Tag: RBI

RBI’s CBDC project may need it to act like Apple or Google, BFSI News, ET BFSI

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In many ways, the Covid-19 pandemic has accelerated mankind’s journey into the future. The adoption of technology and internet use have skyrocketed in such a manner that it has compressed years of growth into just one. Companies are shedding the fat accumulated from years of ‘business-as-usual’ attitude, and consumers are fast adapting to their new environment.

In a way, the government, too, has shown adaptability in the face of a crisis, and seems prepared to launch itself into the higher echelons of the technology world with the proposed cryptocurrency bill.

While the proposed bill has got a rap for the proposed restrictions on private cryptocurrencies like Bitcoin, Ethereum et al, the other part of it is fascinating — India’s own central bank digital currency (CBDC) project.

India has been a laggard in this space considering the number of years that China has spent developing the digital yuan. But better late than never.

Developing a CBDC is no mean task and will require several far-reaching changes in the way the central bank goes about its business. While no one will say that the Reserve Bank of India is averse to change, it is likely fair to say that it is a slow starter in some aspects.

The central bank has stated that its internal panel is working on a model for a digital rupee and may soon launch a trial run for the digital currency. CBDC, however, may require a change in approach from the central bank.

Currently, there is a dual monetary system that exists around the world wherein the public money (say rupee) acts as a backbone for private money (like credit cards, debit cards) issued by banks.

One can assume that once a digital rupee is available, there will no longer be a need for banks to issue a private form of money. Everything can be done digitally via a centralised authority, that is the RBI. The role of the private players then will become limited to providing wallet services.

Tobias Adrian and Tommaso Mancini-Griffoli of the International Monetary Fund, however, argue that the current dual monetary set-up can exist in the digital age.

“Central bank digital currencies are akin to both a smartphone and its operating system. At a basic level, they are a settlement technology, allowing money to be stored and transferred, much like bits sent between a phone’s processor, memory and the camera. At another level, they are a form of money, with specific functionality and appearance, much like an operating system,” Adrian and Mancini-Griffoli said in a IMF blog recently.

The duo believe to manage digital currency, central banks will have to act like Apple or Microsoft in order to ensure that the sovereign digital currency remains the pre-eminent choice of citizens.

As the digital currency gains prominence, the technology around it will evolve rapidly and so will the requirements of consumers, who will demand more convenient ways of handling payments and money transfer.

Acting as a provider of an operating system means the RBI can foster innovation by allowing the private sector to build on the foundation created by it. This could be similar to how app developers bring in newer functionality on top of existing operating systems in our mobile phones. Think of how Instagram was made possible because Steve Jobs provided the platform of the Apple iOS, or Google provided Android, for it to exist in the first place.

In this manner, perhaps, both the private and public money can co-exist in the digital age of the monetary system. It will require the central bank to adopt and innovate technology like it has never done before. One hopes it is up for the challenge.



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No a/c freeze till Dec for want of KYC, BFSI News, ET BFSI

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MUMBAI: The RBI on Monday reiterated that until December 2021, banks cannot freeze accounts if the customer has not done a periodic KYC (know your customer) update. The central bank said this while cautioning the public not to fall prey to fraudulent messages seeking bank details for KYC updation purposes.

The RBI said it has been receiving complaints/reports about customers falling prey to frauds being perpetrated in the name of KYC updation. The RBI asked the public not to share key information like account details or passwords with unidentified persons or agencies under threat of account freeze. Many customers have avoided visiting branches during the pandemic, which has provided fraudsters an opportunity to use KYC as a reason to engage with customers.“The usual modus operandi in such cases include receipt of unsolicited communication, such as, calls, SMSs, emails urging him/her to share certain personal details, account / login details/ card information, PIN, OTP, etc or install some unauthorised/ unverified application for KYC updation using a link provided in the communication,” it said.

The RBI also said that it has made the process of KYC updation much simpler. The directions on simplified process comes in the wake of banks asking customers to fill multiple sheets of all-in-one document merely to get a periodic proof of address and identity. The central bank on Monday said that NBFCs and payment system operators seeking to obtain Aadhaar e-KYC authentication licence can submit the application with the RBI.

In May 2019, the finance ministry had come out with a detailed procedure for processing of applications (under the PML Act) for use of Aadhaar authentication services by entities other than banking companies.

“Accordingly, non-banking finance companies (NBFCs), payment system providers and payment system participants desirous of obtaining Aadhaar Authentication license — KYC User Agency (KUA) ;icense or sub-KUA license (to perform authentication through a KUA), issued by the UIDAI, may submit their application to this department for onward submission to UIDAI,” the RBI said in a circular. The RBI has also provided the format of the application.



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RBI cautions members of public about KYC frauds

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The Reserve Bank of India has cautioned members of public against frauds being perpetrated by fraudsters under the garb of KYC (know your customer) updation.

The central bank, in a statement, said members of public should not share account login details, personal information, copies of KYC documents, card information, PIN, password, OTP, etc. with unidentified persons or agencies.

Further, such details should not be shared through unverified/ unauthorised websites or applications. In case they receive any such requests, customers are requested to get in touch with their bank/ branch.

RBI’s caution comes as it has been receiving complaints/ reports about customers falling prey to frauds being perpetrated in the name of KYC updation.

The usual modus operandi in such cases include receipt of unsolicited communication such as calls, SMSs, emails, by customer urging him/her to share certain personal details, account / login details/ card information, PIN, OTP, etc. or install some unauthorised/ unverified application for KYC updation using a link provided in the communication.

The central bank said such communications are also reported to carry threats of account freeze/ block/closure. Once customer shares information over call/ message/ unauthorised application, fraudsters get access to customer’s account and defraud him/ her, it added.

Periodic KYC updation

The RBI also clarified that while the Regulated Entities (REs) are required to undertake periodic updation of KYC. It said the process of periodic updation of KYC being simplified to a large extent.

Further, REs have been advised that in respect of customer accounts where periodic updation of KYC is due and pending as on date, no restrictions on operations of such account shall be imposed till December 31, 2021, for this reason alone, unless warranted under instructions of any regulator/ enforcement agency/court of law, etc.

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RBI announces opening of third cohort under Regulatory Sandbox

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The Reserve Bank of India on Monday announced the opening of the third cohort under the Regulatory Sandbox.

The application for the third cohort may be submitted from October 1 to November 14, 2021, it said. The theme for the third cohort is MSME lending.

8 entities selected

In separate statements, the RBI also announced that eight entities have been selected for the ‘test phase’ of the second cohort on cross border payments. Six entities have completed the ‘test phase’ of the first cohort on retail payments.

The six entities that have completed the test phase include Nucleus Software Exports (PaySe), Tap Smart Data Information Services (Citycash), Natural Support Consultancy Services (IND-e-Cash), Naffa Innovations (ToneTag), Ubona Technologies (BHIM Voice) and Eroute Technologies.

“The products were evaluated based on mutually agreed test scenarios and expected outcomes. All the products have been found viable within the boundary conditions defined during testing under Regulatory Sandbox,” the RBI said.

The products found acceptable under this cohort may be considered for adoption by regulated entities subject to compliance with applicable regulatory requirements, it further said.

The eight entities that have been selected for the ‘Test Phase’ under the second cohort include Book My Forex, Cashfree Payments, Fairex Solutions, Flyremit, Nearby Technologies, Open Financial Technologies, SoCash India and Wall Street Finance.

“The entities… shall commence testing of their products from the third week of September 2021,” the RBI said.

In all, the RBI had received 27 applications from 26 entities under the second cohort, which was open from December 21, 2020 to February 15, 2021.

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Large urban cooperative banks want to become ‘universal’, BFSI News, ET BFSI

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Large cooperative banks are considering turning into universal banks as the regulator has tightened norms, especially steep priority sector lending targets.

The RBI had increased the overall priority sector lending (PSL) target for UCBs to 75% of adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure, whichever is higher from 40% earlier.

PSL portfolio comprises loans to agriculture, micro, small and medium enterprises, export credit, education, housing, social infrastructure, among others, which UCBs have to increase to 75% of their advances by March 2024.

The RBI said tier-1 capital as on March 31 of the preceding financial year shall be reckoned for the purpose of fixing the exposure limits.

“Tier-1 capital for the purpose will be the same as that prescribed for computation of capital adequacy of UCBs,” it said.

Under the new proposed rules by RBI in 2019, UCBs with deposits of Rs 100 crore are to set up a board for management with the board of directors carrying out due diligence for their appointment, bringing them at par with commercial banks.

Board of management norms

On December 31, 2019, the Reserve Bank of India had released the final guidelines for setting up a board of management (BoM) for such banks. According to the guidelines, UCBs with deposits of Rs 100 crore and will constitute the Board of management which will be a mandatory requirement for opening new branches.

“The board of directors (BoD) of a UCB perform both the executive and supervisory roles, and has the responsibility to oversee the functioning of UCB as a cooperative society, as well as its functions as a bank. Since UCBs are accepting public deposits, it is imperative that a separate mechanism be put in place to protect the interests of depositors,” said the RBI in its notification.

The BoM will comprise expert banking professionals. It will also exercise oversight on banking-related functions of the UCBs, assist the BoD on formulation of policies and any other related matter, specifically delegated to it by the board for proper functioning of the bank, it added.

Borrowing oversight

The BoM will also oversee the management of fund and borrowings, and recommend action for recovery of non-performing assets (NPAs). The Board of directors will continue to be the apex policy setting body and constitute various committees of the board, including the BoM, to assist the board in carrying out its responsibilities.

The BoM will be constituted by the BoD within a period of one year from the date of the circular, and have a minimum of five members and may have as many as 12 members. The chairman of the BoM may be elected by the members from among themselves, or appointed by the BoD, while the CEO will be a non-voting member.

Banks looking at going universal

Saraswat Co-operative Bank and Cosmos Co-operative Bank were planning to seek the Reserve Bank of India’s (RBI) approval to convert into full-fledged commercial banks, according to reports last year.

As at March-end 2020, there were 88 UCBs with deposits greater than or equal to Rs 1,000 crore and 50 UCBs with advances greater than or equal to Rs 1,000 crore, per RBI data.



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Restored normalcy in PSU banks hamstrung by sticky bad assets: Finance minister Nirmala Sitharaman

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She said there are lot of changes happening in the banking sector at a fast pace through digitisation. (File)

Union finance minister Nirmala Sitharaman on Sunday said the government was able to bring back normalcy with regards to mounting non-performing assets (NPAs) in most of the public sector banks that have been a cause of concern since 2014.

The Centre, apart from infusing required capital, monitored  the PSU banks with regular assessment and reviews while taking prompt corrective actions.

Inaugurating the centenary celebrations of Tamilnad Mercantile Bank (TMB) at Tuticorin, Sitharaman said the problems in banking sector are major problems that concern the entire country which also made everyone feel concerned about the sector.

“Post 2014, we had witnessed major NPA problems in the PSU banks, it took five to six years to reverse the trend and bring back normalcy in most of the banks. While the banks spent energy in the recovery process, even as trying to grow their businesses,” she said.

While speaking on bringing about the efficiency in the banking system, she said the way forward for any bank was to adopt complete technology-enabled solutions.

“Today financial technology is the biggest area and using that we could cross-populate data into forms. Auto-populating data of a consumer has been very useful and it can be done only through digitisation and the management of TMB should think of greater use of digitisation. Digitisation cannot be avoided for your own good and for the sake of customers,” she said.

She said there are lot of changes happening in the banking sector at a fast pace through digitisation. “There is no necessity to open a branch in a place which does not have a  bank. To reach a customer’s bank account of the people who live there, all kind of technologies are available today. Even sitting from Tuticorin one can serve the banking requirements of people living in small villages through technology”, she said.

Sitharaman said even during Covid-19 pandemic with the use of digitisation through banking correspondents, the government’s financial disbursements were distributed to the needy after verifying their details.

“Prime Minister Narendra Modi was clearly aware that banking is important and did not hesitate that there can be zero balance accounts if they were opened under the Jandhan Yojana scheme, launched in 2014. He ensured that every one must hold a bank account and be able to transact,” she said.

K V Rama Moorthy, MD & CEO, TMB, said, “To help borrowers to overcome the adverse impact of Covid-19, till date, the bank has covered 13,753 beneficiaries and the exposure to the tune of Rs 1,567.62 crore. In the era of digital banking, we were the first bank to introduce robotics in currency chest to sort and bundling of currencies in order to provide quality service to the customers. Disbursement of loans to pharma and health care units will be at the heart of a year- long series of events and initiatives from us.”

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Revised PSL target: Large UCBs to take hard look at ‘co-operative’ structure

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Large urban co-operative banks (UCBs) such as Saraswat Co-operative Bank and SVC Co-operative Bank may take a hard look at their co-operative structure in the backdrop of the steep priority sector lending (PSL) target prescribed by the Reserve Bank of India (RBI).

UCBs have to increase their PSL portfolio – comprising loans to agriculture, micro, small and medium enterprises, export credit, education, housing, social infrastructure, among others – so that it accounts for 75 per cent of their advances by March 2024.

So, to align their overall loan composition with the revised PSL norms, large UCBs may either cut/stop growing their wholesale lending portfolio or buy priority sector lending certificates (PSLCs) or do both even as they simultaneously grow PSL portfolio under their own steam, according to a co-operative banking expert.

Conversion into universal bank?

As the PSL target is steep, the larger ones among the UCBs may consider converting into universal banks as and when RBI opens up this route.

As at March-end 2020, there were 88 UCBs with deposits greater than or equal to ₹1,000 crore and 50 UCBs with advances greater than or equal to ₹1,000 crore, per RBI data.

Currently, though RBI allows UCBs to convert into small finance banks (SFBs) under the Scheme of Voluntary Transition, large UCBs do not see any advantage in doing so.

PSL and minimum capital adequacy ratio (CAR) for SFBs are both high at 75 per cent (of advances) and 15 per cent (of their risk weighted assets/RWA), respectively.

While PSL target for UCBs will get aligned with that for SFBs by March 2024, they are required to maintain a lower minimum CAR of 9 per cent (under Basel I norms) of their RWA.

UCBs have to reach the PSL target in phases — 45 per cent by March 2021 (from 40 per cent as at March-end 2020), 50 per cent by March 2022, 60 per cent by March 2023 and 75 per cent by March 2024.

PSL portfolio: Where it stands

As at March-end 2021, Saraswat Bank and SVC Bank increased their PSL portfolio to 52.14 per cent (42.30 per cent as at March-end 2020) of advances and 44.34 per cent (41.13 per cent), respectively.

In fact, in FY21, Saraswat Bank purchased PSLCs (general portfolio) aggregating ₹2,452.75 crore (₹650 crore in FY20).

PSLCs enable banks to achieve PSL target and sub-targets by purchase of these instruments in the event of shortfall and at the same time incentivise the surplus banks, thereby enhancing lending to the categories under priority sector.

Gautam E. Thakur, Chairman, Saraswat Co-operative Bank, observed that the retail clients to whom the bank has extended commercial advances of less than ₹10 crore are substantial in number.

“As these retail clients grow in their respective businesses, their requirements of commensurate bank funding will also increase. Today’s retail banking client is tomorrow’s wholesale banking client.

“With increase in ticket size of the advances granted to such customers, we slowly plan to handhold these retail customers as they undergo their transition to the wholesale banking segment. The growth potential in this segment is huge,” Thakur said in the bank’s latest annual report.

Saraswat Bank’s wholesale advances portfolio came down by about ₹273 crore in FY21 to stand at around ₹12,687 crore as at March-end 2021.

“Due to pandemic impact and the strategic decision of the bank to mitigate the risk of credit concentration… the level of wholesale advances reduced marginally.

“…Also, due to Covid-19, customers were more cautious, resulting into large undrawn positions throughout the year. LCBD (letter of credit backed bill discounting) exposure too declined,” the report said.

The bank mitigated credit concentration risk by reducing exposure in large value borrowal accounts, restricting entry level exposures at a reasonable level, restricting entry into large size consortium, and restricting exposures to existing borrowal accounts by forming consortiums.

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Bond traders await G-SAP auction announcement, CPI figure

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Among the prevailing bullishness in the bond market, the one thing that disappointed traders last week was the absence of the anticipated G-SAP auction announcement by the Reserve Bank of India (RBI) where the Central bank conducts open market purchase of government securities.

The bond market was expecting the RBI to make the announcement on Thursday for the auction to be conducted this week, which did not happen. A trader said although this is not a reason to worry, the usual norm so far has been an announcement in the first 10 days of the month.

The Central bank had announced secondary market purchase operations of ₹1.20-lakh crore in its June monetary policy. The RBI has so far purchased securities to the tune of ₹90,000 crore cumulatively in July and August under the programme.

Another key trigger for the market this week would be the release of the consumer price index (CPI) inflation figure for August. Market participants are of the view that inflation is likely to remain subdued in the coming times which will cushion the bond yields, at least till the end of the year.

‘Persisting bullishness’

Ananth Narayan, Professor-Finance at SPJIMR, believes that the broad expectation for the next few months is that inflation is going to be much lower than what the MPC has been anticipating.

“This will help them to remain dovish in their stance. Also, the tax collections are looking good which is providing relief on the fiscal side. For August, I believe the CPI should come in at close to 5.6 per cent and core inflation should come just below 6 per cent.

The risks for the bond market include a sudden spike in inflation that looks unlikely, any external shock and the complacency in terms of the persisting bullishness in the bond market,” he said.

The benchmark yield hit levels close to 6.20 per cent on the higher side before closing the week at 6.18 per cent. Traders are of the view that the 6.25 per cent level will act as a support in the near term and the yield is unlikely to shoot beyond this mark unless there is any unanticipated shock in terms of inflation or external factors.

The market is also keeping an eye out for the second half borrowing calendar that is expected to be released later this month. Bond traders indicated that the government’s market borrowing in the first half of FY22 is likely to stand at close to ₹7-lakh crore and the second half borrowing should be anticipated at around ₹5-5.50-lakh crore.

Traders believe that if the figure remains anywhere close to ₹5-lakh crore or below, it will be a positive for the bond market.

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Festival season to give boost to retail credit demand

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With the festival season now starting, lenders are expecting a further uptick in retail loan demand and many banks are now announcing special schemes.

“Credit demand from retail customers has been reviving. With Covid cases low in many parts of the country and the festival season starting, there is expectation of heightened interest in loans for items such as consumer durables as well as home and auto loans. Typically, this is the time when people invest in new homes and purchase vehicles,” noted an executive with a private bank.

Kotak Bank

Private sector lender Kotak Mahindra Bank has announced a 15-basis point reduction in home loan rates as a limited period festival season offer beginning September 10 and ending November 8.

State-run Punjab National Bank and Bank of India too have announced festival loan schemes and many other lenders are expected to announce special festival offers in coming weeks.

Fintech lenders have also reported rising demand for credit from retail customers.

“We are seeing improved demand for credit from the first quarter of 2021, supported by economic recovery and improving domestic market due to the reduced risk of Covid-19. We are currently disbursing loans worth ₹120-130 crore per month on a consistent basis since July 2021 which is nearly 70 per cent higher compared to a year ago,” said Yogi Sadana, CEO, CASHe, adding that with the festival season around the corner, he expects an uptick for loan demand for purposes specifically related to wedding, travel, house improvement and purchase of white goods.

Yezdi Lashkari, Founder and CEO, Flexmoney Technologies, said there has been over 4.5 times year on year growth in consumer credit disbursed through its network just this past quarter. “The main use of these loans is for the purchase of electronics and appliances, fashion and personal care, mobile, home and furnishing,” he noted.

In recent months, retail loans have been growing at a robust pace with most banks focussing on this book. According to RBI data, personal loans registered an accelerated growth of 11.2 per cent in July 2021 as compared to 9 per cent a year ago, primarily due to higher growth in ‘loans against gold jewellery’ and ‘vehicle loans’.

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