Tag: design

Banks need to design appropriate governance standards and implement internal controls: Deputy Governor, RBI

Banking & Finance

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Banks, as repositories of public resources, need to design appropriate governance standards and implement internal controls to be worthy of the public trust, according to MK Jain, Deputy Governor, Reserve Bank of India.

“It is also well-acknowledged that shareholders are driven by maximisation of the returns on their capital. But in banks, this objective is realised largely through the resources raised from depositors.

“…Being highly leveraged entities and with their inter-connectedness, there must be separation between ownership and management so that they operate on professional lines,” Jain said at an event organised by a financial daily.

He emphasised that banks enjoy the privilege of mobilising uncollateralised public deposits and operating with high levels of leverage.

“The negative externalities of banks and NBFCs are also much higher than those for any non-financial entity due to their inter-connectedness. That’s why, globally, banks are regulated and supervised very closely,” Jain said.

Tools for proactive off-site and on-site supervision

For continuous engagement with supervised entities (SEs), a web-based and an end-to-end workflow automation system will be launched shortly, the Deputy Governor said.

This has various functionalities including inspection, compliance and incident reporting for cyber security, etc. with a built-in remediation workflow, time tracking, notifications and alerts, Management Information System (MIS) reports and dashboards.

Data capabilities

Jain underscored that the data capabilities of the RBI are in the process of being further upgraded through the revamped data warehouse – the Centralised Information Management System (CIMS). This is in addition to Central Repository of Information on large Credits (CRILC) and Central Fraud Registry (CFR).

The data capabilities will encompass tools and applications for AI-ML, data visualisation and big data analytics.

As part of the forward-looking assessment of stress, the Deputy Governor noted that various supervisory tools have been designed to identify vulnerable borrowers who have less ‘distance to default’ as well as vulnerable banks based on various parameters. Early warning systems and supervisory stress testing have been made an integral part of prudential supervision.

“Many thematic assessments are also being regularly carried out to identify system-wide issues and assess ‘conduct’ practices for taking corrective actions. Data dump analysis is also much more extensively used as part of our transaction testing exercise,” he said.

Jain felt that agile and creative thinking is going to be essential in staying ahead of the digital curve when it comes to the evolution of financial services.

The Deputy Governor said, “Financial institutions would need to experiment with new technologies and tailor their products and services in alignment with business strategy and competitive considerations as well as in compliance with existing laws and regulations.”

“Leveraging on technology will also require enhanced financial investments, building expertise and capacities, proper resource allocation and further strengthening of the operational capabilities.”

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Godrej Housing Finance launches ‘design your EMI’ home loan product

Banking & Finance

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Godrej Housing Finance (GHF) has launched a ‘design your EMI’ home loan product to enable customers to customise their equated monthly installments (EMIs). This is aimed at optimising their cashflows and bring down the cost of home ownership.

Manish Shah, MD & CEO, Godrej Housing Finance said EMIs can be tailored to suit customers’ requirements —a customer might want to start with a smaller EMI and gradually increase it or start with a bigger EMI (since expenses are down in Covid-19 times) and normalise it.

For example, when a customer puts down money to buy a home, with the possession date being 12-24 months later , the finances can be challenging —if he is currently staying in a leased accommodation, rent needs to be paid and there is EMI for the new house, he said.

Also read: Home finance firms to comply with risk-based internal audit norms

“Suppose, EMI for a ₹50 lakh loan is about ₹40,000. So, the customer can start with small EMIs — ₹10,000 a month in the first year; ₹20,000 a month in the second year…The EMI can go up slowl,” he said.

“There can be another scenario where the customer feels that since some of his expenses have come down in the pandemic, he wants to increase the EMI to, say, ₹60,000 a month. Later on when the expenses go back to normal, the EMIs can get normalised to ₹40,000 a month,” explained Shah.

Launch of customised EMIs

The GHF chief emphasised that his company, which started its operations in November 2020 and is seeking to build a balance sheet of ₹10,000 crore in three years, offers an assisted journey for designing EMI for customers.

“The whole team is trained to handhold the customer for trying various permutations and combinations. They will customise it (EMIs). We have launched this in Pune. Now we are rolling it in all our markets (Mumbai, National Capital Region and Bengaluru),” he said.

On the service front, the company has piloted an end-to-end digital home loan sanction process, whereby the loan sanction process is completed without the customer and GHF employee coming face-to-face. This ensures that both are not put at risk in the current pandemic times.

“We have initiated this (end-to-end sanction) process with over 100 customers between May and now,” Shah said.

According to ICRA, GHF is currently owned by the Godrej family through Anamudi Real Estates LLP (AREL). The entire shareholding of GHF is proposed to be taken over by Godrej Industries (GIL) through Pyxis Holdings (PHPL).

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