Paytm up 17%, Central Bank, IOB gain from selloff hopes, BFSI News, ET BFSI

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Mumbai: Indian Overseas Bank and Central Bank were among the top gainers in the stock exchanges on Wednesday after investors speculated that these might be the two banks lined up by the government for divestment. Meanwhile, Paytm shares continued on their road to recovery, gaining 17% on Wednesday to end at Rs 1,753, but still remain 18% below their issue price of Rs 2,150. This was despite the broader sensex falling 323 points to 58,341.

The government on Tuesday released the list of bills that it will seek to pass in the winter session of Parliament. Among them is the Banking Laws (Amendment) Bill 2021. This bill describes the need for amendments in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and 1980. In addition to this, there are some amendments needed in the Banking Regulation Act, 1949.

The privatisation of two public sector banks was announced in the Union Budget for 2021-22 by finance minister Nirmala Sitharaman. The banks’ disinvestment, along with that of the Life Insurance Corporation of India, was expected to fetch Rs 1.75 lakh crore for the government.

Shares of Indian Overseas Bank opened at Rs 22 and touched the day’s high of Rs 23.8 before closing 13% higher at Rs 22.5. At the current price, the bank’s market capitalisation is Rs 42,436 crore. Shares of Central Bank opened at just under Rs 23 and touched a high of Rs 23.7 before closing over 10% up at Rs 22.7. The bank currently has an mcap of Rs 19,706 crore.

Paytm shares saw reduced volatility on Wednesday on the back of what appeared to be buying interest from institutional investors. Shares had fallen 35% in the first two days of trade, but found support at lower levels later. At the current price, the payment giant is valued at nearly Rs 1.14 lakh crore — more than Nykaa (Rs 1.06 lakh crore) but still behind Zomato (Rs 1.22 lakh crore).



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Commonwealth Bank of Australia CEO, BFSI News, ET BFSI

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The CEO of Commonwealth Bank of Australia (CBA), the country’s largest bank, spoke to Bloomberg on November 19 about fear of missing out (FOMO) when it comes to cryptocurrencies. The CEO of CBA Matt Comyn said that though cryptocurrencies are full of perils, the risks of not engaging with the crypto market could be bigger.

CBA is an Australian multinational bank with its branches in New Zealand, Asia and the US.

What Comyn said:

  • Comyn said that with the emergence of digital assets as an alternative investment sector, the riskiest thing now is missing on the crypto current.
  • He said even though the crypto market is highly speculative and fluctuating, banks must work towards incorporating the technology to fulfill the consumer demand.
    • Banks must get involved in crypto and blockchain technology.
    • Banks would lag behind and be left out of the market if they don’t do so.
    • Due to the ever-growing demand among the masses to trade crypto, it has become essential for banks to move in this direction.
  • He believes that the crypto sector and its technology is here to stay and so the bank wants to provide competitive offerings to customers with right disclosures around risks.
  • He said that the bank doesn’t have any opinion on the asset class itself that is investing in cryptocurrencies.
  • Comyn commented on central bank digital currencies (CBDCs) saying that it is willing to participate in the making of Australian CBDC which is currently being designed for a pilot project.

For the latest crypto news and investment tips, follow our Cryptocurrency page and for live cryptocurrency price updates, click here.

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Some Chinese banks told to issue more loans for property projects

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BEIJING, – Some Chinese banks have been told by financial regulators to issue more loans to property firms for project development, two banking sources with direct knowledge of the situation told Reuters on Monday, in efforts to marginally ease liquidity strains across the industry.

Chinese authorities have yet to publicly give any signal that they will relax the “three red lines” – financial requirements introduced by the central bank last year that developers must meet to get new bank loans.

But lenders have recently adjusted their lending practices to reflect the latest central bank guidance of “meeting the normal financing needs” of the sector.

The marginal relaxation of loan policies to developers will still stick to the major principle that “homes are for living in, not for speculation,” said the sources, one from a city commercial bank and the other from a big bank, who received the guidance from regulators.

Financial regulators have told the banks to specifically accelerate approval of loans to develop projects, and to ensure that outstanding loans to project development show positive growth in their loan books in November compared with October, the two sources said.

Both sources declined to be named due to the sensitivity of the matter.

The People’s Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC) did not immediately respond to requests for comment.

As of end-September, banks’ outstanding loans to project development stood at 12.16 trillion yuan ($1.91 trillion), up by 0.02% from a year earlier, central bank data showed.

Quarterly growth of this loan type slowed further from the second quarter by 2.8 percentage points, the data showed.

The real estate sub-index of the Chinese mainland’s blue chip index jumped nearly 5% on Friday following market rumours about potential relaxation of property loans.

The sub-index ended down 4% on Monday.

China will stand firm on policies https://www.reuters.com/business/china-property-financing-tweaks-fall-short-investor-expectations-2021-11-11 to curb excess borrowing by property developers even as it makes financial tweaks to help home buyers and meet reasonable demand, bankers told Reuters previously.

Some banks have accelerated disbursement of approved home loans in some cities, the bankers said.

Last month, central bank official Zou Lan said there had been “misunderstanding” among lenders about the PBOC’s debt-control policies, causing financial strains for some developers.

“Banks should have supported new projects reasonably after (developers) have repaid existing loans,” Zou said. ($1 = 6.3819 Chinese yuan) (Reporting by Xiangming Hou, Kevin Huang and Ryan Woo; Writing by Cheng Leng; Additional reporting by Jason Xue; Editing by Jacqueline Wong)



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Report, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank of India‘s digital currency may see its pilot launch in the first quarter of the next fiscal year, a senior central bank officer said at the State Bank of India’s Banking and Economic Conclave as reported by a local newspaper.

“I think somewhere it was said that at least by the first quarter of next year a pilot could be launched. So we are bullish on that,” the Business Standard newspaper quoted P. Vasudevan, chief general manager at the Department of Payment & Settlement of the RBI as having said.

Central bank digital currencies, or (CBDCs) are digital or virtual currencies are basically the digital version of fiat currencies, for India that would be its domestic currency rupee.

Previously, the central bank governor had said a soft launch of the CBDC could be expected by December but there has been no official timeline committed to by the RBI.

“We are on the job and we are looking into the various issues and nuances related to CBDC. It’s not a simple thing to just say that CBDC can be a habit from tomorrow on,” Vasudevan said, adding that a CBDC could have a useful role depending on how it is implemented and there should be no hurry to launch it.

Vasudevan said the RBI was examining various issues related to which segment the CBDC should target – wholesale or retail, the validation mechanism and also other issues including distribution channels.

“The central bank is also checking if intermediaries can be bypassed altogether, and most importantly, checking if the technology should be decentralized or should be semi-centralised,” the RBI CGM said.

The RBI has repeatedly raised concerns over cryptocurrencies posing macro-economic and financial stability risks.



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Former RBI DG says central bank’s concerns on crypto stem from money laundering, valuation concerns, BFSI News, ET BFSI

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Former RBI Deputy Governor N S Vishwanathan on Wednesday said money laundering and lack of clarity on valuations are the primary concerns of central banks in being circumspect about the introduction of cryptocurrencies. If the government goes ahead and allows cryptocurrencies, bankers need to be wary and not confuse persons’ wealth with the amount of crypto assets they hold even if they do not use it as collateral for lending, Vishwanathan said.

The comments come amid a heated debate over whether to allow private cryptocurrencies into the country, which has seen the RBI being vocal about its concerns, while the government seems to be more amenable.

RBI Governor Shaktikanta Das had on Tuesday reiterated his concerns over cryptocurrencies, saying there are ‘far deeper issues’ involved in virtual currencies that could pose a threat to the country’s economic and financial stability. The government is likely to introduce a bill on cryptocurrencies during the winter session of Parliament, beginning November 29.

Vishwanathan said world over, central banks are concerned with cryptocurrencies and wondered what makes governments more supportive of it.

“The central bank’s concerns come from two fundamental areas. One, of course, is that crypto-assets are seen as a possible source of money laundering, number two is that the valuations,” he said, speaking at the 8th SBI Banking and Economic Conclave.

He said we should not confuse cryptocurrencies with dematerialisation, where there is an underlying asset, which comes up in a digital form.

The career central banker added that we do not know what defines a value of a crypto asset, and the limited understanding is demand-supply forces govern the value.

The value of bitcoin, probably the most popular among the crypto assets, “gyrated” to USD 10,000 and swings between USD 7-17,000 per coin, he noted.

Vishwanathan said a person’s crypto holdings should not determine the wealth because the constant volatilities in the value can make a rich person seem poor or vice-versa.

Bankers should be extra careful and should not look at the crypto holdings while assessing a wealth of a potential borrower and should not lend against such assets, he added.

Earlier, Vishwanathan said, central banks prefer central bank digital currencies (CBDC) over the private and unregulated crypto assets and added that the introduction of the CBDC will help foreign trade.

The former DG said the activity of big tech companies like Google in aspects like deposit mobilisation for lenders is not so high that the RBI needs to be concerned about.

SBI Chairman Dinesh Kumar Khara said our experiences with the past will ensure an orderly exit from the present stimulus given by the RBI.

Replying to a question on whether banks are overcharging for forex commissions to small exporters, Khara said the market forces can ensure that no one is over-charged, while Swaminathan J, a managing director of SBI, said any enterprise works on cross-subsidisation, where it earns higher from a particular revenue stream and less from another.

Swaminathan added that various fee and commission streams have closed down with time, and banks will take an appropriate call on this particular one and case of regulatory action.



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JP Morgan, BFSI News, ET BFSI

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A full-scale, multiple central bank digital currency (mCBDC) network could potentially save global corporations up to $100 billion in transaction costs annually, according to a joint research report from Oliver Wyman and JPMorgan.

The report estimates that of the nearly $24 trillion in wholesale payments that moved across borders via the correspondent banking network each year, global companies incur more than $120 billion in total transaction costs. This excludes potential hidden costs in trapped liquidity and delayed settlements. “The case for CBDCs to address pain points in cross-border payments is very compelling. The bulk of today’s wholesale cross-border payments process remains suboptimal due to multiple intermediaries between the sending and receiving banks, often resulting in high transaction costs, long settlement times, and lack of transparency on the status of the payments,” said Jason Ekberg, partner, corporate and institutional banking at Oliver Wyman.

Critical elements

The research specifically outlines four critical elements required for mCBDC implementation, which include (i) the building blocks, from minting and redeeming of CBDCs to FX conversion and settlement; (ii) the roles and responsibilities of central banks, commercial banks, and service providers; (iii) the key design considerations covering data, technology, privacy, and credit extension; and (iv) the governance framework.

Naveen Mallela, global head of coin systems at Onyx, said: “Central banks around the world who are at various stages of CBDC development are considering how to build an infrastructure where systems operate and work together with the necessary controls in place. In this report, we put forward robust design considerations for a successful mCBDC network and demonstrate how it can be practically implemented, using ASEAN corridors as an example.”

Opportunities for participants

Acknowledging that a mCBDC network challenges traditional correspondent banking systems, the report cites opportunities for participants – commercial banks, payment operators, market makers and liquidity providers – to add new capabilities, and welcomes new stakeholders like technology providers and other third-party service providers.

“The development of CBDCs brings new tangible opportunities such as subscription-based mCBDC corridor access or smart contract-enabled cash management services. The ability to pivot effectively and quickly is key, and ultimately we aspire for a cross-border payments system that is transparent, inclusive and efficient for all parties across central banks, corporates, and commercial banks,” Mallela said.



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Gold inches lower on dollar uptick; focus on key central bank meetings, BFSI News, ET BFSI

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Gold prices edged lower on Tuesday, weighed down by an uptick in the dollar as investors eye upcoming key central bank meetings this week.

FUNDAMENTALS

* Spot gold fell 0.1% to $1,805.96 per ounce by 0116 GMT. U.S. gold futures was flat at $1,806.60.

* On Monday, the metal rose nearly 1% to a high of $1,809.66, only about $4 shy of an over one-month peak scaled last week.

* The dollar rose 0.1% on Tuesday, recovering from a near one-month trough hit during the previous session. A stronger greenback makes gold more expensive for buyers holding other currencies. [USD/]

* Benchmark 10-year U.S. Treasury yields were also a tad higher at 1.6431%, raising non-interest bearing gold’s opportunity cost. [US/]

* Market participants eye meetings from the Bank of Japan and the European Central Bank (ECB) on Thursday. Neither of the central bank is likely to announce a change in policy, though the ECB might address how inflationary pressures could affect policy.

* The U.S. Federal Reserve and the Bank of England are also set to meet next week.

* Bank of England interest rate-setter Silvana Tenreyro said she needed more time to judge how the end of the government’s job-saving furlough scheme was affecting the labour market, adding to signs that she sees no urgency to raise rates.

* Gold is often considered an inflation hedge, though reduced stimulus and interest rate hikes push government bond yields up, translating into a higher opportunity cost for holding bullion which pays no interest.

* Spot silver fell 0.1% to $24.53 per ounce. Platinum edged 0.1% down to $1,056.35 and palladium gained 0.2% to $2,055.16.

DATA/EVENTS (GMT)

1400 US Consumer Confidence Oct

1400 US New Home Sales-Units Sept

(Reporting by Nakul Iyer in Bengaluru; Editing by Rashmi Aich)



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‘Reserve managers should look beyond the traditional approaches to maintain and enhance returns’

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Reserve managers can deal with the low yield environment by increasing the duration of their portfolios, investing in new asset classes, new markets and more active management of their gold stocks, as per the recommendations in an article in the Reserve Bank of India’s latest monthly bulletin.

In light of the likely persistence of various structural reasons for low yields, it is imperative that reserve managers look beyond the traditional approaches for the management of reserves to maintain and enhance returns, emphasised RBI officials Ashish Saurabh and Nitin Madan in the article.

The authors observed that the first and foremost way to tackle the low yielding environment to increase return would be to increase duration of the portfolio.

“The countries with adequate reserves have sufficient cushion to take on more duration risk. Increasing duration of the portfolio is the easiest and immediate step that can be taken to enhance return by some basis points,” they said, adding, this should be combined with increasing investments in longer maturities.

Investment in new products/asset classes

The officials suggested investment in new asset classes entailing investing in products beyond the traditional investment avenues. They noted that certain products may be novel in nature as surveys and anecdotal evidence do not suggest usage of these products by the reserve managers.

In this regard, the authors referred to the usage of investment products/ asset classes such as foreign exchange (FX) swaps; Repo transactions; dual currency deposits; equity index funds; and increase credit risk of the portfolio.

Active management of gold

The authors opined that active management of gold can yield a decent return to the Central banks beyond capital gains. Some of the avenues for active management of gold include gold deposits, gold swaps and gold Exchange Traded Funds (ETFs).

Central banks own almost 35,000 tonnes of gold (World Gold Council estimate) which is around 17 per cent of worldwide available above-ground stocks.

Investment in new markets

The RBI officials underscored that there are some countries which are relatively stable financially, are highly rated and offer better yields than some of the G7 countries. While these countries do not have very deep sovereign bond markets, they felt that a reserve manager could invest a small portion of their reserves in these markets and generate that extra yield.

Another way to generate higher return is lowering the credit rating requirement and investing in emerging markets which provide higher yield.

“This, however, entails a higher exposure to currency risk as their currencies can be volatile. To mitigate that, the reserve managers could explore investing in US/Euro denominated debt of these countries,” said Saurabh and Madan.

The various options through which a reserve manager could invest in these markets are direct investment; passive funds; ETFs; Separately Managed funds/Customised funds/ETFs; and Total Return Swaps.

The authors observed that the choice of investment strategy, however, would require to be tailored to suit the risk appetite, investment priorities, skill sets and operational capabilities of individual institutions.

The Reserve Bank of India Act, 1934 provides the overarching legal framework for deployment of reserves in different foreign currency assets and gold within the broad parameters of currencies, instruments, issuers and counterparties.

Currently, the law broadly permits deployment of reserves in investment categories such as deposits with other Central banks and the BIS; deposits with commercial banks overseas; debt instruments representing sovereign/sovereign-guaranteed liability with residual maturity for the debt papers not exceeding 10 years; other instruments / institutions as approved by the Central Board of RBI; and dealing in certain types of derivatives.

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RBI withdraws restrictions on Hindu Cooperative Bank, Pathankot, BFSI News, ET BFSI

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The RBI on Thursday withdrew all restrictions imposed on Hindu Cooperative Bank Limited, Pathankot.

The Reserve Bank had issued directions stipulating certain restrictions on the bank in March 2019. The directions were modified from time to time and were last extended up to October 24, 2021.

“The Reserve Bank of India on being satisfied that in the public interest it is necessary to do so…hereby, withdraws with effect from close of business on October 14, 2021, the said directions so issued to Hindu Cooperative Bank Limited, Pathankot, Punjab,” it said in a statement.

In another release, the RBI said it has imposed a penalty of Rs 1 lakh on KNS Bank, The Kurla Nagarik Sahakari Bank Ltd, Mumbai for contravention certain norms related to Depositor Education and Awareness Fund Scheme, 2014.

The RBI said the inspection report of the bank based on its financial position as on March 31, 2020, revealed, inter alia, that the bank had not transferred balances, in certain accounts which were unclaimed for more than ten years to Depositor Education and Awareness Fund.

The RBI, however, added the penalty is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers



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Central bank digital currency can boost innovation in cross-border payments: RBI Deputy Governor

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A central bank digital currency (CBDC) can boost innovation in cross-border payments, making these transactions instantaneous and help overcome key challenges relating to time zone and exchange rate differences, according to Reserve Bank of India (RBI) Deputy Governor, T Rabi Sankar.

A CBDC is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.

Speaking at IAMAI’s Global Fintech Fest 2021, Sankar observed that the frictions relating to time zone and exchange rate differences as also varying legal and regulatory requirements across jurisdictions can be solved through platform-based solutions.

These solutions can make real-time price discovery possible even for retail-sized transactions.

Sankar said settlement of cross-border payments in CBDC can happen without the settlement system of either of the countries or both countries being open.

Costly transactions

A July 2021 BIS report noted that cross-border payments suffer from long transaction delays and can be particularly costly due to the involvement of a high number of intermediaries across different time zones along the correspondent banking process.

The report said CBDCs can be open 24/7, eliminating any mismatch of operating hours. It could settle instantly, reducing the need for status updates

In a speech in July 2021, Sankar said going forward, after studying the impact of CBDC models, launch of general purpose CBDCs will be evaluated.

“The RBI is currently working towards a phased implementation strategy and examining use cases which could be implemented with little or no disruption,” he added.

Some key issues under RBI’s examination include the scope of CBDCs, whether they should be used in retail payments or also in wholesale payments, the underlying technology – whether it should be a distributed ledger or a centralised ledger, for instance, and whether the choice of technology should vary according to use cases, the validation mechanism – whether token based or account based, degree of anonymity etc.

However, conducting pilots in wholesale and retail segments may be a possibility in near future, Sankar said.

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