Category: Banking & Finance

The government is likely to set in motion the process of establishing a Bank Investment Company (BIC) to hold its stake in public sector banks (PSBs) following substantial consolidation in the public sector banking space and clean-up of banks’ balance sheet in the last couple of years.

With the banking space seeing fast-paced changes vis-a-vis business models and technology, top bankers feel now is the right time to set up a BIC so that decisions can be taken quickly without the fear of the 3Cs — Central Vigilance Commission, Comptroller and Auditor General and Central Bureau of Investigation.

BIC was mooted in 2014 by the Reserve Bank of India’s (RBI) PJ Nayak Committee Report to review governance of boards of banks.

While the government, as per one of the Committee’s recommendations, has already set up a Bank Boards Bureau (in 2016) for selecting the top management of PSBs, it has kept the BIC proposal on hold so far.

“PSBs are very large commercial organisations. We have to take quick calls. Currently, the 3Cs are holding us back to an extent. The holding company (Holdco) structure has to be formed now. The Government is believed to be evaluating this. This is the right time as our (PSBs) balance sheets are adequately provisioned ,” a top banker said.

Autonomy to public sector banks

Referring to several countries, including Singapore, the UK and Belgium, having intermediate investment companies to hold the equity in banks, the RBI report observed that this has operationally distanced the governments from the banks.

This has discouraged direct intervention and suasion, and has helped align the governments’ role as that of the principal shareholder in the banks, focused on financial returns, it added.

The report noted that the SUUTI (Specified Undertaking of the Unit Trust of India) example in relation to Axis Bank is broadly similar. The character of BIC’s business would make it resemble a passive sovereign wealth fund for the Government’s banks.

“Today, things are moving so fast that in one year the business model can change completely. The technology can change. So, we can’t wait for a year or one-and-a-half years for vigilance clearance to finalise a vendor. We have to be very quick, otherwise we will lose ground to the agile private sector rivals,” the banker quoted above said.

Recap burden

In the context of the Government facing fiscal constraints and its reported plan to have a maximum of four public sector units and a minimum operating unit in each of the 18 identified strategic sectors, top bankers opine it may be apposite to put in place a BIC.

The reason: by allowing more retail and private sector participation in the ownership of PSBs, the burden on the Government for recapitalising them will come down.

The RBI report emphasised that reducing the proposed BIC’s investment in a PSB to less than 50 per cent will free the bank from external vigilance emanating from the Central Vigilance Commission, from the Right to Information Act, and from Government constraints on employee compensation.

“The trade-off is worth grasping, as more competitive public sector banks will enhance financial returns to the Government with no effective dilution of control,” the Committee said.

Bank of Baroda (BoB) has launched its Digital Lending Platform (DLP), which will allow prospective retail loan seekers to get loans digitally through a paperless process

The Platform provides ‘in-principle approval’ for home, car and personal loans in 30 minutes without human intervention, the public sector bank said in a statement. The bank will also offer ‘Online Loan against Fixed Deposits’ via DLP.

Prospective loan seekers can avail the DLP facility through multiple channels — website, mobile banking, internet banking and social media as well, it added.

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With the launch of DLP, BoB said personal loan disbursements will be completely digitised first, followed by MSME (micro, small and medium enterprises) and agriculture disbursements.

The bank envisages that the digital share of disbursement in retail lending will grow to 74 per cent over five years.

Digitising internally

BoB said pre-approved micro personal loan is being offered to select existing customers to shop through offline/online partner channels and pay later in easy EMIs (equated monthly instalments).

“Customers can also avail the amount into their savings bank account and convert it to EMIs from 3 to 18 months through m-Connect+ (the bank’s mobile banking app) in 60 seconds,” it added.

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Vikramaditya Singh Khichi, Executive Director, said the primary objective of DLP is to scale the lending business through digitisation.

He observed that BoB has attempted to digitise itself internally in a bid to reduce time-to-market for its products. The bank envisages outpacing the banking industry growth by 1.50 times at a compounded annual growth rate of 16 per cent over the next five years by adopting digital-first lending approach across retail, MSME and agriculture segments, Khichi said.

Ramjass Yadav, Chief General Manager, Bank of Baroda, said DLP will help the bank to double the non-corporate book by 2025.

The Committee of Creditors (CoC) of the beleaguered DHFL has shot down the suggestion of the advisor and legal counsel to go in for a ‘Swiss Challenge’ method to decide on the winning bidder.

This was rejected as lenders felt the introduction of ‘Swiss Challenge’ would lead to legal complications and delay the entire process, sources close to the development said. Some bankers also felt that introducing ‘Swiss Challenge’ at this stage could be considered as a change of procedure (the original RFRP document did not mention ‘Swiss Challenge’) and invite objection from the original set of bidders. It may be recalled that as many as 21 persons had initially shown interest in submitting a resolution plan and participating in the resolution process for DHFL.

Introducing a ‘Swiss Challenge’, now which would have happened on electronic platform, would have meant that all the three bidders — Oaktree, Piramal and Adani Group — would be permitted to make offers against each other, implying that anyone can emerge the No 1 (winning) bidder. “In ‘Swiss Challenge’, everybody will know what the other person has initially bid and can increase the bid just like an auction. Since it is on an electronic platform, who is increasing the offer the other person will not know,” a former chief executive of a public sector bank said.

Decks cleared for voting

With the rejection of the proposal for ‘Swiss Challenge’, decks have now been cleared for the members of the CoC to evaluate and separately put to vote all the three resolution plans submitted by Oaktree Capital, Piramal and Adani Group, respectively. About 15 days from Sunday will be available for the voting process to be completed.

Indications are that the results of the voting will be available by January 13.

Only after the outcome of the voting will the distribution plan get finalised. This is crucial for the 79,000 odd depositors who are hoping that they will get some of their monies back post the resolution process.

Depositors hold 4 per cent of voting rights, while debenture-holders have 52 per cent. After several rounds of bidding, it is now evident that the Oaktree is the frontrunner, followed by Piramal and Adani Group (going by the Net Present Value), say bankers in private.

Responding to Oaktree Capital’s concerns on the DHFL resolution process, the Piramal Group highlighted its bid for the debt-ridden housing finance company.

“The Piramal plan merges DHFL with a AA rated entity, offers over ₹10,000 crore of equity immediately, and provides clarity on quality and secondary market valuation of NCDs. The alternative plan is a highly leveraged structure with minimal equity,” said a Piramal spokesperson.

The comments came after Oaktree Capital is understood to have sent a fresh letter to the Committee of Creditors of Dewan Housing Finance Corporation over the resolution process.

“All the bidders had the opportunity to submit bids post clarifications on December 22. After seeing our bid, and recognising that their bid falls short on various dimensions, Oaktree is now sending this series of letters, to alter the substantive submissions they themselves have formally made,” the Piramal spokesperson further said.