Tag: RBI

Federal Bank partners Visa after Mastercard embargo, BFSI News, ET BFSI

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Mumbai: Federal Bank on Friday announced its association with Visa to launch new credit cards following the RBI’s embargo for fresh cards on the Mastercard network until the company complies with data-localisation norms.

The private lender said that it will offer credit cards with interest rates as low as 5.9% per annum. According to the bank’s website, the dynamic annual percentage rate, or APR, ranges from 5.9% to 41.9% per annum with the lowest for those who maintain an average minimum balance of over Rs 10 lakh. The interest rate would rise with the reduction in the average minimum balance maintained by the customer in his account. For instance, customers maintaining balances above Rs 3 lakh are entitled to interest rates of 18% per annum and those maintaining an average balance over Rs 50,000 will be billed at 30% per annum.

Under its partnership with Visa, the bank offers three cards — Celesta, Imperio and Signet, each of which is designed to cater to the needs of different segments of customers. Celesta card is targeted at HNIs, Imperio is for family-oriented customers, and Signet is targeted at young, early professionals.



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SDRs boost India’s forex reserves by over $16 bn, BFSI News, ET BFSI

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Mumbai, An exponential rise in India’s Special Drawing Rights allocation aided in the accural of over $16.663 billion into India’s foreign exchange reserves during the week ended August 27.

In financial parlance, SDRs are international reserve assets which are created by the International Monetary Fund (IMF) and are periodically allocated to its members in proportion to their quotas.

The SDR balances are equivalent to liquid balances in convertible currencies in almost every aspect.

Accordingly, the Reserve Bank of India’s (RBI) forex reserves increased to $633.558 billion from $616.895 billion reported for the week ended August 20.

Earlier in the week, the RBI said that IMF has made an allocation of SDR 12.57 billion which is equivalent to around $17.86 billion at the latest exchange rate to India on August 23.

“The total SDR holdings of India now stands at SDR 13.66 billion (equivalent to around $19.41 billion at the latest exchange rate) as on August 23, 2021.”

As per the RBI’s weekly statistical supplement, India’s forex reserves comprise foreign currency assets (FCAs), gold reserves, SDRs, and the country’s reserve position with the IMF.

However, on a weekly basis, FCAs, the largest component of the forex reserves, edged lower by $1.409 billion to $571.600 billion.

On the other hand, the value of the country’s gold reserves rose by $192 million to $37.441 billion.

Similarly, the SDR value rose. It increased by a whopping $17.866 billion to $19.407 billion.

In addition, the country’s reserve position with the IMF rose by $14 million to $5.110 billion.



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RBI imposes Rs 50 lakh penalty on Bombay Mercantile Co-operative Bank, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) on Friday said it has imposed a penalty of Rs 50 lakh on Bombay Mercantile Co-operative Bank, Mumbai for deficiency in regulatory compliance. The RBI has also imposed a penalty Rs 2 lakh on Akola District Central Co-operative Bank Limited, Akola (Maharashtra) for non-compliance with certain provisions of Know Your Customer (KYC) norms.

The penalty on Bombay Mercantile Co-operative Bank Ltd was imposed for non-compliance with directions contained in the Reserve Bank of India (Co-operative Banks – Interest Rate on Deposits) Directions, 2016 and specific directions under the Supervisory Action Framework (SAF), RBI said in a statement.

The statutory inspection of the bank conducted by RBI with reference to the bank’s financial position as on March 31, 2019, the inspection report pertaining thereto, and examination of all related correspondence revealed that it had offered interest rates on NRE deposits higher than those offered by it on comparable domestic rupee term deposits.

The bank had also sanctioned unsecured advances.

In another statement, the RBI said the inspection report of the Akola District Central Co-operative Bank based on its financial position as on March 31, 2019 and the inspection report pertaining thereto revealed that it had failed to put in place a robust system for alerts as part of effective identification and monitoring of suspicious transactions.

In both cases, the RBI said the penalties are based on deficiencies in regulatory compliance and not intended to pronounce upon the validity of any transaction or agreement entered into by the banks with their customers.



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Indian Banks’ Association requests RBI to exempt govt accounts from current accounts circular

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Emails sent to the IBA and the RBI remained unanswered till the time of going to press.

The Indian Banks’ Association (IBA) has requested the Reserve Bank of India (RBI) to exempt accounts held by the government with various banks from the purview of the August 6, 2020, current accounts circular. The request has been made on the basis of feedback received from IBA’s member banks, a banker aware of the development told FE.

If the central bank accedes to this request, a bank will not have to close current accounts held with it by the government even if the bank’s exposure to the government is less than 10% of the latter’s total borrowings. The deadline for complying with the circular, aimed at preventing frauds, has been extended to October 31 from July 31, 2021.

“The purpose of the circular is to prevent siphoning off funds given by banks. In the case of the government, that can hardly be considered a risk. That is why we have asked for an exemption,” the banker said.

Emails sent to the IBA and the RBI remained unanswered till the time of going to press.

According to people in the industry, the government was unhappy with the idea of having to close down some of its current accounts, which were in violation of the terms of the August 6 circular. Some banks even faced the threat of being blacklisted by the government. In order to resolve this conflict between the regulatory mandate and the government’s wishes, banks have sought government accounts to be excluded from the ambit of the circular, altogether.

While issues like this continue to hamper the implementation of the circular, bankers are taking solace from the RBI statement that issues which banks are unable to resolve themselves shall be escalated to the IBA for appropriate guidance. “Residual issues, if any, requiring regulatory consideration shall be flagged by IBA to the Reserve Bank for examination by September 30, 2021,” the RBI had said on August 4 while extending the timeline for implementing the circular.

In the meantime, the circular continues to face a legal challenge in the Kerala High Court. Muthoot Fincorp and GEO VPL Finance have moved writ petitions against the circular. In its last hearing in the matter of August 12, the court took note of the RBI’s submission, which was similar to its August 4 clarification. The next hearing in the matter is scheduled for October 12.

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Will Centre’s crypto hesitancy extinguish a thriving asset class?, BFSI News, ET BFSI

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While the Cabinet ruminates on the cryptocurrency bill, 15 million Indians are now trading in digital coins. This almost puts us in the same league as the US where 23 million people trade in cryptos. At this point, the lack of legal clarity seems to be the only thing stopping a cryptocurrency revolution in India.

For the Indian investor, with cryptocurrency comes hesitancy, particularly in the face of hostility from the Reserve Bank and the Finance Ministry. However, investments in crypto have grown from around $200 million to nearly $40 billion in the past year, as per Chainalysis.

“We are hoping for positive regulations from the government that give clarity to investors and foster the crypto industry further,” said Sharan Nair, Chief Business Officer of crypto exchange platform CoinSwitch Kuber. “There are many people who have been hesitant to invest in cryptocurrencies due to the lack of legal clarity,” he added.

CoinSwitch Kuber has seen exponential growth since beginning operations in June 2020, and expects growth to speed up even more in the event of a favourable regulatory outcome.

“We’ve always voiced in favour of regulatory clarity around crypto assets and we’re looking forward to a regulatory framework that protects investor interest and helps businesses grow in this industry,” said Avinash Shekhar, Co-CEO of cryptocurrency exchange ZebPay.

Zebpay is one of the biggest crypto exchange platforms in the country with over 4 million users and over $1 billion in monthly transaction volumes.

The RBI’s view has been that cryptocurrencies are distinct from blockchain technology. “The Reserve Bank’s position has been that cryptocurrencies should be banned,” Finance Minister Nirmala Sitharaman recently told ET.

An inter-ministerial panel headed by former finance secretary Subhash Chandra Garg had earlier submitted a report seeking a ban on cryptocurrencies and authorising a digital currency of the RBI.

However, there has been more positive messaging from the Finance Minister: “We are not saying no to cryptocurrency. We are saying we’ll have to see how this technology can help fintech maximise the potential that it has,” Sitharaman said.

Crypto exchanges believe that a regulatory framework for crypto assets is the way forward instead of a blanket ban.

“We do not believe that a complete ban is likely as there have been some positive comments from the Finance Minister and talks of developing blockchain technology that is quickly gaining global prominence,” explains Nair.

Cryptocurrencies are also seeing wider acceptance among both retail and institutional investors. India should not be left behind in this revolution, he adds.

There are examples of other countries like Singapore that have effectively implemented laws and regulations around crypto assets, Shekhar points out. “We hope to see regulations that will help investors to experiment with this new asset class and take advantage of this global market.”

Sitharaman wants to work with the Reserve Bank to try and make the regulation a sophisticated one. “I can say the work is nearly complete. It is now for the cabinet to go into it,” the FM told ET.

RBI has indicated that it might soon unveil a central bank digital currency (CBDC), which is legal tender in digital form; essentially a digital rupee. Both Nair and Shekhar – despite differences with RBI on the future of crypto assets – believe this is a step in the right direction.

“e-RUPI, though not backed by blockchain, was a huge step towards acceptance of digital currencies. India’s own CBDC will make transactions and transfers easier”, Nair says.

Shekhar looks forward to seeing the design and role of a nationalized cryptocurrency in the Indian economy: “Especially, the features of the crypto — whether it’ll have a public ledger or not, the type of blockchain it’ll function, and so on.”

Let’s see how it’s handled, Sitharaman remarked.

“Is it possible with just a notification and a rule or is legislation definitely required? It’s a call which the cabinet will have to take,” she said.



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Banks approach RBI to raise limit for raising AT1 offshore, BFSI News, ET BFSI

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Mumbai: Indian banks are said to have requested the Reserve Bank of India that the limit on the overseas sale of bonds under the Additional Tier 1 category be raised to facilitate diversification of capital-raising resources, with the domestic market turning dry and inaccessible.

While State Bank of India was the first to sell such bonds this financial year in the local market, others such as Axis Bank and HDFC Bank have chosen overseas markets.

Banks are now permitted to raise up to 49 per cent of the eligible AT1 capital in foreign currency. However, a debate over what is eligible capital brewing.

The RBI did not reply to ET’s queries.

“While some wrote directly to the RBI seeking an increase in limit, others have represented through industry body,” said a senior executive involved in the matter told ET.

“The definition of eligible AT1 capital still needs some clarity and can be a conservative estimate,” the executive said.

According to the central bank’s regulation based on the latest international capital standard, the AT1 capital can be admitted maximum at 1.5 per cent of risk-weighted assets.

Banks have also sought clarity on this from the RBI, executives said.

AT1 or perpetual papers as they are known popularly are quasi-debt instruments, which bear a higher risk of capital losses and are rated at least three notches lower than an issuer’s corporate rating grade.

While SBI offered 7.72 per cent on the domestic turf Wednesday, Axis Bank paid 4.10 per cent in the international market.

Axis Bank’s credit is billed weaker than government-owned SBI. Had Axis Bank raised perpetual bonds in the local market, it would have been priced in the range of 8.25-8.70 per cent, according to local dealers.

If Axis Bank covers the currency risk for the whole overseas sale, the cost would be 9.5 per cent going by existing currency forwards rates, they said. However, it also depends on the usage of capital.

“If Axis Bank funds any assets overseas, there is no need for currency hedging for the same quantum, which in turn will help save costs,” said a senior executive involved in AT1 sales.

The local market has dried up completely after the Securities and Exchange Board of India tightened valuation rules for AT1 where mutual funds used to subscribe to a large share.

SBI had received 157 bidders from private banks, pension funds, corporate treasuries, bond houses and wealth managers for its offer.

Three top bond arrangers ET spoke with said Axis Bank would not have garnered interest like SBI. At the most, it would have received bids for Rs 500-750 crore compared with $600 million (or about Rs 4,400 crore) it raised on the offshore market.

Yield-hungry global investors look for three factors when it comes to AT1 from an emerging market: the financial matrix of the issuing bank and the bad loan position, the capability of exercising the call option and the ability to pay interest.

The principal and any accrued interest would be written down, partially or in full, if an issuing bank’s CET1 (common equity) ratio slips to 6.125 per cent later this year. The issuer cannot pay a coupon if it incurs losses in a financial year.

Such a scene does not augur well for any state-owned banks other than SBI as they are not in the pink of their health, dealers said.



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RBI imposes ₹25 lakh penalty on Axis Bank

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The Reserve Bank of India on Wednesday imposed a monetary penalty of ₹25 lakh on private sector lender Axis Bank.

The penalty has been imposed for contravention of non-compliance with certain provisions of directions issued by RBI contained in the Reserve Bank of India – (Know Your Customer (KYC)) Direction, 2016, the RBI said.

RBI conducted scrutiny during February 2020 and March 2020 in a customer account maintained with Axis Bank. It was observed that the bank had failed to comply with the KYC directions and had failed to monitor/carry out on-going due diligence in the account to ensure that the transactions were consistent with its knowledge about the customer, customer’s business and risk profile.

“In furtherance to the same, a notice was issued to the bank advising it to show cause why penalty should not be imposed on it for contravention of the said directions,” the RBI said.

After considering Axis Bank’s reply to the notice and oral submissions made during the personal hearing, RBI concluded that the charge of contravention of / non-compliance with the directions were substantiated and warranted imposition of monetary penalty, it further said.

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Credit to large industry falls for eleventh month in a row

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Analysts have attributed the shrinkage in credit to large industry to lower utilisation of sanctioned limits and reduction in exposures by banks.

The value of outstanding loans to large industries shrank for the 11th straight month in July 2021, showed data released by the Reserve Bank of India (RBI). Much of incremental growth in bank credit has been led by the retail segment as a trend of deleveraging among corporates continues.

Analysts have attributed the shrinkage in credit to large industry to lower utilisation of sanctioned limits and reduction in exposures by banks. In a report on Wednesday, ICICI Securities said under-utilisation of limits, a modest demand outlook and rundown of exposure in few sectors have resulted in a fall in bank credit to industry.

Last month, State Bank of India (SBI) chairman Dinesh Khara said sanctioned limits are still under-utilised to the extent of 25%. Similarly, banks with a significant presence in corporate lending, such as Bank of Baroda (BoB), have admitted to consciously running down some low-margin loans.

Sanjiv Chadha, MD & CEO of BoB, told FE in August that an abundance of liquidity has resulted in pricing pressure on the corporate side. “The only reason that growth was subdued in this quarter (Q1) was that we allowed some cheaply-priced corporate loans to run off because we believe that the liquidity scenario should start changing over the next few months,” he added.

Despite a low-interest rate environment, bank lending to corporates has not seen much traction. “Interest rate environment is quite favourable but spreads are still holding up at elevated levels suggesting that lenders are still reluctant to relax lending standards or borrowers are not comfortable to leverage, as yet,” Kotak Institutional Equities (KIE) said in a note on Wednesday.

There may be an improvement in corporate lending trends in the months ahead, though. ICICI Securities said the demand prospects are improving. “We believe India Inc, after undergoing a phase of deleveraging over the past few years, is now better positioned and confident to anvil on the path of re-leveraging,” the brokerage said, adding Indian financiers, too, have saddled themselves with ample liquidity and capital buffers to tap into the emerging opportunity.

Pricing trends, too, are likely to improve, according to BoB’s Chadha. “There is an opportunity to price corporate loans in a slightly better manner as compared to what was possible in the last 12 months,” he said, adding that there is a fair bit of activity in sectors like roads, city gas projects and renewable energy. Brownfield expansion is also going on, he said.

A steep decline in bond market rates till July 2020 had led to a narrowing of the spread between bank funding and bond rates, but bond yields seem to be trending upwards now, KIE analysts wrote in a report.

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Extend compliance deadline for halting storage of card details: ADIF to RBI

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Alliance of Digital India Foundation, representing over 250 digital start-ups, has urged the Reserve Bank of India to extend the compliance deadline on the norm prohibiting payment aggregators and payment gateways from storing card details.

Some of the group members include Paytm, SHEROES, MapMyIndia, DemandPay, Buy Me a Coffee, Innov8, Trulymadly, GOQii, and Matrimony.com, among others. ADIF has submitted that payment aggregators and payment gateways seem unlikely to be prepared for compliance with the norm by December 31, 2021 (current deadline). The industry body argued that enabling card on file tokenisation will require issuers and networks to do some work before the card of file tokenisation is ready. Post which, payment aggregators will again need some time to integrate and work with upstream and downstream partners.

They added that most industry players follow software code freeze processes during the festive season (September 2021 to December 2021) and thus do not implement any major changes, which would again increase the required compliance time. “The exact timelines may be provided on the basis of solution and readiness of all industry players,” said Sijo Kuruvilla, Executive Director, ADIF.

This RBI rule on stopping card storage was initially given an implementation deadline of July 2021 but was later extended to January 2022 following industry push.

Further, ADIF has also suggested partnering with banks to take care of RBI’s concerts around securing card details. The industry claims to have done a lot of work on this solution in the last few months. This solution broadly includes partner banks offering a secure vault system where individual card numbers would be encrypted and stored with a unique reference number or token for each card, device agnostic. The saved cards would then be aliased and returned in the form of tokens by the Bank to the merchants and payment aggregators.

“ADIF represents a group of over 250 technology companies which includes merchants and PAs (payment aggregators), and understands that the security of its customer’s details is paramount. The proposed solution has been suggested with utmost security in mind and we feel that this should take care of the concerns that RBI has with respect to securely handling the consumer’s card details,” Kuruvilla added.

Another industry association, Payments Council of India (PCI) had earlier claimed to be closely working with RBI on charting a roadmap of the possible solutions that would not require the industry to enter their card details every time they want to make an online purchase. PCI had said that these solutions will adhere to the security checks, controls and frameworks prescribed by RBI.

Another industry association, Indiatech.org, which represents companies such as Ola, hike, Makemytrip, and Nykaa, among others, has said in their submission to the central bank that companies that can afford industry certifications like Payment Card Industry Data Security Standard (PCI DSS) Level 1 should be allowed to save customer’s card details with necessary reporting and audit mechanisms built to inform RBI. Further, the industry association has also suggested that beyond-device tokenisation should be allowed.

Last week, RBI had extended the scope of tokenisation from mobile phones and tablets to include all consumer devices (such as laptops, desktops, wearables, and IoTs etc), a move welcomed by the industry. The central bank’s motive to bring these rules on card details storage was to guard customer data against tech companies frequent data breach cases.

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