Tag: RBI

RBI lifts restrictions imposed on Diners Club International

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The Reserve Bank of India has lifted business restrictions on Diners Club International, which would enable it to once again on-board new customers on to its card network.

“In view of the satisfactory compliance demonstrated by Diners Club International Ltd with the RBI circular dated April 6, 2018, on Storage of Payment System Data, the restrictions imposed, vide order dated April 23, 2021, on on-boarding of fresh domestic customers has been lifted with immediate effect,” the RBI said on Tuesday.

RBI had on April 23, 2021, imposed restrictions on Diners Club International from on-boarding new domestic customers onto its card network from May 1, 2021. This was due to non-compliance with norms on storage of payment system data.

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RBI to organise its first global hackathon beginning Nov 15

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The Reserve Bank of India (RBI) on Tuesday said it will organise its first global hackathon “HARBINGER 2021 – Innovation for Transformation”, with the theme ‘Smarter Digital Payments’, for a month beginning November 15.

The Central bank has invited participants to identify and develop solutions that have the potential to make digital payments accessible to the under-served, enhance the ease of payments and user experience while strengthening the security of digital payments and promoting customer protection.

Also read: RBI lifts restrictions imposed on Diners Club International

Specifically, RBI wants innovative ideas for four problem statements – innovative, easy-to-use, non-mobile digital payment solutions for converting small-ticket cash transactions to digital mode; context-based retail payments to remove the physical act of payment; alternate authentication mechanism for digital payments; and social media analysis monitoring tool for detection of digital payment fraud and disruption in the payment and settlement systems landscape.

The hackathon is owned and sponsored by RBI and will be hosted on the Application Programming Interface Exchange (APIX) platform.

The Central bank said winners in each category of problem statements will get prize money of ₹40 lakh. The runner-up will get ₹20 lakh.

“Participants from all backgrounds and geographies are welcome, albeit knowledge about the Indian payment systems market and consumers. Participants should be open to forming an incorporated entity in India if they are adjudged winners of the hackathon,” RBI said in a statement.

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RBI lifts biz sanctions imposed on Diners Club, BFSI News, ET BFSI

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The Reserve Bank of India on Tuesday lifted the ban imposed on Diners Club International in April from onboarding new customers for flouting data storage norms. The banking regulator noted that the ban was being lifted after Diners was found to have complied with the stipulated rules.

“In view of the satisfactory compliance demonstrated by Diners Club International Ltd. with the Reserve Bank of India (RBI) circular dated April 6, 2018 on Storage of Payment System Data, the restrictions imposed, vide order dated April 23, 2021, on on-boarding of fresh domestic customers have been lifted with immediate effect,” the regulator said in a statement.

In FY22, India’s banking regulator had barred three US-based card networks namely MasterCard, American Express and Diners Club International from doing new card business in India as these companies have been flagged as non-compliant with local data storage rules by RBI.

While New York-headquartered American Express and Illinois-based Diners Club were prohibited by the central bank on April 23 from issuing new cards on their respective networks. On July 14, Mastercard – one of the world’s leading card operators – was also barred from doing new card business in India owing to similar non-compliance.

As per RBI’s data localisation rules introduced first in April of 2018, payment operators in India must store data in a server physically present in India. Additionally, these entities are required to submit System Audit Report (SAR) conducted by a CERT-In empanelled auditor.

The Indian central bank had tightened data storage norms for PSOs in India through a notice issued to chief executives of all such licensed companies in India.

As per the rules introduced in March, all PSOs from FY22 were mandated to submit detailed “compliance certificates” to the central bank twice a year signed by the respective chief executives or managing director, confirming adherence to all RBI regulations around security and storage of payment data.

These requirements are over and above the ones mandated by the central bank in April of 2018 where it asked all PSOs to submit board-approved annual System Audit Report (SAR) by CERT-empaneled auditors.

These companies were also asked to submit a one-time compliance report with data localization norms which mandate the data relating to payments in India will be stored in a server physically present in the country, by December of 2018.

RBI had asked these certificates to be submitted on April 30th and October 31st of every year.



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Banks, ATM operators seek RBI to review penalty scheme for dry ATMs

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Banks and ATM operators are hopeful that the Reserve Bank of India (RBI) will soon review the penalty on ATMs that have run out of cash but many are on a wait-and-watch mode on the expansion of their ATM networks.

“With the penalty in place, it makes more sense to have ATMs on-site along with bank branches than to keep them off-site. This would ensure that the ATMs can be serviced easily and frequently,” noted a senior bank executive.

“We are hopeful that there will be some relief. Otherwise, the penalty could also impact expansion into semi-urban and rural areas as there are often logistical challenges in loading cash,” noted another banker.

The RBI had in August this year announced the scheme of penalty for non-replenishment of ATMs under which ATMs with no cash for more than ten hours in a month will attract a flat penalty of ₹10,000 each. The scheme has come into effect from October 1, 2021.

Scaling down

“The penalty may impact the deployment of ATMs in rural and remote locations. Withdrawals would become difficult in such a scenario, especially when there is a focus on financial inclusion,” said Radha Rama Dorai, Secretary, Confederation of ATM Industry (CATMi).

CATMi had recently also made a representation to the RBI pointing out that while it is supportive of the move that would help customers, the ATM industry is already under tremendous pressure due to Covid, will have no option but to scale down dramatically.

It estimates that about 70 to 80 per cent of semi-urban and rural ATMs and 20 to 30 per cent of urban ATMs will be liable for the penalty. The likely penalty on operators will be around ₹80-100 crore per month, it had said.

“We hope to get a positive response from the RBI on our representation,” said Dorai.

RBI Deputy Governor T Rabi Sankar had on October 8 also said the RBI is reviewing this penalty scheme after getting feedback from lenders.

“We have received various feedback — some positive and some raising concerns. There are issues specific to locations. We are trying to take all the feedback and have a review and see how best it can be implemented,” he had told reporters.

There are about 2.13 lakh ATMs in the country as of September 30, 2021, of which 1.15 lakh are on-site and the balance 97,383 are off-site.

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FPIs can buy debt securities issued by InvITs, REITs: RBI

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The Reserve Bank of India on Monday said foreign portfolio investors can acquire debt securities issued by Infrastructure Investment Trusts and Real Estate Investment Trusts.

Within the limits

Such investments shall be reckoned within the limits and subject to the terms and conditions for investments by FPIs in debt securities under the respective regulations of Medium Term Framework and Voluntary Retention Route, said an RBI circular.

The RBI, on March 31, had left the limits for FPI investment in corporate bonds unchanged at 15 per cent of outstanding stock of securities for FY22, with the limit for the second half (October 2021 till March 2022) pegged at ₹6,07,039 crore against ₹5,74,263 crore for the first half (April-September 2021).

An announcement was made in the Union Budget 2021-22 that debt financing of InvITs and REITs by FPIs will be enabled by making suitable amendments in the relevant legislations. The decision is in line with the announcement, it said.

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IndusInd Bank’s ‘technical glitch’: RBI examining portfolio as part of an ongoing audit

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The Reserve Bank of India (RBI) is already examining issues around the technical glitch at IndusInd Bank’s subsidiary that led to 84,000 loans being disbursed without the customers’ consent. The lender will also undertake an external audit of the issue if required.

This was informed by IndusInd Bank’s Managing Director and CEO, Sumant Kathpalia, at an analyst call on November 6. He also denied allegations of evergreening of loans and stressed that there is strong risk management and a control framework in place – both within the bank and its microfinance subsidiary Bharat Financial Inclusion Ltd (BFIL).

“Yes, it is part of the annual review process which happens and it is already going on and they (RBI) are reviewing this portfolio,” Kathpalia said in response to a query on whether this issue would be a part of the risk-based supervision audit that is conducted by the RBI. “The whistleblower complaint was marked to the RBI also and the bank has kept the regulator abreast on its internal review process,” he further said.

Internal review

Meanwhile, responding to another query, Kathpalia said the bank will appoint an external auditor to validate the results of the internal review.

Also read: IndusInd Bank shares slump 11 per cent following loan evergreening issue

“We will have the review process completed. We will have a committee which will include external participants and an external auditor validating the results, and will have an independent process to give comfort to the investors that everything is right in BFIL. We will not be happy only with the internal audit,” he said.

In the call, Kathpalia also said the bank has a strong succession plan for BFIL in place in case its top management leaves. Non-executive Vice Chairman of BFIL, MR Rao, had stepped down in September but Kathpalia said he continues to work as an advisor with IndusInd Bank.

‘Unlisted company’

While analysts expressed surprise that this was not informed to the stock exchanges, Kathpalia maintained that BFIL is an unlisted company. “There was an agreement that he will retire in March 2021 and we had honoured that… he was also very upset on the 84,000 loans. We have taken action against certain persons,” he said.

Also read: Under fire, IndusInd Bank begins review of microfinance subsidiary

Trying to assuage concerns, he also said that the bank has been following a conservative provisioning approach.

“IndusInd Bank could have done better in terms of communicating about the management changes in BFIL and a technical glitch in the microfinance book, which led to allegations of evergreening in the MFI book (which otherwise has always been an area of suspicion). We believe that the bank’s turnaround story remains intact but it needs to work more on strengthening credit underwriting/risk management, and communication with the stakeholders to sustain the long-term rerating,” said Emkay Global Financial Services in a note on Monday.

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Towards a level playing field in ‘Business Correspondent’ model of banks

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The Reserve Bank of India (RBI) should rationalise the interchange fees for Aadhaar Enabled Payments System (AePS) transactions and also disincentivise Business Correspondents (BCs) for unfair business activities to generate commission, according to State Bank of India’s economic research report Ecowrap.

This can ensure a level playing field in the BC model followed by public sector banks (PSBs) and other banks.

AePS is a bank-led model that allows online interoperable financial inclusion transactions at point of sale/PoS (micro ATM) through the BC of any bank using Aadhaar authentication.

BCs are retail agents engaged by banks to provide banking services at locations other than a bank branch/ATM.

How to make BCs more viable

PSBs mostly follow ‘branch-led BC model’, while other banks follow ‘branch less/ micro ATM/kiosk application on mobile/corporate BC model’ for financial inclusion.

Three key facts

The report underscored three facts — more than 77 per cent Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts have been opened by PSBs; the number of BCs/customer service points (CSPs) of other banks largely outnumbered that of PSBs and, over the years, OFF-US transactions are increasing.

Data indicate that the share of AePS “OFF-US” transactions (where the card issuing bank and acquiring bank are different entities) in AePS increased from 4 per cent in September 2016 to 51 per cent in September 2021.

In AePS “ON-US” transaction, the card issuing bank and the acquiring bank are the same entity.

“Considering these facts, PSBs (that opened around 77 per cent of the PMJDY accounts) are now net payers of interchange fee. We estimate that the PSBs could be paying ₹600-700 crore per annum as interchange fee,” said Soumya Kanti Ghosh, Chief Economic Adviser, SBI.

He emphasised that since AePS works like a PoS, logically the ‘acquiring bank’ (the bank which has installed the PoS terminal at the merchant location) should pay the interchange fee to the ‘issuing bank’(the bank which has issued the card to the customer).

Alternatively, there could be rationalisation in interchange fee as there is no level playing field in infrastructure provided by all banks.

Holistic financial inclusion

With requisite savings, banks can further strengthen/upgrade their BC model and promote financial inclusion in a more holistic manner, the report said.

Currently, the account opening bank pays an interchange fee to the operator of the BC/ CSP when a customer makes a transaction at micro ATM that does not belong to the account opening bank (that is OFF-US transaction).

At present the interchange fee is 0.5 per cent of transaction amount (minimum ₹1 and maximum ₹15) for an OFF-US financial transaction and ₹5-7 for non-financial transaction.

The report noted that BCs convert AePS ON-US transactions of one set of bank customers to AePS OFF-US issuer transactions and also carry out multiple AePS ON-US and AePS OFF-US transactions on the primary bank application/software.

Women Business Correspondents: Agents of change in India’s financial inclusion

SBI’s economic research department cautioned that the ‘micro ATM/kiosk application on mobile’ model might also lead to several frauds as the mobile BCs introduce themselves as government persons and need biometric authentication to provide different types of subsidy.

PSBs, who are active in financial inclusion activities, have opened a large number of PMJDY accounts (out of 44 crore accounts, PSBs opened 34 crore accounts and non-PSBs 1.3 crore, rest RRBs) with minimal balance and thus incur recurring expenditure by way of servicing such customers, including issuance of free RuPay debit card, besides monthly remuneration for BC operations.

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Ten steps for overhaul of ARCs as competition for bad bank arrives, BFSI News, ET BFSI

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In a bid to streamline the functioning of asset reconstruction companies (ARCs), a Reserve Bank committee has come out with a host of suggestions including the creation of an online platform for the sale of stressed assets and allowing ARCs to act as resolution applicants during the IBC process.

Amortise loss

To incentivise lenders to sell their financial assets to ARCs at an early stage of stress, the RBI panel has recommended a dispensation to lenders, on an ongoing basis, to amortise the loss on sale, if any, over a period of two years. To optimise upside value realisation by lenders, it recommends a higher threshold of investment in security receipts (SRs) by lenders, below which provisioning on SRs held by them may be done on the basis of Net Asset Value (NAV) declared by the ARC instead of IRACP norms.

Online platform

An online platform may be created for sale of stressed assets and infrastructure created by the Secondary Loan Market Association (SLMA) may be utilised for this purpose. For all accounts above Rs 500 crore, two bank-approved external valuers should carry out a valuation to determine the liquidation value and fair market value and for accounts between Rs 100 crore to Rs 500 crore, one valuer may be engaged. Also, the final approval of the reserve price should be given by a high-level committee that has the power to approve the corresponding write-off of the loan.

Acquiring financial assets

In the interest of debt aggregation, the scope of Section 5 of the SARFAESI Act, and other related provisions, may be expanded to allow ARCs to acquire ‘financial assets’ as defined in the Act, for the purpose of reconstruction, not only from banks and ‘financial institutions’ but also from such entities as may be notified by RBI. RBI may consider permitting ARCs to acquire financial assets from all regulated entities, including AIFs, FPIs, AMCs making investment on behalf of MFs and all NBFCs (including HFCs) irrespective of asset size and from retail investors. ARCs should be allowed to sponsor SEBI registered AIFs with the objective of using these entities as an additional vehicle for facilitating restructuring/ recovery of the debt acquired by them.

Binding on lenders

If 66% of lenders (by value) decide to accept an offer by an ARC, the same may be binding on the remaining lenders and it must be implemented within 60 days of approval by majority lenders (66%). 100% provisioning on the loan outstanding should be mandated if a lender fails to comply with this requirement. Given that the debt aggregation is typically a time-consuming process, the planning period is elongated to one year from the existing six months. In cases where ARCs have acquired 66% of debt of a borrower, the Act should provide for two years of moratorium on proceedings against the borrower by other authorities. The Act should also provide that Government dues including revenues, taxes, cesses and rates due to the Central and state governments or local authority will be deferred in such cases.

Equity sale

For better value realisation for originators and enhancing the effectiveness of ARCs in recovery, even the equity pertaining to a borrower company may be allowed to be sold by lenders to ARCs which have acquired the borrower’s debt. The Committee recommends that ARCs may be allowed to participate in the IBC process as a Resolution Applicant either through a SR trust or through the AIF sponsored by them.

Allowing HNIs to buy SRs

For giving impetus to listing and trading of SRs, the list of eligible qualified buyers may be further expanded to include HNIs with minimum investment of Rs 1 crore, corporates (Net Worth-Rs 10 crore & above), all NBFCs/ HFCs, trusts, family offices, pension funds and distressed asset funds with the condition that (a) defaulting promoters should not be gaining access to secured assets through SRs and (b) corporates cannot invest in SRs issued by ARCs which are related parties as per SEBI definition.

Minimum SR investment

The interest of investors and investing lenders should be weighed against the need for distribution of risk among the willing investors. Therefore, it recommends that for all transactions, per SR class/ scheme, the minimum investment in SRs by an ARC should be 15% of the lenders’ investment in SRs or 2.5% of the total SRs issued, whichever is higher.

Credit rating agencies

Recognising the critical role of Credit Rating Agencies (CRAs) in the valuation of SRs and, therefore, the need for continuity in engagement of CRAs, the Committee recommends that ARCs must retain a CRA for at least three years. In case of change of a CRA, both parties must disclose the reason for such change.

Tax pass through

In the matter related to taxation of income generated from investment in SRs issued by ARCs, the possibility of a ‘pass-through’ regime for AIF investors may be looked into by the Central Board of Direct Taxes (CBDT). The CBDT may consider clarifying on the tax rate applicable to FPIs.



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