Tag: RBI

RBI may screen bidders for bank privatisation at EoI stage, BFSI News, ET BFSI

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The government is set to start consultations with the Reserve Bank of India (RBI) to devise a new security clearance framework for screening potential bidders of public sector banks (PSBs), according to a report.

As potential buyers of IDBI Bank and two other PSBs will need to meet the RBI’s fit and proper criteria, the government is planning to bring the central bank on board to vet candidates in the first step itself.

The RBI will screen bidders as early as when expression of interest is placed and only then the process will move forward.

The RBI considers several factors, including the applicant’s integrity, reputation and track record in financial matters and compliance with tax laws, ongoing proceedings of serious disciplinary or criminal nature, financial misconduct for its ‘fit and proper’ tag.

On the radar

The NITI Aayog, which has been entrusted with the job of identifyng suitable candidates for the privatisation, has recommended names to a high-level panel headed by Cabinet Secretary Rajiv Gauba.

Central Bank of India, Indian Overseas Bank, Bank of Maharashtra and Bank of India are some of the names that may be considered for privatisation by the Core Group of Secretaries on Disinvestment.

The other members of the high-level panel are Economic Affairs Secretary, Revenue Secretary, Expenditure Secretary, Corporate Affairs Secretary, Secretary Legal Affairs, Secretary Department of Public Enterprises, Secretary Department of Investment and Public Asset Management (DIPAM) and the Secretary of administrative department.

Following clearance from the Core Group of Secretaries, the finalised names will go to the Alternative Mechanism (AM) for its approval and eventually to the Cabinet headed by Prime Minister Narendra Modi for the final nod.

IDBI Bank

The government has invited bids from transaction advisors and legal firms for assisting in the strategic sale of IDBI Bank.

The Union Cabinet had in May given in-principle approval for IDBI Bank’s strategic disinvestment along with transfer of management control.

The central government and LIC together own more than 94 per cent equity of IDBI Bank. LIC, currently having management control, has 49.24 per cent stake, while the government holds 45.48 per cent. Non-promoter shareholding stands at 5.29 per cent.



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Private firms’ bank deposits log 26.5% growth during pandemic, households lag, BFSI News, ET BFSI

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In FY21, deposits from private sector companies grew by 26.5%, the biggest jump in nine years, even as the share of household bank deposits declined.

The share of private sector companies in total outstanding bank deposits increasing from 11.3% in FY20 to 12.7% in FY21, according to a report by Kotak Institutional Equities. The growth here has been faster than that of deposits from households, which grew by 12.9% during the year. The ratio of household (bank) deposits to GDP declined to 3 per cent in the third quarter from 7.7 per cent in July-September.

The data shows that the pandemic was not hard on private firms but households suffered.

“The slower growth in retail deposits and solid growth in the private corporate sector gives two opposing signals of the current economic condition. The private sector has accelerated deposit growth for the third consecutive year, giving further evidence that the impact of the pandemic was not negative,” the Kotak report noted.

Households hit

The first wave of Covid last year impacted households as their financial savings moderated to 8.2 per cent of GDP in the December quarter from 10.4 per cent in the previous three-month period, according to RBI data.

The preliminary estimate of household financial savings is placed at 8.2 per cent of GDP in October-December 2020-21, exhibiting a sequential moderation for the second consecutive quarter after having spiked in the pandemic-hit June quarter, RBI said in a release.

“The moderation was driven by a significant weakening in the flow of household financial assets, which more than offset the moderation in the flow of household financial liabilities,” it said.

Household debt to GDP

RBI further said household debt to GDP ratio, which is based on select financial instruments, has been increasing steadily since end-March 2019.

“It (household debt to GDP ratio) rose sharply to 37.9 per cent at end-December 2020 from 37.1 per cent at end-September 2020,” it said.

Despite higher borrowings from banks and housing finance companies, the flow in household financial liabilities was marginally lower in the third quarter following a marked decline in borrowings from non-banking financial companies.

As per the data, financial assets, including deposits, life insurance funds, provident and pension funds, currency, investments in mutual funds and equity, and small savings, stood at Rs 6,93,001.8 crore in the third quarter. It was at Rs 7,46,821.4 crore in July-September 2020-21.

Financial liabilities (loans) stood at Rs 2,48,418.7 crore in the third quarter. In the preceding quarter it was Rs 2,54,915.2 crore.



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Banks get RBI nod to use any other ARR in place of LIBOR

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The Reserve Bank of India (RBI) has permitted banks, which are authorised to deal in foreign exchange, to use any other widely accepted/alternative reference rate (ARR) in place of the London interbank offered rate (LIBOR) for interest payable in respect of export/import transactions.

The central bank has issued a circular in this regard to authorised dealer banks in view of the impending cessation of LIBOR as a benchmark rate.

RBI Governor Shaktikanta Das, in a statement on August 17, observed that the transition away from LIBOR is a significant event that poses certain challenges for banks and the financial system. “The Reserve Bank has been engaging with banks and market bodies to proactively take steps. The Reserve Bank has also issued advisories to ensure a smooth transition for regulated entities and financial markets,” Das said.

Also read: LIBOR transition will be a complex exercise

Banks will be permitted to extend export credit in foreign currency using any other widely accepted ARR in the currency concerned, he added. Since the change in reference rate from LIBOR is a “force majeure” event, banks are also being advised that change in reference rate from LIBOR/ LIBOR related benchmarks to an ARR will not be treated as restructuring, the Governor then said.

On June 8, 2021, the RBI had advised banks and other regulated entities to cease entering into new contracts that use LIBOR as a reference rate and instead adopt any ARR as soon as practicable and in any event by not later than December 31, 2021.

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RBI imposes Rs 2 crore penalty on RBL Bank for offending regulatory orders, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India has imposed a penalty of Rs 2 crore on RBL Bank for offending regulatory directions, and being non-compliant with the provisions of the Banking Regulation Act, 1949.

The penalty has been imposed because of contravention of directions on interest rate and deposits, and failure of compliance with the provisions of the Act, pertaining to the extent of opening five savings accounts in the name of co-operative banks, and composition of the bank’s board.

“This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers,” the central bank said in a press release.

The decision came after the central bank conducted a Statutory Inspection for Supervisory Evaluation in 2019, and a Risk Assessment Report and Inspection Report based on the ISE.

The RBI has issued a notice to the bank, asking for reasons why the penalty should not be imposed.

The fine comes right after nearly 100% of RBL Bank’s shareholders approved the reappointment of Vishwavir Ahuja as the MD and CEO for the fourth term, starting June 1.

Though the board had approved his fourth 3-year term, the RBI in June had only cleared his reappointment only for one year.



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RBI imposes ₹11-lakh penalty on The Jammu & Kashmir State Co-operative Bank

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The Reserve Bank of India has imposed a monetary penalty to ₹11 lakh on The Jammu & Kashmir State Co-operative Bank, Srinagar.

The penalty, imposed by an order on September 23, is for contravention of section 23 read with section 56 of the Banking Regulation Act, 1949.

“This penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47 A (1) (c) read with Section 46 (4) (i) and Section 56 of the Banking Regulation Act, 1949,” the RBI said on Monday.

The statutory inspection was by Nabard on its financial position as on March 31, 2019 and the Inspection Report revealed that the bank had opened branches without obtaining the prior permission of the RBI.

Based on the same, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed for violation of the said directions, the RBI said.

“After considering the bank’s reply, RBI came to the conclusion that the aforesaid charge of contravention of section 23 read with section 56 of the Banking Regulation Act, 1949 was substantiated and warranted imposition of monetary penalty,” it further said.

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Recurring card payments to be hit from next month, BFSI News, ET BFSI

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MUMBAI: Some cardholders might see standing instructions for payment on their credit card fail from next month. These could be for subscriptions with online content platforms, edtech companies or standing instructions for online advertisement payments. Some of these merchants are yet to comply with RBI’s new requirement of additional factor authentication (OTP) for recurring payments through cards though the deadline is less than a week away.

According to sources, around 75% of the banks have put in place the technology to meet RBI’s directive. However, there are some banks and merchants who are still in wait-and-watch mode. Banks are writing to customers, warning that some transactions may fail: “Effective October 1, 2021, the bank will not approve any standing instruction (e-mandate on cards for recurring transactions) given at merchant website/app on HDFC Bank credit/debit card, unless it is as per RBI-compliant process.” The bank has recommended that customers use its bill-pay option for utilities or pay on the biller’s website using OTP.

According to Razorpay, which processes close to a third of all recurring payment transactions, a dozen banks have already put in place the new setup where even for repeat payments the bank will alert the customer a day in advance and also provide them with a link to discontinue the mandate. “In the short term, there may be some disruption but, in the long term, this move by the RBI can take growth in recurring payment mandates off the charts,” said Razorpay chief technology officer and co-founder Shashank Kumar.

Kumar says the RBI directive addresses two key issues. Earlier, discontinuing a standing instruction to a merchant could be extremely cumbersome with some asking for a letter to be sent by post asking to discontinue the subscription. Second, debit cards were a grey area and recurring payments were done largely in credit cards. Incidentally, even after October 1, international mandates will continue as neither banks nor the RBI has jurisdiction over international billers.

“There are 900 million debit cards in India and their inclusion could increase the market multifold,” said Kumar. According to Kumar, by empowering customers to stop the payments at any time, the RBI has increased the confidence level. This could also make online education or entertainment more affordable as the availability of this facility will encourage providers to have a monthly debit model rather than recover annual fees.

Besides requiring banks to alert customers, the RBI has capped automatic debits at Rs 5,000 per month. This would mean that billers, like insurance companies, with large instalments, would need to increase the frequency to enable auto-debit. In the case of utilities, many online payers use their bank’s bill payment platform for standing instructions and will have no impact.



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RBI revamps loan transfer and securtisation rules, BFSI News, ET BFSI

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The Reserve Bank has issued Master Direction on loan transfer, requiring banks and other lending institutions to have a comprehensive board-approved policy for such transactions.

Loan transfers are resorted to by lending institutions for various reasons, ranging from liquidity management, rebalancing their exposures or strategic sales. Also, a robust secondary market in loans will help in creating additional avenues for raising liquidity, the RBI said.

The provisions of the direction are applicable to banks, all non-banking finance companies (NBFCs), including housing finance companies (HFCs), NABARD, NHB, EXIM Bank, and SIDBI.

Minimum holding period

The Master Direction has also prescribed a minimum holding period for different categories of loans after which they shall become eligible for transfer.

“The lenders must put in place a comprehensive Board approved policy for transfer and acquisition of loan exposures under these guidelines.

“These guidelines must…lay down the minimum quantitative and qualitative standards relating to due diligence, valuation, requisite IT systems for capture, storage and management of data, risk management, periodic Board level oversight, etc,” said the Master Direction.

Draft guidelines on Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021, were released for public comments in June last year.

The final direction has been prepared to take into account inter alia the comments received. The direction, the RBI said came into effect immediately.

As per the direction, “a loan transfer should result in immediate separation of the transferor from the risks and rewards associated with loans to the extent that the economic interest has been transferred”.

In case of any retained economic interest in the exposure by the transferor, the loan transfer agreement should specify the distribution of the principal and interest income from the transferred loan between the transferor and the transferee(s), it added.

‘Transferor’ means the entity which transfers the economic interest in a loan exposure, while ‘transferee’ refers to the entity to which the economic interest in a loan exposure is transferred.

It further said a transferor “cannot re-acquire” a loan exposure, either fully or partially, that had been transferred by the entity previously, except as a part of a resolution plan.

Further, “the transferee(s) should have the unfettered right to transfer or otherwise dispose of the loans free of any restraining condition to the extent of economic interest transferred to them”.

Loans not in default

The master direction also provides a procedure for the transfer of loans that are not in default.

Meanwhile, the RBI also issued Master Direction on the securitisation of standard assets to facilitate their repackaging into tradable securities with different risk profiles.

Observing that complicated and opaque securitisation structures could be undesirable from the point of view of financial stability, the RBI said, “Prudentially structured securitisation transactions can be an important facilitator in a well-functioning financial market in that it improves risk distribution and liquidity of lenders in originating fresh loan exposures”.

In its ‘Master Direction – Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021’, the central bank has specified the Minimum Retention Requirement (MRR) for different classes of assets.

For underlying loans with an original maturity of 24 months or less, the MRR shall be 5 per cent of the book value of the loans being securitised. It will be 10 per cent for loans with an original maturity of more than 24 months.

In the case of residential mortgage-backed securities, the MRR for the originator shall be 5 per cent of the book value of the loans being securitised, irrespective of the original maturity.



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Banks may sell Rs 1 lakh crore of fraud-hit loans to NARCL, ARCs, BFSI News, ET BFSI

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Banks may offload about Rs 1 lakh crore of accounts with fraudulent activities to National Asset Reconstruction Company Ltd (NARCL) and other ARCs with the Reserve Bank of India allowed lenders to sell such loans.

In the last three years, banks have declared loan frauds amounting to Rs 3.95 lakh crore.

The new rule is part of the RBIs final norms on the transfer of loan exposures.

The move has opened a new avenue for ARCs, which till now were allowed to take over non-performing assets as well as loans which are in default for 60 days.

This bad loans that ARCs can take over include loan exposures classified as fraud as on the date of transfer provided that the responsibilities of the transferor with respect to continuous reporting, monitoring, filing of complaints with law enforcement agencies and proceedings related to such complaints shall also be transferred to the ARC, the central bank said. The transfer of such loan exposures to an ARC, however, does not absolve the transferor from fixing the staff accountability as required under the extant instructions on frauds.

Banks have to make 100% provision in four quarters for accounts tagged in the fraud category. In the case of non-performing assets without delayed recovery, 100% provisioning effectively happens over eight quarters.

Swiss challenge

Banks may sell Rs 1 lakh crore of fraud-hit loans to NARCL, ARCs

The RBI has clarified on the called Swiss Challenge Method, applicable while transferring stressed loans by lenders. The RBI had proposed de-regulate price discovery by departing from Swiss Challenge auction method, where the highest bid in the first round or unsolicited bid received becomes the base for seeking counter offers.

The central bank said that in cases where the aggregate exposure of lenders to a borrower whose loan is being transferred is above 1 bln rupees, Swiss Challenge method must be followed. In all other cases, the bilateral negotiations shall be subject to the price discovery and value maximisation approaches adopted by the transferor as part of the board approved policy, which may also include Swiss Challenge method, it said However, in case of such transfers used as means for resolution under the RBI’s Jun 7, 2019 circular, Swiss Challenge method would be mandatory irrespective of the exposure threshold.

The RBI said that lenders must have a board-approved policy on the adoption of Swiss Challenge method. The policy could include parameters such as a tolerance limit on haircut required by the lenders in the base-bid and minimum mark-up for over the base for seeking counter offers, the RBI said. Such minimum mark-up, difference between the challenger and the base-bid expressed as a percentage of the base-bid, must not be less than 5% and not be more than 15%.

The bad bank

Banks may sell Rs 1 lakh crore of fraud-hit loans to NARCL, ARCs

Finance Minister Nirmala Sitharaman on Thursday announced a Rs 30,600 crore government guarantee for the National Asset Reconstruction Company Limited (NARCL) for acquiring stressed loan assets, paving the way for operationalisation of the bad bank.

The finance minister in Budget 2021-22 announced the setting up of a bad bank as part of the resolution of bad loans worth about Rs 2 lakh crore.

The bad bank or NARCL will pay up to 15 per cent of the agreed value for the loans in cash and the remaining 85 per cent would be government-guaranteed security receipts (SRs). The government guarantee would be invoked if there is a loss against the threshold value.



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Pivotal week for Indian traders may pave way for foreign inflows

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Indian investors face a crucial week with announcements due on a key index review for the nation’s bonds and also on the government’s borrowing plan for the next six months.

FTSE Russell will announce its annual review for equity and fixed-income markets on Thursday, with Indian debt already on a watchlist for potential upgrading. While the government has yet to say when it will announce its next borrowing program, officials from the central bank and finance ministry will decide the plan on Monday, people familiar have said.

“This week will lay the ground for the second half of the year, and could be an inflection point for the markets,” said Madhavi Arora, lead economist at Emkay Global Financial Services Ltd. in Mumbai. “Bond index inclusion could be a game changer for India, luring massive foreign inflows.”

G-secs react to the beginning of Fed taper

The rupee has declined about 1 per cent this month so far, and is among Asia’s worst performers, as the Fed’s hawkish pivot strengthened the dollar, even as the Reserve Bank of India has maintained its easy stance. A potential inclusion by FTSE Russell may pave the way for big foreign inflows and burnish the rupee and bonds.

The rupee appears poised for more near-term losses against the greenback given the currency pair’s slow stochastics, a momentum indicator, signalling it is still not in the oversold territory against the dollar. However, any further losses may be limited given initial rupee support around 74 level.

Bond markets await RBI move

Indian bonds are already heading for the biggest monthly gain since April, and may get a further boost if the government decides to cut back borrowing for the second half of the fiscal year as revenue improves.

Index addition looks more imminent after a finance ministry official earlier this month said the nation has completed most of the work required to be a part of the global benchmarks

India’s inclusion in the global bond indexes, expected by early 2022, may attract as much as $250 billion of inflows in the next decade, according to Morgan Stanley, which sees the 10-year bond yields to ease to 5.85 per cent in 2022 from 6.18 per cent on Friday. The move may lead to the rupee gaining by more than 1.5 per cent to 72.50 per dollar, from Friday’s close, according to HDFC Securities Ltd.

Indian bonds are also under review for inclusion by JPMorgan Chase & Co., which typically assesses its index this month, while Bloomberg Index Services Ltd. last week said there is currently no estimated timeline in place for India’s inclusion in the Bloomberg Global Aggregate Index.

An index inclusion “could be a big trigger, leading to rapid appreciation in the rupee,” said Dilip Parmar, analyst at HDFC Securities. “The central bank may not be too aggressive in buying or selling dollars, and may give time for the rupee to adjust to the market.”

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Recurring card payments to be hit from next month, BFSI News, ET BFSI

Personal Finance

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Some cardholders might see standing instructions for payment on their credit card fail from next month. These could be for subscriptions with online content platforms, edtech companies or standing instructions for online advertisement payments. Some of these merchants are yet to comply with RBI’s new requirement of additional factor authentication (OTP) for recurring payments through cards though the deadline is less than a week away.

According to sources, around 75% of the banks have put in place the technology to meet RBI’s directive. However, there are some banks and merchants who are still in wait-and-watch mode. Banks are writing to customers, warning that some transactions may fail: “Effective October 1, 2021, the bank will not approve any standing instruction (e-mandate on cards for recurring transactions) given at merchant website/app on HDFC Bank credit/debit card, unless it is as per RBI-compliant process.” The bank has recommended that customers use its bill-pay option for utilities or pay on the biller’s website using OTP.

According to Razorpay, which processes close to a third of all recurring payment transactions, a dozen banks have already put in place the new setup where even for repeat payments the bank will alert the customer a day in advance and also provide them with a link to discontinue the mandate. “In the short term, there may be some disruption but, in the long term, this move by the RBI can take growth in recurring payment mandates off the charts,” said Razorpay chief technology officer and co-founder Shashank Kumar.

Kumar says the RBI directive addresses two key issues. Earlier, discontinuing a standing instruction to a merchant could be extremely cumbersome with some asking for a letter to be sent by post asking to discontinue the subscription. Second, debit cards were a grey area and recurring payments were done largely in credit cards. Incidentally, even after October 1, international mandates will continue as neither banks nor the RBI has jurisdiction over international billers.

“There are 900 million debit cards in India and their inclusion could increase the market multifold,” said Kumar. According to Kumar, by empowering customers to stop the payments at any time, the RBI has increased the confidence level. This could also make online education or entertainment more affordable as the availability of this facility will encourage providers to have a monthly debit model rather than recover annual fees.

Besides requiring banks to alert customers, the RBI has capped automatic debits at Rs 5,000 per month. This would mean that billers, like insurance companies, with large instalments, would need to increase the frequency to enable auto-debit. In the case of utilities, many online payers use their bank’s bill payment platform for standing instructions and will have no impact.



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