition to building trust and confidence, also reduce expenditure on both financial and human resources otherwise incurred for addressing queries and grievances.

“The major payment system operators would be required to facilitate setting-up of a centralised industry-wide 24×7 helpline for addressing customer queries in respect of various digital payment products and give information on available grievance redress mechanisms by September 2021,” said the Statement on Developmental and Regulatory policies.

Going forward, the facility of registering and resolving the customer complaints through the helpline shall be considered.

Risk management

Further, to manage the attendant risks in outsourcing and ensuring that a code of conduct is adhered to while outsourcing payment and settlement related services, the Reserve Bank shall issue guidelines to operators and participants of authorised payment systems.

Meanwhile, the RBI also proposed to bring all bank branches under the Cheque Truncation System (CTS) clearing mechanism by September 2021.

Separate operational guidelines will be issued in a month’s time, it said, noting that this would help bring operational efficiency in paper-based clearing and make the process of collection and settlement of cheques faster, resulting in better customer service.

About 18,000 bank branches are still outside any formal clearing arrangement, although CTS has been in use since 2010 and covers around 1,50,000 branches across three cheque processing grids.

All the erstwhile 1,219 non-CTS clearing houses have since been migrated to CTS.

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NBFCs included in TLTRO ‘on tap’ scheme

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The Reserve Bank of India, on Friday, proposed to provide funds from banks under the TLTRO ‘on tap’ scheme to NBFCs for incremental lending to identified stressed sectors.

Reserve Bank of India Governor Shaktikanta Das noted that NBFCs are well recognised conduits for reaching out last-mile credit and act as a force multiplier in expanding credit to various sectors.

“With a view to support revival of activity in specific stressed sectors that have both backward and forward linkages and have multiplier effects on growth, the RBI had announced the TLTRO on tap scheme for banks on October 9, 2020,” Das said on Friday.

The scheme is available up to March 31, 2021.

“In addition to the five sectors announced under the scheme on October 21, 2020, 26 stressed sectors identified by the Kamath Committee were also brought within the ambit of sectors eligible under on tap TLTRO on December 4, 2020,” noted the Statement on Developmental and Regulatory Policies.

Liquidity availed by banks under the scheme is to be deployed in corporate bonds, commercial paper, and non-convertible debentures issued by entities in these sectors, it further said.

Players expect the move to help NBFCs boost lending and tide over liquidity problems.

Credit delivery

Welcoming the announcement, VP Nandakumar, Managing Director and CEO, Manappuram Finance, said it will enable NBFCs to significantly step up their lending and expand credit delivery at the last mile.

Shachindra Nath, Executive Chairman and Managing Director, U GRO Capital, said it will usher in effective liquidity for NBFCs, which would work hand-in-hand with the new co-lending guidelines.

“The positive impact is that it would enhance the NBFCs’ ability to provide a credit lifeline to capital-starved MSMEs, including the NTC small businesses, supporting not only their revival and stabilisation but also help look at growth. The credit impact can be further expanded significantly with the extension of the Partial Credit Guarantee Scheme for portfolio purchase of loans for these sectors,” he said.

Tirthankar Datta, Partner, J Sagar Associates, said this will be a much needed fillip for the NBFC sector after it had been reeling from a liquidity crunch since the IL&FS default in 2018, which was exacerbated by the pandemic.

“This is a great growth oriented and stabilising measure and in line with the NBFC sectors demands, instead of trying to stem the liquidity to address inflation concerns,” he said.

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‘Pro-growth policy, liquidity management key focus’

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The decision to leave the policy rates unchanged is on expected lines and the announcements by the Reserve Bank of India reflect support to growth and focus on maintaining liquidity, said bankers.

“RBI reposes confidence in the buoyancy in economic activities across the segments and thrust given in the Budget for higher capital expenditure leading to higher economic growth. One of the positive news in this context is both fiscal and monetary policies are in the same page of ‘pro-growth’, which is indeed the need of the hour,” said Rajkiran Rai, Chairman, Indian Banks’ Association and Managing Director and CEO, Union Bank of India.

Rai also highlighted that the Governor has reiterated the RBI’s resolve to maintain comfortable liquidity position in the market which they have successfully managed through out the challenging period of pandemic.

Liquidity management

State Bank of India Chairman Dinesh Khara said the RBI policy is an acknowledgement and continuation of doing whatever it takes to maintain an orderly, seamless and non-disruptive liquidity management policy to support debt management. “Towards this end, an extension of enhanced HTM limit, relaxation of funds availability under MSF, an extension of on tap TLTRO to NBFC, deduction of credit disbursed to ‘new MSME borrowers’ from their NDTL for calculation of the CRR will calibrate credit flow and liquidity management,” he said.

SS Mallikarjuna Rao, Managing Director and CEO also noted that the policy has complemented the Budget in supporting growth impulses. “The normalisation of CRR in a phased manner would smoothen the liquidity absorption process,” he said.

With inflation expected to be lower, bankers said they expect rates to be stable.

“Coming after a growth-oriented Budget, the monetary policy stance augurs well for economic growth. Expect rates to be stable with an upward bias depending on inflation trajectory,” said Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank.

Economists also said they expect yield management by the RBI to continue.

“The RBI is likely to continue with normalising liquidity conditions, in line with underlying growth and inflation fundamentals. However, they will make the process as non-disruptive as possible by continuing to keep liquidity in surplus. Yield management by the RBI is likely to continue; however it is likely to be more comfortable with a higher band for yields than 2020,” said Abheek Barua, Chief Economist, HDFC Bank.

“The central bank did its bit today by promising an accommodative liquidity stance to help the bond market absorb elevated government borrowing. The aim of the central bank, in our view, will be to ensure that financial conditions do not tighten too sharply over the foreseeable future,” said a note by HSBC Global Research.

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RBI plans to ‘harmonise’ regulatoryframework for microfinance lenders

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The Reserve Bank of India (RBI), on Friday, said that it is looking to review the regulatory framework for microfinance which would be uniformly applicable to all lenders in the microfinance space, including scheduled commercial banks, small finance banks and other such entities. Currently, RBI guidelines on microfinance regulate NBFC-MFIs primarily.

In his monetary policy statement on Friday, RBI Governor, Shaktikant Das, said: “The microfinance sector plays an important role in last-mile delivery of credit to needy segments. In view of the evolving role of the sector and the need for a robust framework for enhanced delivery of last-mile credit and strengthening consumer protection, the Reserve Bank will come out with a consultative document harmonising the regulatory frameworks applicable to various regulated lenders (NBFC-Micro Finance Institutions, Scheduled Commercial Banks, Small Finance Banks and NBFC–Investment and Credit Companies) in the microfinance space.”

The MFI industry, which includes banks (universal banks and small finance banks included), NBFCs and NBFC-MFIs, had a total loan portfolio of ₹2,31,778 crore as of September 30, 2020. The industry served 5.71 crore unique borrowersthrough 10.50 crore loan accounts.

Banks hold the largest share of the portfolio in micro-credit, with a total loan outstanding of ₹94,355 crore, accounting for nearly 41 per cent of the total loan portfolio. NBFC-MFIs are the second largest provider of micro-credit, with a loan amount outstanding of ₹69,933 crore, accounting for around 30 per cent. SFBs have a total loan amount outstanding of ₹43,142 crore, with a total share of 18.61 per cent per cent; NBFCs account for another 9.52 per cent, and other MFIs account for 0.99 per cent of the total loan portfolio, according to information available from MFIN Micrometer.

Sustainable growth

Welcoming the proposed move by theRBI, MFIN, the association for microfinance entities and the self-regulatory organization for NBFC-MFIs, said this would help bring a sustainable growth for the sector.

“This is indeed a welcome step for the sector. Considering the diversity of players in microfinance today, it is the need of the hour, and MFIN has been proactively working on this through its Code of Responsible Lending (CRL) and also requesting the RBI on the need for asset class-based regulation. This is a very important move as it will augur well for the sector as a whole and further safeguard the interests of the customers. MFIN looks forward to working closely with the RBI on this important initiative,” said Alok Misra, CEO and Director, MFIN.

MFIN had developed the CRL to bring differently regulated entities, including NBFC-MFIs, Banks, SFBs, NBFCs and Non-profit/Section 8 MFIs, to agree and adopt a uniform common code for customer conduct and ensure a level-playing field. The CRL has as many as 113 signatories, representing 70 per cent of the market.

Risk mitigation

According to Chandra Shekhar Ghosh, MD and CEO, Bandhan Bank, the Malegam committee on microfinance, about 10 years back, played a huge role in strengthening the foundations of the Indian microfinance industry by setting up policy contours around a host of areas, including lending process, pricing of interest rates, increasing transparency, capital and provisioning norms, and reducing the problems of multiple lending and over borrowing.

“Since over a decade has passed since the Malegam committee, a fresh and comprehensive review of the sector will certainly be a timely and relevant initiative towards harmoniszing the regulatory framework for the industry for various kinds of entities that can be followed uniformly across the country. This will put the industry in a position of further strength to help millions of poor Indian households with better risk mitigation and stronger financial inclusion,” he said.

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RBI to come out with paper on regulatory framework for lenders in MFI space

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The Reserve Bank of India (RBI) on Friday said it would come out with a consultative document “harmonising the regulatory frameworks for various regulated lenders in the microfinance space” in March 2021.

In its statement on Developmental and Regulatory Policies, the central bank said there is a need to review the regulatory framework for Non-Banking Financial Company – Micro Finance Institutions (NBFC-MFIs) given the constantly evolving milieu in the financial sector.

The RBI had recently released a discussion paper on revised Regulatory Framework for NBFCs – A Scale Based Approach.

“There is a case for a framework that is uniformly applicable to all regulated lenders in the microfinance space, including scheduled commercial banks, small finance banks and NBFC-Investment and Credit Companies, rather than prescribing these guidelines for NBFC-MFIs alone. Accordingly, the RBI will come out with a consultative document harmonising the regulatory frameworks for various regulated lenders in the microfinance space in March 2021,” it said.

Welcoming the proposed move by RBI, MFIN, the association for microfinance entities and the self-regulatory organisation for NBFC-MFIs, said this would help bring sustainable growth for the sector.

“This is indeed a welcome step for the sector. Considering the diversity of players in microfinance today, it is the need of the hour and MFIN has been pro-actively working on this through its Code of Responsible Lending (CRL) and also requesting RBI on the need for asset class-based regulation. This is a very important move as it will augur well for the sector as a whole and further safeguard the interests of customers. MFIN looks forward to working closely with the RBI on this important initiative,” Alok Misra, CEO & Director MFIN said in a statement.

 

MFIN had developed the CRL to bring differently regulated entities, including NBFC-MFIs, banks, SFBs, NBFCs and non-profit/Section 8 MFIs to agree and adopt a uniform common code for customer conduct and ensure a level-playing field. The CRL has as many as 113 signatories, representing 70 per cent of the market.

“As of now, the sector across various entities provides loans to six crore women, impacting 30 crore individuals in households. Despite this impressive coverage, there is still a huge unmet demand and such uniform regulation across entities will help in sustainable growth of microfinance in India,” MFIN said.

 

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A ‘Shakthi’ dose from the RBI

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Finance Ministers generally look for endorsement of their Budget exertions from two entities — the stock market and the central bank. The first comes right away, practically simultaneously, alongside the Budget. The second, from the central bank, comes in its monetary policy announcement immediately following the Budget.

Various stakeholders draw their cues from the signals that come from these two informed assessments. While market reactions are easily gauged by index and individual stock movements, the central bank’s statement and the Governor’s comments are carefully parsed. They are read to detect if the central bank is fully on board with the government plans or whether there are any reservations. Of course, even when there are misgivings, they are always couched in mild and respectful language.

The Finance Minister’s Budget has got the unequivocal thumbs up from both this time. The market was up by a whopping 5 per cent in a single day — impressed apparently by the focus on growth, infrastructure spending, privatisation plans and the attempt at transparency on the fiscal deficit numbers.

Today, the RBI monetary policy committee has provided its own support. It has left the key repo rate unchanged at 4 per cent. The RBI has already cut this rate by 250 basis points over the past two years, with about 115 bps of this coming in the past year in response to the pandemic. The policy guidance is in line with its stance of remaining ‘accommodative’ as long as necessary. Inflation numbers as evidenced by the movement in consumer price index (CPI) are relatively mild and within the comfort zone for the central bank. The projected CPI for the first half of the next year also reflects an easing to a range of 5 per cent and moving further down to 4.3 per cent in the third quarter.

Facilitating massive borrowing

The key question in this policy was what the RBI would say about the government borrowing programme. The government is set to borrow about ₹12 lakh crore or about ₹25,000 crore every week in the next year. The RBI has provided an assurance that it will manage it in a non disruptive manner. This was par for the course.

And then the RBI pulled out a rabbit from its hat by announcing direct retail participation in government bonds buying through the RBI. This is no doubt a very important step — and at least in theory, helps diversify the lender base for the government. In the long run, this may help provide more stable interest rates for both the government and the entire economy. This is also a good option for high networth individuals who may be uneasy with the vertiginous climb of the stock market indices currently.

However, it bears remembering (even as one receives the news with optimism) that past experience with regard to fostering retail participation through various other agencies have been lukewarm. Also, these measures, welcome as they are, will take time to fructify. It may be a bit too much to expect that retail investors are going to queue up and jostle outside RBI doors to buy government bonds this year (like they did to return old currency notes four years ago !)

The economy is set to begin recovering from the troughs of the past two years. As the Governor put it succinctly in his concluding remarks, the only way for the economy to go now is — up. How the RBI handles the massive borrowing programme as well as rising corporate demand for credit — without letting interest rates get out of hand — is going to be it’s biggest challenge in the year ahead. The bond markets remain sceptical if the initial movements are any indication.

(The writer is a Mumbai-based freelance journalist)

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PayPal to shut domestic business in India from April 1

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California-based fintech platform PayPal is closing down its domestic business in India, the company has announced.

Less than four years after the American fintech giant entered the Indian market, the company has decided to shut down its domestic business in the country.

“From April 1, 2021, we will focus all our attention on enabling more international sales for Indian businesses, and shift focus away from our domestic products in India. This means we will no longer offer domestic payment services within India from 1 April,” a company spokesperson said, as quoted by a TechCrunch report.

PayPal did explain why it was winding down its India business in a long statement.

The news comes as a surprise as the company last year has said that it was building a payments service powered by Unified Payments Interface (UPI).

PayPal had previously partnered with various online services as a payments option including BookMyShow, MakeMyTrip and Swiggy.

The company said that it has processed $1.4 billion in international sales for merchants in India in 2020, as per the report.

It further said that it will continue to invest in “product development that enables Indian businesses to reach nearly 350 million PayPal consumers worldwide, increase their sales internationally, and help the Indian economy return to growth,” as quoted by TechCrunch.

India has emerged as one of the most competitive market for digital payments with multiple players including Paytm, PhonePe, Google, Amazon, and Facebook.

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ICICI Bank signs MoU with MUFG Bank

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ICICI Bank on Friday announced it has signed a Memorandum of Understanding with Japan’s MUFG Bank for collaboration towards catering to the banking requirements of Japanese corporates present in India.

“The MoU was signed at a virtual event by Vishakha Mulye, Executive Director, ICICI Bank, and Junsuke Koike, Executive Officer and Regional Executive for India and Sri Lanka, MUFG Bank, in the presence of senior officials of both banks,”the private sector lender said in a statement.

The MoU establishes a framework of partnership between the banks across various domains including trade, investment, treasury, corporate and retail banking, it said, adding that it also paves way for the two banks to cater to the banking requirements of Japanese corporates operating in India.

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