Tag: banks

SBI CIO Pandey, BFSI News, ET BFSI

Banking & Finance

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FinTechs and banks are not competitors, they are collaborators creating an ecosystem that ensures customers are getting the best of what they deserve, said Ravindra Pandey, deputy managing director and chief information officer of State Bank of India.

“We assume that fintechs have the idea, while banks have the data and trust, and both are working on how to marry these three into the absolute product,” said Pandey at a fireside chat with Amol Dethe, Editor, ET BFSI, at the 2nd edition of ET BFSI Converge.

Shedding light on how banks onboard fintechs, he said that the basic model of engagement is to nurture fintechs by having an independent technical evaluation committee, a team of bankers to evaluate the concept of the idea, handhold in journey of engagement, among refinements. Additionally, the bank year marks a certain amount of money for fintechs to develop their products.

No fixed benchmark

“There can’t be a fixed benchmark for a fintech company to be able to collaborate with banks, since by nature, they represent doing things in a new and better manner. The engagement can vary from reactive sourcing, where the fintech approaches the bank or organizing talent hunts like hackathons,” Pandey said.

Highlighting the success and the extent of these collaborations, he said that since 2017, by collaborating with Singzy, there are now 11 fintechs working with SBI to create value for themselves, the bank and the ecosystem. “SBI is going all out, for instance, we are now tying up with an agriculture based fintech, and based on the satellite imagery, we can finance the consumer by knowing all about the land, which crop is what, what is the right bet etc. These are the new and fresh ideas that banks are willing to explore today,” he said.

FinTechs have ideas while banks have data, trust: SBI CIO Pandey

According to Pandey, doing business with fintechs does not necessarily mean creating a new asset or a product, but improving the operational efficiency is also a major reason to collaborate. He is of the strong opinion that banks when interacting with fintech firms need to carefully listen and understand their ideas in order to start brainstorming about how to fit it into the bank’s scheme of things. “Bank’s can’t expect fintechs firms to tell them where their ideas will work and if they do, they are no more fintechs but technology companies,” he added.

Challenges faced by larger banks in collaborating with FinTechs

“Banks are no more averse to receiving news ideas, we have been here for more than 200 years and the time speaks for itself we continuously evolve outside challenges. Initial challenges due to the rules and regulation have to be there since banks are depository of the public trust and money and they cannot just whittle it away without being thorough,” Pandey said.

There are four major obstacles that might occur, first one being the resource constraints because fintechs while initiating the journey usually think that a three man team can work on the project only to realize later that they need more hands on the job. Secondly, the discontinuous nature of fintechs might become problematic, because banking is a business where if invested and integrated in the system, continuity becomes important, Pandey highlighted.

“In today’s world, no idea or technology can be built in isolation. So if their product and services are not customizable, it creates a problem. The fourth problem, which may be very peculiar to larger banks like SBI, is the scale. Sometimes the case is that we like the idea, but when it comes to our scale of operations, it falters,” he said.



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How banks profit from building and breaking up companies

Banking & Finance

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It is a constant dilemma facing companies; do they acquire or shed businesses to boost shareholder returns?

Investment bankers profit every time the answer involves a deal, even if it represents an about-face for the companies.

Plans to break up

Last week’s announcements by General Electric Co, Toshiba Corp and Johnson & Johnson of their plans to break up offer the latest examples of how some companies have spent hundreds of millions of dollars on investment banking fees to bulk up through acquisitions over the years, only to pay more fees to reverse them.

Some of the banks that worked on preparing these spin-offs – Goldman Sachs Group Inc, JPMorgan Chase & Co and UBS Group AG – advised on previous acquisitions that took the companies in an opposite strategic direction.

Goldman Sachs, JPMorgan and UBS did not respond to requests for comment.

Corporate break-ups are on the rise amid a growing consensus on Wall Street that companies perform best only if they are focussed on adjacent business areas, as well as increasing pressure from activist hedge funds pushing them in that direction.

Some 42 spin-offs collectively worth over $200 billion have been announced globally so far this year, up from 38 spin-offs worth roughly $90 billion in 2020, according to Dealogic.

Investment banks have collected more than $4.5 billion since2011 advising on spin-off deals globally, according to Dealogic. While this represents less than 2 per cent of what they pocketed from deal fees overall, it is a growing franchise; banks have so far earned over $1 billion on spin-offs globally so far this year, nearly twice what they earned in 2020, according to Refinitiv.

In the case of GE, financial advisors, including Evercore Inc, PJT Partners Inc, Bank of America Corp and Goldman Sachs, each stand to collect tens of millions of dollars from their advisory roles on the company’s break-up, according to estimates from M&A lawyers and bankers.

Goldman Sachs had previously collected nearly $400 million in fees advising the company on acquisitions, divestitures and spin-offs over the years, making it GE’s top advisor based on fees collected, according to Refinitiv.

Industrywide, Goldman Sachs has earned the most in fees from advising on corporate break-ups thus far in 2021, followed by JPMorgan and Lazard Ltd, according to Dealogic.

Outcome of dealmaking

Yet while investment banking fees are secure, the outcome of dealmaking for a company’s shareholders is far from certain. Shares of companies that engaged in acquisitions or divestments have had a mixed track record, often underperforming peers in the last two years, according to Refinitiv.

To be sure, investment bankers argue that some combinations do not make sense for ever. Changes in a company’s technological and competitive landscape or in the attitude of its shareholders can push it to change course.

For example, GE shareholders were initially supportive of its empire-building acquisitions in businesses as diverse as healthcare, credit cards and entertainment, viewing them as diversifying its earnings stream. When some of these businesses started to underperform and GE’s valuation suffered, investors lost faith in the company’s ability to run disparate businesses.

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Banks need a tight framework, say experts

Banking & Finance

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Prime Minister Narendra Modi’s vision for banks to support start-ups by investing in ideas needs to be backed by a comprehensive framework from the Reserve Bank of India (RBI), say banking and finance industry experts.

In the absence of such a framework that would, among other things, cover aspects such as NPA recognition and treatment of start-up failures, public sector banks — which are into mostly asset-based lending — would not venture into supporting start-ups, experts feel.

The framework should be tight and well-thought-out to encompass all aspects of venture funding so as not compromise and expose the bankers if such investee ventures were to fail due to market forces. No banker would want to risk depositors’ money in new start-ups without safeguards. PM Modi had, earlier this week, told bankers to invest in ideas thrown up by the start-ups and support their growth.

Funding start-ups

“Start-up finance is nothing but venture capital finance. Venture capital has never been part of banking. In VC, the person who takes the risk profits if the venture succeeds and suffers losses if it does not. The present regulatory framework does not allow banks the same privilege. They do not profit if the investee venture profits but if it makes losses, the bank loses money. There is a big difference and PSBs definitely are not looking at funding start-ups”, a former chief executive of a PSB told BusinessLine. In PSBs, the monies are that of the depositors and not that of the banker, this expert pointed out.

Venture funding

There has to be a mechanism where the PSBs’ commercial banking activities are ring-fenced from their venture funding efforts, say experts. One way is to encourage banks to float their venture funding entities.

PSBs are presently not allowed to do direct equity investments in start-ups. At the most, they can set up vehicles that will do debt funding. Even here, except for large banks like State Bank of India, there has been very little activity by other PSBs. However, private banks have in the recent years been taking equity exposure in fintechs and other start-ups that they would like to partner with.

“Typically, a venture capital fund spreads its bet among a portfolio of start-ups and if one or two among, say ten, becomes a successful enterprise, it is able to recoup the losses made in other investee companies in the portfolio. That is how the world of venture capital works and it will not be easy for banks to replicate this given their less-than-optimal skillsets in evaluating enterprises even if regulations permit them to take equity bets in start-ups,” said a banking industry observer.

Srinath Sridharan, Corporate Advisor and independent markets commentator, said “This would need the banking sector under RBI’s leadership to come up with requisite framework which encourages entrepreneurship, ideas and reaps benefit for all the stakeholders and also offers solutions to any hesitancy factors”, he said.

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Banks see robust festival season credit growth

Banking & Finance

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Banks collectively lent about four times more in the reporting fortnight ended November 5, vis-a-vis the preceding fortnight amid the festival season, indicating further improvement in credit appetite in the economy.

Banks lent ₹1,27,742 crore in the reporting fortnight ended November 5, against ₹32,671 crore in the preceding fortnight ended October 22, according to Reserve Bank of India (RBI) data on Scheduled Banks’ Statement of Position in India.

Brickwork Ratings (BWR) in a report, noted that credit growth has begun to pick up as business activity resumes in full swing, with gross bank credit growth improving to 6.80 per cent year-on-year (y-o-y) in October 2021 against 5.80 per cent y-o-y growth in June 2021.

In a speech at State Bank of India’s Banking & Economics Conclave on November 16, RBI Governor Shaktikanta Das observed that: “There are signs that consumption demand triggered by the festive season is making a strong comeback. This would encourage firms to expand capacity and boost employment and investment amidst congenial financial conditions.”

New investments

Further, with stronger balance sheets, the organised corporate sector is well-placed to make new investments in emerging areas.

“As demand recovers, I am sanguine about corporate sector playing a major role in turning the investment cycle that will facilitate absorption of surplus liquidity for productive investment,” the Governor said.

In this background, Das emphasised that it is incumbent upon a competitive and efficient financial system to identify high productive sectors and reallocate resources to harness the growth opportunities.

He opined that banks, in particular, should be investment ready when the investment cycle picks up.

The Governor said: “Improved vaccination and reduced infections have materially reduced extreme health outcomes like hospitalisation and mortality.

“This has boosted consumer confidence. With additional boost coming from the festival fervour and pent-up demand, numerous high-frequency indicators suggest that economic recovery is taking hold.”

Per the data on Scheduled Banks’ Statement of Position in India, deposit accretion was at ₹3,40,496 crore in the reporting fortnight against a de-growth of ₹38,019 crore.

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UBS revises GDP forecast to 9.5% from 8.9% for FY22, BFSI News, ET BFSI

Personal Finance

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Mumbai, Nov 17 (PTI) Citing faster-than-expected recovery, rising consumer confidence and the resultant spending spike, Swiss brokerage UBS Securities has revised upwards its growth forecast for the current fiscal to 9.5 per cent from 8.9 per cent in September. The brokerage also sees the economy clipping at 7.7 per cent in FY23 but moderating to 6 per cent in FY24, as it expects the benefit of the low-interest rate regime to end by the end of FY23, and it sees the central bank hiking policy rates by 50 bps in the second half of the next fiscal.

The Reserve Bank also forecasts 9.5 per cent GDP growth this fiscal while the average projection ranges from 8.5 to 10 per cent. The government projection is around 10 per cent.

The GDP grew 20.1 per cent in the June quarter of FY22.

In its September review, UBS said on a seasonally adjusted sequential basis, the real GDP declined by 12.4 per cent in the June quarter against the -26 per cent in the same period last year.

Therefore, we maintain the base case estimate of GDP growth at 8.9 per cent in FY22 compared to the consensus of 9.2 per cent against the deeper 7.3 per cent contraction in FY21, UBS Securities said.

The economy is bouncing back on progressive reopening, and the recovery from the second wave has been more pronounced than what we anticipated, Tanvee Gupta Jain, the chief economist at UBS Securities India said on Wednesday. Therefore pencilled in a higher-than-expected GDP run this fiscal.

Without giving an exact number, she said the economy will grow by 9-10 per cent in Q3 and 6-6.5 per cent in Q4 this fiscal, leading to higher overall full-year growth.

Gupta-Jain told reporters in a concall that she sees real GDP clipping at 9.5 per cent this fiscal, up from 8.9 per cent forecast earlier, 7.7 per cent in FY23 — which is more optimistic than the consensus 7.4 per cent for the year, but the growth momentum will moderate to 6 per cent in FY24 as the output gap will remain negative amidst the global growth engine slowing down.

Their optimism comes from their internal UBS India Activity Indicator data, which suggest economic activity has improved sequentially by an average of 16.8 per cent in the September quarter after contracting 11 per cent in the June quarter. Even for October, the indicator was up 3.1 per cent month-on-month on the festive demand bounce.

The brokerage bases the more-than-consensus growth optimism on the following: though consumption growth may moderate measures to boost public Capex and early signs of a recovery in the residential real estate sector may offset some of the adverse impacts.

Similarly, exports could also moderate next year from the very high rates this year due to a shift from goods to service consumption at the global level as the pandemic recedes.

They also see a potential credit accelerator effect in the country aiding the recovery. The baseline assumption is that activity continues to normalise, and remaining mobility restrictions are gradually removed.

Downside risks to the outlook include the following: a mutant virus that is resistant to vaccines is the biggest downside risk, as it may leave the government no choice but to begin new mobility restrictions, another could be a more than the expected spike in inflation and the resultant hike in repo rates to the tune of 75 bps next fiscal. If both materialise, then FY23 growth will be much lower at 5 per cent, she said.

And the upsides would be a successful and timely implementation of the recently announced structural reforms boosting growth beyond our baseline forecast, which will also lead to the economy closing the output gap faster.

According to the brokerage, potential growth has slowed to 5.75-6.25 per cent currently compared to over 7 per cent in 2017, due to longer-than-expected disruption caused by the pandemic and balance sheet concerns faced by economic agents.

Beyond FY22, Gupta-Jain believes Capex, especially infrastructure spending, manufacturing and exports will be the next key growth drivers.

On inflation, she expects CPI to decelerate to 4.8 per cent in FY23 from 5.4 per cent in FY22, assuming the RBI gradually starts unwinding its ultra-easy policy as the economic recovery gains momentum. In a base case scenario, she expects a policy rate hike of 50 bps in H2 FY23.

On the fiscal front, she expects the government to remain committed to fiscal consolidation and narrow the deficit to 8.8 per cent in FY23 from 10.1 per cent in FY22.



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Time to clear the air on cryptos

Banking & Finance

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While the government has had mixed and probably even alternating stance on cryptocurrencies, the currency regulator RBI had been silent for a long time and, of late, has shared its concerns on cryptos with the government.

The securities regulator SEBI could be the ideal regulatory candidate if cryptos were to be treated as an asset class.

The Indian investor community has been euphoric about the instrument, despite noise that crypto investing could become illegal or taxed harshly. All this, when the issue of crypto was purportedly settled last year with the Supreme Court of India lifting the RBI’s crypto ban of 2018.

A to G of crypto

Arbitrary actions and reactions will continue as the financial industry has showcased so far. A few months ago, some banks stalled operations or pass-through of the crypto exchanges; purportedly, as the market guesses, to avoid irritating their regulator. The day there is clarity on how crypto would be seen under Indian law, and if it is for holding crypto as an asset, every BFSI and fintech would jump onto the bandwagon.

The banking sector’s lack of understanding of cryptos continues. It is more about understanding the liquidity of various cryptos available. As long as the rules bring clarity on what other information other than KYC would be needed, the sector can chug ahead.

Crypto consumers will stay invested probably until they get hurt by crypto falsehood or misleading investments. It is rightfully the RBI’s endeavour to have consumer protection in mind. But as we regulate the sector, we also have to move to a market-led economy, where, as long as the consumers get into an investment position without being mis-sold or forced to invest, the industry should not be ostracised.

It is also worthwhile to mention that the RBI is planning to launch its own CBDC (central bank digital currency). Debt leverage worry of the lending community will continue until they are allowed by the regulator. End-usage fears that cryptos could potentially be used for terror financing, etc., seem far-fetched, considering the granularity of its traceability. Interestingly, usage of gold or realty seems far in the wrong end of illegal funding.

Functionality of its core, which is blockchain, cannot be brushed away. It has tremendous usage and potential across public finance, banking and financial services; this could help build a secure financing backbone for the entire country as we seek to expand the inclusive-nature of our financial offerings.

The government’s stand cannot vacillate on policy matters without taking wide range of inputs, not just from a commercial angle but also from a deeper technological understanding if it can bring potential good. Let’s remember that our grandparents could not have imagined mobile-payments or transactions without seeing/touching the monies or writing a cheque. So let us not discount the emerging digital monies, for the short term notion of “not wanting it happen in my watch.”

Any asset class’ trade-worthiness and consequent liquidity is determined by a crucial factor: “trust”. Regulations can offer confidence around legality of the asset class and its usage, but cannot determine public acceptance or asset pricing. Regulations can surely offer consumer confidence and consumer protection if they are light-touch and use latest digital supervisory capabilities.

It is essential that the government does not give into knee-jerk reactions of the stakeholders, and takes a pragmatic call. It has displayed tremendous initiative by adopting digital across various facets including financial markets, e-governance, public outreach, etc. It should engage in depth with various stakeholders to understand how digital finance can be used for larger public good, and not give in to short-term worries and lack of capacity.

It’s a good sign that the Parliamentary Standing Committee on Finance has invited crypto industry players to hear their views on the opportunities and challenges. If our regulators take a leaf from this and invite multi-stakeholder discussions and seek inputs about the draft Bill, it would be a comforting exercise.

In the spirit of democratic transparency, it would be welcome if the ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ is put in public domain, and comments sought.

The writer is corporate advisor and markets commentator

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RBI governor to banks, BFSI News, ET BFSI

Banking & Finance

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RBI governor Shaktikanta Das on Tuesday asked lenders to proactively identify loans to firms that have turned non-viable but not yet recognised as a non-performing asset (NPA) due to the special dispensation during Covid. The governor also asked banks to review the usability of capital for absorbing losses during a crisis.

Pointing out that numerous high-frequency indicators are showing that economic recovery is taking hold, Das said that there have been several resolution frameworks announced in the wake of the pandemic. “As the support measures start unwinding, some of these restructured accounts might face solvency issues over the coming quarters. Prudence would warrant proactive recognition of such non-viable firms for pragmatic resolution measures,” said Das.

Speaking at an economic conclave organised by the State Bank of India, Das noted that banks have weathered the Covid shock better than expected and, according to early trends, their bad loans and capital position has improved in September 2021 from their levels in June 2021. He said that the profitability metrics of banks were highest in several years. However, the improved parameters partly reflect regulatory relief provided to banks during Covid as well as fiscal guarantees and financial support given by the government, he said.

“Certain concerns have re-emerged from the crisis which warrant our attention. Most importantly, we are faced with the question of capital and provisioning buffers of banks, their adequacy and resultant usability during a crisis,” said Das. He urged banks to focus and further improve their capital management processes to envisage the capacity for loss absorption as an ongoing responsibility of the lending institutions.

In his speech, the governor also cautioned banks on the “technological invasion” that they face. “A word of caution is in order: Globally, the ‘phygital’ revolution has played out into several collaborative models between banks, NBFCs and fintech players such as incubation, capital investment, co-creation, distribution and integration… it must be recognised that the risks ultimately lie in the books of banks and NBFCs and hence the collaboration should be appropriately strategised,” Das said.



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MNC banks to RBI, BFSI News, ET BFSI

Banking & Finance

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Large multinational banks have impressed upon the Reserve Bank of India (RBI) the need to open a ‘dollar placement window’ to absorb sudden foreign currency inflow, and extend forex trading hours with the T-plus-One (T+1) settlement in stock exchanges and the expected inclusion of GoI securities in global bond index next year.

These banks, which act as custodians for foreign portfolio investors (FPIs), fear a dollar pile-up could cause a breach of regulatory exposure limits if they are unable to convert the foreign currency that FPIs bring in. The matter was discussed between bankers and senior RBI officials in two meetings over the past few weeks, two persons familiar with the issue told ET.

Shortening the stock settlement cycles from T+2 to T+1 would require arranging funds a day earlier. It’s believed if the forex market issues are not addressed, India could become a pre-funded market, which would raise the cost for FPIs. After several representations, custodian banks and FPIs have managed to buy some time with stock exchanges deciding to introduce the new settlement cycle in a staggered way. FPIs, according to the rollout plan, will have to deal with the T+1 mechanism around mid next year.

  • IN FOREX: market, cash deals happen till 3/3:30 pm
  • CONVERTING $: From FPIs to INR is tough in the evening
  • SO BANKS WANT: RBI to offer a window to accept $ from banks
  • A WINDOW FROM RBI will also enable banks selling $ to meet CRR

A T+1 settlement would require conversion of dollars (from FPIs operating in different time zones) into rupees well after the normal market hours. While the forex market is open 24/7, custodian banks would find it difficult to sell the dollar (and generate rupees) in the evening when very few banks trade and liquidity dries up. Besides equities, there could be bouts of dollar inflows into debts once government debt papers are part of a global bond index and restrictions on foreign investments in sovereign securities are loosened.

Regulatory Cap on Exposure
Under T+1, the dollar would have to be converted into the local currency on the same day as trade confirmation and payment of margin or the full deal amount (an FPI buying equities must pay) has to be given to the clearing corporation by 7.30/8 pm. If the custodian bank can’t find a buyer for the dollar, it would park the dollar with its head office or an overseas branch. And this could raise its exposure beyond the regulatory limit.

Under the RBI rule that restricts a bank from taking an exposure of more than a quarter of its tier-1 capital (i.e, equity and free reserves) to a single counterparty, the India branch of a foreign bank and any of its overseas offices are considered as two distinct entities. So, the extra, unsold dollars a foreign bank’s Mumbai branch places with its London or New York office is counted as the local branch’s exposure to the overseas branch.

“Of course, the situation can change dramatically if US rate hikes result in large outflows. But as a medium term strategy, it could make sense for the central bank to offer a dollar window. It would also make the forward premia less volatile. A dollar deposit facility may require regulatory changes. As far as extending cash (forex) market timing goes, it’s up to the banks to decide. But there is a need for a more active market beyond regular hours,” said a senior banker.

“While the T+1 issue is some months away, banks have initiated discussion with RBI after realising that Sebi and the ministry want to go ahead with it. Today, cash forex trades (where the conversion happens the same day) take place till 3/3.30 pm. Even if you extend it and change the Dollar/INR clearing timings, banks have to meet the CRR (cash reserve ratio) requirement. So, it will be easier if a bank can sell the dollar to the central bank under a special window as well as give the extra cash to fulfil CRR requirement. Stock preferred by FPIs would come under T+1 only in the second half of next year. But before that, many in the market expect Gsecs to be included in the bond market,” said another person.



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MNC banks to RBI, BFSI News, ET BFSI

Banking & Finance

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Large multinational banks have impressed upon the Reserve Bank of India (RBI) the need to open a ‘dollar placement window’ to absorb sudden foreign currency inflow, and extend forex trading hours with the T-plus-One (T+1) settlement in stock exchanges and the expected inclusion of GoI securities in global bond index next year.

These banks, which act as custodians for foreign portfolio investors (FPIs), fear a dollar pile-up could cause a breach of regulatory exposure limits if they are unable to convert the foreign currency that FPIs bring in. The matter was discussed between bankers and senior RBI officials in two meetings over the past few weeks, two persons familiar with the issue told ET.

Shortening the stock settlement cycles from T+2 to T+1 would require arranging funds a day earlier. It’s believed if the forex market issues are not addressed, India could become a pre-funded market, which would raise the cost for FPIs. After several representations, custodian banks and FPIs have managed to buy some time with stock exchanges deciding to introduce the new settlement cycle in a staggered way. FPIs, according to the rollout plan, will have to deal with the T+1 mechanism around mid next year.

  • IN FOREX: market, cash deals happen till 3/3:30 pm
  • CONVERTING $: From FPIs to INR is tough in the evening
  • SO BANKS WANT: RBI to offer a window to accept $ from banks
  • A WINDOW FROM RBI will also enable banks selling $ to meet CRR

A T+1 settlement would require conversion of dollars (from FPIs operating in different time zones) into rupees well after the normal market hours. While the forex market is open 24/7, custodian banks would find it difficult to sell the dollar (and generate rupees) in the evening when very few banks trade and liquidity dries up. Besides equities, there could be bouts of dollar inflows into debts once government debt papers are part of a global bond index and restrictions on foreign investments in sovereign securities are loosened.

Regulatory Cap on Exposure
Under T+1, the dollar would have to be converted into the local currency on the same day as trade confirmation and payment of margin or the full deal amount (an FPI buying equities must pay) has to be given to the clearing corporation by 7.30/8 pm. If the custodian bank can’t find a buyer for the dollar, it would park the dollar with its head office or an overseas branch. And this could raise its exposure beyond the regulatory limit.

Under the RBI rule that restricts a bank from taking an exposure of more than a quarter of its tier-1 capital (i.e, equity and free reserves) to a single counterparty, the India branch of a foreign bank and any of its overseas offices are considered as two distinct entities. So, the extra, unsold dollars a foreign bank’s Mumbai branch places with its London or New York office is counted as the local branch’s exposure to the overseas branch.

“Of course, the situation can change dramatically if US rate hikes result in large outflows. But as a medium term strategy, it could make sense for the central bank to offer a dollar window. It would also make the forward premia less volatile. A dollar deposit facility may require regulatory changes. As far as extending cash (forex) market timing goes, it’s up to the banks to decide. But there is a need for a more active market beyond regular hours,” said a senior banker.

“While the T+1 issue is some months away, banks have initiated discussion with RBI after realising that Sebi and the ministry want to go ahead with it. Today, cash forex trades (where the conversion happens the same day) take place till 3/3.30 pm. Even if you extend it and change the Dollar/INR clearing timings, banks have to meet the CRR (cash reserve ratio) requirement. So, it will be easier if a bank can sell the dollar to the central bank under a special window as well as give the extra cash to fulfil CRR requirement. Stock preferred by FPIs would come under T+1 only in the second half of next year. But before that, many in the market expect Gsecs to be included in the bond market,” said another person.



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Banks want more provisions included as statutory capital, BFSI News, ET BFSI

Banking & Finance

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Banks have urged the sector regulator, Reserve Bank of India, to relax norms and allow more of the provision made towards unidentified losses to be reckoned as statutory capital.

At present, because of the regulatory cap, only provisions to the extent of 1.25% of the credit risk weighted assets are considered as tier II capital. If rules are relaxed, more funds can be freed up and made available for banks at a time when recovery is firming up and credit is expected to pick up.

On Wednesday, in its monthly economic report, the finance ministry said India is on its way to becoming the fastest growing major economy in the world and forecast a strong possibility of faster credit growth.
“There is a uniform view among banks that due to increased provision burden, the regulatory cap of 1.25% can be removed. We have also approached RBI to either remove the cap or increase eligible percentage so banks will benefit from the additional provisions made by them,” said an executive aware of developments.

As per RBI’s July 2015 circular on Basel III Capital Regulations -Elements of Tier II Capital for Indian Banks, under “General Provisions and Loss Reserves”, provisions held for currently unidentified losses, which are freely available to meet losses that subsequently materialise, will qualify for inclusion under tier
II capital. Accordingly, the general provisions on standard assets qualify for inclusion in tier II capital.

“With expected increase in standard assets provision on account of restructuring of stressed accounts under Covid-19 dispensations, ranging from 5% to 15%, substantial amount of provisions made will not be qualifying as tier II capital because of the cap,” said another bank executive, explaining the demand for removal of the cap on amount of provision reckoned as tier II capital.

Last month in a report, rating agency Crisil had said that gross non-performing assets (NPAs) of banks are expected to rise to 8-9% this fiscal from 7.5% as on March 31, but below the peak of 11.2% seen at the end of fiscal 2018.

“With 2% of bank credit expected under restructuring by the end of this fiscal, stressed assets – comprising gross NPAs and loan book under restructuring – should touch 10-11%,” it had noted in its report.



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