Tag: IBA

Interest on interest: IBA sends representation to Finmin

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The Indian Banks’ Association (IBA) has sent a representation to the Finance Ministry to enhance the scope of its previous ex-gratia scheme to cover the refund/adjust the ‘interest-on-interest’ charged to the borrowers during the Covid-19 related moratorium period — March 1, 2020 to August 31, 2020.

As per the Supreme Court’s judgment (in the matter of Small Scale Industrial Manufacturers Association vs Union of India & Others and other connected matters) on March 23, 2021, all borrowers (including those having loan exposure of above ₹2 crore) will be eligible for waiver of interest on interest in respect of the pandemic-related loan moratorium.

Banking sources said the payment of the interest-on-interest component by banks will set a precedent. So, IBA has suggested that they should be compensated by the government.

The government had picked up the tab towards waiver of interest on interest for loans up to ₹2 crore, irrespective of whether moratorium was availed or not, following the top court’s order in October 2020. This cost the exchequer about ₹6,500 crore.

Clamour for moratorium

“There is an additional load on banks due to the interest-on-interest provision. Now the issue is not about the amount but of setting a precedent, especially when we are in the midst of the second-wave of Covid-19 pandemic and there is once again the growing clamour for loan moratorium. We are still waiting for some more clarification; maybe we will get some reversal benefit on the interest-on-interest provision,” said a bank executive, who did not wish to be named.

While, the Centre had earlier picked up the tab for waiver of interest on interest on loans up to ₹2 crore, this time around, lenders have to bear the cost.

Most banks and NBFCs have already made provisions for the interest-on-interest payment in the fourth quarter of 2020-21 but are likely to implement it this quarter after the completion of the statutory audit.

Ex-gratia payment under the October 2020 Scheme covered borrowers (micro, small and medium enterprise, education, housing, consumer durables, credit card dues, automobile, personal loans to professionals and consumption loans) having sanctioned limits and outstanding amount of up to ₹2 crore (aggregate of all facilities with lending institutions) as on February 29, 2020.

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Finance ministry advises PSU banks to hold promotions, transfers, BFSI News, ET BFSI

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The annual promotions and transfers at banks that kick off in April will have to wait.

Due to the Covid pandemic, the finance ministry has asked public sector banks (PSBs) to consider postponing the annual exercise of promoting and transferring their employees.

The Department of Financial Services (DFS) in an advisory has asked all public sector financial intermediaries to take cognisance of the prevailing Covid-19 pandemic situation and take appropriate steps to ensure that the promotion process factors in the constraints likely to be faced by their officers and staff.

Rising hospitalisations

It said the promotion process has coincided with a spike in Covid-19 cases across the country along with localised lockdowns and an increase in micro-containment zones. As there are cases of bank employees or their family members being hospitalised due to Covid-19, bank, insurance companies and financial institutions must take cognizance of the issue, it said.

Promotions and transfers take place in the summer months just before schools open for the new academic session.

The situation was similar last year too, and the staff transferred joined new positions only after the Covid situation eased. While banks have completed the promotion process, they have kept transfers on hold.

Unions want restrictions

With Cpvid cases surging across the country, bank unions have requested industry body IBA for restriction in services and reduction in public dealing time to around 3 hours per day till the situation improves to protect bank employees from the coronavirus infection.

The United Forum of Bank Unions (UFBU), an umbrella body of nine unions, in a representation to Indian Banks’ Association (IBA) said branches with continued footfalls and across-the-counter connect with customers are potential hubs of infections. ‘We are deeply distressed to constantly receive news about infections, hospitalizations and deaths of bank employees round the clock every day,’ it said.

In the light of the grim situation, this is an urgent appeal on behalf of the entire banking fraternity to take up the issue immediately, it said.

The unions have demanded the restriction of services only to basic, essential banking till improvement of the situation and realignment of banking hours to 3-4 hours a day.

Cluster banking

UFBU also made a case for the introduction of cluster or hub banking, identifying few branches of each bank in each locality so as to enable bank employees to work on rotation.

‘We are sure that the above measures will reduce the exposure faced by employees and break the chain of infections to a great extent.

‘We are continuously getting information from the grass-root level about the non-availability of beds/ infrastructure in hospital, dearth of life-saving drugs, oxygen which has triggered panic across the nation,’ it said.



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Despite healthy Q4 result, HDFC Bank believes tough times have begun for FY22, BFSI News, ET BFSI

Banking & Finance

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Amid the second COVID-19 wave, India’s largest private sector lender HDFC Bank reported on Saturday, an 18.2% y-o-y rise in net profit to Rs 8,186.51 crore for the quarter ended March. The Bank had posted a net profit of Rs 6,927.69 crore in the year-ago period. The Bank’s Net Interest Income also witnessed a 12.6% y-o-y rise to Rs 17,120 crore in the quarter under review, as compared to Rs 15,204 crore in the year-ago period.

HDFC Bank on Saturday also said that it has set aside ₹500 crore as provisions to cover the Supreme Court-directed compound interest refund to all borrowers during the March-August period.

Srinivasan Vaidyanathan, CFO of the bank, said that while the Indian Banks’ Association (IBA) is still working out the methodology of computing the refund, It is estimated that the waiver bill would be in the range of ₹7,000-7,500 crore. To be sure, the government has borne the waiver cost of ₹6,500 crore for borrowers of up to ₹2 crore in certain sectors announced last October.

In a regulatory Filing the private lender further added that the impact of COVID-19, including changes in customer behaviour and pandemic fears, as well as restrictions on business and individual activities, has led to significant volatility in global and Indian financial markets and a significant decrease in local economic activities.

The slowdown during the year has led to a decrease in loan originations, the sale of third party products, the use of credit and debit cards by customers and the efficiency in collection efforts.

“The extent to which the COVID-19 pandemic, including the current “second wave” that has significantly increased the number of cases in India, will continue to impact the Bank’s results will depend on ongoing as well as future developments, which are highly uncertain, including, any new information concerning the severity of the COVID-19 pandemic and any action to contain its spread or mitigate its impact whether government-mandated or elected by us.” HDFC Bank said in a statement, addressing the recent surge in covid cases in the country.

Lockdowns not only disrupt loan growth but also impact loan repayment collections. Banks are expected to give the true picture of their asset quality in the March quarter after the Supreme Court refused to extend the standstill on reporting of bad loans till August 31.

Early signs of asset quality impact are already visible for HDFC Bank. For the March quarter though, the lender reported gross bad loan ratio of 1.32%, which captures the true picture of asset quality given that judicial standstill on bad loan recognition has been lifted. Investors will now keenly monitor any changes in the lender’s asset quality and its commentary in the wake of the second wave of Covid-19 infections.

Despite healthy Q4 result, HDFC Bank believes tough times have begun for FY22Another major aspect that investors will keenly watch is the impact of the Reserve Bank of India’s order on issuances of new credit cards on the lender’s credit card business. The Reserve Bank of India (RBI) had asked the lender to halt all new issuances of credit cards and digital services offerings till the time it sorts out its technological issues.



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Put in place policy to refund ‘interest on interest’ charged during moratorium, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: The RBI on Wednesday asked banks and NBFCs to immediately put in place a board-approved policy to refund/adjust the ‘interest on interest’ charged to the borrowers during the six-month moratorium, in conformity with the Supreme Court judgement last month.

As part of the Covid-19 regulatory package, the RBI had allowed lending institutions to grant a moratorium on payment of instalments of term loans falling due between March 1 and May 31 of last year. The moratorium was extended by three months till August 31.

Referring to the judgement of Supreme Court dated March 23, 2021, the RBI in a circular on Wednesday said: “All lending institutions shall immediately put in place a Board-approved policy to refund/adjust the ‘interest on interest’ charged to the borrowers during the moratorium period, i.e. March 1, 2020 to August 31, 2020…”

The apex court had directed that no compound or penal interest will be charged for the six-month moratorium announced last year amid the Covid-19 pandemic and the amount already recovered is to be refunded or adjusted in the next instalment of the loan account.

The RBI further said in order to ensure that the judgement is implemented uniformly in letter and spirit, methodology for calculation of the amount to be refunded/adjusted for different facilities should be finalised by the Indian Banks Association (IBA) in consultation with other industry participants/bodies, which “shall be adopted by all lending institutions”.

The “reliefs shall be applicable to all borrowers, including those who had availed of working capital facilities during the moratorium period, irrespective of whether moratorium had been fully or partially availed, or not availed” said the circular on ‘Asset Classification and Income Recognition following the expiry of Covid-19 regulatory package’.

The central bank also said lending institutions should disclose the aggregate amount to be refunded/ adjusted in respect of their borrowers based on the reliefs in their financial statements for the year ending March 31, 2021.



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IBA may seek clarity on whether banks can be part of both NPCI, NUE

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The Indian Banks’ Association (IBA) may seek regulatory clarity on whether banks already holding stake in the National Payments Corporation of India (NPCI) can be part of a consortia for setting up a New Umbrella Entity (NUE) for retail payment systems.

Though NPCI, India’s only umbrella organisation for operating retail payments and settlement systems, is a ‘not for profit’ company under Section 8 of Companies Act 2013 and NUE will in all probability, be a ‘for-profit’ company, banks want to be sure that the regulator has no objection to them holding stake in two organisations in the same line of business.

Also read: Umbrella entity for retail payments: Race for licence gathers momentum

One school of thought is against ‘for profit’ entities getting into the umbrella retail payment and settlement space due to concerns that the consumer may end up paying more than what he is currently paying for availing digital banking services.

However, another school of thought is of the view that digital banking services could improve further just like it happened after private players entered the telecom sector.

NPCI has 10 banks as shareholders with more than 5 per cent stake. Bank of Baroda is the single largest shareholder with 9.592 per cent stake (this includes the shareholding of erstwhile Dena Bank and Vijaya Bank).

State Bank of India, Union Bank of India, Bank of India, Punjab National Bank, Canara Bank, ICICI Bank, HDFC Bank, HSBC, and Citibank have 7.47 per cent stake each in NPCI.

These 10 banks collectively held 76.822 per cent stake in NPCI as at March-end 2020.

Proposals in the works

Significantly, several of these banks are working out proposals and plan to apply to the RBI for an NUE license.

State Bank of India is a key player that is planning to apply for a license. Sources said the idea is to take forward its mobile banking YONO app to the next level of payments. This could possibly be in a consortium with Bank of Baroda.

Meanwhile, HDFC Bank and Kotak Mahindra Bank are set to work in a consortium with Tata Sons and Mastercard to apply for a NUE license. ICICI Bank and Axis Bank are also working with Amazon and readying plans.

Also read: New umbrella entity for retail payments: RBI extends timeline to make application up to March 31

Another consortium led by Jio Platforms, a majority-owned subsidiary of Reliance Industries, is also in the race to set up a NUE.

According to industry watchers, at least half a dozen consortia are expected to apply and about three licenses may be given out.

“But applications are still in the process of being finalised. It is unlikely that any license will be issued until the end of the year or early 2022,” noted a person following the developments.

Many players believe that setting up more such entities will help further leverage digital payments and increase their penetration and it would not be fair to compare them with NPCI, which has spearheaded the payments transformation.

The deadline for filing applications with the RBI is March 31.

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‘Bad Bank’: IBA asks lenders for details of stressed A/Cs of over ₹500 crore

Banking & Finance

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In preparing for the formation of a so-called ‘Bad Bank’, the Indian Banks’ Association has asked lenders to furnish data on stressed accounts with principal outstanding above ₹500 crore, both under consortium and multiple banking arrangement.

This will help in assessing the capital required to float the ‘Bad Bank’, which has been envisaged as an ‘Asset Reconstruction Company (ARC)/Asset Management Company (AMC)’ structure, to clean up lenders’ books

The IBA is working with the Department of Financial Services and a few lenders to set up the ‘Bad Bank’, pursuant to the announcement by Finance Minister Nirmala Sitharaman in the Budget.

Specifically, banks have been asked to submit details of their stressed accounts exposure (fund and non-fund based as also debt investment) above ₹500 crore as on December-end 2020 under consortium/multiple banking arrangement (MBA). The data include both IBC and non-IBC cases.

Excluded entities

Fraud accounts, those in sight of resolution under the IBC and those under liquidation, accounts of financial service providers (such as NBFCs, mutual funds and broking firms), and quasi equity/equity and unsecured exposures have been excluded from the reporting format.

What this means is that the ‘Bad Bank’ will not buy lenders’ exposures to these set of accounts.

Banking expert Hari Hara Mishra said, “While an integrated platform (Bad Bank) for all high-value non-performing assets (NPAs) will facilitate debt aggregation and help faster resolution, bridging price expectation mismatch between banks and the proposed ARC may pose some challenge, given the complexity of security interest and varying charge particulars, which characterise the Indian lending landscape.”

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IBA CEO, BFSI News, ET BFSI

Banking & Finance

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Sunil Mehta, Chief Executive Officer of Indian Banks‘ Association believes the budget is an excellent budget especially looking at the present setup circumstances where everybody was looking at the funding of the revenue through increase in personal taxation, corporate taxation and wealth tax but nothing of that sort has been announced in the budget. The investment push that has been made in the infrastructure and health sector is something that is really going to help and was one of the major needs of the country and our finance ministry has very aptly completed this task.

Mehta said, “The impact of AMCs and ARC, let me tell you that this proposal was sent to the government by Indian Bank association so I can tell you the basis on which we have submitted the proposal and what we wanted out of this. The biggest challenge in the banking space is that if an Investor wants to invest in a particular fund or an asset then they’ll resort to 10-20 different banks who are part of that consortium and resolve that debt with them and onboard it. Sometimes when 20 banks sit together and they go into different mechanism, it gets difficult to reach a consensus for taking a proper treatment of the asset.”

He added, “The first and the foremost advantage that the national reconstruction company will provide is consolidation of the debt. The debt which is spread out in 10-20 different entities of the consortium or the multiple banking arrangement, it will be consolidated into one entity which will provide ease of resolution. In a multiple banking arrangement, there is always a difference of opinion which makes it difficult to reach a resolution plan. When a particular asset is transferred to an AMC, which has specialisation in the particular area and thus can take a more informed decision.”

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