Category: Banking & Finance

RBI bans audit firm Haribhakti & Co for two years

Banking & Finance

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Haribhakti & Co was the auditor of Srei Infrastructure Finance, whose board was superseded by the RBI and against which insolvency proceedings were initiated last week.

The Reserve Bank of India (RBI) on Tuesday banned chartered accountant firm Haribhakti & Co from undertaking any type of audit assignments for regulated entities for a period of two years, starting April 1, 2022.

The action was taken for the firm’s failure to comply with a specific direction issued by the RBI with respect to its statutory audit of a systemically important non-banking financial company (NBFC), the central bank said in a statement.

This is the first time the RBI has taken such action against an auditor of a systemically important NBFC.

“The RBI has by an order dated September 23, 2021, debarred Haribhakti & Co from undertaking any type of audit assignment/s in any of the entities regulated by RBI for a period of two years with effect from April 1, 2022,” the statement said.

The action has been taken under Section 45 MAA of the RBI Act, which allows the banking regulator to act against auditors. The ban will not impact audit the firm’s assignments in RBI-regulated entities for the financial year 2021-22, the statement said.

In 2019, the RBI had imposed a one-year ban on SR Batliboi & Co, an affiliate of global auditing firm EY, after it found lapses in the audit report of a bank.

Haribhakti & Co was the auditor of Srei Infrastructure Finance, whose board was superseded by the RBI and against which insolvency proceedings were initiated last week.

The Kolkata Bench of the National Company Law Tribunal on October 8 gave its approval to start insolvency proceedings against Srei Infrastructure Finance and its wholly owned subsidiary Srei Equipment Finance after the RBI filed insolvency applications.

According to rating reports of March 6, 2021, by CARE Ratings, Srei Infrastructure Finance owed banks loans worth Rs 11,117.71 crore, apart from outstanding bonds and NCDs worth Rs 710.63 crore.

Srei Equipment Finance had outstanding bank loans worth Rs 16,912.21 crore and other debt instruments worth Rs 499.45 crore. All these facilities and instruments were rated ‘D’, or default grade, in March.

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Shivalik Small Finance Bank partners with Go Digit Insurance

Banking & Finance

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Shivalik Small Finance Bank on Tuesday announced a strategic partnership with Bengaluru-based insurtech company, Go Digit General Insurance, to provide an array of instant, easy-to-understand insurance products through the bank’s network of branches across India.

This will include health insurance plans, motor insurance, and home and shop insurance. This partnership will enable over 4.5 lakh customers of Shivalik Small Finance Bank to instantly access and purchase from Digit’s list of offerings, through paperless processes, in real time.

This range of products will be available to the customers of Shivalik Small Finance Bank across all its 31 branches and its digital network across the country.

‘Committed to innovation’

Commenting on the partnership, Harsh Mittal, Chief Financial Officer, Shivalik Small Finance Bank said, “At Shivalik, we are committed to constantly innovating and adding new products and services to expand our offerings to the underbanked masses. Our collaboration with Go Digit General Insurance will aid us in making the process of buying cover, submitting and receiving claims easier for our customers leveraging the strong tech platforms that both organisations have and supported by our distribution network which reaches the far ends of Bharat.”

Vijay Kumar, CEO and Principal Officer, Go Digit General Insurance said, “Our partnership with Shivalik Small Finance Bank comes at a time when we are looking to expand our reach to newer markets with an aim to aid insurance penetration. The bank has a strong foothold in the northern states of the country and this association will help the bank’s customers in getting insured from a partner that believes in simplicity, transparency and hassle-free settlement of claims.”

Shivalik’s current customers predominantly fall into segments such as retail, manufacturing and services, housing and real estate and microfinance.

As part of its small finance bank proposition, Shivalik is actively engaged in discussions with multiple fintech partners to reach newer customer segments like entrepreneurial and underbanked women, kirana stores, millennials in need of neo banking services and individuals looking for gold loans, according to Mittal.

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CA firm Haribhakti barred from auditing RBI-regulated entities for two years

Banking & Finance

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The Reserve Bank of India has barred Haribhakti & Co LLP, Chartered Accountants, from undertaking any type of audit assignments in any of the entities regulated by the RBI for two years with effect from April 1, 2022.

Although the RBI did not specify the exact reason for its action, Haribhakti was the auditor for Srei Infrastructure Finance (SIFL) for 2019-20. On October 4, the RBI superseded the boards of SIFL and Srei Equipment Finance (SEFL) over governance concerns and payment defaults.

This is the first case of debarment of a CA firm under Section 45MAA of the Reserve Bank of India Act, 1934, dealing with the central bank’s powers to take action against auditors.

“This action has been taken on account of the failure of the audit firm to comply with a specific direction issued by RBI with respect to its statutory audit of a Systemically Important Non-Banking Financial Company,” the RBI said in a statement

But the central bank said its action will not impact audit assignment(s) of Haribhakti in RBI-regulated entities for 2021-22. A central statutory auditor of a public sector bank said Haribhakti can challenge the RBI order in a High Court just as Price Waterhouse & Co opposed SEBI’s two-year ban in the Satyam Computers case. Since the RBI’s is not a “speaking order”, it is difficult to assess why the action was taken, he added.

Meanwhile, Shailesh Haribhakti dissociated himself from the firm founded by his father. “I ceased to be a partner of Haribhakti & Co LLP with effect from March 31, 2018 and from all responsibilities associated with it.”

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RBI grants banking licence to Unity Small Finance Bank

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The Reserve Bank of India on Tuesday granted a banking licence to Unity Small Finance Bank Ltd (USFBL), which was established jointly by the Centrum Financial Services Ltd (CFSL) and Resilient Innovations Private Limited (BharatPe), to carry on a SFB business in India.

RBI had accorded “in-principle” approval to CFSL, a wholly owned subsidiary of Centrum Capital, on June 18 to set up a small finance bank (SFB).

The approval was in specific pursuance to CFSL’s February 2021 offer in response to the scam-hit Punjab and Mahatashtra Co-operative (PMC) Bank’s November 2020 Expression of Interest (EoI) notification.

Aid PMC Bank

The grant of banking licence to USFBL sets the stage for RBI to place in the public domain a draft scheme of amalgamation of PMC Bank with the SFB. The last step will be the government’s sanction for the scheme.

Also see: IMF retains India’s growth forecast for FY22 at 9.5%

This announcement should come as a relief to PMC Bank depositors who have been struggling to get their deposits back for more than two years amid the Covid-19 pandemic.

“It is the first time ever that two partners are uniting equally to build a bank. The proposed business model is one of collaboration and open architecture, uniting all its stakeholders to deliver a seamless digital experience,” Centrum and BharatPe said in a joint statement.

Centrum’s MSME and micro-finance businesses will be merged into USFBL.

Digital bank

Jaspal Bindra, Executive Chairman, Centrum Group, said, “We are delighted to receive the license and excited to partner with BharatPe to create this new age bank with a strong team. We aspire to be India’s first digital bank.”

Ashneer Grover, Co-Founder and Managing Director, BharatPe, said “We will work tirelessly and smartly to capture this opportunity and build India’s first truly digital bank ground up.”

With the establishment of USFBL, the number of SFBs in the country goes up to 12.

Also see: RBI on track to policy normalisation

Meanwhile, BharatPe, in a separate statement, said Rajnish Kumar, former Chairman of State Bank of India, has been appointed on its Board. He will also be the Chairman of the Board.

Kumar will be involved in defining the fintech company’s short-term and long-term strategy, and will also work closely with the other Board Members and CXOs on key business and regulatory initiatives, per the statement.

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AUMs of NBFCs to rise 18–20% y-o-y this fiscal: Crisil Ratings.

Banking & Finance

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Assets under management (AUM) of non-banking financial companies (NBFCs), which primarily offer loans against gold, are expected to rise 18–20 per cent to ₹1.3 lakh crore this fiscal against ₹1.1 lakh crore in FY21, according to Crisil Ratings.

The credit rating agency said that this growth would be despite a contraction in the first quarter, when pandemic-driven lockdown measures hindered branch operations and kept potential borrowers away.

The agency added that demand for gold loans from micro enterprises and individuals — to fund working capital and personal requirements, respectively — has increased with a pick-up in economic activity and the onset of the festive season, which coincides with the easing of lockdown restrictions by several States.

Sought-after asset

Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, said, “Gold-loan disbursements have rebounded sharply in the second quarter of this fiscal after a dismal first quarter. We expect this momentum to continue for the rest of this fiscal.”

He emphasised that gold loans will continue to be a sought-after asset class, while lenders would remain cautious about growth in many other retail asset classes.

Also see: NBFCs: No need to press the panic button yet

From a credit perspective, gold loans are a highly secured, liquid asset class that generates superior returns with minimal credit losses, the agency said.

Therefore, NBFCs that offer them are better placed than those extending loans to most other retail asset classes, especially in times of asset-quality pressure spawned by the pandemic.

Risk management

The agency noted that historically, gold-loan NBFCs have seen negligible losses because of robust risk management practices such as periodic interest collection (which keeps the loan-to-value, or LTV, under check) and timely auctions of gold.

Also see: What’s next for gold loans after the pandemic?

“Maintaining LTV discipline adds to the comfort. But sharp swings in the price of gold impacts both, the portfolio and disbursement LTV, as it influences the cushion available with lenders.

“Lenders faced this issue last fiscal because gold prices fell sharply between January and March 2021, after the August 2020 peak,” the agency said.

NBFCs vs banks

On their part, NBFCs have manoeuvred the situation well, Crisil Ratings said, adding that banks, on the contrary, were less proactive and so have seen a rise in delinquencies and faced challenges in rolling over a part of their portfolio to 75 per cent LTV (as per current Reserve Bank of India guidelines) after the 90 per cent LTV dispensation ended in March 31, 2021.

Banks’ loan against gold jewellery portfolio grew by about 80 per cent in FY21.

Ajit Velonie, Director, Crisil Ratings, observed that gold-loan NBFCs have been swift in calibrating disbursement LTV while also implementing strong risk management practices to keep portfolio LTV in check.

Also see: IIFL Finance launches instant business loan on WhatsApp

Besides ensuring periodic interest collection, they do not flinch from conducting auctions when required — which rose sharply in March and April 2021 — to avert potential asset-quality challenges.

Velonie said timely auctions have ensured that credit costs — a more appropriate indicator of asset quality for gold-loans — remained in check at 30 basis points, well within the historical range.

With leverage being low and pre-provision profitability remaining strong, Crisil Ratings expects the overall credit profile of gold-loan NBFCs to remain stable.

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Bank FD to fetch negative real interest with elevated inflation, BFSI News, ET BFSI

Banking & Finance

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New Delhi, Oct 12 (PTI) Senior citizens and others depending upon income from bank fixed deposit (FD) schemes will be at the receiving end with the retail inflation exceeding the interest rates. The Reserve Bank of India (RBI) in its latest monetary policy review has projected retail inflation at 5.3 per cent for the current financial year.

Last week, the RBI said that the Consumer Price Index (CPI)-based inflation is now projected to be at 5.3 per cent for 2021-22 with risks evenly balanced.

At this level, the fixed deposit for one year with the country’s largest lender State Bank of India (SBI) would rather earn negative interest. The real interest rate would be (-) 0.3 per cent for the saver.

Real rate of interest is card rate minus inflation rate. The retail inflation for August stood at 5.3 per cent.

Even for higher tenure 2-3 years, the interest rate earned is 5.10 per cent lower than expected inflation for the current fiscal.

In the private sector, the market leader HDFC Bank offers 4.90 per cent interest rate for 1-2 year fixed deposits while 5.15 per cent for 2-3 years.

However, small savings schemes run by the government offers better return compared to fixed deposit rates of banks. For term deposits 1-3 years, the interest rate offered is 5.5 per cent higher than inflation target.

There is natural advantage of moving money from bank FD to government saving schemes as rates are slightly higher. Thus, the real rate of interest is in the positive territory.

Experts said that it is a usual phenomenon that real returns are negative in a crisis and post-recovery world, given the way fiscal stimulus to overcome difficulty.

India is no exception and in fact, new asset allocation patterns would need to emerge, with more allocation to real assets from financial assets.

Real rates are going to be negative for a while, given that the post crisis repairs may take some time and it is imperative that financial literacy initiatives guide people into making the right investment choices, Grant Thornton Bharat partner Vivek Iyer said.

“A negative rate of interest, for savers on bank deposits, these days, is a reality, which the depositors have to face because of a complex set of factors.

“The present average savings deposit rate offered by banks which is around 3.5 per cent and less than five per cent rate on one year deposit indicates a negative return, not even covering the expected inflation rate,” Resurgent India Managing Director Jyoti Prakash Gadia said.

The impact of negative interest on bank savings deposits is obvious, with lower growth of such deposits and the public now seeking alternatives like mutual funds and equity for better returns.

The options although involving more risk have shown phenomenal growth which is likely to continue till inflation is tamed or bank deposit rates are substantially increased, Gadia added. PTI DP CS HRS hrs



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Five foreign investors shortlisted for majority stake in Yes Bank-backed ARC, BFSI News, ET BFSI

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Five foreign investors have made presentations to the Yes Bank management to form a new joint venture asset reconstruction company (ARC) which will house the lender’s non performing assets (NPAs), three people familiar with the development said.

The investors which have made presentations include Los Angeles based $149 billion Ares-SSG Capital, $15 billion alternative investment firm Varde Partners, US based $55 billion Ceberus Capital and distressed asset giants $156 billion Oaktree Capital and private equity company JC Flowers, three people familiar with the move said. Individual investors and Yes Bank could not be immediately reached.

Yes Bank will likely hold a minority share in the proposed ARC in line with Reserve Bank of India (RBI) directions. The selected investor is likely to hold a majority as much as 80% to 85% in the new venture, one of the persons said. EY is helping Yes Bank with the process.

“The model is more of a NARC type. Banks are not encouraged to hold a major share in any ARC. That’s why they are selling it,” said a second senior executive involved in the matter.

He was referring to the government backed National Asset Reconstruction Co (NARC) which has been formed to resolve legacy bad loans from the banking sector.

“Investors have not yet been officially informed about the short listed firms so the process will take some more before the partner is selected,” said a third person familiar with the matter.



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Kotak Mahindra Bank launches Micro ATMs across India, BFSI News, ET BFSI

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To deliver essential banking services conveniently to a larger section of consumers living in relatively far-off areas, private lender Kotak Mahindra Bank Ltd on Tuesday announced the launch of Micro ATMs across the country.

Customers of all banks who possess a debit card can use a Kotak Micro ATM for key banking services such as cash withdrawals and checking account balances. A mini version of an ATM, micro ATMs are small handheld devices. The bank will use its extensive Business Correspondents (BC) network to launch micro ATMs.

“The micro ATM is a simple, innovative and highly effective solution to deliver essential banking services such as cash withdrawals in a convenient manner to people residing in relatively remote locations,” said Puneet Kapoor, President – Products, Alternate Channels and Customer Experience Delivery, Kotak Mahindra Bank. “It is a viable alternative to a regular ATM, allowing for faster expansion and increasing banking touchpoints for consumers. Kotak’s network of micro ATMs across the country will help customers of all banks (Kotak and non-Kotak customers) get easy access to their bank accounts and promote financial inclusion.”

At the end of August, there were 2.13 lakh ATMs in the country, up from 2.09 lakh same time last year, a meagre growth of 1.5%. On the flip side, micro-ATMs have grown to 4.94 lakh as against 3.07 lakh in August last year, a rise of over 60%.

In the first phase, Kotak Mahindra Bank is introducing micro ATMs in the outskirts of the top 8 metro cities – locations where the demand for cash withdrawal services is high but the prevalence of ATMs is low.



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RBI debars Haribhakti & Co from undertaking audit assignments in central bank regulated entities

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The Reserve Bank of India (RBI) has debarred Haribhakti & Co. LLP, Chartered Accountants, from undertaking any type of audit assignments in any of the entities regulated by RBI for a period of two years with effect from April 1, 2022.

This is the first case of debarment of a CA firm under section 45MAA of the Reserve Bank of India Act, 1934.

“This action has been taken on account of the failure on the part of the audit firm to comply with a specific direction issued by RBI with respect to its statutory audit of a Systemically Important Non-Banking Financial Company,” RBI said in a statement titled “Action against Statutory Auditors of NBFC under section 45MAA of RBI Act, 1934”.

The central bank said its action will not impact audit assignment/s of Haribhakti & Co. LLP in RBI regulated entities for the financial year 2021-22.

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