Tag: banking & finance

The administrator of the Rupee Cooperative Bank, CA Sudhir Pandit, met Union minister for state for finance & banking Bhagwat Karad, urging him to intervene to resolve issues being faced by the bank.

According to Pandit, although 99% depositors will get a refund of their entire deposits as per the amended Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, high-value depositors with deposits of more than Rs 5 lakh will lose 65% of their deposits if the bank goes into liquidation. “A majority of these depositors are senior citizens and entire liquidity of around Rs 800 crore will be exhausted once deposits below Rs 5 lakh are fully refunded,” he explained. If the bank’s liquidity is exhausted, no other bank will come forward for a merger, he pointed out.

“A resolution plan or revival will ensure that larger depositors do not lose most of their money, because if the bank is liquidated, large depositors may collectively lose Rs 375 crore,” said Pandit.

Significantly, the Reserve Bank of India (RBI) has refused to sanction the merger of the Rupee Cooperative Bank with the Maharashtra State Cooperative Bank (MSSB). The proposal of merger with the MSCB was submitted in view of the latter’s wish to diversify into the retail business. MSCB is the apex cooperative bank that lends money mostly for agriculture and agri-businesses.

The Rupee Cooperative Bank has notified the scheme of the Deposit Insurance and Credit Guarantee Corporation (DICGC) to refund account holders up to Rs 5 lakh. Rupee Cooperative Bank administrators said they will forward all claims made under the scheme to DICGC by October 15, 2021, after which approved claims will be settled by the DICGC within a period of 90 days.

“The DICGC told us to maintain expenses to run the bank for the next six months, within which hopefully there will be a resolution plan for the bank whether it is a merger with a larger bank, or its revival. We even met Union finance minister Nirmala Sitharaman,” he said.

By Trisha Shreyashi

In a bid to boost the Retail Payment System (‘RPS’), Reserve Bank of India (‘RBI’) had come up with the proposal of “New Umbrella Entities” (‘NUE’), similar to Unified Payments Interface (UPI). While NUEs promote private participation, it became pertinent to ensure that consumer data is secured. Further, it is essential that sustainable financial principles are followed so that the motto of de-risking payments ecosystem is achieved in essence. NUE is seen as an alternative mechanism to India’s flagship processor, the National Payments Corporation of India (NPCI).

The NUE license shall be granted by RBI according to the power of authorization of payment operations conferred under Section 4 of the Payment & Settlement Systems Act (‘PSSA’), 2007. In consonance, RBI announced a draft framework to authorise pan-India NUE for RPSs. It mandates a minimum of INR 300Cr. be maintained as reserves at all times. These NUEs shall be duly registered under the Companies Act, 2013. Further, only entities owned and controlled by Indian residents staying in India in preceding financial year for more than 182 days, shall be eligible to apply as promoter/promoter group. This indicates the intention to limit the role of foreign entities, while allowing foreign investment under diktat. It is also subject to corporate governance norms and RBI retains the right to approve/appoint Directors to the Board.

These NUEs would be primarily responsible in developing new payment systems, standards and technologies, clearing and settlement mechanisms, while monitoring, addressing and preventing relevant risks and frauds. It would diversify easy payment options beside boosting transaction volumes with tremendous expansion of e-commerce. Thus, NUE could also become instrumental in furthering financial inclusion and promotion of fintech.

However, the NUE authorization has been shelved citing data storage and localization issues despite being proposed with a view to minimize concentration risks in RPS. A five member committee under the chairmanship of P. Vasudevan, Chief General Manager, RBI has been directed to review license applications, analyse macroeconomic impact and security risks in light of the proposed framework. Announced about a week ago, it shall also put forth recommendations to address the concerns thus arising.

Other impediments must also be considered to evaluate the adverse impact, if any, on the banking ecosystem. For instance: Capital, infrastructural costs, technology requirements in deploying products, settlement management & operations, rise in risks due to reconciliation & security issues, liquidity costs to support free flow of funds by customers etc. It also seems prudent to examine the impact on smaller banks. Forced to deploy additional payment instruments modeled on zero pricing strategy, they’d end up bleeding more.

Commercial banks had vehemently opposed the NUE proposal. They had urged rather to strengthen the domestic NPCI. While the idea of NUE is to expand the competitive landscape of RPS, the issue of data transfer and security involving foreign entities is indeed a bonafide objection. Moreover, the array of events that unfolded in the recent past make it prudent to notice that the concerns are not unfounded. For instance:- Failure by Mastercard, Amex & Diners Club in furnishing audit reports certifying compliance with Indian norms in regard to data storage rules.

To address the concerns, RBI announced extensive guidelines that are mandatory for all entities involved in payments & settlements to follow, to protect and prevent breach or misuse of the customer details in their database. The Personal Data Protection (PDP) Bill, under review before the Joint Parliamentary Committee, might prove to be a game changer in building a robust data storage & processing system. For the time being, India could subscribe to Global Data Protection Regulation (GDPR) to strike a balance between consumer woes and commercial interests, until a germane data protection framework for fintech is enacted.

Disclaimer: The author is a legal professional. Views expressed are personal and not necessarily that of Financial Express Online

The lifting of the regulatory embargo on issuance of new credit cards by HDFC Bank will offer some relief to the lender ahead of the festive season. At the same time, the continuing bar on fresh digital launches and the ban on three-card networks may pose difficulties for the bank.

In a letter to HDFC Bank’s employees on Wednesday, managing director and CEO Sashidhar Jagdishan is understood to have said that the ‘rap on the knuckles’ from the regulator has made the bank reimagine its IT systems and processes and turbo-charge the speed of technology transformation.

“On Digital 2.0, the restrictions will continue till further review by the regulator. We shall continue to engage and ensure full compliance as we move forward,” Jagdishan said, adding that HDFC Bank will regain and grow its credit card customer market share and revenue market share in the time to come.

Analysts viewed the development as a positive for the bank. Motilal Oswal Financial Services (MOFSL) said in a report on Wednesday: “HDFC Bank typically adopts an aggressive stance during the festive season and offers various discounts on consumer durable products to drive spends and accelerated growth in consumer durable financing.” Therefore, the lifting of RBI restrictions before the festive season augurs well and the bank is likely to turn more aggressive on credit cards over the next few months.

In his letter to his colleagues, Jagdishan said in the coming months, HDFC Bank will aggressively go to the market with not just its existing suite of credit cards but also new offerings in the form of co-brands and partnerships.

As per the MOFSL report, HDFC Bank has lost nearly 0.6 million cards since the date of the embargo in December 2020. On the other hand, ICICI Bank, SBI Card and Axis Bank added around 1.3 million, 0.75 million and 0.3 million new cards respectively over the same period. “Therefore, other players such as ICICI Bank/ SBI Card have sharply ramped up their incremental market share at ~49%/~28% during this period,” MOFSL said.

On June 30, HDFC Bank had said it had acquired a significant number of customers on the liabilities and assets sides. It planned to continue with the strategy to target 75-80% of internal customers for the card base. These customers had been pre-approved and the lender had observed their behaviour for six months. Now that the ban on issuances has been lifted, these customers are likely to be issued new cards.

However, the Reserve Bank of India’s (RBI) ban on new card issuances by three-card networks may pose another challenge for HDFC Bank. A Nomura report dated July 15 said HDFC Bank has 60% of its card schemes tied to Mastercard, American Express and Diners Club International. The lender’s Millennia Prepaid Card, Regalia ForexPlus Card and ISIC Student ForexPlus Card were on the MasterCard network and fresh issuances in these categories may be affected.

Chennai-based public sector lender Indian Bank on Monday reported a 220% jump in its net profit to Rs 1,182 crore in the first quarter of FY22, against Rs 369 crore in the corresponding quarter last fiscal. Total income stood at Rs 11,500 crore in Q1, registering a flat growth over Rs 11,447 crore in the year-ago period. The bank has attributed the stellar growth in bottomline to increase in non-interest income, decrease in interest expenditure and higher operational efficiencies.

Padmaja Chunduru, MD & CEO, Indian Bank, told mediapersons that after successfully completing the amalgamation of Allahabad Bank during the previous year, the bank is now reaping the synergy benefits. With the vaccination programme picking up and the economy expected to open up in the coming quarter, the bank is well-positioned to leverage the growth opportunities.

“The capital adequacy ratio of the bank was at 15.92 % giving comfort to bank in ramping up the business. Oversubscription of QIP in June adding Rs 1,650 crore to equity, was another testimony to ever increasing market trust in the strong fundamentals of the bank,” she said.

Net interest margin (NIM) improved by 51 basis points (bps) on quarter-on-quarter (QoQ) sequential basis. It stood at 2.85% for Q1FY22, against2.83% for Q1FY21. Non- interest income was up by 41% y-o-y and 8% QoQ. It stood at Rs 1,877 crore, against Rs 1,327 crore in Q1FY21, on account of higher recovery in bad debts and rise in forex income.

The bank has made improvement on asset quality by bringing down gross non-performing assets (GNPA) by 121 bps to 9.69% from 10.9%. The net NPA ratio also declined by 29 bps to 3.47% from 3.76% in June 2020 ended quarter.

The capital adequacy (CRAR) of the bank stood at 15.92% with 247 bps y-o-y increase. On a sequential quarter basis, it increased by 21 bps from 15.71% in Q4FY21. The tier-I CRAR was at 12.22% in June 21, against 10.47%, up by 175bps y-o-y. On a sequential quarter basis, it rose by 28 bps from 11.94% in Q4FY21. Domestic CASA deposits of the bank grew by 9% y-o-y while moderated by 3% QoQ and touched Rs 2,20,874 crore in Q1FY22. Share of CASA to total deposits was at 41% in Q1FY22, against 42% a year ago. Current account deposits grew by 18% and savings account deposits by 8% y-o-y.