Tag: Ministry of Finance

Finance Minister Sitharaman announces bad bank, Cabinet approves backing of up to Rs 30,600 crore on securities receipts, BFSI News, ET BFSI

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Finance Minister Nirmala Sitharaman today announced the much-awaited bad bank, and said that the Union Cabinet approved on Wednesday the sovereign backing of up to Rs 30,600 crore for the securities receipts.

The planned National Asset Reconstruction Company Ltd (NARCL) will issue securities receipts to banks as it takes on non-performing assets from their books. These securities receipts will be valid for five years.

“The idea behind it is to ensure value locked within assets is used making banking system robust. So limit provides an incentive for banks. If process delayed beyond 5 years, guarantee can’t be invoked,” Sitharaman said.

Read: What is a bad bank and why is it needed?

The NARCL will pay up to 15% of the agreed value for the loans in cash and the remaining 85% would be government-guaranteed security receipts, the finance minister announced. State-owned banks will hold 51% stake, while FIs or debt management companies will hold 49%.

Financial Services Secretary Debasish Panda said the government will not face any fiscal outgo for the guarantees it provides to banks. NPAs worth Rs 2 lakh crore will be sent to the NARCL, and of this Rs 90,000 crore will be transferred in the first phase.

Along with NARCL, the government will also set up an India Debt Resolution company. The service company will manage assets and loop in market professionals and turnaround experts. Public sector banks and public FIs will hold a maximum of 49% stake and the remaining will be held by private banks.

Watch: Bad bank can only be a warehouse of bad assets, says Siby Antony

The banks’ asset quality review had happened in 2015, which had revealed very high incidence of NPAs. After recognition, quantification of NPAs started in a planned manner and state owned banks, in the last six years, recovered Rs 5,01,479 crore, she said.

In 2018, just two out of 21 public sector banks were profitable. But in 2021, only two banks reported losses, Sitharaman added.

Watch: Bad bank to preserve value, timely sale of stressed assets: IBA CEO

During the Union Budget 2021-22, Sitharaman had announced the creation of NARCL or bad bank to resolve large cases of stress. The bad bank will manage and dispose the assets to alternate investment funds and other potential investors for eventual value realisation, she had said.

In August, the Indian Banks’ Association (IBA) moved an application to the Reserve Bank of India (RBI) seeking licence to set up a the Rs 6,000-crore bad bank. The NARCL was incorporated last month in Mumbai, following the registration with Registrar of Companies.



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Moratorium banks’ depositors set to get up to Rs 5 lakh back by Nov 30, BFSI News, ET BFSI

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Depositors in dozens of co-operative banks currently under moratorium by the Reserve Bank of India (RBI) can look forward to quick settlement now. That is because the government has notified September 1, 2021 as the date from which depositors of banks under moratorium will get up to Rs 5 lakh within 90 days. This would mean that by November 30, 2021, depositors of banks under the moratorium are likely to get their money back. The Ministry of Finance made this announcement via a notification on August 27, 2021.

As per the finance ministry notification issued on August 27, “In exercise of the powers conferred by sub-section (2) of section 1 of the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021 (30 of 2021), the Central Government hereby appoints the 1st day of September 2021, as the date on which the provisions of the said Act shall come into force.”

Even depositors of banks that are already under moratorium by the RBI before the amendments were made will be eligible to get their money back within 90 days from September 1, 2021 i.e., by November 30, 2021.

Nishant Singh, Partner, Induslaw says, “Where RBI is working on a scheme of merger, arrangement or restructuring of the stressed bank, it can ask the DICGC to further extend the time taken by it to pay out deposit claims by another 90 days. In such cases, depositors may need to wait for 180 days instead of 90 days to get their insurance money. The main objective is to get more time for stitching a merger deal with a stronger bank and it will help the depositors to get their money back eventually.”

As per the RBI website, some of the banks that are currently under moratorium are Garha Co-operative Bank Ltd., Guna, Madhya Pradesh, Deccan Urban Co-operative Bank Limited, Vijayapura, Karnataka, Independence Co-operative Bank Ltd, Nashik, Maharashtra etc.

Recently, the government announced that depositors of failed or stressed banks that are placed under a moratorium by the central bank will be able to get their deposits back (up to Rs 5 lakh) back within 90 days from the start of the moratorium. The amendments in the DICGC Act was passed by the parliament in its Monsoon Session in August 2021.

How will depositors get their money back?
As explained by Finance Minister Nirmala Sitharaman, the 90-day period will be divided into two periods of 45 days. “The stressed bank on whom restriction is placed is expected to collate all information regarding the number of claimants and claim amount and inform DICGC about it within the first 45 days. Within the next 45 days, DICGC is mandated to process the claim and make payment to each eligible depositor,” finance minister Nirmala Sitharaman said during the press briefing on July 28, 2021.

“Normally, it takes 8 – 10 years after complete liquidation to get money under insurance; but now, even if there is a moratorium, within 90 days, the process will definitely be completed, giving relief to depositors,” the FM said in the press briefing on July 28, 2021.

The overall insurance amount of Rs 5 lakh includes both principal and interest held with the bank in the same right and capacity. This move is expected to cover around 98.3% of the total number of accounts and 50.9% of the value of total deposits held with the banks, the FM stated in the press briefing.

During a debate regarding the DICGC bill in the upper house of the parliament, it was clarified by the finance minister that PMC Bank depositors will also get the benefit of this amendment.

Deposits with all banks are covered under DICGC insurance cover of Rs 5 lakh; earlier many cooperative banks were not included in this coverage. However, in 2020 the government introduced an amendment in Banking Regulation Act where RBI was given complete regulatory control over cooperative banks and all banks were put under deposit insurance coverage.

Singh says, “In the last five years, almost 50 Urban Co-operative Banks (UCBs) have come under RBI’s All-Inclusive Directions and have posed a systemic risk in the banking sector. The amendment will pave the way for the stressed UCBs to merge with the stronger banks.”



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Govt appoints Lalit K Chandel on Bank of Maharashtra board, BFSI News, ET BFSI

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The government has appointed Lalit Kumar Chandel, Economic Adviser, Department of Financial Services, on the board of Bank of Maharashtra. He is appointed as Government of India nominee director on the board with effect from August 18, Bank of Maharashtra said in a statement on Thursday.

Chandel replaced Hrisheekesh Arvind Modak.

Chandel has served at various levels in different departments of Government of India, including banking, insurance, capital markets, external assistance, rural development, power, irrigation and health, it said.

He has held key positions of Director (Insurance), Department of Financial Services, Ministry of Finance; Executive Director, CVO and Financial Adviser, Insurance Regulatory and Development Authority of India, and Whole Time Director Finance, Telangana State Power Generation Corporation. PTI DP



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Govt appoints Lalit K Chandel on Bank of Maharashtra board, BFSI News, ET BFSI

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The government has appointed Lalit Kumar Chandel, Economic Adviser, Department of Financial Services, on the board of Bank of Maharashtra. He is appointed as Government of India nominee director on the board with effect from August 18, Bank of Maharashtra said in a statement on Thursday.

Chandel replaced Hrisheekesh Arvind Modak.

Chandel has served at various levels in different departments of Government of India, including banking, insurance, capital markets, external assistance, rural development, power, irrigation and health, it said.

He has held key positions of Director (Insurance), Department of Financial Services, Ministry of Finance; Executive Director, CVO and Financial Adviser, Insurance Regulatory and Development Authority of India, and Whole Time Director Finance, Telangana State Power Generation Corporation.



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RBI should appoint statutory auditors for public sector banks: ICAI

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The CA Institute has suggested that appointment of statutory central auditors (SCAs) of public sector banks should be done by the Reserve Bank of India and not by the bank managements.

The audit regulator is keen that the banks’ auditors be appointed on the lines of Comptroller and Auditor General of India appointing public sector entities’ auditors.

“We have suggested that RBI itself should appoint the statutory auditors of public sector banks. The current system of bank managements appointing statutory auditors should be done away with,” Nihar Jambusaria, President, Institute of Chartered Accountants of India (ICAI), told BusinessLine. This suggestion was conveyed to the central bank at a recent virtual interaction between the top brass of the CA Institute and senior RBI officials.

Also, the ICAI has made several suggestions on the RBI’s April 27 circular that prescribed norms for appointment of Statutory Central Auditors/Statutory Auditors in PSBs and statutory auditors for urban cooperative banks, non-banking finance companies and housing finance companies.

‘Minimum numbers’

Jambusaria said that CA Institute has suggested to the RBI that instead of prescribing the maximum number of SCAs in public sector banks, the RBI should set the the minimum numbers to be appointed. “We have suggested that instead of having a cap, there should be a minimum number and the current absence of minimum number is leading to reduction in overall number of auditors in PSBs,” he said.

Selection committee

It maybe recalled that bank managements have been appointing SCAs since 2008-09. However during 2011–14, the appointment was done by a Selection Committee comprising representatives of CAG, Ministry of Finance and IBA on a points-based system.

‘Not for deferring norms’

Asked to comment on corporate India’s recent suggestion to RBI that the entire new norms of the central bank be deferred by at least two years, Jambusaria said that ICAI is not in favour of such deferment. He also said that ICAI does not have any objections to making the concept of joint audits mandatory for banks and NBFCs with asset size of over ₹15,000 crore.

“Except for few changes which we have brought to the notice of RBI for consideration, we are happy with most of the norms in the central bank circular,” he said.

ICAI is also understood to have pitched for the reintroduction of compulsory three-year cooling off period after the completion of a SCAs tenure.

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Govt appoints Vandita Kaul as nominee director on board of Bank of India, BFSI News, ET BFSI

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State-owned Bank of India (BOI) on Friday said the government has appointed Vandita Kaul, additional secretary in the Finance Ministry, to its board as nominee director.

The bank said it has received the communication from the Finance Ministry about Kaul’s nomination on May 13, 2021.

The government has nominated Vandita Kaul, Additional Secretary, Ministry of Finance, Department of Financial Services as government nominee director on the board of directors of Bank of India with immediate effect, the lender said in a regulatory filing.

Bank of India has a total of eight members on its board, including the MD and CEO Atanu Kumar Das, its four executive directors, one nominee director each from the government and the RBI and one shareholder director.



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Fin Min lifts embargo on grant of government business to private banks, BFSI News, ET BFSI

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The Ministry of Finance on Wednesday said the embargo on allotment of government business to private banks has been lifted.

FM Nirmala Sitharaman‘s office in a tweet said, “Embargo lifted on grant of government business to private banks. All banks can now participate. Private banks can now be equal partners in development of the Indian economy, furthering government’s social sector initiatives, and enhancing customer convenience.”

The move got a swift response from the stock market with BSE Sensex rising over 1000 points and the NSE Nifty settled near the 15,000 mark.

DFS in a media brief said this move will enable private sector banks (only a few were permitted earlier) to conduct of centre-related banking transactions such as taxes and other revenue payment facilities, pension payments and small savings schemes.

It added, this step is expected to further enhance customer convenience, spur competition and higher efficiency in the standards of customer services.

“With the lifting of the embargo, there is now no bar on RBI for authorization of private sector banks (in addition to public sector banks) for government business, including government agency business. The government has conveyed its decision to RBI,” the brief further said.



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