Tag: finance ministry

Banks write off Rs 46,382 crore NPA in H1, BFSI News, ET BFSI

Banking & Finance

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Banks have written off bad loans amounting to Rs 46,382 crore during the first six months of 2021-22, the finance ministry informed the Lok Sabha on Monday. As per the RBI guidelines and policy approved by bank boards, non-performing loans, including, inter-alia, those in respect of which full provisioning has been made on completion of four years, are removed from the balance sheet of the bank concerned by way of the write-off.

In a written reply, Minister of State for Finance Bhagwat Karad said banks evaluate/consider the impact of write-offs as part of their regular exercise to clean up their balance-sheet, avail of tax benefit and optimise capital, in accordance with the RBI guidelines and policy approved by their boards.

“As per RBI data on global operations, scheduled commercial banks have written-off loans of Rs 46,382 crore during the first six months of the current financial year 2021-22,” he said.

The borrowers of written-off loans continue to be liable for repayment and the process of recovery of dues from the borrower in written-off loan accounts continues.

In another reply, Karad said the total loans outstanding of Regional Rural Banks (RRBs) stood at Rs 3,34,171 crore at end-March 2021, up from Rs 2,98,214 crore at end-March 2020.

He said RRBs have been playing an important role in purveying agricultural credit, particularly to small and marginal farmers and weaker sections of society.



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PSBs line up local AT-1 bonds issues, but private-sector lenders stay away, BFSI News, ET BFSI

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Public sector banks have started issuing AT-1 bonds in the domestic market more than a year after wriding down of such bonds of Yes Bank spooked the market

However, private sector banks are still keeping away and raising money via the instrument overseas, where interest rates are low.

At present, nearly three-four state-owned including SBI, Union Bank, Canara Bank and Bank of Baroda are looking to raise funds through AT-1 bonds.

In March this year, prodded by the Finance Ministry, the Securities and Exchange Board of India (Sebi) had relaxations in valuation norms. However, the main issues that AT1 bonds will continue to be treated as 100-year bonds stayed. The deemed residual maturity of Basel-III AT-1 bonds would be 10-year until March 31, 2022. Sebi said from April to September 2022, it would be valid at 20 years, and from October 2022 to March 2023, it would have a life span of 30 years. From April 2023, the residual maturity will be 100 years from the date of issuance of the bond.

In September SBI Rs 4,000 crore via additional Tier 1 bonds at a coupon rate of 7.72%, the first such issuance in the domestic market after Sebi issued new rules.

The plan

SBI is weighing options to raise money either through local additional tier-1 securities for the third time in this financial year or rupee-denominated ‘masala’ bonds for overseas investors. Bank of Baroda has approved the issuance of AT1 and AT11 bonds worth Rs3000 crore. Capital Raising Committee of our Bank has today approved the issuance of Basel III Compliant Additional Tier 1 (AT1) / Tier II Bonds for an aggregate total issue size of Rs3000cr in single or multiple tranches,” the bank said earlier this month.

What are AT1 bonds?

These are unsecured bonds which have perpetual tenure — or no maturity date. They have a call option, which can be used by the banks to buy these bonds back from investors. AT1 bonds are subordinate to all other debt and only senior to common equity. Mutual funds are among the largest investors in perpetual debt instruments, and hold over Rs 35,000 crore of the outstanding additional tier-I bond issuances of Rs 90,000 crore.

The mutual fund position

Mutual funds, which once used to buy heavily in AT1 bonds, are lukewarm about this asset class after the banking regulator last year ordered that these instruments be written off in Yes Bank’s state-sponsored bailout. Also, on March 10, Sebi had ordered mutual funds to cap ownership of bonds with special features at 10% of the assets of a scheme and value them as 100-year instruments from next month, potentially triggering a redemption wave. Later, the capital markets regulator eased valuation rules but with some riders after the finance ministry asked it to withdraw the directive to mutual funds.

The muted response by MFs had prompted the lenders to tap the overseas market.

Perpetual bond sales by banks have nearly halved to Rs 18,772 crore in FY21 from Rs 34,860 crore three years earlier.



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Bankers plan to seek safeguards against undue vigilance action, BFSI News, ET BFSI

Banking & Finance

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Bankers will seek a more robust framework for protecting them from any undue vigilance action in bona fide commercial decisions at a stakeholder conference on November 17-18 organised by the government to address issues relating to credit flow into different sectors of the economy.

Industry chambers and financial institutions, including non-banking financial companies (NBFCs), have been invited to the conference.

A senior bank executive told ET that a representation had been made to the finance ministry on this count.

Besides the finance ministry, senior officials from other ministries will also be a part of this stakeholder conference and provide insights to projects in the pipeline in their respective areas. Finance minister Nirmala Sitharaman will meet bankers, including from the private sector, financial institutions and other stakeholders at the two-day meeting.

“We want bankers to be protected under Section 197 of The Code of Criminal Procedure (CrPC) and bring them on a par with other government officials,” the bank executive said. “We will bring this to the attention of the finance minister.”

Under Section 197, a court cannot take cognisance of a criminal charge against a public servant unless there is prior sanction from the competent authority to prosecute him.

The move comes in the backdrop of Rajasthan police arresting former State Bank of India chairman Pratip Chaudhuri in relation to a complaint by a loan defaulter.

The government had, recently, issued a circular that laid down the standard operating procedure for processing cases under Section 17A of the Prevention of Corruption Act. As per the guidelines, any police inquiry on decisions taken by public servants in discharge of their duties need prior nod from the competent authority.

“These guidelines were flouted and hence it is necessary that a more robust framework should be put in place,” said another bank executive.

Last month, the finance ministry had advised state-run lenders to adopt broad guidelines on ‘Staff Accountability Framework for NPA Accounts up to ₹50 crore (Other than Fraud Cases)’. The new guidelines are aimed to protect bank staff taking commercial decisions as well as to ensure faster dispensation of vigilance cases while taking into account employees’ past track record.



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FinMin convenes stakeholders’ meeting for ensuring seamless flow of credit

Banking & Finance

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The Finance Ministry has convened a stakeholders’ conference, involving participation of chiefs of major lenders, secretaries of various central ministries/ departments, and industry associations, on November 17 and 18 for building synergy for seamless flow of credit into different sectors of the economy.

Secretaries representing various ministries/ departments of the Government of India are expected to provide insights to lenders pertaining to initiatives or projects in pipeline of their respective ministries/ departments that may require funding support.

Industry representatives too will be sharing their perspective on the evolving demand-supply situation in the economy and their credit requirements.

Also read: Credit offtake pickes up over the last two fortnights

This meeting comes in the backdrop of degrowth in corporate credit that lenders have witnessed on a year-on-year basis.

However, banks have built a robust pipeline of loan sanctions and they expect disbursals to pick up steam either towards the end of the current quarter or from the beginning of next quarter.

The chiefs of all public sector banks, top six private sector banks, six large non-banking finance companies, four all India financial institutions, and IIFCL and IFCI have been invited to participate in the meeting.

Message to banks

In his recent meeting with the chiefs of public sector banks and certain private sector banks, Shaktikanta Das, Governor, Reserve Bank of India (RBI), emphasised the need for banks to continue providing necessary support in the revival of economic activity.

Das had also advised the banks to remain vigilant to any emerging signs of vulnerabilities and take timely remedial measures to mitigate the risks and maintain the stability of not only the institutions themselves but also of the overall financial system.

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Protection to bankers: IBA knocks FinMin doors again

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The Indian Banks Association (IBA) has once again knocked the Finance Ministry’s door on the crucial aspect of protection to both retired and serving bankers post the now much talked about former SBI Chairman Pratip Chaudhuri’s arrest incident.

The Department of Financial Services has been requested by the IBA to extend protection to all serving and retired officers with the prior permission clause in line with the one already available for central government officials, sources in the banking industry said.

This is the second letter from the IBA, which had soon after Chaudhuri’s arrest on October 31 written to DFS seeking a new procedure to safeguard bankers’ against state-level authorities, including police in cases of loan defaults.

Also read: Bankers protest against Chaudhuri’s arrest, want FinMin to intervene

Now, IBA has said that the mechanism should involve prior permission clause in line with the GoI officers.

On October 31, Chaudhuri was arrested from his Delhi home by the Jaisalmer police for his alleged role in the Garh Rajwada hotel project in Jaisalmer. This project was financed — to the tune of ₹ 25 crore — by State Bank of India in 2007. This incomplete project was sold to Alchemist ARC in March 2014.

Chaudhuri has been a director at Alchemist ARC since his retirement in September 2013.

Soon after his arrest, several top level bankers called the decision unfortunate and sought protection of individuals by a legal framework so as to ensure that commercial decisions are taken without delays.

After a week in judicial custody, former SBI Chairman Pratip Chaudhuri got a bail in the Garh Rajwada hotel project case.

It may be recalled that protection of Section 197 of Criminal Procedure Code is already available to government servants, mandating prior sanction of concerned government before taking cognisance by any Court of offence allegedly committed by public servant in discharge of official duties. As per a Supreme Court judgment, same is not available to public sector undertaking employees.

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Banks Board Bureau to soon start appointment process for MD, DMDs at NaBFID, BFSI News, ET BFSI

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The government had recently said that beginning October 2021, all pens would be taxed at 18%.

The finance ministry will soon start the process for the appointment of managing director (MD) and deputy managing directors (DMDs) of the newly set up Rs 20,000 crore development finance institution NaBFID, to catalyse investment in the fund-starved infrastructure sector.

Last month, the government appointed veteran banker KV Kamath as the chairperson of the National Bank for Financing Infrastructure and Development (NaBFID) for three years.

The finance ministry will soon intimate the Banks Board Bureau (BBB) about the appointment of MD and DMDs of NaBFID.The Bureau will issue advertisements and undertake a selection process, sources said.

The BBB is the headhunter for state-owned banks and financial institutions. The MD, DMDs and whole-time directors would not hold office after attaining the age of 65 years and 62 years respectively.

As per the National Bank for Financing Infrastructure and Development (NaBFID) Act, 2021, the institution would have one MD and not more than three DMDs.

The national infra bank

The government has committed a Rs 5,000-crore grant over and above Rs 20,000 crore equity capital. The central government will provide grants by the end of the first financial year. The government will also provide a guarantee at a concessional rate of up to 0.1 per cent for borrowing from multilateral institutions, sovereign wealth funds, and other foreign funds.

The development finance institution (DFI) has been established as a statutory body to address market failures that stem from the long-term, low margin and risky nature of infrastructure financing.

The DFI, therefore, has both developmental and financial objectives. To begin with, the institution will be 100 per cent government-owned.

It will help fund about 7,000 infra projects under the National Infrastructure Pipeline (NIP) which envisages an investment of Rs 111 lakh crore by 2024-25.

The DFI will remain outside the purview of CAG, CVC and CBI, a move aimed at enabling faster decision-making. The government expects the DFI to leverage this fund to raise up to Rs 3 lakh crore in the next few years.

Development finance institutions

During the pre-liberalised era, India had DFIs which were primarily engaged in the development of the industry. ICICI and IDBI, in their previous avatars, were DFIs. Even the country’s oldest financial institution IFCI Ltd functioned as a DFI.

In India, the first DFI was operationalised in 1948, with the setting up of the Industrial Finance Corporation of India (IFCI).

Subsequently, the Industrial Credit and Investment Corporation of India (ICICI) was set up with the backing of the World Bank in 1955. The Industrial Development Bank of India (IDBI) came into existence in 1964, to promote long-term financing for infrastructure projects and industry.



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Finmin to soon start process for appointment of MD, DMDs of Rs 20,000 cr NaBFID, BFSI News, ET BFSI

Banking & Finance

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The finance ministry will soon start the process for the appointment of managing director (MD) and deputy managing directors (DMDs) of the newly set up Rs 20,000 crore development finance institution NaBFID, to catalyse investment in the fund-starved infrastructure sector.

Last month, the government appointed veteran banker K V Kamath as the chairperson of the National Bank for Financing Infrastructure and Development (NaBFID) for three years.

According to sources, the finance ministry will soon intimate the Banks Board Bureau (BBB) about the appointment of MD and DMDs of NaBFID.

The Bureau will issue advertisements and undertake a selection process, sources said.

The BBB is the headhunter for state-owned banks and financial institutions.

The MD, DMDs and whole-time directors would not hold office after attaining the age of 65 years and 62 years respectively.

As per the National Bank for Financing Infrastructure and Development (NaBFID) Act 2021, the institution would have one MD and not more than three DMDs.

The government has committed Rs 5,000 crore grant over and above Rs 20,000 crore equity capital.

The central government will provide grants by the end of the first financial year. The government will also provide guarantee at a concessional rate of up to 0.1 per cent for borrowing from multilateral institutions, sovereign wealth funds, and other foreign funds.

The development finance institution (DFI) has been established as a statutory body to address market failures that stem from long-term, low margin and risky nature of infrastructure financing.

The DFI, therefore, has both developmental and financial objectives. To begin with, the institution will be 100 per cent government owned.

It will help fund about 7,000 infra projects under the National Infrastructure Pipeline (NIP) which envisages an investment of Rs 111 lakh crore by 2024-25.

The DFI will remain outside the purview of CAG, CVC and CBI, a move aimed at enabling faster decision-making.

The government expects the DFI to leverage this fund to raise up to Rs 3 lakh crore in the next few years.

During the pre-liberalised era, India had DFIs which were primarily engaged in the development of industry.

ICICI and IDBI, in their previous avatars, were DFIs. Even the country’s oldest financial institution IFCI Ltd functioned as a DFI.

In India, the first DFI was operationalised in 1948, with the setting up of the Industrial Finance Corporation of India (IFCI).

Subsequently, the Industrial Credit and Investment Corporation of India (ICICI) was set up with the backing of the World Bank in 1955.

The Industrial Development Bank of India (IDBI) came into existence in 1964, to promote long-term financing for infrastructure projects and industry.



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Deutsche Bank ready to be NPS custodian for just Rs 100 per year, BFSI News, ET BFSI

Banking & Finance

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In an ultra-aggressive bid, Deutsche Bank is willing to accept a fee of just ₹100 a year for being the custodian of India’s pension fund which has total assets under custody of more than ₹6 lakh crore across various schemes.

The existing custodian, Stock Holding Corporation of India, a large depository participant owned by public financial institutions, charges close to ₹19 crore for the job.

Other institutions in the race for the custody mandate of the National Pension Scheme (NPS) include Citi, SBI-SG Global Securities Services (a joint venture between SBI and Societe Generale Securities Services), and ICICI. The fees quoted by these organisations are more than ₹1crore.

NPS, launched by the central government and involving multiple asset managers handling one of the largest fund pools in the country, is regulated by the Pension Fund Regulatory and Development Authority.

“It’s a prestigious mandate. So, Deutsche has probably taken a call to make money from a transitory float it could enjoy as a custodian,” said an official of a bank that has not put in a bid.

A Deutsche India spokesman said the bank would not comment on a client mandate.

“Beyond fees, there could be other ways to earn. Discount brokers charge little or nothing from stock traders. But, with so much liquidity available, earnings from float have come down with the fall in overnight rates. It may further shrink with T+1 (settlement in stock exchanges),” said an official of a financial intermediary.

A custodian has the opportunity to enjoy a day’s float by parking some money with the Reserve Bank of India under the reverse repo facility or in the inter-bank market.

Funds into NPS move from the employer (when salaries are paid) to the collection banks following which the money is transferred to custodians when an asset manager decides to invest in bonds and equities. Since investments happen within a day or two, custodians have a limited float.

The Deutsche bid has to pass the test laid down by the finance ministry.

According to the government’s ‘Manual for Procurement of Consultancy & Other Services’, “An abnormally Low bid is one in which the bid price, in combination with other elements of the bid, appears so low that it raises material concerns as to the capability of the bidder to perform the contract at the offered price. Procuring entity may in such cases seek written clarifications from the bidder, including detailed price analyses of its bid price in relation to scope, schedule, allocation of risks and responsibilities and any other requirements of the bid document. If, after evaluating the price analyses, (the) procuring entity determines that the bidder has substantially failed to demonstrate its capability to deliver the contract at the offered price, the procuring entity may reject the Bid/Proposal.”

Recently, a similar bid from another MNC bank for the custody mandate of postal life insurance was rejected on this ground.

While custody is a stable and sought after business, a few institutions have recently changed tack in choosing custodians. Life Insurance Corporation of India (LIC) recently shut the doors to foreign banks in selecting the custodian for its ₹10 lakh crore holding of stocks and corporate bonds. MNC banks lost out as LIC’s condition was that if the bidder was a foreign company or MNC, any of its securities had to be listed in India.



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