Category: Banking & Finance

The banking system could see double-digit growth rate in credit in FY22 as the economy seems to be in revival mode, according to Rajkiran Rai G, Union Bank of India (UBI) MD and CEO.

Things are slowly returning to normalcy on the credit front, opined Rai, who is also the Chairman of Indian Banks’ Association (IBA).

Referring to the opinion of some experts that credit demand is not at the same level as it was in October and November, Rai said: “So, it is too early to declare victory. But things are okay.”

“If the economy comes back to normalcy – suppose we are able to see slightly positive growth in Q3 (October-December) and better growth in Q4 (January-March) – there will be better capacity utilisation.”

The Union Bank chief felt that investment demand will pick up. “But whether it will take three months, six months, nine months, we are not sure.

“But then, I strongly feelcredit growth in FY22 should hit double-digits in percentage terms,” he said.

Rai expects the banking system’s credit pick up in FY22 to be higher vis-a-vis expected credit growth of 5-6 per cent in FY21. Plus, due to base effect, the system may record double-digit credit growth.

This credit growth will happen due to capacity expansion, working capital and term loan utilisation, some upgradation in technology, infrastructure projects in public-private partnership, and HAM (hybrid annuity model) for road projects, among others.

Citing the example of steel, Rai said price of the metal is going up because the demand is quite high. “Now, if the margins sustain like this, we will see capacity expansion…credit demand will pick up,” he added.

In its latest report on ‘Report on Trend and Progress of Banking in India’, the Reserve Bank of India (RBI) observed that during the current financial year so far, the loan growth deceleration (which started in 2019-20, reflecting both risk aversion and tepid demand) was accentuated by the -19 pandemic

Rai remarked that banks have been a bit liberal with working capital assessment in the backdrop of the pandemic.

“So, as things return to normalcy, we, too, have to restore the original way of assessment.

“In this kind of environment where interest rates are low, lot of leverage gets built. So, we have to be careful that we don’t build a bubble,”he said.

Referring to the government’s outlay of ₹100-lakh crore for infrastructure projects over five years beginning FY20, Rai believes this will lead to a cycle of growth.

“Government spending will really help the economy. The Reserve Bank of India has done everything possible from its side,” he said.

Deposit growth

The UBI chief observed that deposit growth in FY22, too, will be in double digits. “Deposits were never a constraint. We mobilise deposits only when we have lending opportunities. So, what we have to do is focus more on lending,” he emphasised.

As per RBI data, deposits of all scheduled banks were up 11.12 per cent y-o-y as on December 18, 2020.

The banking system could see double-digit growth rate in credit in FY22 as the economy seems to be in revival mode, according to Rajkiran Rai G, Union Bank of India (UBI) MD and CEO.

Things are slowly returning to normalcy on the credit front, opined Rai, who is also the Chairman of Indian Banks’ Association (IBA).

Referring to the opinion of some experts that credit demand is not at the same level as it was in October and November, Rai said: “So, it is too early to declare victory. But things are okay.”

“If the economy comes back to normalcy – suppose we are able to see slightly positive growth in Q3 (October-December) and better growth in Q4 (January-March) – there will be better capacity utilisation.”

The Union Bank chief felt that investment demand will pick up. “But whether it will take three months, six months, nine months, we are not sure.

“But then, I strongly feelcredit growth in FY22 should hit double-digits in percentage terms,” he said.

Rai expects the banking system’s credit pick up in FY22 to be higher vis-a-vis expected credit growth of 5-6 per cent in FY21. Plus, due to base effect, the system may record double-digit credit growth.

This credit growth will happen due to capacity expansion, working capital and term loan utilisation, some upgradation in technology, infrastructure projects in public-private partnership, and HAM (hybrid annuity model) for road projects, among others.

Citing the example of steel, Rai said price of the metal is going up because the demand is quite high. “Now, if the margins sustain like this, we will see capacity expansion…credit demand will pick up,” he added.

In its latest report on ‘Report on Trend and Progress of Banking in India’, the Reserve Bank of India (RBI) observed that during the current financial year so far, the loan growth deceleration (which started in 2019-20, reflecting both risk aversion and tepid demand) was accentuated by the -19 pandemic

Rai remarked that banks have been a bit liberal with working capital assessment in the backdrop of the pandemic.

“So, as things return to normalcy, we, too, have to restore the original way of assessment.

“In this kind of environment where interest rates are low, lot of leverage gets built. So, we have to be careful that we don’t build a bubble,”he said.

Referring to the government’s outlay of ₹100-lakh crore for infrastructure projects over five years beginning FY20, Rai believes this will lead to a cycle of growth.

“Government spending will really help the economy. The Reserve Bank of India has done everything possible from its side,” he said.

Deposit growth

The UBI chief observed that deposit growth in FY22, too, will be in double digits. “Deposits were never a constraint. We mobilise deposits only when we have lending opportunities. So, what we have to do is focus more on lending,” he emphasised.

As per RBI data, deposits of all scheduled banks were up 11.12 per cent y-o-y as on December 18, 2020.

The Reserve Bank of India (RBI) has imposed a monetary penalty of ₹2.50 crore on Bajaj Finance Ltd (BFL). The central bank, in a statement, said: “The penalty has been imposed on Pune-based BFL for violation of “(i) directions issued by the RBI on Managing Risks and Code of Conduct in Outsourcing of Financial Services by NBFCs and Fair Practices Code (FPC)…and (ii) a specific direction to the company to ensure full compliance with FPC in letter and spirit.”

The statement said this penalty has been imposed in exercise of powers vested in the RBI under the provisions of the Reserve Bank of India Act, 1934, taking into account the failure of the company to ensure that its recovery agents did not resort to harassment or intimidation of customers as part of its debt collection efforts and, thereby, failing to adhere to the aforesaid directions issued by the RBI.

There were also persistent/repeat complaints about recovery and collection methods adopted by the company, it added.

“For the above lapses, a notice was issued to the company advising it to show cause as to why penalty should not be imposed for such non-compliance.

“After considering the company’s reply to the notice, oral submissions made during the personal hearing and examination of additional submissions made by it, the RBI concluded that the charge of non-compliance with the aforesaid RBI directions was substantiated and warranted imposition of monetary penalty,” the central bank said.

The RBI said 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.

The central bank had imposed a monetary penalty of ₹1 crore by a January 3, 2019, order for violation of FPC.

The Reserve Bank of India (RBI) has decided to introduce the Legal Entity Identifier (LEI) system for all payment transactions of value ₹50 crore and above undertaken by entities (non-individuals) using the Reserve Bank-run Centralised Payment Systems with effect from April 1.

LEI is a 20-digit number used to uniquely identify parties to financial transactions worldwide. It was conceived as a key measure to improve the quality and accuracy of financial data systems for better risk management post the global financial crisis.

In preparation for the wider introduction of LEI across all payment transactions, the RBI asked member banks participating in Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) to advise entities who undertake large value transactions (₹50 crore and above) to obtain LEI in time, if they do not already have one.

Member banks should include remitter and beneficiary LEI information in RTGS and NEFT payment messages. Further, they have to maintain records of all transactions of ₹50 crore and above through RTGS and / or NEFT.

Entities can obtain LEI from any of the Local Operating Units (LOUs) accredited by the Global Legal Entity Identifier Foundation (GLEIF), the body tasked to support the implementation and use of LEI.

In India, LEI can be obtained from Legal Entity Identifier India Ltd. (LEIL), which is also recognised as an issuer of LEI by the Reserve Bank under the Payment and Settlement Systems Act, 2007.

LEI has been introduced by the Reserve Bank in a phased manner for participants in the over the counter (OTC) derivative and non-derivative markets as also for large corporate borrowers.

The Reserve Bank of India (RBI), on Tuesday, said contributions to the Payments Infrastructure Development Fund (PIDF) will be mandatory for banks and card networks.

The central bank had announced the creation of PIDF in June 2020 to encourage acquirers to deploy Points of Sale (PoS) infrastructure (both physical and digital modes) in tier-3 to tier-6 centres and north-eastern States.

“Initial corpus of PIDF has to be substantial to initiate pan-India terminalisation and to cover the pay-outs in the first year.

“…The RBI shall contribute ₹250 crore to the corpus; the authorised card networks shall contribute in all ₹100 crore,” said RBI in a circular.

All stakeholders have been requested to co-operate in this endeavour by making their contributions to PIDF within the timelines; and deploying acceptance infrastructure and seeking reimbursement from PIDF.

The central bank said the card-issuing banks should also contribute to the corpus based on the card issuance volume (covering both debit cards and credit cards) at the rate of ₹1 and ₹3 per debit and credit card issued by them, respectively.

As per the circular: “It shall be the endeavour to collect the contributions by January 31, 2021.

“Any new entrant to the card payment eco-system (card issuer and card network) shall contribute an appropriate amount to the PIDF.”

PIDF Scheme will be operational for a period of three years from January 1, 2021, and may be extended for two more years depending upon the progress.

Recurring contribution

Besides the initial corpus, the PIDF will also receive annual contribution from card networks and card-issuing banks.

In the case of card networks, the recurring contribution will be one basis point (bps) – 0.01 paisa per rupee of transaction.

In the case of card-issuing banks, the recurring contribution will be one bps and two bps – 0.01 paisa and 0.02 paisa per rupee of transaction for debit and credit cards, respectively; also at the rate of ₹1 and ₹3 for every new debit and credit card issued by them respectively during the year.

The RBI said it will contribute to yearly shortfalls, if any. PIDF, which presently has a corpus of ₹345 crore (₹250 crore contributed by RBI and ₹95 crore by the major authorised card networks in the country), envisages increasing payments acceptance infrastructure by adding 30 lakh touch points – 10 lakh physical and 20 lakh digital payment acceptance devices every year.

The central bank said the scheme is expected to benefit the acquiring banks / non-banks and merchants by lowering overall acceptance infrastructure cost.

Subsidy

As the cost structure of acceptance devices vary, subsidy amounts shall, accordingly, differ by the type of payment acceptance device deployed, according to the circular.

A subsidy of 30 per cent to 50 per cent of cost of physical PoS (Point of Sale) and 50 per cent to 75 per cent subsidy for Digital PoS shall be offered, it added.

Acquirers meeting / exceeding their targets well in time and / or ensure greater utilisation of acceptance devices in terms of transactions shall be incentivised, while those who do not achieve their targets shall be disincentivised, by scaling up or down the extent of reimbursement of subsidy

As per the tentative distribution of targets across centres, 60 per cent of the acceptance devices may be deployed in Tier-5 and Tier-6 centres; 30 per cent in Tier-3 and Tier-4 centres; and 10 per cent in north-eastern States.

Merchants providing essential services (transport, hospitality), government payments, fuel pumps, PDS shops, healthcare, kirana shops may be targeted, especially in the targeted geographies.

The types of Acceptance Devices covered under PIDF scheme include multiple payment acceptance devices / infrastructure supporting underlying card payments, such as physical PoS, mPoS (mobile PoS), GPRS (General Packet Radio Service), PSTN (Public Switched Telephone Network), QR code-based payments etc.

Payment methods that are not inter-operable shall not be considered under PIDF. A nine-member Advisory Council (AC), under the Chairmanship of BP Kanungo, Deputy Governor, RBI, has been constituted to manage the PIDF.