Tag: Indian Banks’ Association

Private banks too want the bad bank pie, BFSI News, ET BFSI

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With public sector banks queueing up to buy a bad bank stake, private lenders are also looking to invest in it.

Some private banks are seeking approvals to buy into National Asset Reconstruction Company Ltd (NARCL) or bad bank, though their stake will be lower than the PSBs.

Having secured a licence from the Registrar of Companies, the Indian Banks’ Association (IBA) will soon move an application to the Reserve Bank of India (RBI) to set up a Rs 6,000-crore National Asset Reconstruction Company Ltd (NARCL) or bad bank.

The process

With the registration of the company, the process for putting an initial capital of Rs 100 crore is on as per the guidelines, the sources said adding that the next step will be audit and then move an application to the RBI seeking a licence for the asset reconstruction company.

The RBI in 2017 raised the capital requirement to Rs 100 crore from the earlier level of Rs 2 crore keeping in mind the higher amount of cash required to buy bad loans.

Legal consultant AZB & Partners has been engaged for seeking various regulatory approvals and fulfilling other legal formalities.

The initial capital would come from eight banks who have committed, and the NARCL would expand the capital base to Rs 6,000 crore subsequently after the RBI’s nod.

Other equity partners would join after the RBI’s licence and even the board would be expanded.

SBI veteran to steer

IBA, entrusted with the task of setting up a bad bank, has put a preliminary board for NARCL in place. The company has hired P M Nair, a stressed assets expert from the State Bank of India (SBI), as the managing director. The other directors on the board are IBA Chief Executive Sunil Mehta, SBI Deputy Managing Director S S Nair and Canara Bank‘s Chief General Manager Ajit Krishnan Nair.

Finance Minister Nirmala Sitharaman in Budget 2021-22 announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books.

Several banks are moving to divest their stake from Asset Reconstruction Companies (ARCs) to free up capital in preparation to launch the bad bank.

Three public sector banks—Union Bank of India, Indian Bank, and Bank of India—said they jointly intend to sell up to 88.4 million shares, constituting up to 90.31 per cent of the total equity share capital of ASREC India Ltd, a Mumbai based ARC.



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Banks get time till March 2022 to implement lockable cassettes swap system for ATMs, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank has extended the deadline till March 2022 for banks to use only lockable cassettes for replenishing cash in ATMs.

Currently, most of the ATMs (automated teller machines) are replenished by way of open cash top-up or by loading cash in the machines on the spot.

To do away with the current system, the Reserve Bank of India (RBI) had asked banks to ensure that lockable cassettes are swapped at the time of cash replenishment in the ATMs.

Following representations received from banks citing difficulties in moving towards the lockable cassettes system, RBI has decided to extend the deadline for its implementation till March next year, according to a notification issued on Wednesday.

In April 2018, the apex bank had asked banks to consider using lockable cassettes in their ATMs which shall be swapped at the time of cash replenishment. It was to be implemented in a phased manner covering at least one-third ATMs operated by the banks every year, such that all ATMs achieve cassette swap by March 31, 2021.

“In this regard, representations have been received from Indian Banks’ Association on behalf of various banks expressing difficulties in meeting this timeline. Accordingly, it has been decided to extend the timeline for implementation of cassette swap in all ATMs till March 31, 2022,” RBI said.

Banks have also been asked to monitor progress and make the required course correction at the end of every quarter and report status to the RBI.

The recommendation to switch to lockable cassettes in ATMs was based on report of Committee on Currency Movement that was set up by the central bank.

At the end of May, there were 1,10,623 ATMs on site of banks and 1,04,031 of site-ATMs in the country.



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Multiple contempt petitions filed in SC against Shaktikanta Das, bank forum chief, others, BFSI News, ET BFSI

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A number of petitions have been filed before the Supreme Court seeking to initiate contempt of court proceedings against Reserve Bank of India (RBI) Governor, Shaktikant Das, Chief Executive of Indian Banks Association (IBA) and others for allegedly flouting the SC’s earlier order, by turning and declaring the account of the petitioners as Non Performing Assets (NPA) in connection with the moratorium matter.

The petitioners – M/s Azeez Trading Company, Umrazz Trading Corporation, Ajay Hotel and Restaurant, Latur, Maharashtra — have filed their plea through lawyer Vishal Tiwari and Advocate On Record (AOR) Abhigya.

The respondents, Reserve Bank of India (RBI) Governor, Shaktikant Das, Chief Executive of Indian Banks Association (IBA) were duty-bound to promulgate and ensure the compliance of the order of this court throughout the country but they deliberately didn’t, the petition said.

The Supreme Court’s order, dated September 3, 2020, was operational on all lending institutions/banks throughout the country and was passed in favour of all borrowers accounts to grant relief from financial stress during the COVID-19 pandemic, Tiwari said in the petition.

The September 3 order was passed in the presence of the respondents represented by their counsel and all were very well aware of the Stay order, the petition said.

It further claimed that the contemptuous act of the respondents had not only disobeyed the court’s order but also caused severe irreparable damage and loss to the petitioners.

“The petitioners have lost their image and has been defamed as the possession notice was published in the new papers of his locality which made the dignity of the petitioner lower,” it added

The contemptuous act of all the respondents has shaken the confidence of the public and has degraded the trust of the borrowers. In this Covid-19 pandemic where all borrowers are passing through the worst scenario and financial stress, the respondents’ alleged act is very disgraceful and contemptuous. The petitioners thereby sought the issuance of notice to the alleged contemnors for willfully violating the order/directions of the Apex Court passed in a writ petition.

“Punish the contemnors for having committed contempt of this Court,” the petition said.

Further, in the petition, Tiwari said that the stay order was passed in the pandemic COVID-19 for the benefit of stressed borrowers so that they shall not suffer in present financial crisis during the pandemic.

“There is already a slump in the work of the petitioner. The stay order was operating as a lifesaving drug but the contemptuous act of the respondent has brought a major setback to the petitioner and his survival has become critical,” the petition said.

Several petitions have already been filed in the same case before the Supreme Court.



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SBI Chairman Dinesh Khara explains rolling out RBI’s 5-May SME loan relief measures; ECLGS extended

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State Bank of India’s (SBI) Chairman Dinesh Khara talked about loans for SMEs, Covid-19 resurgence, and RBI’s relief measures of 5 May 2021 in a press conference on May 30, 2021.

SBI Press Conference HIGHLIGHTS: State Bank of India’s (SBI) Chairman Dinesh Khara talked about loans for SMEs, Covid-19 resurgence, and RBI’s relief measures of 5 May 2021 in a press conference on May 30, 2021. Chairman Khara explained how RBI’s SME loan relief measures, which were announced on May 5, 2021, will be rolled out. He informed that PSBs have formulated templated approach for restructuring loans to individuals, small businesses and MSMEs up to Rs 25 crore. In order to approach bank for resolution, customers can file an application on the portal at the bank website, they can make manual submission of applications at the branch. Khara also informed that government will provide 100 per cent guarantee cover to loans up to Rs 2 crore to hospitals/nursing homes etc for setting up on-site oxygen generation plants, interest rate capped at 7.5%. The validity of ECLGS has also been extended to September 30, 2021, or till guarantees for an amount of Rs 3 lakh crore is issued. The disbursement under the scheme has been permitted up to December 31, 2021.

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IBA reaches out to govt for refund of compound interest waiver by banks, BFSI News, ET BFSI

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The Indian Banks‘ Association (IBA) on behalf of lenders has approached the finance ministry to refund the burden fallen on their shoulders due to a recent Supreme Court judgment on the waiver of compound interest on all loan accounts which opted for moratorium during March-August 2020.

The March judgment of the apex court directed the banks to waive off compound interest on loans above Rs 2 crore availing moratorium as loans below this got blanket interest on interest waiver in November last year.

Compound interest support scheme for loan moratorium cost the government Rs 5,500 crore during 2020-21, and the scheme covered all borrowers including the prompt one who did not avail moratorium.

Various banks are at the different stages of executing the order.

Punjab & Sind Bank Managing Director S Krishnan said the burden on the bank due to waiver works out to be around Rs 30 crore.

The issue of reimbursement of the waiver amount by the government is being pursued by IBA on behalf of the banks, he said.

Asked if the finance ministry has responded to their request, he said, “So far, we have not heard anything positive on this.”

The apex court order this time is only limited to those who availed moratorium. So, the liability of the public sector bank should be less than Rs 2,000 crore as per rough calculations, sources had said.

The RBI on March 27 last year announced a loan moratorium on payment of instalments of term loans falling due between March 1 and May 31, 2020, due to the pandemic, later the same was extended to August 31.

The Supreme Court on March 23, 2021, directed that no compound or penal interest shall be charged from borrowers for the six-month loan moratorium period, which was announced last year amid the COVID-19 pandemic, and the amount already charged shall be refunded, credited or adjusted.

The apex court refused to interfere with the Centre and the Reserve Bank of India‘s (RBI) decision to not extend the loan moratorium beyond August 31 last year, saying it is a policy decision.

Rejecting pleas for a complete waiver on interest the court opined that such a move would have consequences on the economy. The bench also said that interest waiver would affect depositors. Along with this, the court also rejected pleas for further relief in the matter.

Soon after the order, the RBI 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 judgment.

The central bank also asked lending institutions to 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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Bank employees hard work during Covid rewarded as performance incentives roll out, BFSI News, ET BFSI

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The risk and hard work of bank employees during the Covid pandemic are being rewarded, though it is a small gain.

Employees of PSU banks which have posted profits are set to get a performance-linked component in the wage agreement signed with the Indian Banks’ Association (IBA) in November 2020.

Canara Bank this week paid out a performance-linked incentive to its employees, equivalent to 15 days’ pay. The bank has reported a net profit of Rs 2,557 crore for FY21 as compared to a Rs 5,838-crore loss in the preceding year.

Bank of Maharashtra has distributed a performance-linked incentive to its employees after posting a 187% increase in its fourth-quarter net profit to Rs 165 crore.

How much would SBI employees get

State Bank of India is also expected to announce an improvement in profits. In terms of the wage agreement, its 2.5 lakh employees would get an incentive of five days’ salary if the bank reported an increase in operating profit of between 5% and 10%, and 10 days’ if the increase is between 10% and 15%, and 15 days for any increase above 15%.

Performance-linked incentive plan

IBA had said that to inculcate a sense of competition and also to reward the performance, the concept of the performance-linked incentive (PLI) scheme has been introduced for the first time. The scheme will be effective from the current financial year.

The scheme in public sector banks is based on the operating profit or net profit of the individual bank. It is optional for private and foreign banks. As per the agreement, the PLI would be payable to all employees annually over and above the normal salary payable.

Unions opposition

The bank employees unions had opposed any move to introduce a performance-linked incentive for public sector banks proposed by Banks Board Bureau. They had said it would be a prelude to introducing differential pay as also the concept of Cost to Company at a later stage

Setting performance parameters at various levels of banking functions does not fit well into the banking environment as there are multiple functions for a few and specialist functions for another lot, they had said.

Such parameters may not work well with the functionaries in controlling offices who undertake jobs of evolving and implementing policies and guidelines at the back office. The introduction of such practices are aimed at bypassing the bipartite machinery and casting employees against their own colleagues, they had said.

Unions had also strongly opposed linking their salaries to the performance of the bank, arguing that the financial performance depends on the government policies over which they have no control. Also, most of the losses were on account of large corporate loans which are decided at the top level.

However, the IBA had insisted on the clause to reward better-performing banks and to inculcate a sense of competition among employees of public sector banks.

Improved performance

Despite the pandemic, most public sector banks are expected to improve their performance over the previous year. This is because by the time they finalised their results for FY20, the entire nation was in a lockdown and many banks made significant provisions for Covid impact. The four acquiring banks last year made significant fair value provisioning in the 10-bank mega-merger. As a result, most public sector banks are expected to report a profit during the current fiscal.



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

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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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HDFC Bank’s third party IT audit in final stages

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The third party independent audit of HDFC Bank’s IT infrastructure is in the final stages. The last outage in its net and mobile banking services on March 30 was not a capacity issue.

The bank is also working with existing customers in the face of the temporary ban in issuance of credit cards.

“The audit by the independent third party is in the final stages, and we will update further as we get to know more from the regulators,” said Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank in an analyst call after its fourth quarter results of the lender on April 17.

HDFC Bank is working on building capabilities in the area of core systems and is also working on migration to cloud for resiliency.

“We are also building new muscle and infusing new talent to execute these strategies and establish a digital factory,” he further said.

On the recent outage in its net and mobile banking services, he said it was “an intermittent issue on net and mobile banking that occurred due to a server hardware component failure, and has no correlation to any capacity issues”.

The Reserve Bank of India (RBI) had in February this year appointed an external IT firm for carrying out a special audit of the IT infrastructure of HDFC Bank, which has faced a number of outages in its digital banking services.

Concerned by the outages, the RBI had on December 2 last year also directed the lender to temporarily halt sourcing of new credit card customers as well as launches of digital business generating activities planned under its proposed programme ‐Digital 2.0.

Credit cards

On the credit card business, Vaidyanathan said the bank is focussing on engaging with existing customers, whose cards are either dormant or inactive to “resuscitate” them.

“This way portfolio activations and card dynamics are up, improving portfolio quality and increasing downstream activity,” he said.

Despite the temporary halt, HDFC Bank’s credit card advances grew by 12.3 per cent to Rs 64,674 crore for the quarter ended March 31, 2021 as against Rs 57,575 crore in the fourth quarter of 2019-20.

The impact of the non-issuance of cards is on new employees in corporates, on boarding of new corporates, Vaidyanathan said, adding that this loss of new customers can normally be made up within a few quarters of stoppage being lifted. This is because the bank continues to source liability customers, who will be pre-approved. “About three-fourths of our sourcing comes from existing customers of the bank,” he said.

Interest on Interest provision

The lender has also kept aside Rs 500 crore for interest on interest provisions, which is being worked with Indian Banks’ Association to standardise the computation across the system.

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

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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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