Tag: ICICI Bank

IBA fears precedent, wants govt to pay ‘interest on interest’, BFSI News, ET BFSI

Banking & Finance

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The Indian Banks’ Association (IBA) has sent a communication to the Finance Ministry to pay the compound interest charged to borrowers with loans above Rs 2 crore during the moratorium period of March 1 to August 31, 2020.

Though most private banks have provided for the compound interest waiver, bankers are of the view such a move will set a precedent and want the government to foot the bill. They are expecting a reversal benefit on the interest on interest payment, according to a report.

The Supreme Court order

The Supreme Court in its order last month had directed the government and the RBI to waive penal interest charges on all loans, while rejecting the demand of borrowers to extend the repayment moratorium beyond August 31 and for a complete interest waiver. The loan moratorium scheme was aimed at giving temporary relief to borrowers.

In November last, the government decided to waive interest-on-interest for borrowers below loan exposure of Rs 2 crore. It paid nearly Rs 6,000 crore to lenders to compensate them for the income loss.

Bank provisions

After waiting for the government to burden the compound interest on loan waivers, top banks have provided for payment in the fourth-quarter results.

HDFC Bank has provided Rs 500 crore for interest on interest while ICICI Bank said it has kept Rs 175 crore aside for it, according to the Q4 results announced by these banks. Axis Bank has provided Rs 160 crore while Mahindra Finance has made a provision of Rs 32 crore.

How much does it cost?

Waiving compound interest on loans above Rs 2 crore could cost nearly Rs 4,000 crore to public sector banks, Rs 2,500 crore to private banks and another Rs 1,000 crore to non-bank lenders.

While ICICI Securities had put the total compound interest burden on loans above Rs 2 crore at Rs 11,700 crore, other analysts have put it between Rs 7,000 crore and Rs 10,000 crore. As per rating firm ICRA, compound interest for six months of moratorium across all lenders is estimated at Rs 13,500-14,000 crore.

The Indian Bank Association has recently finalised a methodology for the calculation of the interest on interest component.

Under the norms, borrower accounts which were standard as on February 29, 2020, including SMA­0, SMA­1 and SMA­2 will be eligible for the refund. All loans, working capital, trade products, outstanding during the moratorium period shall be considered for the compound interest waiver.

The government stand

The government had reimbursed banks for forgoing compound interest, or interest on interest, on loans up to Rs 2 crore outstanding during March-August last year, when borrowers had the option to seek a moratorium on repayments.

Lenders have been charging compound interest on larger amounts, but the Supreme Court order means they must now refund it to borrowers. Banks were hoping that the government will take on the burden by enhancing the scope of the ex-gratia scheme to cover the additional refund after the apex court order.



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RBI imposes Rs 3 crore penalty on ICICI Bank, BFSI News, ET BFSI

Banking & Finance

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A penalty of Rs 3 crore has been imposed on ICICI Bank Ltd for contravention of certain directions, the Reserve Bank of India said on Monday.

The RBI has imposed a monetary penalty of Rs 3 crore on ICICI Bank for “contravention of certain directions issued by the RBI contained in Master Circular on ‘Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks’ dated July 1, 2015”, the central bank said in a statement.

It, however, added the action is based on the 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.

Giving details, the RBI said an examination of correspondence in the matter of shifting of securities from one category to another revealed, inter alia, contravention of the directions.

A notice was issued to ICICI Bank advising it to show-cause as to why penalty should not be imposed on it for failure to comply with the directions issued by the RBI.

After considering the bank’s reply to the notice, oral submissions made in the personal hearing and examination of additional submissions made by it, the RBI said it came to the conclusion that the charge of non-compliance with RBI directions was substantiated and warranted imposition of monetary penalty.



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Merchants payments is next battleground for SBI, HDFC Bank and ICICI Bank, BFSI News, ET BFSI

Banking & Finance

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State Bank of India, HDFC Bank and ICICI Bank have lined up a slew of plans to capture the payments and settlement market as they ramp up their digitisation initiatives.

ICICI Bank, India’s second-largest private sector lender by assets is eyeing a large share of the potential Rs 31 lakh crore of payments and settlement market to more than 2 crores small, big, offline and online businesses by fiscal 2022 by offering these wholesalers and retailers payment systems bundled with cash management and credit facilities.

The bank is targeting income from fee, credit and savings due to use of technology by offering these services to these large and small establishments spread across the country. As per RBI data the market for merchant services is Rs 2.32 lakh crore or about Rs 24 lakh to Rs 25 lakh crore in fiscal 2020 and is expected to increase 45% to Rs 31 lakh crore by fiscal 2022.

The merchant stack will provide “seamless banking services” to over 2 crore retail merchants in the country.

The bank also expects to extend other services like short term loans of tenure between six months to 1 year.

HDFC Bank

HDFC Bank, the country’s largest private sector lender, has set an ambitious target to expand its merchant base by ten-fold

in the next three years, eyeing a sizable share of India’s rapidly growing digital payments market.

The lender is planning to reach out to more than 20 million small and medium merchants and also professional services like doctors,

pharmacies, salons and laundry services across metro, semi urban and rural India in the next 3 years. HDFC Bank has about two

million merchants on its network as of FY20. The lender on Wednesday launched a new banking and payment solution for its merchant called SmartHub Merchant Solution 3.0. This will allow merchants and self-employed professionals to instantly open a current account and start accepting payments both through physical and digital channels.

It has tied up with global card network Visa to enable some of the payment solutions. The features would also be digitizing Khata, enabling collection reminders, inventory management, billing software and lending to merchants’ basis their banking history.

HDFC Bank processes about 48% of the overall card transactions at the merchant level in terms of volumes and about a fourth of the Unified Payments Interface (UPI) volumes.

State Bank of India

SBI Payments, a subsidiary of India’s largest lender State Bank of India, will launch YONO Merchant App to provide low-cost digital payments infrastructure to merchants.

YONO Merchant App will expand digitization of merchant payments in the country, SBI said in a release.

Aiming to enable millions of merchants through mobile-led technology to accept digital payments, SBI plan to deploy low-cost acceptance infrastructure across India over the next two years targeting 20 million potential merchants across India in retail and enterprise segment. This will help boost digital payments acceptance infrastructure in tier 3, 4 as well as north eastern cities.

YONO SBI Merchant will act as a soft PoS (point of sale) solution for which it has partnered with global payments technology major Visa to enable Tap to Phone feature. The partnerships aim to give the necessary boost to scale up acceptance infrastructure across the country,

Bank launched YONO Platform three years ago, YONO, has 35.8 million registered users.

In the next 2-3 years, SBI is aiming to digitize millions of merchants by upgrading their mobile phones into a PoS device accepting all form factors, accessing Value Added Services such as loyalty, GST invoicing, inventory management, among others and connecting into an interface to avail other banking products at a click of a button. The bank is aiming to grow our merchant touch points multi-fold crossing 5-10 million within 2-3 years.



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Shriram Housing Finance to provide free vaccination to customers, BFSI News, ET BFSI

Banking & Finance

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In an industry first, mortgage lender Shriram Housing Finance has decided to provide free vaccination to its 20,000 affordable housing customers. The company would roughly spend Rs 1000 per loan as vaccination cost and would cover two members in a family. It estimates to spend nearly Rs 2 crore to provide free vaccination to its customers.

The mortgage lender had earlier announced that it would bear the vaccination cost of its employees.

“Customers in the affordable housing space are not very well off and for them even the small sum to be incurred in vaccination through private players can become a big deterrent, this in turn can derail the vaccination drive,” said Ravi Subramanian, MD, Shriram Housing Finance. “We would be reaching out to all customers with details of this program.”

Several banks including State Bank of India, HDFC Bank, ICICI Bank, Axis Bank have said that they would bear the vaccination cost of employees.

State Bank of India has set up an internal task force to extend immediate assistance to its members.

A Quick Response Team (QRT) headed by a General Manager has been set up at Corporate Centre for monitoring the COVID position at the whole Bank level,” said Rana Ashutosh Kumar Singh, DMD (HR) & Corporate Development Officer, SBI. “Similar teams headed by Deputy General Managers have been set up in all 17 Circles for monitoring the COVID situation in their area and providing assistance to staff and their family members.”

HDFC Bank has converted its training centres in Pune, Bhubaneswar and Gurgaon into isolation centres to deal with Covid-19-related emergencies for employees with symptoms. The bank has also tied up with hotels across the country for rooms.

Some banks have started tying up with doctors who could guide employees in dealing with their Covid-19-related fears. About 1.5 million people are employed across Indian banks.



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Banking is an essential service; allow vaccinations for bankers on priority, asks ICICI Bank, BFSI News, ET BFSI

Banking & Finance

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ICICI Bank on Thursday said it is “much better” prepared to restrict the impact of the second coronavirus wave on its operations because of last year’s experience but appealed for banks’ employees to be allowed to take vaccinations on a priority basis as they are rendering an essential service. The second largest lender warned that if banking services were to fail, it can have an adverse impact on the economic activity, and hence it is pertinent for ensuring that at least the branch staff is allowed to take vaccinations.

The comments come at a time when localised lockdowns are being announced across many pockets of the country in view of the rising COVID infections, which are breaching the 3 lakh mark daily and also resulting in over 2,000 officially counted deaths.

“We are an essential services… we are all exposed (to customers). We don’t have the luxury. But we are not allowed vaccinations, not allowed to board trains, not allowed to board buses. So, what kind of essential services we are? More push should be there,” its executive director Anup Bagchi told reporters.

He warned that if banking operations get affected, we may have to face an economic crisis as well after the ongoing health crisis, and cited the case of a single automated teller machine shutting down for seven days to illustrate his point.

There is a case for “higher sensitivity” when classifying essential services, Bagchi said, stressing that there are other essential services also and bankers exposed to customers in branches should be allowed to vaccinate because they are exposed to walking-in customers.

Starting May 1, the central government has allowed every adult the chance to get vaccinated. However, concerns are being raised about the efficacy of such a move because of lack of vaccine stocks.

Meanwhile, Bagchi said the bank is much better prepared to take on the second wave of the pandemic because it had a system in place to take care of the disruptions coming because of the lockdowns as compared to last year’s experience, where it had to overhaul things.

Bagchi said an end-to-end digital journey where there is no need for a physical touch at all is essential while extending banking services and after the announcement of the national lockdown last year, it had to work on ensuring the same.

Further to the same, the bank on Thursday launched a ‘merchant stack’ which will help deliver seamless banking services, including a zero-balance current account, instant credit, a digital store management, a loyalty programme and other value added services to the 2 crore merchants nationally.

Bagchi compared the new services akin to a master switch where the customers will not be forced to come to the bank repeatedly for newer services, and added that the bank has put in place a refined data analytics back-end which will take care of loan decisions based on dynamic data points such as the transactions happening at the merchant’s end, inventory before giving the working capital credit of over 6 months.

From a risk perspective, Bagchi said the bank has built a strong portfolio in the business banking side, where its ability to make use of the data it possesses has ensured that the credit costs are less than 1 per cent as against double-digit figures for some lenders.

Declining to give a target of the number of customer relationships they are looking at, Bagchi said the fintechs cannot offer an end-to-end service like banks can.

For ICICI Bank, revenues from the stack can flow from fees, interest on credit offtake, float on balances in the accounts and merchant discount rate, he said.



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HDFC Bank, ICICI, Axis retail loan recast thrice corporate ones, BFSI News, ET BFSI

Banking & Finance

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It was not corporates but retail borrowers who rushed to avail the debt recast scheme announced by the Reserve Bank of India to alleviate pandemic stress last year.

Retail loan restructuring by top three private banks, HDFC Bank, ICICI Bank and Axis Bank, at Rs 6,600 crore, was three times the Rs 2,100 crore restructured loans by corporates, according to a report.

However, while the retail loan restructuring ended by March 31, corporate loan recasts are allowed till June end.

Fresh concerns

With a fresh surge in Covid infections and subsequent lockdowns, lenders are staring at renewed stress in loan accounts.

Sameer Narang, Chief Economist of Bank of Baroda, recently told ETBFSI that the salaried segment is still alright but the informal sector will be impacted. “Banks may not be that impacted as banks do not cater the informal sector in a big way as NBFCs does. There will be an impact on NBFCs, and they would require some degree of support. It also depends upon the pace of the second wave. We should wait and see how things pan out. If it is a phenomenon for 6-8 weeks then most of the segments will ride it over. If it lasts longer then this might be an issue for segments. It is very difficult to create a policy in an uncertain environment.”

Asset quality

HDFC Bank, ICICI, Axis retail loan recast thrice corporate ones

Ratings agency Icra too had raised concerns over the asset quality of retail loans.

The rising Covid cases have again raised concerns on the asset quality of retail loans from non-banking financial companies (NBFCs) and housing finance companies (HFCs), according to investment information agency ICRA.

The restrictions on movement will have a bearing on the collection efforts of NBFCs especially for microfinance loans where cash collections still remain dominant, it said in a report.

Commercial vehicle loans can also face stress if the inter-state restrictions are re-imposed, though even the current restrictions put in place in key geographies like Maharashtra and Delhi where non-essential services are closed will lead to lower fleet utilisation for operators.

However, said ICRA, housing loans are expected to remain most resilient as was seen even last year given the secured nature of asset class and priority given by borrowers to repay them.

No relief measures

Banks, which got protection and support by a swift moratorium on loans when the pandemic first struck, have no such cover this time.

As the second wave intensifies, most of the relief measures and schemes announced by the government and Reserve Bank of India have expired. On top of it, the central bank is non-committal on moratoriums.
“In today’s conditions, there is no need for a moratorium,” RBI governor Shaktikanta Das had said after the central bank’s monetary policy review.

Also, a spike in overdue loans after the lifting of the moratorium has been worrying analysts.

“The level of loans in overdue categories has increased after the moratorium has been lifted and the impact on asset quality will be spread over FY2021 and FY2022 as various interventions and relief measures have prevented a large one-time hit on profitability and capital of banks,” Icra said in a report.

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ICICI Bank launches Merchant Stack, offering curated digital banking services to retail merchants, BFSI News, ET BFSI

Banking & Finance

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ICICI Bank announced the launch of its ‘Merchant Stack’, a set of digital banking services specially curated for retail merchants. Merchants —- grocers, supermarkets, large retail store chains, online businesses and large e-commerce firms can meet their banking requirements seamlessly so that they can continue to serve their consumers during the pandemic’s difficult times. This initiative is in line with the Bank’s ‘Business with Care’ principle. Retail merchants can avail these contactless services without visiting the Bank’s branches. They can use these services right away via InstaBIZ, the Bank’s mobile banking application for businesses.

Merchant Stack offers a variety of banking solutions and value-added services at one single place curated for the retailer eco-system. The stack’s key pillars are 1) a new account called “Super Merchant Current Account”; and 2) two instant credit facilities called “Merchant Overdraft” and “Express Credit,” both of which are focused on POS transactions and are industry firsts.) ‘Digital Store Management’ facility to help merchants take their business online; 4) exclusive loyalty rewards programme, an industry first feature; 5) value added services like alliances with major e-commerce and digital marketing platforms for expansion of online presence.

Anup Bagchi, ICICI Bank, on the launch, said, “There are over 2 crore merchants in the country with approximately USD 780 billion in value of transactions in 2020. They are expected to grow rapidly in the coming years. During these difficult times of the pandemic, it is our endeavour to enable the merchants banking platform that will help them to continue serve their customers. We have thus launched the ‘Merchant Stack’, which most importantly offers a range of ‘contactless’ banking services, providing safety to the merchants and their customers alike. It is also a continuation of ICICI Stack, which we introduced a year ago to provide all digital banking services to retail customers on a single platform.”

Furthermore, the Bank offers ‘Express Credit,’ which allows for immediate settlement of POS transactions. It provides greater convenience because retailers can immediately access funds, as compared to the industry practice of waiting a few days for credit for transactions made at POS machines.



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Lenders to approve the transfer of 30-40 loans by next week, BFSI News, ET BFSI

Banking & Finance

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The Indian Banks’ Association (IBA) has identified 102 corporate bad loans, totalling to Rs 2 lakh crore, where the amount outstanding in each is over Rs 500 crore that can be transferred to the proposed National Asset Reconstruction company (NARC) or bad bank.

It has asked its member banks asked members to identify large loans where they are lead bankers and get approval from co-lenders so that these loans can be sold to a National Asset Reconstruction company.

The loans identified by IBA include NPAs in a variety of industries — including oil, steel, cement and roads, with many admitted under the insolvency process. These loans are almost fully provided for over the years and they exclude the ones where there is fraud involved or those currently under liquidation. About 75% of the lenders by value need to approve to transfer the loans to an ARC.

The process

In the first phase, lenders are expected to approve the transfer of 30-40 loans by next week for transferring the loans from the books of banks is already in place.

Once the lenders decide on selling the loan, the NARC will make them an offer based on the scope of recovery. With the NARC’s offer on hand, the lenders will hold a ‘Swiss Challenge’, where rivals are allowed to better the offer made by a chosen bidder.

While rival in the private sector will be given an option to bid, it is unlikely they will succeed. This is because the security receipts issued by the NARC for 85% of the value of the loans would be guaranteed by the government. Since private companies do not have a government guarantee, they can only hope to win if they can provide cash. The Swiss Challenge will enable the public sector banks to comply with RBI’s norms that require banks to sell loans through a price-discovery process rather than doing a one-to-one deal.

The NARC will pay up to 15% of the agreed value for the loans in cash. The bad bank is also expected to do a good job in recovery as it will create a trust that will assign the task to an asset management company (AMC) in the private sector.

Each corporate nonperforming asset (NPA) will be converted into a special purpose vehicle, which will be sold by the AMC.

The bad bank

Nine banks and two non-bank lenders, including the State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB), are coming together to jointly invest Rs 7,000 crore of initial capital in a proposed bad bank that aims to help extract funds stuck in bad loans. Two other state-run financiers of power projects will also own stock in the bad bank.

Canara Bank, Union Bank of India and Bank of India will join their larger state-run peers as investors in the bad bank. ICICI Bank, Axis Bank and Life Insurance Corp of India-owned IDBI Bank are also among the shareholders. State-owned Power Finance Corp and Rural Electrification Corp will also be equal shareholders in the new company.

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RBI’s CEO tenure cap: Here’s how it will impact Uday Kotak; HDFC Bank, ICICI Bank, Axis Bank safe

Personal Finance

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Analysts believe that this development is marginally negative for Kotak Mahindra Bank, as Uday Kotak, the promoter MD and CEO, will not be eligible for reappointment once his term gets over.

The Reserve Bank of India’s (RBI) final guidelines on the tenure of bank MD, CEOs, or Whole Time Director (WTD) will apply to private lenders, small finance banks (SFBs), and wholly-owned subsidiaries of foreign banks. Under the new guidelines, the post of MD and CEO of a private bank cannot be held by the same individual for more than 15 years in one go. While, in the case of a promoter MD/CEO, the tenure will be capped at 12 years. RBI has noted that under special circumstances and at the discretion of the apex bank, the term for promoter CEO may be extended up to 15 years. “Banks such as HDFC Bank, ICICI Bank, and IndusInd Bank had a change at the helm in the recent past. However, banks like Kotak Mahindra Bank, DCB Bank, City Union Bank, Federal Bank, and RBL Bank have long-running tenures (+10 yrs) of the current MDs,” said Siji Philip and Dnyanada Vaidya, research analysts, Axis Securities.

RBI guidelines negative for Kotak Mahindra Bank

For Kotak Mahindra Bank and City Union Bank, the term extension has already been done till 2024 and 2026, respectively. Analysts believe that this development is marginally negative for Kotak Mahindra Bank, as Uday Kotak, the promoter MD and CEO, will not be eligible for reappointment once his term gets over. However, he will continue to remain a stakeholder in the bank. Uday Kotak got reappointed on January 1, 2021, for a period of three years. “Hence, his tenure will now end on 1 Jan 2024 and he is not eligible for reappointment as he has already completed 15 years as the MD and CEO,” said Suresh Ganapathy, analyst at Macquarie Research in a note.

Banks to comply with RBI guidelines by Oct 1, 2021

Ganapathy also said that the second in line Dipak Gupta (current Joint MD) may not be eligible to succeed Kotak as the CEO as the 15 year cap applies for all whole-time directors (WTD) on the board. RBI circular also stated that the upper age limit for MD and CEO and WTDs in the private sector banks would continue and no person can continue as MD and CEO or WTD beyond the age of 70 years. Banks are permitted to comply with these instructions latest by October 01, 2021. It should be noted that banks with MD and CEOs or WTDs who have already completed 12 or 15 years as MD and CEO or WTD, on the mentioned date these instructions coming to effect, shall be allowed to complete their current term as already approved by the Reserve Bank.

Kotak Mahindra Bank shares were trading nearly 3 per cent higher at Rs 1,799 apiece on BSE in intraday deals on Wednesday. So far, a total of 46,000 shares have traded on BSE, while a total of 19.40 lakh shares have exchanged hands on NSE. RBI also clarified that the individual will be eligible for re-appointment as MD and CEO or WTD in the same bank, if considered necessary and desirable by the board, after a minimum gap of three years, subject to meeting other conditions. “During this three-year cooling period, the individual shall not be appointed or associated with the bank or its group entities in any capacity, either directly or indirectly,” RBI said.

HDFC Bank, ICICI Bank, Axis Bank seem fine

According to Ganapathy, the CEOs of HDFC Bank, ICICI Bank and Axis Bank have plenty of time and can be the CEO for more than a decade as they were appointed as the CEO recently. HDFC Bank CEO took charge last year whereas ICICI Bank CEO took charge a couple of years ago. Similarly, Axis CEO also can be the CEO for more than a decade.

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RBI’s new rule on tenure will promote younger lot at bank, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India has put a cap on the maximum age of a bank CEO, paving the way for a younger lot to helm banks transitioning into digitalisation.

The Reserve Bank of India has fixed the tenure of MD, CEO and whole-time director (WTD) in a private sector bank at 15 years and prescribed the maximum age of 70 years for such functionaries.

This will lead to a change in succession planning at the banks.

The impact

Uday Kotak, the promoter MD and CEO, got reappointed on January 1, 2021, for three years. His tenure will end on January 1, 2024, and is not eligible for reappointment as he has already completed 15 years as the MD and CEO.

HDFC Bank, ICICI Bank, Axis Bank CEOs have had plenty of time and can be the CEO for more than a decade as they were appointed on the post recently.

IndusInd Bank CEO Sumant Kathpalia took charge last year and can continue at the helm of affairs for more than a decade

Kamakodi, CEO of City Union Bank, will complete his 15-year tenure in May 2026, which will be two years before his retirement.

In the case of Bandhan Bank, if the RBI considers the date of conversion to bank, which is five years ago, then C S Ghosh has a long time ahead.

The upper limit of 15 years for MD and CEOs may increase the scope for a few more years at the helm for banks like DCB, Federal and RBL.

The road ahead

The provision that individual will be eligible for re­appointment as MD and CEO or whole-time director in the same bank after a minimum gap of three years, leaves an opportunity for the promoter-CEO to take the bank helm after a gap of three years

Experts say while the tenure cap benefits new age banks, which need a younger lot to steer them, the bank-promoter CEO enterprise would have an impact.

The new norms will also lead to bigger involvement of independent director and non-executive directors in the bank affairs and help in good governance and vigil. 0

The RBI directives

These directives form part of the instructions issued by the RBI with regard to the chair and meetings of the board, the composition of certain committees of the board, age, tenure and remuneration of directors, and appointment of the WTDs on Monday.

The RBI said it would come out with a Master Direction on Corporate Governance in banks in due course.

“Subject to the statutory approvals required from time to time, the post of the MD & CEO or WTD cannot be held by the same incumbent for more than 15 years.

“Thereafter, the individual will be eligible for re-appointment as MD & CEO or WTD in the same bank, if considered necessary and desirable by the board, after a minimum gap of three years, subject to meeting other conditions,” the RBI said.

It added that during this three-year cooling period, the individual shall not be appointed or associated with the bank or its group entities in any capacity, either directly or indirectly.

With regard to the upper age limit for MD & CEO and WTDs in the private sector banks, the RBI said that no person can continue on such positions beyond the age of 70 years. The banks” boards, however, will be free to prescribe a lower retirement age for the WTDs, including the MD & CEO.

The maximum age limit for chairman and non-executive directors has been fixed at 75 years.



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