Tag: RBI

Under fire, IndusInd Bank begins review of microfinance subsidiary

Banking & Finance

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Private lender IndusInd Bank has initiated an independent review of its microfinance arm Bharat Financial Inclusion Ltd (BFIL) to see if there was any process lapse or accounting failure after a complaint by a whistle blower.

“Should there be any need, the Bank will immediately take corrective action as appropriate and keep all the stakeholders adequately informed. The Bank has been following a conservative provisioning approach and reiterates that there is no change in the credit cost estimates including that in the micro-finance business,” IndusInd Bank said in a statement.

A group of senior officials at BFIL, a micro-finance lender, has alerted the Reserve Bank of India (RBI), IndusInd Bank CEO Sumant Kathpalia and independent directors of the bank of ‘misgovernance and lapse of accounting norms to evergreen loans’ since the pandemic.

Denies ever-greening charge

IndusInd Bank said its subsidiary disbursed nearly 84,000 loans without customer consent due to a technical glitch, even as it denied allegations of ever-greening of loans. It underlined that there is a strong risk management and control framework in place, both within the bank and at BFIL. “Due to a technical glitch in May 2021, nearly 84,000 loans were disbursed without the customer consent getting recorded at the time of loan disbursement. This issue was highlighted by the field staff within two days and the technical glitch was rectified expeditiously,” the lender said.

Of this, only 26,073 clients were active with the loan outstanding at ₹34 crore, which is 0.12 per cent of the September-end portfolio. “The bank carries necessary provision against this portfolio,” it said, adding that the Standard Operating Procedure has since been revised to make biometric authorisation compulsory.

Refuting allegations of “ever-greening”, it further said that all the loans originated and managed by BFIL, including during the Covid period, are fully compliant with the regulatory guidelines.

About 82 per cent of the BFIL serviced customers are in rural and deep rural India. All loans disbursed by BFIL are through biometric authorisation of the customers, except those disbursed due to the technical glitch, it further said, adding that in October 2021, nearly 100 per cent of the loan disbursements were in the bank accounts of the customers, as in pre-Covid time.

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How to financially prepare for a home loan interest rate hike in the future, BFSI News, ET BFSI

Personal Finance

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As mentioned earlier, the chances of further rate reduction are very low. However, home borrowers should not ignore the chance of rates going up from current levels. Since the rate transmission is smooth now, any rate increase by RBI will immediately reflect in their home loan rate. Any increase in the home loan rates will increase the EMI (or loan tenure) and could mess up your financial planning.

For instance, the EMI for a 20-year home loan of Rs 1 crore will be Rs 75,739 @6.7%. The same will go upto Rs 81,787 @7.7% and jump to Rs 88,052 @8.7%. The best thing to do in situations like this is to go for fixed-rate loans. However, the options are very limited and only a few options offer fixed rates that too for a limited period. More importantly, these partially fixed-rate home loans also charge higher interest rates.

Partially fixed loans will cost you more
Consider the additional costs before going for partial fixed loans.
While these rate increases are not in your hand, you can be prepared for that by assuming a higher rate of interest. “Instead of the very low rates now, assume a reasonable home loan rate of around 8.5% and invest the remaining EMI somewhere else systematically,” says Aparna Ramachandra, Founder & Director, Rectifycredit.com. For instance, the EMI for a 20-year home loan of Rs 1 crore is Rs 86,782 @8.5% and will be Rs 75,739 @6.7%. You should invest the difference of Rs 11,043 in a short-term debt fund every month. This corpus will act as a backup if the rates go up. You will be in a better position even if the rate doesn’t go up because this money will be getting into savings instead of spending.



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Indusind Bank says whistleblower claims baseless; gave 84k loans sans client consent in May, BFSI News, ET BFSI

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Mumbai, Terming whistleblower allegations on loan evergreening as “grossly inaccurate and baseless”, Indusind Bank on Saturday admitted to have disbursed 84,000 loans without customer consent in May owing to a “technical glitch”. Lending without the consent was reported by the field staff in two days, and the glitch was also rectified expeditiously, the private sector lender said in a clarification.

On Friday, there was a media report about anonymous whistleblowers writing to the bank management and the RBI about BFIL, the microlending-focused subsidiary of the bank, allegedly resorting to evergreening of loans, wherein existing borrowers unable to pay dues were given new loans to present the books as clean.

“The bank strongly denies the allegations of ‘evergreening’. All the loans originated and managed by BFIL, including during the COVID period which saw the first and second waves ravaging the countryside, are fully compliant with the regulatory guidelines,” an official statement said.

“Due to a technical glitch in May 2021, nearly 84,000 loans were disbursed without the customer consent getting recorded at the time of loan disbursement,” it added.

“Operational issues” due to the pandemic’s second wave like lockdowns, containment zones, and restrictions at the village/panchayat level had necessitated disbursement of some loans in cash, it said.

At the end of September, 26,073 of these 84,000 clients were active with the loan outstanding at Rs 34 crore, which is 0.12 per cent of the September-end portfolio, the bank said, adding that it carries necessary provisions against the loans.

It also said that the Standard Operating Procedure has since been revised to make biometric authorization compulsory, and that in October 2021, nearly 100 per cent of the loan disbursements were in the bank accounts of the customers, as in pre-COVID time.

During the pandemic, customers faced operational difficulties and some have turned to intermittent payers, though a large part of them demonstrated a strong intent to repay on many occasions, the bank statement said.

The bank added that help was rendered to such clients, including through additional liquidity support to the extent of 20 per cent of the outstanding as on February 29, 2020 as applicable under the ECLGS (Emergency credit line guarantee Scheme), restructuring, and additional loan with a longer tenor and lower EWI (equated weekly instalments) for customers, after they cleared of their arrears and with their due consent.

It can be noted that nearly all the lenders have reported reverses on the microloans front since the beginning of the pandemic. The activity is concentrated in rural areas, where field agents of a lender go deep to disburse loans and also collect dues in cash on a weekly basis.

With the easing of the lockdown measures, all lenders are reporting an improvement in collections and also disbursements.

Indusind Bank management had reported an increase in stress in the microfinance loans portfolio, with the gross non-performing assets ratio moving up to 3.01 per cent as of September, up from 1.69 per cent in June.

The fresh slippages in the book had stood at Rs 1,070 crore in the September quarter, while the net after-recoveries and upgrades stood at Rs 460 crore.

As per the media report on Friday, communication from the whistleblowers to the bank’s chief executive Sumant Kathpalia, independent directors and RBI officials had happened between October 17 and October 24. Additionally, there was also an “outsider” who had written to RBI on October 14, it said.

The report had highlighted that a month prior to the October 14 complaint, BFIL’s non-executive chairman M R Rao had stepped down and also flagged RBI’s concerns on the loans given without customer consent in his resignation letter, calling it a deliberate act to shore up repayment rates. PTI AA DRR DRR



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India’s forex reserves increase USD 1.9 bn to USD 642 bn, BFSI News, ET BFSI

Personal Finance

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India’s forex reserves have increased by USD 1.919 billion to USD 642.019 billion for the week ended October 29 on a healthy increase in the currency assets and value of gold, the Reserve Bank said on Friday. The overall reserves had declined by USD 908 million to USD 640.1 billion at the end of the previous reporting week.

Foreign currency assets, a major part of the overall reserves, increased by 1.363 billion to USD 578.462 billion for the reporting week, the RBI said in the weekly data.

Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

Value of the gold reserves increased by USD 572 million to USD 39.012 billion in the reporting week, the data showed.

The special drawing rights (SDRs) with the International Monetary Fund (IMF) rose by USD 17 million to USD 19.304 billion. The country’s reserve position with the IMF increased by USD 1 million to USD 5.242 billion in the reporting week, the data showed.

Also Read:

“India’s merchandise exports in October 2021 was USD 35.47 billion, an increase of 42.33 per cent over USD 24.92 billion in October 2020 and an increase of 35.21 per cent over USD 26.23 billion in October 2019,” as per an official statement.

At the interbank forex market, the rupee opened strong at 74.64 against the greenback and later gained strength to settle at 74.46, a level not seen since October 5. The local unit moved in a range of 74.46 to 74.64 in the day trade.

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Mid-size firms, retail lead the charge in credit rebound, BFSI News, ET BFSI

Personal Finance

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Indian lenders are beginning to see a pick-up in loan demand, with medium-sized firms and retail clients at the vanguard of a visible credit rebound.

Bank credit rose 6.8% in October, compared with 5.1% in the same period a year ago, show the latest figures published by the Reserve Bank of India (RBI).

Outstanding credit amounted to ₹110.5 lakh crore as of October 22, up ₹7 lakh crore in a year.

The pick-up is largely due to the push from government schemes even as large corporates and top rated borrowers continue to rely on capital markets and overseas money hubs where they manage to raise funds at much cheaper rates. India’s weighted average lending rates were at 7.2% in September, according to RBI data.

At the same time, the average rates for triple-A rated five-year corporate bonds were at 6% and at 5.29% for three-year maturity, show Bloomberg data compiled by ETIG.

The latest data on sectoral flow of credit offtake show that lending to medium-sized firms rose 49% year-on-year to ₹1.75 lakh crore as of end September compared with the same period a year ago.

Much of the lending is reckoned to be under the government’s Emergency Credit Line Guarantee Scheme (ECLGS) MSME sector, under which the government provides 100% guarantee to banks in respect of eligible credit facilities extended by it to its borrowers.

In addition, consumer durable loans have risen by 40% compared with 14.9% in the same period a year ago, with borrowers taking advantage of the reduced interest rates. With the government’s renewed thrust on the social sector, lending to infrastructure more than doubled to ₹1,323 crore in September from ₹1,081 crore a year ago.

On the liability side, the pace of deposit pick-up has slowed marginally to 9.9%. But deposit growth still continues to outpace credit growth.

In absolute terms, banks raised almost double the amount of deposits at ₹14 lakh crore than the amount they lent during the period.



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Whistleblowers raise loan evergreening issue at IndusInd arm, BFSI News, ET BFSI

Banking & Finance

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Acting as whistleblowers, several people, including a group of senior employees of the IndusInd Bank arm, Bharat Financial Inclusion (BFIL), have alerted the Reserve Bank of India (RBI) and the board of the private sector lender about lapses in governance and accounting norms to allegedly ‘evergreen’ loans running into thousands of crores since the outbreak of Covid-19.

According to them, if the IndusInd management is unable to quickly correct the practice of “adjusting new loan money with overdues from earlier loans”, the subsidiary BFIL would eat into the financials of the parent. These alleged transactions to dress-up the books have damaged the micro-lending business built over the years and could even trigger political backlash, the group warned in at least two emails to IndusInd’s Bank CEO Sumant Kathpalia, some independent directors and RBI officials between October 17 and 24.

IndusInd took over the micro-finance lender BFIL – formerly SKS Microfinance – in a stock deal in March 2019.

Kathpalia did not respond to queries from ET. An official of a PR agency hired by the bank said, “The bank has received complaint from anonymous person(s). The bank has a well established policy to deal with such matters and the veracity of the allegations/complaints are being assessed. While management review is in progress, the bank has yet not come across any material findings that warrant immediate action on any count (sic).”

Two persons familiar with the developments said that on October 14, there was a separate whistleblower complaint from an ‘outsider’ to RBI, saying that suggestions to set up risk management and audit committees for BFIL were ignored as the unlisted micro-lending subsidiary of IndusInd was not required to meet Clause 49 conditions of the listing agreement. It also talked about “process lapses” in extension of loan contracts, cash disbursement and accounting practices.

BFIL’s Former Non-Exec Chair Raised Red Flags
Micro-lending companies disburse loans through banking channels but collect cash while recovering loans. Cash collection for most micro-finance companies dropped due to the pandemic, particularly during the second wave.

Significantly, a month before the October 14th whistleblower complaint, non-executive chairman of BFIL M R Rao stepped down. In his September 15th resignation letter to board members, Rao, who had been the CEO of BFIL (SKS), said, “…I am aware that RBI has raised issues with respect to BFIL particularly the 80,000 loans given in May 2021, without customer consent. This is a point on which I expressed deep concern in the board and in fact demanded a third-party audit too. To me it appears to be not a process lapse but a deliberate act to shore up repayment rates. I had warned the board too about the serious consequences…”

Rao did not respond to ET’s queries and declined to confirm whether he was among the whistleblowers. S Dilliraj, former president of the company who has worked with Rao for years, also declined to comment. Rao has asked the board to cancel the non-compete agreement he has with the company.

A person who identifies and declares himself as a ‘whistleblower’ before RBI expects a degree of legal protection. Also, the regulator does not disclose the identity of the whistleblower.

While an IndusInd Bank official said that the bank had stepped up provisioning on its portfolio of micro loans, one of the whistleblower emails alleged that two senior officials of BFIL, who were primarily responsible for hiding non-performing loans, have been threatening employees and tracking their call records to restrain them from talking about the matter. Another email said that the government’s ECLGS scheme, which was intended to provide emergency line of credit in the wake of the pandemic, was used to “adjust arrears instead of giving credit to customers.”



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Infibeam’s CCAvenue brings TokenPay for RBI-compliant ‘saved card transactions’

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Infibeam Avenues Ltd’s digital payments platform, CCAvenue has launched an interoperable solution ‘TokenPay’ for businesses/merchants to comply with Reserve Bank of India’s (RBI) data security norms.

As the “saved cards transactions” are taking a hit, due to RBI directive prohibiting merchants, businesses, payment aggregators, and acquiring banks from storing customers’ credit/ debit /prepaid card information, IAL’s CCAvenue has developed a multi-network tokenisation solution to work across all major card networks.

CCAvenue’s ‘TokenPay’ solution works across all major card networks, including MasterCard, RuPay, and Visa.

Also it would help merchants enable their end-customer to continue experiencing the saved card transactions with enhanced security and allow merchants to remain RBI guideline compliant with its online data storage norms.

Tokens

Network tokenisation is the process of substituting the 16-digit static card number with a string of randomly generated numbers called ‘token’, which is virtually impossible to decrypt.

Also, since the framework ensures that a customer’s card information rests only with the customer, the card network, and the issuing bank, it minimises the risk of card data leaks and fraudulent activities significantly.

“In the absence of tokenisation, customers will have to enter their card information manually every time they transact online. This can increase the probability of manual error leading to transaction failures and a bad customer experience. Using CCAvenue’s TokenPay, businesses can generate, process and manage tokens with customers’ consent and continue offering a secure and frictionless online transaction experience,” said Vishwas Patel, Executive Director, Infibeam Avenues and Founder of CCAvenue.

As per the new RBI recommended framework, only card networks and card issuers are permitted to store customer card information. “Thus, the new system authorises businesses/merchants to use only ‘tokens’ to continue offering the saved card experience during online payments. All stakeholders are required to be fully compliant with the tokenisation framework by December 31, 2021,” a company statement said.

Merchants using other payment gateways can also tokenize cards through CCAvenue and continue using their preferred gateways to process token-based transactions, the statement added.

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Bank credit picks pace as economy revives, BFSI News, ET BFSI

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Lenders are seeing a pick-up in loan demand with demand from medium sized firms and retail borrowers as the economy is slowly coming back on track as COVID restrictions ease.

Bank credit rose 6.8 per cent in October compared to 5.1 per cent in the same period a year ago, according to the latest figures released by the Reserve Bank of India on Wednesday. Outstanding credit amounted to Rs 110.5 lakh crore as of October 22, up Rs 7 lakh crore over a year.

The pick up in loan demand is largely due to the push from government schemes even as large corporates and top rated borrowers continue to rely on capital markets and the overseas markets where they manage to raise funds at much cheaper rates. India’s Weighted Average Lending rates were at 7.20% in September, according to the RBI data. At the same time, the average rates for triple-A rated five-year corporate bonds were at 6% and at 5.29% for three-year maturity, show Bloomberg data compiled by ETIG

The latest data on sectoral flow of credit offtake that lending to Medium sized firms rose 49 per cent year-on-year to Rs 1.75 Lakh crore as of end September compared to the same period a year ago. Much of the lending is reckoned to be under the government’s Emergency Credit Line Guarantee Scheme (ECLGS) MSME sector, under which the government provides 100% Guarantee to banks in respect of eligible credit facility extended by it to its borrowers.

In addition consumer durable loans have risen by 40 per cent compared to 14.9 per cent in the same period a year ago, with borrowers taking advantage of the reduced interest rates. With the government’s renewed thrust on the social sector, lending to infrastructure more than doubled to Rs 1323 crore in September from Rs 1081 crore a year ago.

On the liability side, the pace of deposit pick-up has slowed down to 9.9 per cent compared to 10.1 per cent in the same period a year ago. But deposit growth still continues to outpace the credit growth. In absolute terms banks raised almost double the amount of deposits at Rs 14 lakh crore than the amount they lent during the period.



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RBI set to monitor digital banking and cyber security, asks banks to be vigilant too, BFSI News, ET BFSI

Banking & Finance

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RBI will soon launch a web-based supervisory system that will enable off-site and on-site monitoring of modern functions like digital banking, cyber security, said RBI deputy governor MK Jain. At the same time banks need to be careful in complying with rules and invest in technologies to meet the supervisory challenges as they experiment with new services in the post COVID world though ultimately its governance standards, business model, risk culture, and assurance functions will decide how well it fares in the long run, he said.

“For continuous engagement with supervised entities, a web-based and an end-to-end workflow automation system has been developed ( by RBI)” said Jain in a keynote address at a summit. It has various functionalities including inspection, compliance and incident reporting for cyber security, etc. with a built-in remediation workflow, time tracking, notifications and alerts, Management Information System reports and dashboards. “This is being launched shortly”.

With the proliferation of digital banking, cyber security has become an extremely important area of supervisory concern. To address this concern, the Reserve Bank has developed a model-based framework for assessing cyber risk in banks using various risk indicators, risk incidents. ” Cyber drills are conducted based on hypothetical scenarios”.

While a lot is being done in the cyber security space, these risks are continuously evolving in the dynamic environment we operate in, and hence there should be constant vigil and continuous enhancements of IT systems, warned Jain.

Globally, fintechs are challenging banks with more convenient offerings, better reach and lower cost to customers. Besides, developments in areas artificial intelligence, robotics and chat advisory, digitalisation, Distributed Ledger Technology, quantum computing, cloud arrangements, data analytics, new ways of remote, though have their benefits but are also generating new risks, Jain warned. Also, climate change, KYC / AML, cyber security, virtual currencies as well as increasing reliance on outsourcing are some of the other major challenges that will need to be addressed, he said.

Banks need to be agile and creative to stay ahead of the digital curve, but banks will have to align their products in compliance with existing laws and regulations. ” Financial institutions would need to experiment with new technologies and tailor their products and services in alignment with business strategy and in compliance with existing laws and regulations” Jain said. “Leveraging on technology will also require enhanced financial investments, building expertise and capacities, proper resource allocation and further strengthening of the operational capabilities”.



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As India pledges net-zero emissions, banks move to form common ESG framework, BFSI News, ET BFSI

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With India agreeing to achieve net-zero emissions by 2070, the onus is on banks to promote green finance. The Indian Banks’ Association is looking to create a common framework for environmental, social and governance (ESG) issues while carrying out credit assessment and include climate risk as part of their risk management policy, according to a report.

Banks have always been the backbone of India’s economic growth, and as the country pivots to sustainable growth, the banking sector will have to accelerate green lending, SBI Chairman Dinesh Khara had said earlier.

“A formal definition of green finance in India would enable more precise tracking of finance flows to the green sectors, which in turn would help design effective policy regulations and institutional mechanisms directed towards increasing both public and private investment in green sectors,” Khara had said.

Green finance definition

India’s green finance definition could be formed through a combination of adopting international practices, developing a set of principles for green economic activities and obtaining stakeholders’ views, he suggested.

“Unless banks are able to provide adequate credit to green projects and measure risk in their portfolio, the bank’s depositors and shareholders will continue to carry ESG (environmental, social and governance) risk that can erode returns.”

To support acceleration and green financing, he said, a number of structural changes will be needed in the traditional lending approach, including evaluation and certification of the green credentials of each project and understanding of the corporate road map to achieve net zero.

RBI‘s stance

The Reserve Bank of India also feels there is a need to mainstream green finance and devise ways for incorporating environmental impact into commercial lending decisions.

Addressing climate risk in the financial sector should be the joint responsibility of stakeholders as it would affect the resilience of the financial system in the long run, RBI Deputy Governor M Rajeshwar Rao said recently.

“As the risks and opportunities and financial impact arising from climate change vary across jurisdictions, this poses unique considerations for emerging economies like India. The challenge before us is to mainstream green finance and think of ways to incorporate the environmental impact into commercial lending decisions while simultaneously balancing the needs of credit expansion, economic growth and social development,” Rao said.

He noted that the global understanding of the systemic impact of climate change on the economy and the financial system as also its resultant impact on financial stability is evolving and, accordingly, the responses of central banks and supervisors around the world have also been developing.

RBI’s efforts

The RBI has been talking about green finance for many years and has taken various steps towards it. It has pushed, on the lines of corporate social responsibility for private companies, the concept of ESG principles into financing aspects. In April, the RBI joined the Network for Greening the Financial System (NGFS) in April 2021.

The NGFS, launched in December 2017 at the Paris One Planet Summit, is a group of central banks and supervisors from across the globe to share the best practices and contribute to the development of the environment and climate risk management in the financial sector. It is an institutional yet voluntary membership, which will also help mobilise mainstream finance to support the transition toward a sustainable economy.

“The RBI expects to benefit from the membership of NGFS by learning from member central banks and regulators and contributing to the global efforts on green finance and the broader context of environmentally sustainable development,” Rao had said in the speech.

NGFS and the Basel Committee on Banking Supervision’s Task Force on Climate-related Financial Risks (TFCR). RBI being a Basel Committee member was already part of TFCR.



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