Tag: rbi guidelines

What is tokenisation, and how can it ensure safe transactions?, BFSI News, ET BFSI

Banking & Finance

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When buying a product online, we are often forced to store our credit or debit card details on the e-commerce platform. To ensure safety of this, the Reserve Bank of India issued guidelines last month, allowing card-on-file tokenisation.

Recently, Visa, a digital payments platform, launched its card-on-file tokenisation service in India.

Here’s what you need to know about the upcoming advancement in India’s digital payments system:

What is tokenisation?

As per guidelines, tokenisation is when credit or debit card details can be replaced with an alternate code, called “token”, which can be generated by the holder to make payments without entering their account details.

This devaluation of card details reduces risk and vulnerability of sensitive data, thereby reducing the chances of fraud arising from sharing card details.

Furthermore, if the customer wants to convert its token back to their actual card details, they can do so. This process is known as de-tokenisation.

What is a token, and how can it be used?

The 16-character “token” generated is free-of-cost, and can be used to perform contactless card transactions at point-of-sale (PoS) terminals, QR code payments, and now for card-on-file (CoF) transactions.

A customer can make a CoF transaction, after authorising a token to their merchant. The merchant can store the token, and use that to bill the customer’s products. Merchants here can be refered to e-commerce companies, airlines and supermarket chains.

The RBI has directed merchants not to store customers’ card details in their systems from January 1, 2022.

How do you generate a token?

The cardholder can generate a token by first requesting for a token on the app provided by the token requestor – the entity that accepts request from the customer for tokenisation of a card. Then, the company will pass the request on to the card network to issue a token. The card network, after seeking consent of the card issuer, will issue a token, which will have a combination of the card, the token requestor, and the device.

This process can be done through mobile phones or tablets for all use cases and channels like contactless card transactions, payments through QR codes and apps.

Tokens are generated by payment companies, which act like Token Service Providers (TSPs). They will provide tokens to mobile payment or e-commerce platforms so that the token can be used during transactions.

If a customer enters their card details in a virtual wallet like Google Pay, these platforms ask one of these TSPs for a token. Only after the TSPs get the go-ahead from the customer’s bank, a code is generated and sent to the user’s device. Once the token has been generated, it remains linked to the device and cannot be replaced.
Consequently, each time a customer uses their device to make a payment, the payments platform can authorise the transaction by simply sharing the token.

How can you register for tokenisation, and is it mandatory?

The ability to tokenise and de-tokenise card data will be with the same TSP, and if a customer wishes to register their card for tokenisation, they will have to first give their consent through Additional Factor of Authentication (AFA), RBI says. Tokenisation is not mandatory, and the customer will be given a choice of selecting the use case and setting-up of limits. The stakeholders involved in a tokenised card transaction are the merchant, the merchant’s acquirer, card network, token requestor, issuer and customer.



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Local audit firms see surge in NBFC clients with Sept 30 deadline for appointment of auditors

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Domestic audit firms are seeing a surge in new clients from non banking financial companies with the September 30 deadline, imposed by the Reserve Bank of India for the appointment of statutory auditors, looming ahead.

According to industry sources, almost all large non-banking financial companies (NBFCs) have appointed statutory auditors in line with the new norms.

“It is a closed chapter now. NBFCs have followed the Reserve Bank of India guidelines and most of them have appointed or are in the process of appointing auditors under the new norms,” said a person familiar with the development.

Level playing field

Domestic audit firms said the new guidelines have created a level playing field, giving them an opportunity to start audits of these firms, which were largely the domain of the Big Four audit firms in the past.

“Larger Indian audit firms are being sought after and almost all large NBFCs and banks have already appointed auditors. Those left behind are finding it difficult to get good auditors. There is a huge churn in the industry due to the new audit guidelines. Several mid-sized domestic audit firms in Mumbai have benefited from these guidelines as the value that they bring to the table is now being recognised and appreciated more by the corporate world,” said Ameet Patel, Partner, Manohar Chowdhry & Associates, and Past President of Bombay Chartered Accountants’ Society.

It is a misnomer that only the Big Four firms can deliver good quality audits and multi nationals operating or wanting to operate in India need to accept that, he added.

Also see: ICAI to cooperate with Institute of Professional Accountants of Russia for training, research

Sumit Maheshwari, Partner, Ashok Maheshwary and Associates LLP, a CA firm, agreed. “The RBI guidelines have created a level playing field for mid-sized domestic audit firms and helped us in getting to audit more NBFCs than earlier. We have already onboarded some NBFCs. A joint auditor brings a second level of check and also helps audit firms gain more experience,” he said.

Others pointed out that even the Big Four auditors have Indian teams working for them.

“These large firms also use the expertise of domestic auditors but till now, this had been the near exclusive domain of these firms because they are seen as big brand names,” said another person, who did not wish to be named.

New guidelines

In a bid to ensure independence of bank auditors, the RBI issued guidelines for the appointment of statutory central auditors or statutory auditors in April this year. Under the norms, it made joint audit mandatory for entities with asset size of ₹15,000 crore and above, capped the number of audits a firm can perform in a year at four banks, and eight NBFCs and urban cooperative banks (UCBs), and reduced the tenure of auditors.

UCBs and NBFCs were given the flexibility to adopt these guidelines from the second half of the current fiscal year.

Though the norms had led to some concern, including requests to push back the guidelines, the industry has fully adapted to it now.

Nihar N Jambusaria, President, ICAI, had in May welcomed the guidelines and said, “The new norms will bring a large number of capable audit firms into the banking and financial sector audit. There is no dearth of talent and the new RBI norms will tap into an unutilised talent pool in the fraternity.”

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RBI issues guidelines for amalgamation of district central co-op banks with state co-op banks, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: The Reserve Bank said it will consider amalgamation of District Central Co-operative Banks (DCCBs) with State Cooperative Banks (StCBs) subject to various conditions, including that a proposal should be made by the state government concerned.

The Banking Regulation (Amendment) Act, 2020 has been notified for the StCBs and DCCBs with effect from April 1, 2021. Amalgamation of such banks need to be sanctioned by the Reserve Bank of India.

RBI has come out with the guidelines after a few state governments approached it for amalgamation of DCCBs with StCBs as a two-tier Short-term Co-operative Credit Structure (STCCS).

As per the guidelines, RBI will consider proposals for amalgamation “when the state government of the state makes a proposal to amalgamate one or more DCCB/s in the state with the StCB after conducting a detailed study of the legal framework”.

Besides, there should be a an additional capital infusion strategy, assurance regarding financial support if required, projected business model with clear profitability and proposed governance model for the amalgamated bank.

The scheme of amalgamation has to be approved by the requisite majority of shareholders. Also, NABARD has to examine and recommend the proposal of the state government.

“The proposal for amalgamation of DCCBs with the StCB will be examined by Reserve Bank in consultation with NABARD and the sanction/ approval will be a two-stage process,” the guidelines said.

In the first stage, an ‘in-principle’ approval will be accorded subject to fulfilment of certain conditions, following which the processes for amalgamation may be initiated by all concerned.

After completion of the first stage, NABARD and RBI may be approached for final approval along with compliance report, as per the guidelines.

The guidelines also said that if as a result of share swap ratio based on net worth, shareholders of some DCCBs cannot be allotted any shares, then the state government should infuse sufficient capital in such lenders to ensure that the shareholders are allotted at least one share each.



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How government business will help private banks, BFSI News, ET BFSI

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The central government has allowed permission to new private banks for conducting government-related business will be given under the RBI guidelines. The government has indicated the RBI to allow other private banks to perform government-related business to ensure there is a level playing field.

The potential

With deposits of at over Rs 11 lakh crore, the government sector, both Central and states combined, business is very lucrative for the private sector banks. It is a source of bulk deposits, which gives them ‘float’ money that can be deployed in the overnight market. It helps get low-cost and stable deposits and customer acquisition with scores of government employees opening accounts.

It generates commission income, which though is falling, forms a substantial chunk.

How can private banks benefit

Private banks are more aggressive in marketing and technology savvy than PSBs. However, they do not have a branch network that rivals PSBs which are spread to the village levels. Private banks will find it tough to give competition to PSBs in the hinterland.

Also, private banks, with their sparse branch networks, will find the small value pension business unviable, which the PSBs with their vast manpower strength can serve. Also, shifting the pension account business would be cumbersome for many

What should the private banks do?

Experts say private banks should focus on garnering new government business, which will help them acquire new customers.

With the growing number of taxpayers and development programmes such as Jan Dhan, the government business remains lucrative for the private banks. However, it may be still some time they catch up with the PSB peers.

What the Finance Minister says

“Now, following the existing norms based on which several banks have been given permission to do the business. So, those rules as per the RBI guidelines be applied on newer banks and new private banks which approach the RBI,” finance minister Nirmala Sitharama said while giving permission to new private banks.

“Some customers are already benefiting from private banks from such services. The attempt now is to bring a level playing eld. Some private banks are already doing, all public sector banks are doing, why not extend to all private sector banks so that everybody gets an equal opportunity,” she explained.

This is being done because the business is growing and many more citizens are approaching the banks. As it was highlighted, the ease of doing business will have to be extended to all customers, she said.



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PMC Bank restrictions extended by 3 more months; RBI says bank needs more time for reconstruction

Banking & Finance

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Meanwhile, the regulator has also extended the restrictions placed on PMC by three months till March 31, 2021, until the proposals are studied.

The Reserve bank of India has further extended restrictions of Punjab and Maharashtra Cooperative Bank (PMC Bank) by another three months. RBI said that it is considered necessary to extend the directions, keeping in view the best interest of all stakeholders. The restrictions will now be imposed till 31 March 2021, instead of  23 December 2020. The RBI further said that all other terms and conditions of the Directives under reference shall remain unchanged. PMC bank was placed under restrictions with effect from 23 September 2019, and the directions were last extended on 19 June 2020, up to 22 December 2020.

The PMC Bank had invited Expression of Interest (EoI) from eligible investors for investment or equity participation for its reconstruction, for which the last date for submission of EoI was 15 December 2020. The RBI further said that in response to the EoI, four proposals have been received. These proposals will be examined by the bank, on the basis of their viability and feasibility, taking into account the best interest of the depositors. The central bank underlined that the bank would need some more time to undertake this process.

Last year, the RBI detected certain financial irregularities, and hiding and misreporting of loans given to real estate developer HDIL. It’s exposure to HDIL was over Rs 6,500 crore or 73 per cent of its total loan book size of Rs 8,880 crore as of 19 September 2019. Initially, the RBI had allowed depositors to withdraw Rs 1,000 which was later raised to Rs 1 lakh per account to alleviate their difficulties.

Meanwhile, during the last fiscal year 2019-20, the PMC Bank had registered a net loss of Rs 6,835 crore and had a negative net worth of Rs 5,850.61 crore. The proposal to invite investors for the bank stated financial institutions, including banks and NBFCs; and individuals or group of individuals or companies, societies, trusts, or any other such entities having adequate net worth, eligible for investment.

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