Category: Banking & Finance

Sebi comes out with graded entry norms for innovation sandbox, BFSI News, ET BFSI

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Markets regulator Sebi on Wednesday said it has put in place the revised graded entry norms for innovation sandbox, to promote innovation in new products and services.

The new framework is also aimed at increasing participation in the innovation sandbox.

This would be achieved by giving access to both test data and test environment to financial institutions, financial technology (fintech) firms, start-ups and entities not regulated by Sebi including individuals, the regulator said in a statement.

Innovation sandbox facilitates access to an environment (testing facilities and test data) provided by enabling organisations like stock exchanges, depositories and qualified registrar and share transfer agents (QRTAs), wherein innovators (sandbox applicants) would test their innovations in isolation from the live market.

According to Sebi, capital market participants in India have been early adopters of technology. It believes that encouraging adoption and usage of fintech would have a profound impact on the development of the securities market.

Fintech can act as a catalyst to further develop and maintain an efficient, fair and transparent securities market ecosystem.

To create an ecosystem that promotes innovation in the securities market, Sebi is of the opinion that fintech firms should have access to market-related data which is otherwise not readily available to them. They should also have a test environment to enable them to test their innovations effectively before the introduction of such innovations in a live environment, it said.

Accordingly, the regulator had issued a framework for innovation sandbox in May 2019 with the intent to promote innovation in the securities market.

“Based on learnings since then and to make it even more convenient for participation in the innovation sandbox, revised graded entry norms have been designed with the objective of promoting innovation both in terms of new products and services as well as new ways of delivering existing products and services,” as per the statement issued on Wednesday.

In addition, it is aimed at creating new opportunities in the securities market and to make existing services more efficient and investor friendly.

With regard to stages of innovation sandbox, Sebi said that during the first stage, limited access to the test environment would be provided and there would be a cap on the utilisation of resources in terms of processing power, memory, and storage, among others.

During the second stage, the cap on the utilisation of resources would be removed, subject to availability of resources at that point of time.

Further, the regulator has also put in place eligibility criteria for both the stages.

In addition, a steering committee comprising representatives from Sebi and the enabling organisations has been formed to drive the innovation sandbox. The committee would supervise the operations of the innovation sandbox.

Also, it would process the applications submitted by sandbox applicants and approve or reject applications and assign lead enabling organisations.

Such lead enabling organisations would be responsible for onboarding the applicant post approval of the application and monitoring the applicant throughout the lifecycle of the sandboxing.



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Singapore based Qapita secures funding from East Ventures, BFSI News, ET BFSI

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Qapita, a Singapore based FinTech digitising equity management SaaS solutions has raised funding from East Ventures in an undisclosed strategic investment.

Qapita facilitates private companies and start-ups to manage capitalisation tables and employee stock ownership plans (ESOPs) and aims to digitise issuance of equity awards and shares.

The fresh funding will be used to further strengthen the team in India, Singapore and Indonesia and accelerate product development and build clientele.

Ravi Ravulaparthi, CEO and Co-Founder of Qapita, said, “We are excited about this investment and partnership. East Ventures have a large, unparalleled footprint in the Indonesian startup ecosystem, and we look forward to working with them. The rapidly growing ecosystem in Indonesia will require digital management of equity, ESOP culture, employee liquidity programs and a thriving secondary private market. Qapita will contribute to this need with its software platform. We look forward to building more such partnerships with other VCs with portfolios across India and SE Asia.”

Willson Cuaca, Co-Founder and Managing Partner of East Ventures said, “Qapita solves the classic cap tables management problem that are constantly faced by startup founders in the region. We believe the digital equity management SaaS solution provided by the company will soon be widely adopted. It will help slingshot the SEA digital ecosystem to the next level.”



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Bandhan Bank appoints Arvind Singla as Executive President and Head – Operations & Technology, BFSI News, ET BFSI

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Bandhan Bank has appointed Arvind Singla as Executive President and Head – Operations & Technology, Singla in his last role was associated with Citibank as Director & Head – Consumer Operations.

Bandhan Bank in a statement said, “Bandhan Bank has recently envisaged a five-year vision for itself where, IT transformation is a key strategic priority. Arvind, with his experience of leading customer operations, and transformation for a large bank, would be a key contributor in this journey.”

Arvind has 36 years of experience across financial institutions in transformations, banking operations, technology and customer service, he was associated wit Citibank for 19 years. At Bandhan Bank he will be based out of the bank’s headquarters in Kolkata and report to Chandra Shekhar Ghosh, MD & CEO.

Arvind holds a PGDM from IIM Bangalore and a Bachelor of Engineering degree in Electrical & Electronics from Birla Institute of Technology & Science, Pilani.

Chandra Shekhar Ghosh, Managing Director and CEO, Bandhan Bank, said, “I am pleased to welcome Arvind to the Bandhan Bank family. We have been adding established industry leaders to our core management team to prepare for the next phase of growth. Arvind’s extensive experience of having worked with one of the finest in the industry will give us an edge with respect to our own transformation agenda. I wish Arvind a successful and long stint at Bandhan Bank.”



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Will RBI’s MPC take the Budget 2021 route?, BFSI News, ET BFSI

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The Reserve Bank of India’s Monetary Policy Committee (MPC) began its meeting on Wednesday, and it is expected that the committee would maintain the interest rates and continue with an accommodative policy stance to push the growth.

Meanwhile, the Budget has revised the fiscal deficit to 9.5% for FY21 and 6.8% for FY22, indicating that the government’s borrowings would be high and in such a scenario it would be difficult for the RBI to maintain low interest rates — to encourage banks to lend more.

Jyoti Prakash Gadia, Managing Director, Resurgent India, said, “We expect a status quo to be maintained by RBI, in policy rates, with a pause for the 1st quarter of the next fiscal… A shift from the accommodative stance may not emerge in the short run, as the position gets cleared on the inflation and interest rate benchmarks. The continued tilt in favour of growth, in the growth – inflation tradeoff is need of the hour and basic expectation.”

Since the last three meetings, the MPC has kept the rate unchanged at a record low of 4%, and the reverse repo rate is 3.35%.

Aditi Nayar, principal economist, Icra, said that despite a drop in inflation in December 2020, the trajectory remains unpalatable. “We expect an extended pause for the repo rate, with the stance to be changed to neutral in the August 2021 policy review or later, once there is clarity on the durability of the economic recovery,” she said.

Inflation is now back within the MPC’s target band, despite concerns over rising input costs, and the economy appears well poised for a growth recovery, believes Rahul Bajoria, Chief India Economist, Barclays.

“While the MPC will likely draw comfort from the favourable developments on growth and inflation, it will wait to gauge the sustainability before signalling a change in approach. Liquidity guidance may take precedence over policy guidance in the interim,” he added.

Meanwhile, the price pressures have also been softening and with retail inflation posting successive downward surprises for November and December, the MPC may draw some comfort from this situation. Against the central bank’s estimate of 6.8% in Q4 2020 inflation averaged around 6.4% YoY. In addition, the price decline in vegetables has continued in January, which may drive CPI inflation closer to 4% YoY.

Softening of CPI inflation also reflects easing of supply side constraints that affected food inflation.

Experts believe the MPC may ensure availability of adequate liquidity to stimulate investments in the infrastructure sector after the Finance Minister Nirmala Sitharaman, in her Budget 2021 speech, announced that the government would set up a dedicated infrastructure financing body.

The Gross Domestic Product (GDP) is projected to contract by 7.7% per cent in the ongoing fiscal year but is likely to rebound with a 11% growth in FY22, making for a “V-shaped” recovery, noted the Economic Survey 2021, taking cues from resurgence in high frequency indicators such as power demand, e-way bills, GST collection, etc.

It is also expected that the RBI may continue to hike banks’ held to maturity limits (HTM) till FY24 to fund high fiscal deficits without hardening yields. The RBI has already hiked banks’ HTM limit by 2.5% of book till FY22 to support recovery by enabling the Centre to run higher fiscal deficits.

“Banks will buy G-secs without fearing maturity to market (MTM) hits. RBI contains yields/lending rates by incentivising banks to invest the $80 billon money market surplus in G-secs without fear of MTM hits. As banks raise deposits at 5%, they would invest in G-secs at, say, 5.9% if exempted from MTM hits. It is fairly reasonable to assume that yields will rise over the next 12 months as growth normalises. Although we expect the RBI MPC to cut 50bp in 1H21, as inflation abates to the RBI’s 2-6% inflation mandate, we also see a 100bp hike in FY23. We are tracking December inflation at 5.2%,” said, Indranil Sen Gupta, India Economist, BofAS India.



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RBI unveils risk-based internal audit guidelines for select NBFCs, UCBs

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The entities have to implement the RBIA framework by March 31, 2022

In order to strengthen the quality and effectiveness of the internal audit system, the Reserve Bank of India (RBI) on Wednesday issued guidelines on risk-based internal audit (RBIA) system for select non-bank lenders and urban co-operative banks (UCBs). While NBFCs and UCBs have grown in size and become systemically important, prevalence of different audit systems/approaches in such entities has created certain inconsistencies, risks and gaps, RBI said. The entities have to implement the RBIA framework by March 31, 2022, and have been asked to constitute a committee of senior executives, to be entrusted with the responsibility of formulating a suitable action plan.

The new framework will be for all deposit taking NBFCs, irrespective of their sizes, all non-deposit taking NBFCs (including core investment companies) with an asset size of `5,000 crore and also for all UCBs, having an asset size of `500 crore and above. The NBFCs and UCBs face risks similar to the ones faced by scheduled commercial banks, which require an alignment of processes, the central bank said.

Amit Tandon, founder and managing director (MD) of Institutional Investor Advisory Services (IiAS), said, “This aligns the supervision of NBFCs to those of banks. I view this as a step in easing of conversion of NBFCs to banks.”

To ensure smooth transition from the existing system of internal audit to RBIA, the NBFCs and UCBs concerned may constitute a committee of senior executives with the responsibility of formulating a suitable action plan, RBI said. The committee may address transitional and change management issues and should report progress periodically to the board and senior management. According to the new guidelines, the boards of NBFCs and UCBs are primarily responsible for overseeing their internal audit functions.

The regulator also specified that RBIA policy shall clearly document the purpose, authority, and responsibility of the internal audit activity, with a clear demarcation of the role and expectations from risk management function and risk -based internal audit function.

Shriram Subramanian, founder and MD of InGovern Research Services, a corporate governance advisory firm, said as NBFCs and UCBs have become large, it is pragmatic to have RBIA functionally and report to the board. “However, RBIA should not be seen as a panacea for failures and frauds, as even in large scheduled commercial banks like Yes Bank, Lakshmi Vilas Bank (LVB), etc. where there is directed lending and where RBIA existed, bank failures have occurred,” he added. RBI should also not see this as an abdication of its supervisory role and responsibilities, he said.

RBIA is an audit methodology that links with an organisation’s overall risk management framework and provides an assurance to the board of directors and the senior management on the quality and effectiveness of the organisation’s internal controls, risk management and governance-related systems and processes, the regulator said.

RBI, in its monetary policy statement on December 4, 2020, had announced that suitable guidelines would be issued to large UCBs and NBFCs for the adoption of RBIA to strengthen the internal audit function, which works as a third line of defence.

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IRDAI frames norms for standard vector borne disease-specific health cover

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The insurance regulator has announced guidelines for a standard vector borne disease-specific health insurance product.

According to the guidelines realised by the Insurance Regulatory and Development Authority of India (IRDAI) today, the minimum sum insured under Standard Product shall be ₹10,000 while the maximum limit will be ₹2 lakh.

“In order to make available vector borne disease-specific health insurance product addressing the needs of insuring public for getting health insurance coverage to specified vector borne diseases, the Authority encourages all general and health insurers to offer Standard Vector Borne Disease Health Policy,” said the regulator in a circular.

The insurer may determine the price keeping in view the cover proposed to be offered, subject to complying with the norms specified in the IRDAI (Health Insurance) Regulations, 2016 and Guidelines notified there under.

The Coverage of Standard Product should be offered on a fixed benefit basis as specified in these guidelines.

The total amount payable in respect of the coverages offered should not not exceed 100 per cent of the sum insured during a policy period.

The Standard Product shall offer policy tenure of one year and will cover any one or a combination of dengue fever, malaria, filarial, kala-azar, chickungunya, Japanese Encephalitis and Zika virus.

Two per cent of the sum insured shall be payable on positive diagnosis (through laboratory examination and confirmed by the medical practitioner) of every covered vector borne disease on the first diagnosis during the Cover period, subject to policy terms and conditions.

The policyholder is entitled for payments under “diagnosis cover” payment for each disease only once in the policy year.

Commenting on the product, Gurdeep Singh Batra, Head – Retail Underwriting, Bajaj Allianz General Insurance said: “This is a good product introduced well in time considering the upcoming onset of monsoon as that’s when people suffer the most from vector-borne diseases, and with the fear of Covid-19 still around, I believe it will be a good offering for all.”

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Analysts upgrade HDFC’s earnings outlook after stellar Q3 show

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Growth in home loans was seen in both the affordable housing segment as well as high-end properties, HDFC said.

Housing Development Finance Corporation (HDFC) has reported a strong 27% year-on year (y-o-y) increase in its adjusted net profit before tax to Rs 2,908 crore in Q3FY21. Strong home sales and an equally healthy growth in housing loans helped the mortgage player post a stellar set of numbers for the December quarter.

Individual disbursements during the quarter rose by 26% against a 32% year-on-year increase in loan approvals. Earnings were driven by an increase in net interest income (NII), which saw a robust growth of 26% y-o-y and 12% quarter-on-quarter (q-o-q) at Rs 4,068 crore.

The strong demand for housing appears to be sustainable and not a case of suppressed demand. The lender said the month of December witnessed the highest-ever levels in terms of receipts, approvals and disbursements.

Keki Mistry, CEO of HDFC Limited, said: “We continued seeing strong growth in demand for housing loans and the growth was better than what we expected in October, when we were fairly optimistic. Our individual loan approvals were up 32% compared to what it was in the quarter ended December 2019. While loan approvals were higher by 32%, disbursements rose 26%.”

The increase in housing demand has not only sustained but has picked up pace even sequentially for the mortgage major. During the December quarter, 91% of individual disbursements were for property deals entered over the past four months, which suggest that demand is expected to remain strong in the coming quarters too. HDFC’s net interest margins increased 20 basis points sequentially and 10 basis points y-o-y to 3.4%. The spread on the individual loan book was 1.94% and the same on the non-individual book was 3.14%.

Analysts reacted positively to the performance, with some brokerages even upgrading earnings estimates for the coming fiscal. CLSA has raised FY22/23 earnings estimates of HDFC by 4-5% on higher margins. Morgan Stanely said HDFC’s retail disbursements and revenue momentum have been strong this quarter. Similarly, Credit Suisse noted that individual growth has remained strong for the lender and the asset quality has been stable with healthy provisioning.

The collection efficiency for individual loans in the month of December stood at 97.6%, compared with 96.3% in September. The loans on the assets under management basis grew 9% y-o-y to Rs 5,52,167 crore, against Rs 5,05,401 crore in Q3FY20. Individual loans comprised 76% of the AUM as on December. The individual loan disbursements grew at 26% over the corresponding quarter of the previous year. Growth in home loans was seen in both the affordable housing segment as well as high-end properties, HDFC said.

In its report, Motilal Oswal Institutional Equities said, “The provisions at Rs 5,900 crore were much higher than our estimate of Rs 4,000 crore.” The report said it expects HDFC to report core return on assets (RoA) of 2% and 13% return on equity (RoE) over FY22-23 earnings. A report by Emkay said HDFC has registered a healthy growth and maintained stable asset quality. “HDFC managed to maintain healthy growth momentum of around 16% y-o-y on an improvement in housing demand across geographies,” Emkay said.

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MPC expected to retain policy repo rate at 4%: CARE

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The Monetary Policy Committee (MPC) is expected to retain the policy repo rate at 4 per cent owing to the concerns around core inflation, CARE Rating said in a report.

In this regard, the credit rating agency also pointed to the widening fiscal deficit and normalisation of economic activities, which could weigh on the inflation outlook

CARE expects the accommodative monetary policy to continue.

The Reserve Bank of India (RBI) will be announcing the results of voting on the repo rate and monetary policy stance by the six member MPC on February 5, 2021.

The policy repo rate, which is the interest rate at which banks borrow funds from the RBI to overcome short-term liquidity mismatches, has remained unchanged since the last cut in May 2020. There was a cumulative reduction of 115 basis points (bps) during the March to May 2020 period from 5.15 per cent to 4 per cent.

The agency observed that retail inflation, which remained elevated and above the RBI’s flexible inflation target (4 per cent +/- 2 per cent) for 8 consecutive months, registered a perceptible fall in December 2020 to 4.6 per cent, which is at a 15-month low. The decline in retail inflation can be broadly ascribed to fall in food prices and high statistical base effect.

“Core inflation (excludes food and fuel) for December 2020 stood at 5.7 per cent and it has remained range-bound from July 2020 onwards. Elevated core inflation continues to remain a challenge for the RBI’s MPC,” said Sushant Hede, Associate Economist.

CARE expects retail inflation to move towards 5.5 per cent by March 2021. With the Economic Survey and Budget 2021-22 already providing its estimates on the growth outlook for the Indian economy, growth projections from the RBI for the coming fiscal will be closely monitored, it added.

The agency observed that pursuant to the projection of a resilient V-shaped recovery in the Indian economy by the Indian Economy Survey, albeit on a lower size of the economy and the large government market borrowing program announced in the Budget for both the Centre and States, the RBI’s policy action will focus on balancing liquidity in the financial system while keeping inflation within its target band.

 

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Growth-oriented Budget with a balanced approach

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Being a technology company that promotes digitisation, we are excited to see the first-ever Digital Budget in the history of India. The government is leading by example the way it is adopting digital transformation, be it faceless tax assessments or going all the way to make the Budget process entirely digital.

Keeping in view the fact that the world is fighting the battle with first-ever pandemic in the past 50 years, this Budget is a very balanced and a growth-oriented one. This should help bring the economy back on the right track with maintaining its continuous focus on ‘Aatmanirbhar Bharat’.

Incentivisation scheme

The government has earmarked large pool of funds for vaccines with a clear commitment to providing healthcare support to citizens of India.

Incentivisation scheme declared in the Budget for digital transactions is a welcome step and will further fuel the digital payments landscape in the country.

Incremental investments in the insurance and infrastructure sectors will definitely give a boost to the economy and ensure financial inclusion of the masses.

The Budget clearly shows the government’s willingness to shift towards a better tax framework by taking the faceless schemes to the ITAT level after the introduction of faceless assessment and appeals last year.

Further, concentrated efforts to ensure proper GST compliance by using technological tools, have yielded good results to increase GST collections.

Further relaxation in compliances under corporate laws for small companies and the proposal of consolidating the provisions of SEBI Act, Depositories Act, Securities Contracts Regulation Act and Government Securities Act are long-awaited steps for simplifications of laws and compliance.

Overall, this is a very balanced Budget that will fuel growth, keeping in view that the challenge from the pandemic is not yet fully over.

The writer is Chief Financial Officer at Paytm

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Yield on 10-year G-Sec softens 4.85 bps

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Yields on Government Securities (G-Secs) thawed on Wednesday after rising two days on the trot amid hopes that the Reserve Bank of India (RBI) will intervene to keep yields in check ahead of the ₹31,000-crore G-Sec auction scheduled for Friday.

Yield on the benchmark 10-year G-Sec, carrying a coupon rate of 5.77 per cent, softened 4.85 basis points (bps) to close at 6.101 per cent (previous close: 6.1495 per cent), with its price rising 34 paise to close at ₹97.64 (₹97.30).

In the first two days of the current week, yield on the aforementioned G-Sec cumulatively rose about 20 bps with its price declining ₹1.39.

Bond yields and price move in opposite directions. One basis point is equal to one-hundredth of a percentage point.

Yield on the 2025 G-Sec, carrying a coupon rate of 5.15 per cent, softened about 12 bps to 5.5382 per cent over the previous close of 5.6591, with it price going up about 50 paise to close at ₹98.3850 (₹97.89).

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “G-Sec yields have been rising since Budget announcement. The RBI monetary policy review is coming up on Friday, where there may be an announcement on additional OMO or HTM (held-to-maturity) limits.

“If there is no further positive announcement in the policy, yields might inch up again due to heavy supply.”

As to why the yield on the 2025 paper thawed much more than that on 10-year benchmark, Irani reasoned that if market players are not sure what will happen (regarding the monetary policy committee’s decision on the policy rate, OMO or HTM) on Friday, they would want to buy 5 year G-Sec instead of 10 year.

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