Category: Banking & Finance

RBI caps IPO funding by NBFCs at ₹1 cr per borrower

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The Reserve Bank of India on Friday announced a scale-based regulation of non-banking finance companies, which include a ceiling on IPO funding per borrower as well as changes in the minimum net owned fund, classification of non-performing assets, and capital requirements.

Under the new framework, there will be a ceiling of ₹1 crore per borrower for financing subscription to an initial public offering (IPO).

“NBFCs can fix more conservative limits,” the RBI said in the ‘Scale Based Regulation (SBR): A Revised Regulatory Framework for NBFCs’.

Layer-based structure

While the overall guidelines shall be effective from October 1, 2022, the instructions relating to the ceiling on IPO funding will come into effect from April 1, 2022.

Under the new framework, the regulatory structure for NBFCs shall comprise four layers based on their size, activity, and perceived riskiness — base, middle, upper and top layer.

The RBI had issued a discussion paper on the topic in January this year and had sought public comments on it.

Sensitive exposure

In the discussion paper, the central bank noted that IPO financing by individual NBFCs has come under close scrutiny, more for their abuse of the system.

“While there is a limit of ₹10 lakh for banks for IPO financing, there is no such limit for NBFCs,” it had pointed out while mooting the proposal for the ₹1-crore cap.

In the new framework, the RBI has also proposed sensitive sector exposure norms for NBFCs in the middle and upper layers. “Exposure to the capital market (direct and indirect) and commercial real estate shall be reckoned as sensitive exposure for NBFCs. NBFCs shall fix board-approved internal limits for SSE separately for capital market and commercial real estate exposures,” the RBI said. A sub-limit within the commercial real estate exposure ceiling shall be fixed internally for financing land acquisition.

Housing finance companies shall continue to follow specific regulations on sensitive sector exposure, it added.

Further, the regulatory minimum net owned fund (NOF) for NBFC-Investment and Credit Companies, NBFC-MFI and NBFC-Factors shall be increased to ₹10 crore by March 2027 through a prescribed glide path.

The extant NPA classification norm also stands changed to the overdue period of more than 90 days for all categories of NBFCs. A glide path is provided to NBFCs in the base layer to adhere to the 90 days NPA norm, the RBI said.

Considering the need for professional experience in managing the affairs of NBFCs, the RBI said at least one of the directors should have relevant experience of having worked in a bank or an NBFC.

“Over the years, the sector has undergone considerable evolution in terms of size, complexity, and inter-connectedness within the financial sector. Many entities have grown and become systemically significant and hence there is a need to align the regulatory framework for NBFCs keeping in view their changing risk profile,” the RBI said.

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RBI extends Basel-III Capital framework to AIFIs

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The Reserve Bank of India (RBI) decided to extend Basel-III Capital framework to All India Financial Institutions (AIFIs) such as Export-Import Bank of India (EXIM Bank), the National Bank for Agriculture and Rural Development (Nabard), National Housing Bank (NHB) and the Small Industries Development Bank of India (SIDBI).

Basel-III standards mainly seek to raise the quality and level of capital to ensure that financial entities are better able to absorb losses on both a going concern and a gone concern basis.

These standards also increase the risk coverage of the capital framework, introduce leverage ratio to serve as a backstop to the risk-based capital measure, raise the standards for the supervisory review process and public disclosures etc.

‘AIFIs are key institutions’

The RBI said as the Indian economy grows further, the AIFIs are increasingly being seen as key institutions to promote the flow of direct or indirect credit to the economic sectors they cater to.

As per the draft Master Direction on Prudential Regulation for AIFIs, AIFIs will implement all the three Pillars of Basel-III capital regulations – pillar 1 covering capital, risk coverage and containing leverage, pillar 2 covering risk management and supervision and pillar 3 covering market discipline.

The central bank wants AIFIs to achieve minimum total capital of 9 per cent and capital conservation buffer of 2.5 per cent, with the minimum total capital and CCB adding up to 11.5 per cent, by April 1, 2022.

For NHB, since the accounting year is July-June, the implementation shall commence on July 1, 2022.

Capital instruments already issued by the AIFIs which no longer qualify under Basel-III will be allowed to be counted as tier 1 or tier 2, as the case may be, as per the existing rules until their maturity or the first call date.

All capital instruments issued by AIFIs after these directions come into effect shall comply with the requirements set out in the Master Directions.

As investment of AIFIs in the regulatory capital instruments of other financial entities contributes to the inter-connectedness amongst the financial institutions and also amounts to double counting of capital in the financial system, the draft Master Direction prescribed stringent treatment of such investment in terms of deduction from respective tiers of regulatory capital.

The RBI has invited comments on the draft Directions from all the stakeholders by November 30, 2021.

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RBI needs to ensure nascent revival of economic activity shows signs of durability: Governor Shaktikanta Das

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Reserve Bank of India Governor Shaktikanta Das said the central bank needs to ensure that the nascent revival of economic activity shows signs of durability and sustainability. At the Monetary Policy Committee (MPC) meeting, held between October 6 and 8, 2021, Das referred to an ever evolving and dynamic environment, with the outlook overcast by several uncertainties including the fact that the pandemic is far from over.

“At this critical juncture, our actions have to be gradual, calibrated, well-timed and well-telegraphed to avoid any undue surprises,” the Governor said.

Professor Varma’s take

According to the Minutes of the MPC meeting released by the RBI on Friday, Jayanth R Varma (Professor, Indian Institute of Management, Ahmedabad) was the only MPC member who voted against the accommodative stance and was not in favour of the decision to keep the reverse repo rate at 3.35 per cent. He had taken a similar stand at the previous MPC meeting.

Varma reiterated that the Covid-19 pandemic has mutated into a human tragedy rather than an economic crisis, and monetary policy is not the right instrument to deal with this.

“…The ill effects of the pandemic are now concentrated in narrow pockets of the economy, and monetary policy is much less effective than fiscal policy for providing targeted relief to the worst affected segments of the economy,” he said.

“…Inflationary pressures are beginning to show signs of greater persistence than anticipated earlier,” the Professor said.

He flagged two other risks – one to inflation (the ongoing transition to green energy worldwide poses a significant risk of creating a series of energy price shocks) and the other to growth (the tail risk to global growth posed by emerging financial sector fragility in China) – are well beyond the control of the MPC, which warrant a heightened degree of flexibility and agility.

Varma opined that a pattern of policy making in slow motion that is guided by an excessive desire to avoid surprises is no longer appropriate.

Views of other members

Shashanka Bhide, Senior Advisor, National Council of Applied Economic Research, Delhi, noted that in the context of the uncertainties in the external demand and price conditions and an uneven sectoral growth pattern, an accommodative monetary policy stance and broader policy support are necessary at this juncture for strengthening the growth momentum and reducing inflation pressures.

Ashima Goyal, Emeritus Professor, Indira Gandhi Institute of Development Research, Mumbai, observed that global price shocks have turned out to be more persistent, contributing to sticky core inflation.

She emphasised that tax cuts on petroleum products are essential to break the upward movement that could impart persistence to domestic inflation.

Goyal felt that liquidity needs to be kept in sufficient surplus to absorb large shocks from foreign flows, government cash balances and currency leakages even as the excess is reduced allowing the reverse repo to rise gradually and arrangements for non-banks remain in place.

She suggested that a higher fixed reverse repo rate for banks could be linked to raising their interest rates on deposit accounts.

‘Close watch needed’

MD Patra, Deputy Governor, RBI, said even as domestic macroeconomic configurations are improving, the risks from global developments are rising and warrant a close watch as they could stifle the recovery that is underway in India.

“…In my view, the biggest risks to India’s macroeconomic prospects are global and they could materialise suddenly,” he cautioned.

Mridul K Saggar, Executive Director, RBI, stated that if at all some guidance is needed at this stage, it has to be a soft one, with the Reserve Bank preparing markets that while policy stance is likely to remain accommodative till growth is revived on a durable basis, liquidity levels will be adjusted dynamically to appropriate lower levels that are still consistent with accommodative stance.

“…In my judgement, if no new disruptions to growth emerge, output gap will close sometime in 2022-23 and monetary policy should start to gradually reposition to lowering underlying inflation and inflation expectations next year, especially if inflation edges up from the energy and services side amid sticky goods core inflation,” Saggar said.

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FinMin announces repayment of oil bonds worth ₹5,000 cr

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The Finance Ministry has announced payment of ₹5,000 crore for oil bonds issued during 2005 and 2010 in lieu of selling oil product below the cost.

“The outstanding balance of ‘7.75% OMC GoI Special Bonds 2021’ is repayable at par on November 26, 2021,” the Ministry said in a statement. Further it mentioned that no interest will accrue thereon from the said date. In the event of a holiday being declared on repayment day by any State Government under the Negotiable Instruments Act, 1881, the loan/s will be repaid by the paying offices in that State on the previous working day.

Last month, the government paid ₹5,000 crore for another tranche of oil bond, taking total payout at ₹10,000 crore in the fiscal. After this, next tranche of ₹22,000 crore will be due in 2023. With this total principal amount pending would be over ₹1.20-lakh crore to be repaid between 2023 and 2026.

A mechanism of the regulated era, the bonds were issued to the oil companies for not increasing retail prices of petrol and diesel to reflect rising crude oil prices. The ‘under-recoveries’ of the oil companies due to their bearing the subsidy burden was converted into oil bonds by the then government. These bonds are interest-bearing, having a fixed coupon rate and paid on a half-yearly basis. The annual interest due of around ₹10,000 crore has been provided for in the Budget.

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Yes Bank posts 74% jump in Q2 net profit

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Private sector lender Yes Bank’s standalone net profit surged by 74.3 per cent to ₹225.5 crore in the second quarter of the fiscal led by a sharp jump in non-interest income and lower provisions.

The bank’s standalone net profit stood at ₹129.37 crore in the second quarter of last fiscal.

For the quarter-ended September 30, 2021, Yes Bank reported a 23.4 per cent drop in its net interest income to ₹1,512 crore as against ₹1,973 crore a year ago.

Net interest margin stood at 2.2 per cent in the second quarter of the fiscal as against 3.1 per cent in the corresponding period last fiscal. Non-interest income jumped by 30.2 per cent on a year-on-year basis to ₹778 crore during the quarter.

Provisions were 65 per cent lower at ₹377 crore in the second quarter as against ₹1,078 crore a year ago. Asset quality saw some improvement but non-performing assets remained high.

Gross NPAs stood at ₹28,740.59 crore or 14.97 per cent of gross advances as on September 30, 2021 versus 16.9 per cent a year ago. Net NPAs stood at 5.55 per cent of net advances at the end of the second quarter as against 4.71 per cent a year ago.

Prashant Kumar, Managing Director and CEO, Yes Bank said the resolution momentum of the bank continues with ₹987 crore of cash recoveries and ₹969 crore of upgrades in the second quarter of the fiscal.

“We are on track to meet the target of ₹5,000 crore through recoveries and upgrades this fiscal,” he told reporters.

Dish TV

On the issue of Dish TV, Kumar said the bank is doing everything to secure the asset and will explore legal recourse to maximise the recovery.

The bank would inform if and when it approaches the courts on the issue.

The bank is also moving toward setting up its asset reconstruction company (ARC) and expects to announce the name of the foreign partner in the next 60 days. “We have got a fantastic response from international investors. We hope to conclude the deal before the end of the financial year,” he said, adding that the lender will transfer all NPAs to the ARC.

“We will make our bank 0 per cent NPA as of March 31, 2022,” he said.

Restructuring

The bank said that ₹421.01 crore of the ₹4,621.74 crore restructured under the Reserve Bank of India’s Resolution Framework 1.0 had slipped into NPA during the half-year. Of this, it has written-off ₹8.06 crore.

Under the Resolution Framework 2.0, it has received requests for resolution of 17,778 personal loans, 2,634 business loans and 1,588 small businesses involving a total exposure of ₹857.64 crore. It has increased provisions by ₹125.86 crore on account of the resolution.

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New global rules leave just 10 big EU banks short of capital, draft shows, BFSI News, ET BFSI

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* Capital shortfall seen at less than 27 bln euros

* Basel III directive also tackles climate change, branches

FRANKFURT, – Only 10 major European banks may need to raise capital as a result of the rollout of new global rules and their shortfall could be smaller than 27 billion euros ($31.43 billion), according to draft European Union regulation seen by Reuters.

The impact would be much smaller than the 52.2 billion euros estimated by the European Banking Authority (EBA) last year, a sigh of relief for a sector that has been plagued by low profits for a decade and is still recovering from a pandemic-induced recession.

The draft of European Commission‘s Basel III directive, which transposes the final batch of global rules aimed at avoiding a repeat of the 2008 financial crisis, put the increase to EU banks’ minimum capital requirements at between 0.7% and 2.7% by 2015 and 6.4%-8.4% by 2030.

“According to estimates provided by the EBA, this impact could lead a limited number of large EU banks (10 out of 99 banks in the test sample) to have to raise collectively… less than 27 billion euros,” the Commission said in the document.

The EBA said the banks in the test sample were from 17 EU countries and represented around 75% of total EU banks’ assets.

Banks had lobbied for a more flexible interpretation of the “output floor”, which limits their discretion in setting their own capital requirement, but their wishes were not fulfilled.

The European Parliament will have the final say on approving the rules, but regulators have warned the bloc not to stray from the standards already agreed at a global level.

The directive, which is due to be published next week, also gives supervisors the power to impose requirements relating to climate risk and contains stricter rules for branches of foreign banks in the EU.

This gives extra legal backing to the European Central Bank, which has been putting pressure on banks to disclose and tackle risks relating to climate change, such as weather hazards and changes in regulation.

As regards foreign branches, which had assets worth 510 billion euros at the end of last year and are concentrated in Belgium, France, Germany and Luxembourg, they will now be subject to a common authorisation procedure.

They will also have to comply with requirements relating to their capital, liquidity, governance and risk management, the draft shows. ($1 = 0.8591 euros) (Reporting by Huw Jones, Writing By Francesco Canepa in Frankfurt, Editing by Alex Richardson)



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Yes Bank Q2 profit jumps 74% to Rs 225 crore, BFSI News, ET BFSI

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New Delhi, Yes Bank on Friday reported a 74 per cent increase in standalone net profit to Rs 225 crore for the second quarter ended September. The private sector lender had earned a profit of Rs 129 crore in the corresponding quarter of previous fiscal.

Total income slipped to Rs 5,430.30 crore during the July-September period from Rs 5,842.81 crore in the same quarter last year, the bank said in regulatory filing.

Gross bad loans declined to 14.9 per cent of gross advances as on September 30. The same stood at 16.9 per cent in the year-ago period.

However, net Non-Performing Assets (NPAs) or bad loans rose to 5.55 per cent in the quarter under review from 4.71 per cent a year ago.

The bank has made prudent provisioning of Rs 336 crore on a single telecom exposure in the latest quarter. PTI DP RAM

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KVGB disburses ₹44.28 cr loan at outreach programme

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The Dharwad region of Karnataka Vikas Grameena Bank (KVGB) disbursed loans to the tune of ₹44.28 crore to nearly 725 beneficiaries under various heads at the customer outreach initiative organised under the aegis of state-level bankers’ committee (SLBC), according to P Gopi Krishna, Chairman of KVGB.

He said the customers outreach initiative was organised on Thursday to boost credit in retail, agriculture and MSME sectors.

Speaking on the occasion, B Chandrasekhar Rao, convenor of the SLBC, advised bankers to focus on agriculture lending and to ensure financial inclusion of all sections of society. He asked the small and medium scale entrepreneurs and citizens to utilise loan facilities offered by various banks, including regional rural banks. He handed over loan sanction letters to the borrowers of KVGB.

KVGB highlighted solar-powered livelihood solutions at the customer outreach initiative.

Ullas Gunaga, Chief Manager of KVGB, said the bank is financing the livelihood solutions backed by solar power. The intention is that these livelihood solutions will help micro and small entrepreneurs, economically weaker sections, and help in sustainable agriculture and women empowerment. He said the solar technology company SELCO provides technological interventions, market linkages, banking and financial inclusion support and training for capacity building.

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Bank of India opens first-ever branch in Ladakh, BFSI News, ET BFSI

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Leh, Bank of India on Friday extended its operations to the Union Territory of Ladakh by opening its first-ever branch here with its top official asserting that the bank is fully committed to extending its banking services to the people living in far-flung areas of the country.

This was the 5,086th branch opened by a bank in the country and abroad, and is fully computerised and digitised with a facility of E-Gallery to provide 24×7 banking to the residents of Leh, a spokesperson of the Bank of India (BOI) said.

He said BOI Managing Director and Chief Executive Officer A K Das opened the branch in the presence of Field General Manager A K Jain, Zonal Manager Vasudev, Branch Manager Sangeeta and various local dignitaries and customers.

“The bank is fully committed to extending its banking services to the people living in the far-flung areas of the country. The opening of a branch here is an important step towards this goal,” Das said.

He said it would not only boost economic activities in the region but will also help the local people to use various banking products like housing, vehicle, education and agriculture loans, and also reap the benefits of other government schemes.

Das added that the bank has a unique salary account scheme for defence and paramilitary personnel providing free insurance cover.

“The bank also provides home, vehicle and consumer loans at low rates. Recently, the bank has reduced the interest rate for housing loans to 6.50 per cent and that for vehicle loans to 6.85 per cent,” he said.

Das added that the bank will continue to endeavour to provide the best-quality banking facilities to its customers and connect more and more people to mainstream banking with fully digitised facilities.

Meanwhile, in continuation to the bank’s mission to reach maximum customers across India, it also conducted a ‘customer outreach programme’ at Leh branch, wherein Das distributed loan sanction letters to various beneficiaries, the spokesperson said.

Under the bank’s corporate social responsibility, he said Das is presenting ‘paper cutting machine’ to a non-governmental organisation of Ladakh, People’s Action Group for Inclusion and Right, who is assisting differently-abled persons by empowering them with various skills to earn their livelihood and live a respectable life. PTI TAS AB HRS hrs



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Visa, Mastercard hop on for ‘Buy Now Pay Later’ ride, plan launch in India by end of FY22, BFSI News, ET BFSI

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Global card networks Visa and Mastercard plan to launch their respective Buy Now, Pay Later (BNPL) platforms in India by the end of FY22, three top industry executives aware of the developments told ET.

BNPL is a credit option that gives customers at storefronts and on ecommerce pages the option to defer payments free of cost or to convert the transaction value into equated monthly installments (EMI). The facility is provided by financiers even to those without credit cards.

Visa and Mastercard are reportedly scouting for partners to set up platforms that would facilitate retail brands and online merchants to directly tie up with banks and offer their customers various payment options, the sources cited above said.

“BNPL platforms by both Visa and Mastercard are in the works, and it makes complete sense as they have a goldmine of customer data to create platforms for banks looking to enter this space,” said the chief executive at a large private bank. The executive didn’t want to be named.

Both Visa and Mastercard have approached major card-issuing local banks on their respective networks with product propositions. Visa is also said to be in talks with one or more payment gateways for a strategic tieup, sources added.

Visa and Mastercard didn’t respond to ET’s queries on the subject.

At present, this service is offered by startups such as ZestMoney, Capital Float, PayU’s Lazypay as well as Pine Labs and Paytm. The market has seen significant traction over the last two years with millions of Indians taking to online shopping through the pandemic.

Global Templates
The move is in line with Visa and Mastercard’s BNPL forays in various international markets. Last month, Mastercard announced the launch of a new BNPL platform in the US, the UK, and Australia across its acceptance networks. This comes at a time when global fintech companies, such as Square, PayPal and Klarna, are betting aggressively on this segment.

Mastercard believes that BNPL could lead to a 45% increase in average sales from existing relationships and a 35% reduction in cart abandonment, a source briefed on the matter told ET.

Visa, too, has launched BNPL initiatives in markets such as Canada and Malaysia and is reportedly setting up a global BNPL vertical to oversee the development. According to a source, a top executive in Visa’s South Asia team could head this vertical, although ET couldn’t independently verify the proposed appointment.

As per industry insiders, the typical model would involve a financier tying up with a merchant and a platform for a fixed transaction fee. As there is no interest rate, the facility is offered to customers with a Merchant Discount Rate – or a transaction service rate – of around 1.5%.

The moves are seen by industry insiders as an attempt by the US card companies to gain first-mover’s advantage in India’s nascent online instalment payments market.

Another source involved with the talks said that the plans were finalised after the Reserve Bank of India (RBI) announced stringent card data storage norms. The new rules set to kick in from 2022 will prohibit merchants from storing card data of customers, which could significantly hamper their ability to offer customised discounts and EMI options.

“From January, the credit card market is expected to shrink due to the new rules that restrict merchants from storing card details,” said an executive cited above. “For the large payment operators, BNPL allows an opportunity to use scale.”

Over the past four years, the National Payments Corporation of India (NPCI)-owned solutions such as Unified Payments Interface and Bharat Bill Pay have helped increase the adoption of digital payments in the country.

Banks Willing to Underwrite Risk
Through the festive season, top consumer Internet companies, including Flipkart, Amazon, Paytm and Byju’s, are offering BNPL services to customers. The premise is simple: Millions of Indians who took to online shopping amid the Covid-19 pandemic are opting for interest-free credit at checkout points on online platforms. Banks, too, are willing to underwrite the risk.

Industry insiders say the size of India’s annualised BNPL market in gross transaction value terms has grown to around $1.5-2 billion in less than 18 months, from just a few million dollars in 2019.

At the backend, these transactions are enabled through network integrations involving retail marketplaces, merchants, and financiers. The model is also applicable to offline outlets, where Bajaj Finance is among the leading players.

Typically, they are “form-agnostic” and can be enabled after the customer’s credentials are authenticated at checkout points. Hypothetically, such transactions can be done without any payment instrument, using just an ID card. Moreover, the repayment contracts are flexible, depending on the credit scores of customers.

Fintech companies typically rely on SMS data and credit scores to gauge income and repayment rates for underwriting. A loss is typically taken on the books of the NBFC or the banks. While default rates for BNPL in India are not in public domain, as per sources, the industry bounce rate hovers between 15% and 20%.



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