Tag: banks

Banks’ crypto blockade: Exchanges try other modes to enable trade

Banking & Finance

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As traditional banks and prominent payment gateways continue to be wary of allowing cryptocurrency transactions, some digital payments players such as MobiKwik and Airpay have stepped into this space.

Currently, these are the only two payment processors or gateways serving the cryptocurrency exchanges, said Gaurav Dahake, founder and CEO, Bitbns. Relatively lesser known Airpay was co-founded by Amit Kapoor, Kunal Jhunjhunwala and Rohan Deshpande in 2012. Jhunjhunwala comes from the family of ace stock market investor Rakesh Jhunjhunwala. Rakesh Jhunjhunwala and his brother Rajesh Jhunjhunwala are also investors in the firm along with Kalaari Capital. Bitbns has created its own gateway solution which helps its customers deposit money through UPI and other modes for free. He added, “MobiKwik is launching its IPO this year. A large chunk of its revenue is going to come from cryptocurrency exchanges, as it is the only one that is serving the industry right now. MobiKwik has made a significant amount of money through cryptocurrency clients in the last few months.” An email sent to MobiKwik didn’t elicit any response.

Also read: Indian crypto exchanges flounder as banks cut ties after RBI frown

Last month the Reserve Bank of India had issued a statement clarifying that banks cannot cite 2018 order for not working with cryptocurrency startups. The banks were cautioned also to participate at their own risk ensuring diligence.

Banks are wary

Over a month on, there hasn’t been any change in the banks’ official stance on catering to the crypto exchanges, while they are yet to give access to payment processors or gateways to work with them.

“We were hoping that things would improve post clarification from RBI. Although things haven’t got bad, nothing has improved either with banks like ICICI Bank, Yes Bank and Paytm. They are still reluctant to work with cryptocurrency exchanges and other banks are not very positive either. We were hoping for clarification soon after RBI’s statement, but the talks are on as of now,” Avinash Shekhar, Co-CEO, ZebPay told BusinessLine.

Nischal Shetty, CEO, WazirX, though, believes that the RBI circular at least clarifies that the banks can work with the exchanges. WazirX being one of the largest players in the space has been following the conversations closely. “The business teams of banks are open to it because crypto industry is rapidly growing, but the compliance teams are still trying to put their thoughts together. At present, no bank has come forward to service the exchanges, but hopefully, they will soon,” he said.

“Banks don’t want to miss out the opportunity. They want to be seen as someone supporting this but because we don’t have a very clear legal framework for it in India, banks are being cautious and asking for a few more documents, discussing facilities and limits,” Ramalingam Subramanian, CMO, CoinDCX said.

The process and challenges

In absence of banking partners and payment gateways, WazirX has moved to peer-to-peer (P2P) trading transaction mode. Through P2P way, buyers and sellers of crypto on the exchange transfer money directly into each other’s bank account on trading a cryptocurrency, unlike earlier, when the money would first go into WazirX’s account and then get credited from there.

Others are still relying on the payment processor, doing a lot of the back-end clearance work of transactions manually themselves, as they don’t have access to automated API banking as of now. This leaves customers with limited options to do active trading and transacting when the cryptocurrency values are falling sharply. “Though smaller amount transactions can be done through UPI, but there is a daily limit to that. Customers are missing out on opportunities as larger transactions are restricted. New entrepreneurs don’t want to get into direct cryptocurrency startups right now and even if they do, they are setting up businesses abroad,” Shetty said.

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Banks’ exposure to airports doubles over last year

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The outstanding amount of gross bank credit by Indian airports has doubled to ₹9,464 crore as of May 2021 compared to ₹4,519 crore last year, according to data put out by the Reserve Bank of India.

Industry experts believe that the increase in bank credit is because of many airports facing a cash crunch due to the Covid-19 pandemic. Some airports may have taken credit to undertake expansion activities as well.

The domestic passenger traffic, which had started seeing a steady ramp-up post resumption of airport operations from May 25, 2020, reaching 64 per cent of the previous year levels in February 2021, had again suffered a setback due to the second wave of restrictions.

Expansion projects

But at the same time, major airports have been undertaking significant expansion projects. In Bangalore, there was a runway expansion. Hyderabad, too, has come up with a new terminal, significantly upping its capacity targeting close to over 30 million passengers. Delhi, too, is coming up with a fourth runway.

Post FY19, the debt in the airport sector was expected to rise as most airports had initiated large capital expenditure (capex) to increase their capacity. As these airports started using their past accruals towards the initial capex requirements, the overall debt started rising during the last 12-18 months, Vishal Kotecha, Associate Director at India Ratings explained. Some airports may also avail additional debt to shore up their liquidity due to the uncertainty in traffic patterns leading to cash flow mismatches, the experts said.

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SC seeks response of Centre, RBI on plea of PNB against disclosure of info under RTI, BFSI News, ET BFSI

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NEW DELHI: The Supreme Court has refused to grant interim stay on the RBI‘s notice asking Punjab National Bank to disclose information such as defaulters list and its inspection reports under the RTI Act, and sought responses from the Centre, federal bank and its central public information officer.

The apex court tagged the plea of the Punjab National Bank (PNB), which is a public sector unit bank, with a similar pending case filed by HDFC Bank against the RBI’s direction.

“Issue notice. Tag with writ petition (Civil) No.1159 of 2019 (HDFC plea),” a bench comprising justices S Abdul Nazeer and Krishna Murari said, and fixed the plea for hearing on July 19.

Banks are aggrieved by the notices issued by the RBI to them under Section 11(1) of the Right to Information (RTI) Act asking them to part with information pertaining to their inspection reports and risk assessment.

The RTI Act empowers the RBI’s central public information officer (CPIO) to seek information from banks for information seekers.

Earlier on April 28, the top court, on legal grounds, had refused to recall its famous 2015 judgment in the Jayantilal N Mistry case, which had held that the RBI will have to provide information about banks and financial institutions (FIs) regulated by it under the transparency law.

Several FIs and banks, including Canara Bank, Bank of Baroda, UCO Bank and Kotak Mahindra Bank had filed applications in the top court seeking a recall of the 2015 judgment in the Jayantilal N Mistry case, saying the verdict had far-reaching consequences and moreover, they were directly and substantially affected by it.

The banks had contended that the pleas for a recall of the judgment, instead of a review, is “maintainable” as there was a violation of the principles of natural justice in view of the fact that they were neither parties to the matter nor heard.

“A close scrutiny of the applications for a recall makes it clear that in substance, the applicants are seeking a review of the judgment in Jayantilal N Mistry. Therefore, we are of the considered opinion that these applications are not maintainable,” the apex court had held.

While dismissing the pleas, the bench, however, had made it clear that it was not dealing with any of the submissions made by the banks on the correctness of the 2015 judgment.

Now, the apex court is seized of several pleas of banks like HDFC and Punjab National Bank against the RBI’s direction to disclose information under RTI.



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Indian banks better placed to withstand future shocks -report, BFSI News, ET BFSI

Banking & Finance

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MUMBAI – The dent to Indian financial institutions’ balance sheets has been much less than earlier projected and banks have sufficient capital and liquidity buffers to withstand future shocks, according to a report released by the Reserve Bank of India (RBI).

The Financial Stability Report is published bi-annually by the RBI on behalf of the Financial Stability and Development Council, an umbrella group of regulators which gives a detailed overview on the health of the Indian financial system.

Banks’ gross non-performing assets could rise to 9.8% by March 2022 from around 7.48% as of the end of last March under the baseline scenario and to 11.22% under a severe stress scenario, the report said.

The projections are far less dire compared to the report released in January in which the RBI had indicated that bad loans could double in a severely stressed scenario.

“Capital and liquidity buffers are reasonably resilient to withstand future shocks, as the stress tests presented in this report demonstrate,” RBI Governor Shaktikanta Das, wrote in the foreword to the report.

However, he added that there are new risks which have emerged on the horizon including the risks of future waves of the coronavirus pandemic, international commodity prices and inflationary pressures, global spillovers amid high uncertainty and rising instances of data breaches and cyber attacks.

(Reporting by Swati Bhat and Nupur Anand; editing by Jonathan Oatis)



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Banks, experts pin hopes on bad bank to cut NPA pile, BFSI News, ET BFSI

Banking & Finance

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The National Asset Reconstruction Company (NARC) is likely to help banks cut their bad loan piles.

The bad bank and healthy provisioning buffers against doubtful advances should help India’s banks mitigate the impact of delinquencies and asset quality slippages in the aftermath of the second Covid wave, according to Boston Consultancy Group.

The formation of National Asset Reconstruction Co Ltd will help lenders keep up the momentum of recovery in stressed assets in 2021-22 (Apr-Mar), State Bank of India Chairman Dinesh Kumar Khara said.

Along with the resumption of courts and the roll-out of pre-package for resolution through the insolvency law, this will help banks make judicious use of recovery options, Khara said.

The NARC would help reduce sticky assets exposure to 1.8% – 2.3% of total loans, BCG said.

Asset quality is still a major concern for many Indian banks even as nonperforming assets (NPA), on average, could be contained, the global consultancy firm said.

Asset quality

“The second wave of the coronavirus pandemic poses risk to asset quality even as banks retain healthy provisioning buffers,” it said.

Banks have identified 22 bad loans totaling Rs 89,000 crore to be transferred to the NARC in the initial phase.

The State Bank of India plans to transfer bad loans worth around 200 bln rupees to NARCL.

The report also said that bad loans sold to asset reconstruction companies (ARCs) as a proportion of banking system stressed assets increased to about 34% at the end of FY20, up from 25% in FY18, with banks taking a much higher haircut on these sales.

Haircuts on sales to ARCs have risen to 66% in FY20 compared to 62% in the prior financial period, it said.

The bad bank

The bad bank was proposed in the Union Budget for 2021-22.

In the last financial stability report released in January, the central bank said that banks’ gross non-performing assets may rise to 13.5% by September 2021 from 7.5% as of September 2020. In the event of extreme stress, the ratio could rise to 14.8%.

Former Reserve Bank of India deputy governor Rakesh Mohan has also warned that higher stress on assets in the banking system threatens financial stability.

Recoveries through various channels have bounced back to about 16% in FY20 from decadal lows of about 10% in FY16 before the pandemic struck.



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In Covid year, banking sector sees record profit of Rs 1 lakh crore, BFSI News, ET BFSI

Banking & Finance

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Mumbai: The banking sector has recorded its highest ever profits of Rs 1,02,252 crore in FY21, a year when the economy was battered by the pandemic. This is a significant turnaround compared to a net loss of nearly Rs 5,000 crore for the industry in FY19.

Two banks — HDFC Bank and SBI — contributed half of the industry’s profits. Of the total profits, HDFC Bank at Rs 31,116 crore accounted for 30%, an 18% increase over the previous year. The country’s largest lender SBI accounted for another 20% at Rs 20,410 crore. The third-highest was ICICI Bank, which earned Rs 16,192 crore, more than double what it earned in the previous year. Private banks also gained market share as public sector banks (PSBs) went slow in lending.

The biggest turnaround was among PSBs which reported a collective net profit for the first time in five years. Only two of the 12 PSU banks — Punjab & Sind Bank and Central Bank of India — reported a net loss for the year. In the private sector, Yes Bank remained in the red with a net loss of Rs 3,462 crore as it continued to make provisions. However, for banks in the red, the losses were lesser than what they reported in the previous year.

The single biggest reason for PSBs to post such a Rs 57,832-crore turnaround was the end of their legacy bad loan problem. This burden reached a peak after the RBI forced banks to classify 12 large defaulting accounts, followed by another 40 accounts, as non-performing assets and initiate bankruptcy proceedings. Given the size of these exposures, the move resulted in loans worth Rs 4 lakh crore turning bad. By March 2020, banks had completed making provisions for most of these loans. Additional provisions were offset by large recoveries from earlier written-off accounts, and banks stopped bleeding.

According to rating agency ICRA, the profits for the current year were the windfall gains on bond portfolios of public banks account, which contributed two-thirds of their profits before tax in FY21. The rating agency added that barring SBI, profit from the sale of bonds exceeded the pre-tax profits of all other public banks. The profit from bond sales was higher than the Rs 20,000-crore capital infused by the government in FY21.

The value of government bonds rises when interest rates fall. The RBI’s aggressive move to keep rates low has reduced interest income but provided huge gains in treasury income. The year 2020-21 was also a year of consolidation for the 10 public sector banks that merged into four. Last year, the merging entities recorded huge losses in the fourth quarter before the merger, which contributed to the Rs 26,015-crore loss among PSU banks in FY20. This year, the acquiring banks made profits with Indian Bank topping the list at Rs 3,004 crore followed by Union Bank at Rs 2,905 crore.



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Goldman expands in crypto trading with plans for Ether options, BFSI News, ET BFSI

Personal Finance

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By Anchalee Worrachate

Goldman Sachs Group Inc. is moving beyond the world of Bitcoin and expanding into Ether.

The bank plans to offer options and futures trading in Ether, the coin that fuels the Ethereum network, in the coming months, according to Mathew McDermott, head of digital assets at Goldman.

It’s the latest step in the Wall Street giant’s crypto ambitions after Goldman restarted a trading desk this year to help clients deal in publicly traded futures tied to Bitcoin. McDermott said the bank also plans to facilitate trades via exchange-traded notes tracking Bitcoin.

Despite all the warnings from regulators about the risks posed by crypto’s extreme volatility and role in money laundering, investment banks are stepping up to offer Bitcoin services to their big clients. Even after prices plummeted in May, falling from about $60,000 to $33,000 in a matter of days, hedge funds are still enthusiastic to trade Bitcoin.

“We’ve actually seen a lot of interest from clients who are eager to trade as they find these levels as a slightly more palatable entry point,” McDermott said in a phone interview on Thursday. “We see it as a cleansing exercise to reduce some of the leverage and the excess in the system, especially from a retail perspective.”

Goldman tapped McDermott, 47, to head its digital currency efforts last year. Under his watch, the business has grown to 17 people from four.

The bank has also invested in crypto start-ups. It put $5 million into a fundraising round by Blockdaemon, a firm that creates and hosts the computer nodes that make up blockchain networks.

In May, Goldman led the $15 million investment into Coin Metrics, a cryptocurrency and blockchain data provider to institutional clients, and McDermott joined the company’s board.

“We are looking at a number of different companies that fit into our strategic direction,” he said.

Other banks have also expanded their crypto operations. Cowen Inc. plans to offer “institutional-grade” custody services for cryptocurrencies. Standard Chartered Plc is setting up a joint venture to buy and sell virtual currencies, though HSBC Holdings Plc is avoiding Bitcoin for now.

McDermott said his conversations with clients show that digital currencies aren’t just a passing fad. In a survey of 850 institutions last week, Goldman found that close to one in 10 are trading crypto, and 20% are interested in it.

“Institutional adoption will continue,” he said. “Despite the material price correction, we continue to see a significant amount of interest in this space.”



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RBI’s FAQs addresses some key concerns

Banking & Finance

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The Reserve Bank of India (RBI) has clarified that its “one year look back” stipulation introduced in its April 27 circular on appointment of statutory auditors in public sector banks, Urban Cooperative Banks and NBFCs will only be applicable prospectively, that is, from financial year 2022-23.

This look back stipulation was introduced to ensure that the audit firm had not provided any non-audit services to the Group entities during the 12 months period before the audit firm was appointed in the bank or NBFC concerned.

RBI clarifies

The RBI has now, in the Frequently Asked Questions (FAQ) on the April 27 circular, clarified that this look-back condition will not apply for auditor appointments for FY 2021-22.

In another significant clarification, the RBI has modified the earlier April 27 prescribed blanket kind of restriction on appointment of audit firms as auditors of banks and NBFCs in situations where the concerned audit firm had provided audit or non-audit service to any group entity of that bank or NBFC.

Cap on assignments

While earlier this norm was seen to be applicable across the Group, the RBI has now in the FAQ made it clear that this restriction does not apply to all group entities, but applies only to entities in the Group that are RBI regulated.

Also, the central bank has in the ‘Frequently Asked Questions’ issued on its April 27 circular made it clear that the cap (upper limit) on number of assignments an audit firm can undertake in a year in respect of banks, UCBs and NBFCs are applicable for audit of all RBI regulated entities, irrespective of their asset size. It maybe recalled that April 27 circular of RBI had stipulated that an audit firm cannot do audit of more than four commercial banks, eight NBFCs and eight UCBs in a year.

Experts’ speak

Jamil Khatri, Partner, BSR& Co LLP, said the concerns of the industry in the areas of the short rotation period, the requirements for joint audit and the cap on the number of audits that can be done by an audit firm, have not been addressed in the current set of clarifications.

Amarjit Chopra, former CA Institute President, said that RBI’s clarification on the one year look back norm and also on the group entity aspect is quite pragmatic and will provide flexibility in the appointment of auditors.

Ashok Haldia, former Secretary of the CA Institute, said that the FAQ has opened the door for an audit firm engaged in audit/non-audit work of group entity (not regulated by RBI) to be appointed as statutory auditor of any of the RBI regulated entity within the group. However, the board/audit committee may find it challenging to assess and take responsibility that there is no conflict of interest and independence of auditor is ensured, as required in FAQ, as in most cases it may be difficult to disentangle explicit and implicit relationship that exists between group entities. These may find it difficult to justify in case doubt arises in future, he added.

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DHFL case: CoC decision on shareof FD holders can set a precedent

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Amidst the ongoing Covid-19 pandemic and job losses, the National Company Law Tribunal (NCLT) has asked lenders of Dewan Housing Finance Corporation Ltd (DHFL) to reconsider the distribution of funds to fixed deposit holders and provident funds within two weeks.

Considering the number of small investors and senior citizens who had deposited their hard-earned money and who now face a financial crisis due to the pandemic, the Resolution Plan should provide for an increased share for them, the NCLT said in its order dated June 7.

“It’s generally considered that the investment in the fixed deposit, NCDs are low-risk investment [compared with investing in equity shares]. Therefore, these small investors should not be put to more risk, take more hair cut than the stronger financial institutions viz banks, financial institutions.

“Accordingly, for this limited purpose, we direct the Committee of Creditors (CoC) to reconsider their distribution method amongst various members of the CoC within two weeks from today and report the same to this Adjudicating Authority,” the NCLT said.

Legal experts said that the NCLT has only made a request to the CoC and the final decision will be taken by the lenders. “If CoC agrees to give more to the FD holders, then it could set a precedent for other insolvency cases,” said a legal expert.

Nakul Sachdeva, Partner, L&L Partners (formerly Luthra & Luthra Law Offices), said it seems that the NCLT, on compassionate grounds, has requested the CoC to reconsider the distribution of funds while holding that the plan is in accordance with the law.

However, many of the fixed deposit holders and the NCD holders plan to appeal in the National Company Law Appellate Tribunal seeking full recovery of their deposits.

While approving the resolution plan for DHFL, the NCLT, however, made it clear that there is no additional monetary obligation for the Piramal Group to pay anything more than what it has committed in the Resolution Plan, which is ₹37, 250 crore. “It is only an inter se distribution of resolution money amongst various creditors,” the NCLT said. Significantly, the NCLT has also told the CoC to reconsider the claim of the Army Group Insurance Fund and pay the full admitted claim amount of ₹39 crore, which amounts to just 0.0001 per cent of the total plan.

Army group

The suggestion by the NCLT came “considering the nature of duties performed by them who are protecting the nation, sacrificing their lives, difficult working conditions and human service to keep peace of the country.”It would be appropriate for the members of the CoC “to reconsider and repay their entire admitted claim without any hair cut thereby expressing our deep concern, gratitude and respect to the Army Personnel,” it said.

The NCLT also noted that the Army Group did not challenge/oppose the plan and has only sought a sympathetic view of the CoC.

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