Tag: RBI

Gold in RBI’s forex reserves rise 11% to 744 tonnes

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The Reserve Bank of India’s holding of gold in foreign exchange reserves went up about 11 per cent year-on-year (y-o-y) to 743.84 metric tonnes as on September-end 2021 against 668.25 metric tonnes as on September-end 2020.

However, in value terms, the share of gold in the reserves declined to about 5.88 per cent against about 6.69 per cent in the year-ago period, as per the RBI’s half yearly report – Management of Foreign Exchange Reserves: April-September 2021.

Compared to September-end 2020 share of gold in the reserves (in value terms) at 5.87 per cent, the share rose marginally as on September-end 2021.

While 451.54 metric tonnes (366.91 metric tonnes as on September-end 2020) of gold is held overseas in safe custody with the Bank of England and the Bank for International Settlements (BIS), 292.30 metric tonnes (unchanged) of gold is held domestically.

Import cover

According to the report, at the end of June 2021, the foreign exchange reserves cover of imports decreased to 15.8 months from 17.4 months at March-end 2021. At the end of June 2020, the foreign exchange reserves cover of imports stood at 14.8 months.

The ratio of short-term debt (original maturity) to reserves, which was 17.5 per cent at end-March 2021, declined to 16.8 per cent at June-end 2021. This ratio stood at 20.8 per cent at June-end 2020.

The ratio of volatile capital flows (including cumulative foreign portfolio inflows and outstanding short-term debt) to reserves declined from 69 per cent at March-end 2021 to 65.5 per cent at June-end 2021. This ratio stood at 72.1 per cent at June-end 2020.

As on September-end 2021, of the total foreign currency assets (FCA) – comprising multi-currency assets that are held in multi-asset portfolios – of $573.60 billion ($502.16 billion as on September-end 2020), $383.74 billion ($370.59 billion) was invested in securities, $147.86 billion ($124.16 billion) was deposited with other central banks and the BIS and the balance $42 billion ($7.44 billion) comprised deposits with commercial banks overseas.

During the half-year period under review, reserves increased from $576.98 billion as on March-end 2021 to $635.36 billion as on September-end 2021.

On a balance of payments basis (that is excluding valuation effects), foreign exchange reserves increased by $31.9 billion during April-June 2021 as compared with $19.8 billion during April-June 2020.

Foreign exchange reserves in nominal terms (including valuation effects) increased by $34.1 billion during April-June 2021 as compared with $27.9 billion in the corresponding period of 2020-21.

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After 6 years, we are in for fresh start, says Partha Pratim Sengupta, MD & CEO of Indian Overseas Bank| INTERVIEW

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Indian Overseas Bank (IOB), which recently came out of the prompt corrective action (PCA) by the RBI, says it will chalk out strategies to accelerate growth. Partha Pratim Sengupta, MD & CEO, says since some earlier curbs have been done away with, the bank will be looking at expanding branches or restructuring some of them. Excerpts from his virtual interaction with the media:

What are the bank’s plans post exiting the PCA?

After being in PCA for almost six years, we are now looking for a fresh start to grow more in the coming quarters and definitely the bank would be much stronger in future. Since the restrictions on branch opening, recruitment of human resources and CSR activities have been removed, we will look at taking actions on those fronts. There has been no recruitment in the past six years, and the bank’s staff strength came down to around 22,000 from 28,000. In a couple of months, we will be revamping our branch expansion and recruitment policies.

What were the factors that contributed to the good performance in the second quarter?

It has been an overall growth, I won’t say a particular segment has given growth. It has been equitably distributed among retail, agri, MSME and corporate segments. If you  look at the performances of the past quarters, we have been steadily growing. Due to the Covid-19 impact, the economic growth of the country got muted and hence there was no scope for credit growth on the bank side. But post the vaccination drive, we are seeing positive outlook on the economic front.
Your net interest margin (NIM) declined during this quarter.

NIM, on a q-o-q basis has gone up, but yes, on a y-o-y basis, it has declined to 2.43% from 2.57. In the June quarter, our NIM was at 2.34%. If you look at the interest rates, almost all the bigger banks have reduced the interest rates.

What were the slippages during the second quarter? Any plans to raise capital?

We had a slippage of Rs 1,400 crore, contributed by two to three companies. Out of it, 60 to 70% was borne out of an NBFC. The bank had made around 80% provisions on these accounts. The bank is not anticipating any major slippages in the coming quarters, whatever slippages had happened were from the watch list. On the capital front, the bank would be raising up to Rs 1,000 crore during Q4 to meet tier-II capital norms.

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Axis Bank board OKs appointment of Rajiv Anand as Deputy Managing Director, BFSI News, ET BFSI

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The board of Axis Bank today approved the appointment of Rajiv Anand, executive director– wholesale banking, as the deputy managing director of the bank.

The appointment is subject to further approvals from the Reserve Bank of India and shareholders of the bank. In addition to leading Wholesale Banking, Rajiv would work closely with the board in strengthening control and governance aspects, the bank said in a release.

Rajiv henceforth would also be leading the bank’s strategic digital banking agenda, impacting all parts of Axis franchise, along with wholesale banking, marketing and corporate communications, the release said.

“Rajiv has been instrumental in driving various key initiatives and has worked hand-in-hand with me to make the Bank a more robust, growth focused organization, as we drive transformation under our GPS strategy,” said Amitabh Chaudhry, managing director and chief executive officer.

Rajiv carries more than 30 years of experience in financial services across Indian and MNC banks. He has been with Axis group for more than 12 years, and has held multiple leadership positions such as managing director and chief executive officer of Axis AMC, ED – Retail Banking and the present role of ED – Wholesale Banking.



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‘Microfinance lenders should not put profit above social objectives’

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Lenders in the microfinance space should not mimic mainstream finance strategies as they need to balance social objectives with their lending operations, said M Rajeshwar Rao, Deputy Governor, Reserve Bank of India (RBI).

“The roots and origin of microfinance should not be forgotten and sacrificed at the altar of bottom-line growth. There is no denying the fact that self-sufficiency and financial sustainability are the objectives that the lenders need to pursue.

“However, prioritisation of profitability at the expense of social and welfare goals of microfinance may not be an optimal outcome,” Rao noted in his inaugural address at the Sa-Dhan National Conference.

He emphasised that lenders must remain cognisant of the fact that balance-sheet growth should not be built by compromising on prudent conduct.

Weathering challenges of 2nd Covid wave, microfinance industry grows in Q1FY22

Referring to the negative consequences of over-indebtedness, harsh recovery practices and adverse outcomes from harassment of customers, the Deputy Governor cautioned these will adversely impact the microfinance ecosystem.

“From society’s perspective, there are economic and social implications. While chasing higher asset growth and returns, lenders should not throw caution to the winds.

“Any slip-up through adverse actions of the MFIs [microfinance institutions] may undo the tremendous progress achieved over the decades, and the sector can ill-afford to do that,” he said.

Three sets of criticisms

The Deputy Governor stated that there have mostly been three distinct sets of criticisms against microfinance lenders — they lead borrowers into debt-trap like situations; they charge usurious rates of interest, often disproportionate to their funding and operational costs; and they deploy harsh recovery methods, leading to distress among borrowers.

Lenders must introspect and address these issues to prevent the recurrence of crisis episodes, he said, adding that the consultative document on ‘regulation of microfinance’ tries to address some of these issues through the proposed framework.

S&P upgrades Manappuram Finance’s credit rating to ‘BB-’

Over-indebtedness and multiple lending

Rao said the revised framework proposes to address over-indebtedness by prescribing a common definition of microfinance loans, which will be uniformly applicable to all lenders, and linking loan amount to household income.

It proposes that the payment of interest and repayment of principal for all outstanding loans of the household at any point of time should not exceed 50 per cent of its income.

Pricing of microfinance loans

The revised framework proposes to do away with the prescribed ceiling on lending rate and mandate all lenders to have a board-approved policy on an all-inclusive interest rate for microfinance borrowers.

The lenders would also have to provide borrowers a simplified factsheet on the pricing of microfinance loans along with the disclosure of minimum, maximum and average interest rates.

According to the Deputy Governor, the intention is to bring into play market mechanism to lower the lending rates for the entire microfinance sector and empower the customer through transparent disclosures.

Customer protection

A cap on the loan repayment obligation of a household as a percentage of the household income is expected to address the inability of microfinance borrowers to repay the loan.

It has been proposed to extend the collateral-free nature of microfinance loans, as applicable to NBFC-MFIs, to all lenders in the microfinance space.

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RBI approves appointment of Baldev Prakash as J&K Bank MD & CEO, BFSI News, ET BFSI

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New Delhi, Jammu & Kashmir Bank on Wednesday said the Reserve Bank has approved the appointment of Baldev Prakash as its next Managing Director and CEO from the next year. The Reserve Bank of India has vide letter dated October 26, 2021 accorded approval to the candidature of Prakash as MD & CEO of the Bank for a period of three years from the date of taking charge or April 10, 2022, whichever is earlier, J&K Bank said in a regulatory filing.

The state-owned lender will separately inform about the appointment of Baldev Prakash as MD & CEO by its board and the actual date of assuming charge by him.

Prakash has over 30 years of experience in banking in various roles at small and large size branches at SBI. He had joined SBI as a probationary officer in 1991 and he is currently the Chief General Manager (Digital and Transaction Banking Marketing Department) at SBI, Mumbai.

Presently, RK Chhibber is the Chairman and Managing Director of J&K Bank, who assumed charge of the bank in June 2019.

Jammu & Kashmir Bank stock traded at Rs 43.20 apiece on BSE, up 5.62 per cent from the previous close.



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RBI imposes Rs 90 lakh penalty on Vasai Vikas Sahakari Bank, BFSI News, ET BFSI

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The RBI on Tuesday said it has imposed a Rs 90 lakh penalty on Vasai Vikas Sahakari Bank, Maharashtra, for non-compliance with certain directions, including on classification of loans as NPAs, and other directions. In a statement, the Reserve Bank said the bank had not complied with its directions on ensuring end-use of funds in borrowal accounts and classification of loans/ advances as non-performing assets, specific direction of RBI for ensuring that the bank’s balance sheet and profit and loss account are signed by at least three of its directors.

This was revealed following the statutory inspection of the bank with reference to the bank’s financial position as of March 31, 2019, the Inspection Report pertaining thereto and examination of all related correspondence, the central bank said.

The penalty was imposed after considering the bank’s replies to a show-cause notice and oral submissions made during the personal hearing, the RBI said.

In another statement, the RBI said it has imposed a monetary penalty of Rs 7 lakh on The Citizens Urban Co-operative Bank, Jalandhar, Punjab for “non-adherence with/violation” of certain directions related to non-identification of NPAs, wrong classification of assets and inadequate provisions made due to the wrong classification of assets.

In both cases, the RBI said, penalities were based on the deficiency in regulatory compliance and not intended to pronounce upon the validity of any transaction or agreement entered into by them with their customers.



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Fino Payments Bank IPO to open on October 29

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The ₹1,200 crore initial public offer of Fino Payments Bank will open on October 29 and close on November 2. “The price band for the offer has been determined at ₹560 to ₹577 per equity share,” it said on Tuesday.

The IPO size at the upper band is about ₹1,200 crore, comprising ₹900 crore through the offer for sale of 1.56 crore shares and ₹300 crore from fresh issuance of equity shares.

“The company intends to utilise the net proceeds from the fresh issue towards augmenting the bank’s tier-1 capital base to meet its future capital requirements,” it further said.

Also read: Fino Payments Bank gets SEBI nod to float IPO

The company and the selling shareholder have, in consultation with the book running lead manager to the offer, considered participation by Anchor Investors who participation will be on October 28. Axis Capital, CLSA India, ICICI Securities, and Nomura Financial Advisory and Securities (India) are the book running lead manager to the offer.

Fino Payments Bank is a wholly owned subsidiary of Fino Paytech Limited, which is backed by marquee investors like Blackstone, ICICI Group, Intel Capital Corporation, Bharat Petroleum, HAV3 Holdings (Mauritius) and World Bank Arm International Finance Corporation (IFC), among others.

The bank had received market regulator Sebi’s go-ahead for an initial public offering earlier this month. The fintech bank turned profitable in the fourth quarter of 2019-20 and has consistently made profits for seven consecutive quarters.

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Gold loans shine the brightest in banks’ loan portfolio, BFSI News, ET BFSI

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Gold loans have emerged as the fastest-growing major loan segment as people have pawned their jewellery and lenders look at avenues of low-risk growth. Outstanding loans against gold jewellery stood at Rs 62,926 crore as on August 27, up 66% on a year-on-year basis, according to the Reserve Bank of India (RBI) data.

Gold loans are often used to finance consumption spending, such as children’s education, weddings, illnesses or to meet household expenses during distress.

Public sector banks have also entered the segment to further grow their retail business. Despite regulatory arbitrage of higher loan-to-value lending in March 2021, banks have continued aggressively disburse gold loans.

Gold loans were up 1% on month in August 2021 as restrictions during COVID-19 eased and economic activities grew.

Loan demand picked up from the beginning of July as COVID-19 cases started declining. Gold loans via non-banking finance companies (NBFCs) had reported higher customer walk-ins.

LTV impact

However, gold loans have grown a mere 3.6% YTD, which is in contrast with the 54% CAGR seen in gold loan growth over the past two years.

RBI had raised the LTV of 90% on gold loans, which allowed banks to lend up to 90% of the value of the collateral.

However, it withdrew special allowance for banks from April 2021, impacting loan growth.

The average ticket size of loans that customers are opting for is Rs 55,000-60,000, which are rising for many lenders, showed growing signs of distress.

Gold loan NBFCs saw higher competition in the gold loan business last fiscal as banks grew their portfolio taking advantage of the special LIV allowance given to them by the RBI.

The expansion

With growth returning, gold financiers are now gearing up to tap the expected surge in gold loans.

Muthoot FinCorp has expanded its physical network by more than 100 new branches, mainly in the north, east and west regions of India, most of which were in rural and semi-urban areas. The NBFC had opened 70 branches in FY20.

Muthoot’s gold asset under management (AUM) grew at a compound annual growth rate of 12% between FY15 and FY20. In FY21, the portfolio grew 27%.

Pune-based Bajaj Finance has increased its gold loan branches from 480 to 700 in the last financial year and plans to add 100 plus branches this fiscal.

Its loan book grew 52% last year to Rs 2,300 crore, while it saw an increase in ticket sizes from Rs 75,000 to Rs 85,000 last year.

Shriram City Union Finance is also looking to ramp up its gold financing business this financial year, changing its strategy of focusing on other loan portfolios.



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Need to improve quality, depth of audit: RBI Governor Shaktikanta Das

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Undesirable practices and structures, including incorrect assumptions in determining provisioning requirement for financial assets, diversion of funds and/or transfer of profits to connected parties, and real transactions getting camouflaged beneath various layers of IT solutions, should draw the attention of the auditors, according to Reserve Bank of India Governor Shaktikanta Das.

“One of the important roles of audit is to check the so called smart accounting practices, if any, followed by management to overstate profits or understate expenses / liabilities,” Das said in his address at the National Academy of Audit and Accounts (NAAA), Shimla.

Referring to Ind-AS (Indian Accounting Standards), which has been implemented for all listed companies (other than banks) in India, including NBFCs having net worth of more than ₹250 crore, the Governor observed that within Ind-AS, Ind-AS 109 with Expected Credit Loss (ECL) approach allows the management to exercise discretion and judgment in determining the provisioning requirement for their financial assets.

Das said: “Such flexibility and forward-looking nature of assessment, however, poses the ‘model risk’,that is, the model may rely on incorrect assumptions and may be far from representing the real-life scenarios. “This has been observed in several cases. Hence, auditors are expected to test the models used by the entities, challenge the management and validate the model outputs.”

Diversion of funds

The Governor said of late, several instances of related party transactions, without following ‘arms-length’ principle and established transfer pricing mechanism, have been observed.

“There have been instances of diversion of funds and/or transfer of profits to connected parties through various means – intra-group loans on favourable terms, over or under invoicing of transactions, asset transfers without fair valuation, etc,” he said.

Das emphasised that auditors need to identify and thoroughly scrutinise related or connected party transactions to ensure that there is no undue transfer of income or assets.

‘See-through’ IT layers

The Governor also flagged cases of manipulation and misstatement of the true nature of financial statements by employing opaque technological means (IT black boxes).

“Real transactions are camouflaged beneath various layers of IT solutions by a few entities. As such, auditors need to be technologically savvy and be able to ‘see-through’ the layers of information technology to detect the real nature of hidden transactions,” he said.

Das said since RBI, as the supervisor of the financial system, relies and leverages on the work done by auditors, the audit professionals are being sensitised through various fora to improve the quality of their reporting

He highlighted that:“We are constantly engaged with individual auditors, audit firms and the Institute of Chartered Accountants of India (ICAI) to improve the quality and depth of audit. A lot of work has been done in this area, but lot more needs to be done.”

Good governance

The Governor said the management has the responsibility for demonstrating, through its actions, the importance of ethical conduct.

While this is relevant for all businesses, it is even more important for financial institutions which hold public trust and depositors’ money in fiduciary capacity.

Das felt that financial sector entities, the audit community and the financial sector regulators and supervisors have to work together and take proactive steps to ensure good governance and ethical practices to build a strong and resilient financial sector.

Tech adoption

The Governor stressed that the auditing profession cannot afford to lag in adoption of technology. “Adopting technology tools such as computer-assisted audit tools and techniques (CAATTs) through constant upgradation and integration of new technologies will bring in a lot of efficiency in audits.

“In parallel, it has to be kept in mind that adoption of such technology tools for auditing cannot replace professional judgment,” he said.

A holistic approach is required while integrating technology tools in audit. The Governor said:“The profile of tomorrow’s auditor will be that of a critical, yet constructive challenger, with a clear focus on public interest and quality audits. There is a need to be even more professional, qualified, impartial, value-driven, ethical and display awareness and foresight.”

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Is tokenisation the way forward? Here’s what the industry thinks, BFSI News, ET BFSI

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Tokenisation will help bring huge value to the digital payments space, and is likely to gain momentum in the coming months, said Ravi Varma Datla, Mastercard‘s vice president – digital products, South Asia.

Last month, the Reserve Bank of India issued guidelines, allowing card-on-file tokenisation. Tokenisation helps consumers to enter and save a 16-digit token on e-commerce or merchant platforms, instead of storing their card details.

“Card-on-File tokenisation enhances the safety and security of the entire transaction value chain in e-commerce payments. It builds trust and can significantly increase convenience for consumers and create efficiencies for merchants. It means there is no need for a consumer to enter his card number every time he transacts, or to login to an online shopping account to update their details due to redundant card credentials,” Datla said.

Last week, National Payments Corporation of India (NPCI) announced the tokenisation system for RuPay cards. The NPCI Tokenisation system will support tokenisation of cards as an alternative to storing card details with merchants.

“We are confident that the NPCI Tokenisation System (NTS) for the tokenisation of RuPay cards will instill further trust in the millions of RuPay cardholders to carry out their day-to-day transactions securely,” said Kunal Kalawatia, chief of products at NPCI.

Also read: What is tokenisation, and how can it ensure safe transactions?

When buying a product or service online, consumers are usually forced to store their credit or debit card details. This is where tokenisation plays a significant role in ensuring consumers’ safety.

“What makes this type of token unique is that it can be used just like your normal card for online payments but only by the merchant that requested it. This means that if a bad-guy or hacker gets their hands on a token – it simply cannot be used. For the sake of identification and reconciliation, RBI has permitted merchants to display the last 4 digits of the original card number to the consumers,” Datla said.

Datla added that as of today, customers have no single view of all the merchants where they have saved their card number. With tokenisation, customers can reach out to their respective banks and view the list of all the tokens saved at merchants and also request to delete or update them.

Recently, Visa launched its card-on-file tokenisation service in India. The company has enabled its tokenisation services across 130 countries. As a large number of shoppers make the shift to online payments, Sujai Raina, Visa’s India business development head, believes it will ensure a frictionless checkout experience for consumers, and drive higher payment success rates for merchants and issuers.

“We believe the RBI’s directive to roll out card-on-file tokenisation in addition to the earlier device-based tokenisation protocols, will help build a safe, secure and seamless environment for digital payments, thus enhancing consumer trust across digital platforms,” he said.

When asked Mastercard about its plan to launch its tokenisation services in India, Datla said the company is working with its partner banks, merchants, payment aggregators, and other stakeholders towards a smooth rollout.

So far, Mastercard has rolled out tokenisation for consumers in over 2,500 banks across the globe. The company has found that the tokenisation has enabled a safer payment ecosystem, and has also increased transaction volume across the digital channel to return greater revenue for merchants, Datla said.

Datla also believes that tokenisation will help make digital payments seamless. “By replacing sensitive payment data with digital tokens, a superior ecommerce experience is created which provides increased security, approval rates and a frictionless consumer experience,” Datla said.



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