Tag: RBI

Reliance Capital’s public shareholders to take big hit; Anil Ambani barely hurt

Banking & Finance

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Public shareholders of Reliance Capital, holding over 97 per cent in the company, will take a major hit with the RBI superseding the NBFC’s board even as the ousted promoter-Chairman, Anil Ambani, walks away, barely bruised, as he had reduced his stake to less than 2 per cent by March 2020 from over 52 per cent in December 2018.

Even as the promoters were selling the shares, retail investors were lapping them up. Data with BSE show that the promoter group, led by Anil Ambani and his family, owns just 1.51 per cent stake as on September 30, 2021, while public shareholders held 97.85 per cent. Retail shareholders with a share capital of up to ₹2 lakh hold as much as 57.53 per cent.

 

 

Promoter stake cut, red flag

Foreign portfolio investors, who held as much as 22.74 per cent as on June 30, 2019, owned just 0.43 per cent by September 30, 2021. JN Gupta, Managing Director, Stakeholder Empowerment Services, said: “Past failures such as those at YES Bank and DHFL indicate that rarely a company with high promoter stake fails… The first red flag is when the promoter stake begins to come down. This should be a trigger for the RBI to sit up and take action, rather than wait till the company completely fails.”

LIC, with a stake of 2.98 per cent, is the single largest shareholder of Reliance Capital. Ramkrishna Reddy Chinta is another large shareholder (2.16 per cent), with his RKR Investments Services Private Limited holding a further 1.43 per cent. The RBI must re-look ownership norms, setting also a minimum threshold, Gupta said.

 

Advisory panel

Simultaneously, the RBI has constituted a three-member Advisory Committee to assist the Administrator of Reliance Capital. The members are Sanjeev Nautiyal, former Deputy Managing Director, SBI; Srinivasan Varadarajan, former Deputy Managing Director, Axis Bank; and Praveen P Kadle, former MD and CEO, Tata Capital.

 

RBI supersedes the board of Anil Ambani’s Reliance Capital

 

Reliance Capital shareholding      
       
  Promoter % Public % FPI %
Jun 30- 2018 52.23 47.14 17.13
Sept 30-2018 52.24 47.12 19.64
Dec 31-2018 52.24 47.12 16.5
March 31-2019 47.48 51.88 24.35
Jun 30- 2019 41.71 57.66 22.74
Sept 30-2019 40.41 58.95 13.67
Dec 31-2019 33.51 65.85 5.16
March 31-2020 1.51 97.85 0.24
Jun 30- 2020 1.51 97.85 0.42
Sept 30-2020 1.51 97.85 0.41
Dec 31-2020 1.51 97.85 0.39
March 31-2021 1.51 97.85 0.42
Jun 30- 2021 1.51 97.85 0.44
Sept 30-2021 1.51 97.85 0.

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We will walk the talk on introducing crypto Bill in Parliament this session: Sitharman

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Finance Minister Nirmala Sitharaman on Tuesday said that the Government was working on a new Bill on cryptocurrency and that this Bill would be introduced in the ongoing session of Parliament after Cabinet approval.

The ongoing winter session of Parliament commenced on November 29 and is slated to end on December 23.

Replying to questions on cryptocurrency in Rajya Sabha today, Sitharaman said the new Bill takes into account the rapidly changing dimensions in virtual currency space and incorporates certain features of earlier Bill that could not be taken up.

‘Genuine intent’

She asserted that the government had “genuine intent” of introducing the Bill last time itself in the Monsoon session and that it would be incorrect to infer or conclude that the government would this time too not go ahead with enactment of law. “Once the Cabinet clears the new Bill, it will come into the House,” she said.

Sitharaman, however, did not indicate how the government intends to approach the issue of private cryptocurrency and whether the new Bill will look to ban private cryptocurrencies or not.

It may be recalled that a Bill on Cryptocurrency and Regulation of Official Digital Currency for introduction in the Lok Sabha had been recently included in the Lok Sabha Bulletin-Part II, as part of the government business expected to be taken up during the ongoing winter session.

According to the Lok Sabha Bulletin, the Bill seeks to create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India (RBI) for the ongoing winter session of Parliament. It also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.

Asked if the government proposes to ban misleading advertisements on cryptos in the media, she told the Rajya Sabha on Tuesday that the guidelines of Advertising Standards Council of India are being studied and their regulations are also being looked into “so that we can take, if necessary, some kind of position or a decision to see how we can handle it”.

In a written reply to a few questions on cryptocurrency posed by Rajya Sabha members, Sitharaman said cryptocurrencies including non-fungible tokens are unregulated in India and the government does not collect data on transactions in cryptocurrency.

Crypto frauds

She also revealed that as many as eight cases of cryptocurrency frauds are under investigation by the Enforcement Directorate. “Further disclosure of information may not be in larger public interest”, she added.

Sitharaman also said the government, RBI and SEBI have been cautioning people about the cryptocurrencies that could be a “high risk” area and “more can be done” to create awareness.

A study was conducted by the government through a research firm on ‘Virtual Currencies: An Analysis of the Legal Framework and Recommendations for Regulation’ in July 2017. Thereafter, the government constituted an inter-ministerial committee (IMC) in November 2017 under the chairmanship of the secretary (economic affairs) to study issues related to virtual currencies and propose specific action to be taken in this matter.

The committee, inter-alia, recommended that all private cryptocurrencies be prohibited in India. The panel also recommended that it would be advisable to have an open mind regarding the introduction of an official digital currency in India.

Meanwhile, Minister of State for Finance Pankaj Chaudhary, said in a written reply that RBI has been cautioning users, holders and traders of virtual currencies vide public notices on December 24, 2013, February 1, 2017, and December 5, 2017, that dealing in virtual currencies is associated with potential economic, financial, operational, legal, customer protection and security-related risks.

Also, the RBI had, in a circular dated May 31, 2021, advised the regulated entities to continue to carry out customer due diligence processes for transactions on virtual currencies, in line with the regulations governing standards for know your customer, anti money laundering, combating of financing of terrorism, obligations under the Prevention of Money Laundering Act 2002, he said.

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Banks write off Rs 46,382 crore NPA in H1, BFSI News, ET BFSI

Banking & Finance

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Banks have written off bad loans amounting to Rs 46,382 crore during the first six months of 2021-22, the finance ministry informed the Lok Sabha on Monday. As per the RBI guidelines and policy approved by bank boards, non-performing loans, including, inter-alia, those in respect of which full provisioning has been made on completion of four years, are removed from the balance sheet of the bank concerned by way of the write-off.

In a written reply, Minister of State for Finance Bhagwat Karad said banks evaluate/consider the impact of write-offs as part of their regular exercise to clean up their balance-sheet, avail of tax benefit and optimise capital, in accordance with the RBI guidelines and policy approved by their boards.

“As per RBI data on global operations, scheduled commercial banks have written-off loans of Rs 46,382 crore during the first six months of the current financial year 2021-22,” he said.

The borrowers of written-off loans continue to be liable for repayment and the process of recovery of dues from the borrower in written-off loan accounts continues.

In another reply, Karad said the total loans outstanding of Regional Rural Banks (RRBs) stood at Rs 3,34,171 crore at end-March 2021, up from Rs 2,98,214 crore at end-March 2020.

He said RRBs have been playing an important role in purveying agricultural credit, particularly to small and marginal farmers and weaker sections of society.



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RBI imposes Rs 1 cr penalty on Union Bank of India, BFSI News, ET BFSI

Banking & Finance

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Mumbai, The Reserve Bank of India (RBI) on Monday said it has imposed a penalty of Rs 1 crore on Union Bank of India for deficiencies in regulatory compliance. The penalty was imposed by an order dated November 25 for non-compliance with the certain provisions of directions issued by the RBI contained in “Reserve Bank of India (Fraud – Classification and Reporting by commercial banks and select FIs) Directions 2016” and “Guidelines on Sale of Stressed Assets by Banks”.

Giving details, the RBI in a statement said the statutory inspection for supervisory evaluation (ISE) of the bank was conducted by it with reference to its financial position as of March 31, 2019.

Examination of the risk assessment report, inspection report and all the related correspondences revealed, inter alia, non-compliance with certain directions to the extent of failure to classify an account as a Red Flag Account despite the presence of early warning signals and failure to disclose ageing of and provisioning for security receipts (SRs) in its annual report, the RBI said.

The central bank, however, added that the penalty is based on the 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.



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How RBI plans to regulate digital lending, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India has come out with norms that aim to regulate digital lending specifically, with a focus on consumer interest.

While lending is highly regulated in India, digital lending is not, and the central bank saw a regulatory gap in such lending and constituted a working group.

Highlighting “renting an NBFC” or off-balance sheet lending models as an area of concern, the working group has proposed that all lending, including the buy now pay later products, must be done only “on balance sheet” by licensed entities.

This, if implemented, is set to alter the business models of several products, where the non-licensed entities provide some credit support such as first loan default guarantees, and assume part of the credit risk of the loan.

Maintaining transparency

To maintain transparency on the loan servicing front, the Group proposes that all loan services, repayments, and other related activities should be executed directly in a bank account of the balance sheet lender. A similar approach is envisaged for the disbursement of loans.

It has recommended the setting up of a nodal agency to primarily verify the technological credentials of Digital Lending Apps (DLAs) of balance sheet lenders along with maintenance of a public register of verified apps.

The digital lending apps will have to disclose their data and credit assessments and defend credit underwriting strategies. Unlike the credit bureaus, which rely on historical data trends and are highly regulated, the lending apps rely on AI and algorithms to analyse and price credit risk that remains highly unregulated. This will give consumers access to their credit underwriting data.

Interest rate regulation

While the RBI has stayed away from interest rate caps, the working group discusses the concept of an annual percentage rate (APR) that includes interest rates and all other costs associated with a loan to prevent over-charging by way of “hidden costs”. The report talks about the “need to bring in” interest rate regulation. The proposed transparency in pricing could have serious implications for the sector.

The report lays the groundwork for opening digital-only NBFCs/ banks, and the possible inclusion of digital/ neo-banks under the RBI regulations. and suggests measures for broadening credit reporting to enable better credit decisions.

Technology front

The second set of regulations are focused on strengthening the tech part of regulation given that technology is the backbone of the fintech revolution. For this, it has suggested observing prescribed baseline technology standards, storage of data in servers located in India, detailed disclosures on the app/ website coupled with increased emphasis on digitally signed documents.

The report envisages a self regulating organisation (SRO) for the segment, which will evolve codes of conduct for all participants, develop standardised contracts, build a model to calculate APR, prescribe and monitor technology standards that ensure the security of mobile-based apps, and institutionalise a consumer redressal mechanism. The reasoning of the RBI working group is that in the scenario of rapid technological changes, an SRO is well-positioned to understand the risks of newer business models.

Further, the names of identified unscrupulous lenders should be made available to the regulated entities to enable them to do enhanced due diligence while allowing customers to use banking/payment/telecom channels. Policies around anti-predatory lending and anti-usurious lending are urged.

The implications

For consumers, the new norms are likely to improve standards of transparency and disclosure, prevent unfair lending practices and give greater control over data.

However, the smaller players and technology intermediaries are likely to be affected by the proposed regulations and the sector is likely to see consolidation as rising cost of compliance and certain business models becoming unviable.



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RBI imposes ₹1 crore penalty on Union Bank of India

Banking & Finance

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The Reserve Bank of India (RBI) has imposed a monetary penalty of ₹1 crore on Union Bank of India (UBI) for non-compliance with certain provisions of its directions relating to fraud classification and reporting and sale of stressed assets.

The central bank, in a statement, said its inspection of UBI revealed, inter alia, non-compliance with the above-mentioned directions to the extent of (i) failure to classify an account as Red Flag Account despite presence of Early Warning Signals and (ii) failure to disclose ageing of and provisioning for Security Receipts (SRs) in its Annual Report.

RBI imposes ₹1 crore penalty on SBI

RBI had conducted Statutory Inspection for Supervisory Evaluation (ISE) of UBI with reference to its financial position as on March 31, 2019 (ISE 2019). It examined the Risk Assessment Report, Inspection Report and all the related correspondences pertaining to ISE 2019.

Following the revelations in ISE, RBI issued a notice to the bank advising it to show cause as to why penalty should not be imposed on it for non-compliance with the RBI directions, as stated therein.

RBI slaps ₹56-lakh penalty on Nainital Bank

After considering the bank’s reply to the notice, oral submissions made during the personal hearing and additional submissions made by the bank, RBI came to the conclusion that the charge of non-compliance with its directions was substantiated and warranted imposition of monetary penalty on the bank, to the extent of non-compliance with the aforesaid directions, per the statement.

RBI said this action is based on the 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.

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Cryptocurrency issue: No plan to use Bitcoin as currency: FM

Banking & Finance

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The government has no plan to recognise Bitcoin as a currency in the country, Finance Minister Nirmala Sitharaman informed the Lok Sabha on Monday.

Meanwhile, in response to another question, the Finance Ministry said that Reserve Bank of India has urged the Centre to amend RBI Act 1934 to widen the definition of bank notes to include digital currency. This will facilitate introduction of Central Bank of Digital Currency (CBDC).

Crypto Bill

When asked whether the government has any proposal to recognise Bitcoin as currency, Sitharaman said in written response ‘no sir.’ The response comes at a time when the government is planning to introduce a Bill in the ongoing session to regulate cryptos in India.

In response to another question, Minister of State in the Finance Ministry, Pankaj Chaudhury, said in a written reply: “The government has received a proposal from Reserve Bank of India (RBI) in October, 2021 for amendment to the Reserve Bank of India Act, 1934 to enhance the scope of the definition of ‘bank note’ to include currency in digital form.”

It is believed that the RBI’s request will be incorporated in ‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’, proposed to be introduced during the current session. According to Lok Sabha Bulletin, purport of the Bill is “to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India”.

Cryptocurrency, CBDC and the RBI Act

Further, he mentioned that Central Bank Digital Currency (CBDC) is introduced by a cntral bank. The RBI has been examining use cases and working out a phased implementation strategy for introduction of CBDC with little or no disruption.

“Introduction of CBDC has the potential to provide significant benefits, such as reduced dependency on cash, higher seigniorage due to lower transaction costs, reduced settlement risk. Introduction of CBDC would also possibly lead to a more robust, efficient, trusted, regulated and legal tender-based payments option,” he said while admitting that there are also associated risks that need to be carefully evaluated against the potential benefits.

The RBI has already indicated about doing a pilot of its CBDC in the first quarter of the next fiscal year. The CBDC could have a much larger impact on the financial ecosystem, according to industry experts.

While many see CBDCs as a legalised replacement of cryptocurrencies, in reality, CBDCs could just be a digital replica of the physical cash in circulation. According to a 2021 BIS survey, quoted in the RBI report, 86 per cent of the central banks surveyed are actively researching the potential for CBDCs, 60 per cent were experimenting with the technology, and 14 per cent were deploying pilot projects.

RBI may pilot digital currency in Q1 of FY23

A major use case for CBDCs will likely be in the insurance and lending space and also for managing non-performing assets. Using digital currencies will bring in more transparency and traceability across levels for the financial services sector, according to experts.

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Why did RBI deny banking licences to corporates again?, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India has disappointed big corporates that are looking to enter the banking sector, as it kept in abeyance the proposal of its internal working group to allow large industrial houses in the sector.

RBI said it had accepted 21 recommendations with some modifications of the 33 proposed by the committee in November last year. The most contentious proposal by the five-member panel was to allow large corporate houses as promoters of banks after amendments to the Banking Regulation Act. Experts pointed that RBI would face challenges in supervising non-financial sector entities, and supervisory resources could be further strained.

Former RBI governor Raghuram Rajan and deputy governor Viral Acharya were foremost among the experts who had opposed the proposed move last year.

“The history of such connected lending is invariably disastrous – how can the bank make good loans when it is owned by the borrower? Even an independent regulator, with all the information in the world, finds it difficult to be in every nook and corner of the financial system to stop poor lending,” they said in a joint article. In August 2011, the then RBI Governor D. Subbarao said in one of his speeches, “by far the biggest apprehension is about self-dealing — that companies will use the bank as a private pool of readily available funds.”

The argument against

While corporates can bring in capital, business experience and managerial competence, the biggest risk of allowing industrial houses to promote banks is the conflict of interest. A bank is an intermediary which channels public deposits to borrowers. It was not easy for supervisors to prevent or detect self-dealing or connected lending as banks could hide connected party or related party lending behind complex company structures and subsidiaries or through lending to suppliers of promoters and their group companies. RBI also has had an unsatisfactory record in its role as the banking supervisor. Recent governance failures in private banks can be traced to a lack of independence within the board.

The current status

Individuals and companies, directly or indirectly connected with large industrial houses, can participate in the equity of a new private sector bank up to 10 per cent but without controlling interest in the bank. Such shareholders are not allowed to have any Director on the board of the bank on account of shareholder agreements or otherwise, according to the RBI Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector issued in August 2016. A group with assets of Rs 5,000 crore or more with the non-financial business of the group accounting for 40 per cent or more in terms of total assets or in terms of gross income, will be treated as a large industrial house, the RBI said.

Tech disruption

The real transformation in banking is coming from tech companies. A core function of traditional banking, payments, has already been disrupted by fintech. Now, Big Tech is pushing the envelope in financial intermediation. Data is central to the digital economy. It’s given Big Tech an opening, leading to the so-called DNA (data-network-activities feedback loop) advantage. Navigating the risks here is the emerging regulatory challenge. In this situation, there’s no pressing need to add another risk in terms of allowing industrial houses to promote banks.



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SBI enters co-lending agreement with Capri Global Capital Ltd, BFSI News, ET BFSI

Personal Finance

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State Bank of India has entered into a co-lending agreement with Capri Global Capital Ltd (CGCL) to boost MSME lending. The two parties have signed a Memorandum of Understanding to create multiple co-lending opportunities for the financial empowerment of the MSMEs, which aims to provide further impetus to financial inclusion in the country, the bank said in a release.

Dinesh Khara, Chairman, SBI said, “To improve the credit to the underserved and unserved, we are happy to associate with Capri Global Capital. We believe this collaboration will provide the nimble footedness of NBFC and quality credit to the right set of the population which will further deepen lending to MSMEs through the last mile connect.”

RBI had issued guidelines on the co-lending scheme for banks and NBFCs for priority sector lending to improve the flow of credit to unserved and underserved sectors of the economy, and make funds available to borrowers at an affordable cost.

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Depositors of 16 stressed cooperative banks to get up to Rs 5 lakh, BFSI News, ET BFSI

Banking & Finance

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New Delhi, Nov 28 (PTI) Customers of 16 stressed cooperative banks will get up to Rs 5 lakh deposit insurance cover on Monday by Reserve Bank of India’s subsidiary DICGC as part of its mandate under a new law. The Deposit Insurance and Credit Guarantee Corporation (DICGC) had earlier prepared a list of 21 banks but five, including Punjab & Maharashtra Co-Operative Bank (PMC Bank), are out of the list as they are either in merger process or out of the moratorium.

Parliament in August passed the Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021 ensuring that account holders get up to Rs 5 lakh within 90 days of the RBI imposing a moratorium on the banks.

Following enactment, the government has notified September 1, 2021 as the date on which the provisions of the Act would come into force. The mandated 90 days from the notified date comes to an end on November 29, 2021.

The depositors of these banks, who have not yet submitted their claims, are advised to contact the respective banks, a public notice from DICGC said.

“The claims should be supported by officially valid documents of identity and written consent to receive the amount lying in credit of their deposit account (willingness declaration) subject to a maximum of Rs 5 lakh along with alternate bank account details into which the said amount may be credited,” it said.

Depositors submitting valid documents, as mentioned above, will be paid by credit to the alternate bank account specified by depositors or on their consent, to their Aadhaar linked bank account, it said.

For the second phase, the last date for submission of documents is December 10, 2021 while date of payment is December 31, 2021, it added.

Besides PMC Bank, depositors of Hindu Co-Op Bank Ltd, Pathankot of Punjab, Rupee Co-Operative Bank Ltd and Needs Of Life Co-Operative Bank Ltd from Maharashtra and Bidar Mahila Urban Co-Op Bank Ltd of Karnataka are out of this.

It is to be noted that the RBI had in June given in-principle approval to a consortium of Centrum Financial Services and fintech startup BharatPe to acquire the stressed PMC Bank.

Clearing decks for the takeover, the RBI in October gave licence for small finance bank to the consortium. Recently, the DICGC said there may be a need to invoke the provisions of Section 18 A (7) (a) of the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021.

As per the Section 18 A (7) (a) of the Act, if a stressed bank is under the resolution process, the period for disbursement of Rs 5 lakh can be further extended by 90 days.

Last year, the government increased the insurance cover on deposits by five times to Rs 5 lakh. The enhanced deposit insurance cover of Rs 5 lakh came into effect from February 4, 2020.

Every bank used to pay 10 paise as an insurance premium per Rs 100 of deposit. It was raised to 12 paise per Rs 100 in 2020. It cannot be more than 15 paise at any point in time per Rs 100 deposit.

It is to be noted that the enhanced deposit insurance cover of Rs 5 lakh is effective from February 4, 2020. The increase was done after a gap of 27 years as it has been static since 1993. PTI DP MKJ



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