Tag: Foreign banks

Banks flag concerns over US rules on consumer data, seek govt guidance, BFSI News, ET BFSI

Banking & Finance

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India’s banks have approached the government with their concerns over the mandatory sharing of customer details with US authorities under that country’s expanded National Defense Authorization Act (NDAA), which took effect on January 1.

A government official confirmed that the Indian Banks’ Association (IBA) has sought government intervention and guidance on the issue. Banks have pointed out that the provision will raise costs and any compliance shortfall can have serious implications.

The NDAA incorporates parts of the Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2019, significantly enhancing the reach of authorities over foreign banks if they have a correspondent account with an American financial institution.

It allows the Department of Justice and the Department of Treasury to subpoena records of such a foreign bank. Importantly, this provision can be invoked without regard to whether the correspondent account was used for potential violation of US law or not.

Application will be Selective, Feel Bankers
The correspondent bank accounts of US financial institutions first came under watch through the US Patriot Act of 2001 to prevent money laundering and terror financing. “The banks have raised some concerns which are being looked at. The issues will also be discussed with the Reserve Bank of India and accordingly any decision will be taken,” said the official cited above.

Although Indian banks are compliant with the Foreign Account Tax Compliance Act (Fatca), Indian regulators should guide banks on the provisions of the NDAA that apply to them, experts said.

  • Banks raise concerns about customer confidentiality, data privacy and national security
  • Reach out to the govt through IBA
  • Banks already compliant with Fatca regulation
  • Govt to engage with regulator RBI on issue
  • Regulations allow US govt to subpoena foreign-located bank data if foreign bank has a US correspondent account

“This amendment will result in additional overheads on foreign banks that have correspondent accounts in the US for responding to any subpoenas with the risk of noncompliance being both financial penalty as well termination of correspondent relationships that essentially may cause loss of business share,” said Jaikrishnan G, partner, financial services consulting, Grant Thornton Bharat.According to Jaikrishnan, Indian banks that have correspondent accounts with banks in the US will need to consolidate and limit such accounts within the US to balance business volumes with compliance costs and legal exposure. “Banks will need to strengthen transaction scrutiny on such correspondent accounts to safeguard themselves against potential involvement in such investigations,” he said.

Bankers are of the view that the application of this amended provision will be selective and only relevant in cases where there is court intervention. “But clarity is needed and that is why we have approached the government,” said a bank executive aware of the developments.



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Foreign banks vie for bigger slice of home loan market

Banking & Finance

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Balance transfers have turned out to be a preferred option for foreign banks as they are easier to source. They are considered safer, too, as the lender gets a snapshot of the borrower’s repayment track record.

Taking advantage of record low interest rates and higher affordability of homes, foreign banks with presence in India are making an aggressive push into the home loan market. In the run-up to the festive season, some of these lenders have announced lending rates at par with the lowest in the business.

HSBC India reduced home loan interest rates by 10 basis points (bps) to 6.45% per annum. This rate will be applicable on balance transfers by existing customers of other lenders. Citi is offering home loans starting at 6.5% as is South Korea-headquartered Shinhan Bank.

Kunal Sodhani, AVP, global trading center, Shinhan Bank India, said the lender has been offering home loans starting at 6.5% for a maximum tenor of 30 years. The bank has been active in the retail loans segment for the last four years and currently has more than 4,500 customers across six branches in India. “The interest rate trajectory may be at its bottom and also due to festive season being underway, this remains the best time to avail housing loans at such attractive rates,” Sodhani said.

Balance transfers have turned out to be a preferred option for foreign banks as they are easier to source. They are considered safer, too, as the lender gets a snapshot of the borrower’s repayment track record.

Besides, the migration to an external benchmark-linked pricing regime has led to better transmission of lower rates through banks. Forced to link their home loan rates directly to the repo rate or to other external benchmarks, banks have turned more competitive in terms of pricing than their non-bank counterparts. This is another factor driving the rising trend in balance transfers.

Of course, muted credit demand in other segments is also playing a part. Prakash Agarwal, director and head – financial institutions, India Ratings and Research, said while some foreign banks were always active in the home loan market, their presence is increasing for two reasons. “One, there is a limited offtake in other segments. Secondly, this asset class has proven its resilience over time. The credit cost and delinquencies in this segment were among the lowest even during the pandemic. That is an added incentive for lenders to get into this segment.”

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RBI adds ‘displeasure’ notes to regulatory action against banks, BFSI News, ET BFSI

Banking & Finance

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Along with taking penal action against banks, the Reserve Bank is making its displeasure over their functioning known to them.

The central bank has been issuing ‘displeasure’ letters to expressing dissatisfaction over their functioning, according to a report. These letters are issued by the Department of Supervision, which does not take any enforcement action.

The intent of these letters is not to interfere in the functioning of the banks, but to suggest changes that are deemed necessary for course correction. The letters have had the desired effect and prod the boards to make necessary changes.

Regulatory action

The Reserve Bank of India (RBI) took enforcement action against 41 regulated entities by imposing an aggregate penalty of Rs 61.15 crore between July 1, 2019, and June 30, 2020, the bank said in its annual report.

The actions were taken against regulated entities for non-compliance of various regulations, the RBI said in its annual report. Enforcement actions were also undertaken against contravention of the directions pertaining to third-party account payee cheques; non-compliance with directions contained in risk mitigation plan (RMP); and failure to comply with the provisions of Section 10B of the Banking Regulation Act, 1949, among others.

The RBI undertook enforcement action and imposed fine for non-submission of compliance to risk assessment reports’ (RAR) findings; non-compliance with/ contravention of directions on fraud classification and reporting; not adhering to discipline while opening current accounts, etc.

As many as 26 penal actions were taken against public sector banks with an aggregate fine of Rs 38.35 crore, while eight were initiated against private sector banks with an aggregate fine of Rs 8.55 crore. With regard to cooperative banks, it said 13 penal actions were taken with imposition of Rs 9.18 crore, it said. During the period, it said, a total fine of Rs 5 crore were imposed on two foreign banks.



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Top bankers may only get bonus after new RBI rule, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India‘s directive to treat grant of employee stock options as an expense is having an unintended impact.

Banks are doing away with ESOPs and adding deferred bonus payments to the senior managerial staff as the new rules could add significant costs to banks, eroding their quarterly earnings.

The shares are required to be valued at a fair value that may add to the costs. Though it is a non-cash cost, it still results in a higher expense in the P&L for the bank, impacting its profits and earnings.

The RBI directive

The RBI said last week the fair value of the share-linked incentives paid to chief executive officers, whole-time directors and other key functionaries by the private banks should be recognised as an expense during the relevant accounting period.

Issuing a clarification in this regard, the RBI said, “the fair value (of share-linked incentives) …should be recognised as expense beginning with the accounting period for which approval has been granted”.

In terms of the extant guidelines, share-linked instruments are required to be fairly valued on the date of grant using the Black-Scholes model.

The Black-Scholes model, also known as the Black-Scholes-Merton model, is a mathematical model for pricing an options contract. In particular, the model estimates the variation over time of financial instruments.

Treatment as expense

The RBI issued the clarification saying “it has been observed” that banks do not recognise grants of the share-linked compensation as an expense in their books of account concurrently.

The RBI also asked all banks, including local area banks, small finance banks and foreign banks to comply with its directions for all share-linked instruments granted after the accounting period ending March 31, 2021.

The central bank had issued guidelines on the compensation of whole-time directors/ chief executive officers/ material risk takers and control function staff in November 2019 in which it had said that share-linked instruments will be included as a component of variable pay.



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RBI raises heat on foreign banks over data storage norms violations, BFSI News, ET BFSI

Banking & Finance

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After social media firms, it’s time for foreign banks to strictly comply with rules in India.

The Reserve Bank of India (RBI) has pulled up several multinational banks operating in the country for not providing a board-approved system reporting certifying compliance with its data-localisation norms.

Last month, the central bank had barred American Express Bank and Diners Club from on-boarding new customers citing violation of data storage norms.

In a recent communication, the RBI said that a majority of banks are yet to submit system audit reports certifying compliance to storage norms even after three years since the issuance of the circular.

Many banks have said that the audit norms did not apply to them and this was not acceptable. The central bank had asked banks to submit their compliance along with a plan of action on or before May 15, 2021.

The RBI norms

According to the RBI’s norms, data on payments has to be stored in systems located “only in India” and data processed abroad has to be brought back to the country within 24 hours.

The central bank said Payment System Operators (PSO) can process transactions outside India, but “the data should be deleted from the systems abroad and brought back to India not later than the one business day or 24 hours from payment processing, whichever is earlier”.

“The complete end-to-end transaction details should be part of the data,” the RBI had said.

What foreign banks say?

Several foreign banks have been unable to issue an audit report stating that all personal and non-personal transaction data which has been sent overseas for processing has been permanently deleted.

Many banks had responded to the RBI’s directive and said that much of their processing was centralised and it was not feasible to restructure global operations and create a separate hub in India. The RBI then clarified that while data can be stored only locally, it can be sent intraday for processing but should be deleted from offshore servers in 24 hours.

Banks are required to provide a system audit report certifying compliance with the RBI rules. The audit has to be conducted by auditors empanelled by the Indian Computer Emergency Response Team (CERT-In, in the ministry of electronics.)

American Express, Diners Club

In April, the RBI has restricted American Express Banking Corp and Diners Club International from on-boarding new domestic customers onto their card networks from May 1 for violating data storage norms.

American Express Banking Corp and Diners Club International Ltd are Payment System Operators authorised to operate card networks in the country under the Payment and Settlement Systems Act, 2007 (PSS Act).

The RBI has imposed the restrictions on American Express Banking Corp and Diners Club International by an order dated April 23, 2021.

“These entities have been found non-compliant with the directions on Storage of Payment System Data,” the RBI said.

The supervisory action, it added, has been taken in the exercise of powers vested in RBI under the PSS Act.



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How to choose riders in a guaranteed insurance plan

Personal Finance

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With increased awareness about insurance products and prevailing low bank deposits rates, many insurers have launched assured return products to catch the attention of investors. These types of plans offer guaranteed regular income i.e. a pre-defined percentage of sum assured (SA) is paid out as per a schedule.

In addition to offering life cover (up to policy term) and savings, such policies offer multiple riders i.e. additional benefits to the policyholder for an extra cost, to enhance the benefits of the policyholders. While all the riders at first glance appear to benefit you, it is important you choose the ones that fit your requirements.

Options galore

Almost all guaranteed return insurance policies, including those of Bajaj Allianz Life, Aditya Birla Sun Life, HDFC Life and Future Generali Life, come with rider options. Life insurance riders are contingent additional benefits over a primary/base policy. They come into play in case of a specific eventuality. Riders offer financial cover (rider SA) over and above basic sum assured in the life insurance policy.

Some of the common riders include accidental death benefit, where the policy (rider as well as base policy) pays rider/maturity benefit to the nominee. There is accidental permanent total/partial disability benefit where policyholder receives a lump sum payment (from the rider policy) in case of any specified disability.

Some insurers offer critical illness benefit rider where if the policyholder is diagnosed with any of the listed critical illnesses, the rider policy will pay the benefit and terminate. Even with the occurrence of the said event, the life cover remains intact which means you remain eligible for the death benefit on the life insurance plan.

In case of a waiver of premium rider, all future premiums for the term cover are waived if the policyholder is unable to pay because of permanent disability due to an accident or on being diagnosed with a critical/terminal illness.

A few insurers offer other riders as well. For instance, Bajaj Allianz Life offers family income benefit rider where 1 per cent of SA is paid monthly to the nominee/policyholder upon death or permanent disability or the first occurrence of one of the listed critical illnesses. Similarly, Aditya Birla Sun Life insurance offers, among other riders, surgical care benefit and hospital care benefit riders as well.

Factors to keep in mind

Do note the savings plans offered by life insurers generally cost more than a pure protection plan. Also, you may have to shell out more in terms of premium if you opt for riders. Consider Bajaj Allianz’s Flexi Income Goal plan which provides guaranteed income. For a 30-year old opting for an SA of ₹5.04 lakh and a guaranteed monthly income of ₹3,500 over a policy term of 17 years (premium payment term is 5 years), the total outgo works out to ₹1,23,892 (excluding tax). Now if a rider is added to this, say, a critical illness benefit rider, then the total premium cost works to ₹1,25,585 (excluding tax and discounts).

Before signing up for any rider, keep in mind two crucial things.

First, check whether the rider you want is available with that particular policy. For instance, in case of Future Generali Lifetime Partner Plan, there are no riders available but its Triple Plan Advantage plan comes with accidental benefit rider. Similarly, HDFC Life’s Sanchay Par Advantage offers two riders accidental disability rider and critical illness plus rider.

Second, assess whether you really need rider(s) with a savings product. According to Bikash Choudhary, Appointed Actuary & Chief Risk Officer, Future Generali India Life, “While all the riders play an important role in enhancing protection for the policyholders, the selection of riders depends on the need of the individual in terms of finance, lifestyle etc. For example, waiver of premium rider comes in handy in case of an insurance plan bought for a child. If the parents are not around, the rider helps in continuation of the policy until maturity to get full benefits, thereby protecting the child’s future financially.”

It is generally recommended to keep insurance and savings separate, instead of combining the two. This is because you may neither get sufficient life cover nor good returns from the product when you mix them. But certain investors such as high networth individuals, who have very low risk appetite, can consider such products. While these products do offer multiple riders or options, it may not make sense to sign for all of the riders available. So, make an intelligent choice to save on premium.

Check whether the rider is available with particular policy

Find out if you really need rider with a savings product

Savings plans cost more than term plans

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