Tag: RBI

RBI, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: The Reserve Bank of India (RBI) has said that there was a 24% improvement in financial inclusion (FI) as measured by RBI’s FI-Index between March 2017 and March 2021.

The FI-Index incorporates details of banking, investments, insurance, postal as well as the pension sector in consultation with government and respective sectoral regulators. In April this year, the RBI had announced that it would launch the FI-Index to capture the extent of financial inclusion.

On Tuesday, the RBI announced the first numbers of the FI-Index, and will henceforth publish the data once a year in July. The highest weightage in the index (45%) is given to the usage of various financial services, followed by access (35%) and quality (20%).

The index captures information on various aspects of financial inclusion in a single value, ranging between 0 and 100, where 0 represents complete financial exclusion and 100 indicates full financial inclusion.

One of the biggest drivers of financial inclusion in the country has been the Pradhan Mantri Jan Dhan Yojana (PMJDY). There are about 42.6 crore PMJDY account holders with more than 55% being women. While the JDY was launched in 2014, the usage of the accounts picked up with the increase in direct benefit transfers (DBTs), which were facilitated by digital platforms and Aadhaar.

The impact of the digital payment in DBT can be discerned from the fact that Rs 5.5 lakh crore was transferred digitally across 319 government schemes spread over 54 ministries during 2020-21.

Since the pandemic, financial inclusion got a boost due to the increased usage of digital platform by small merchants and peer-to-peer payments.

“Lessons from the past and experiences gained during the Covid pandemic clearly indicate that financial inclusion and inclusive growth reinforce financial stability,” RBI governor Shaktikanta Das had said, speaking at the financial inclusion summit.

“As of March 2021, banks have achieved a digital coverage of 95.9% of individuals, while the achievement for businesses stood at 89.8%,” Das said in the summit.

The rise of the fintech’s have also supported financial inclusion as they innovated to simplify and promote digital payments like the UPI (Unified Payments Interface).

According to a report by Macquarie, while the retail payments (by value) have grown at an 18% CAGR over FY15 to ’21, UPI has grown at a CAGR of around 400% over FY17-21 and now forms 10% of overall retail payments (excluding RTGS) from 2% seen couple of years ago.

“Despite being a late entrant, UPI’s FY21 annual throughput value of around Rs lakh crore was almost 2.8x that of credit and debit card (at POS) combined largely,” the report said.



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HDFC Bank ready with strategy on credit cards after RBI revokes ban

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Private sector lender HDFC Bank on Wednesday said it is ready with strategies to ‘come back with a bang’ in the credit card space.

“As stated earlier, all the preparations and strategies that we have put in place to ‘come back with a bang’ on credit cards will be rolled out in the coming time. We are happy that we will be able to serve our customers again with the same dedication and humility,” it said in a statement.

Noting that the restrictions on all new launches of the digital business generating activities planned under Digital 2.0 will continue till further review by the regulator, the bank said it will continue to engage with the regulator and ensure compliance on all parameters.

Also read:Reserve Bank allows HDFC Bank to sell new credit cards

The statement comes after the Reserve Bank of India (RBI) relaxed curbs on the private sector lender on sourcing new credit cards. “…the RBI vide its letter dated August 17, 2021 has relaxed the restriction placed on sourcing of new credit cards. The Board of Directors of the Bank has taken note of the said RBI letter,” HDFC Bank said in a stock exchange filing.

The RBI had in December last year directed HDFC Bank to temporarily halt sourcing of new credit card customers as well as launches of digital business generating activities planned under its proposed programme‐Digital 2.0.

HDFC Bank is the largest credit card issuer with 1.48 crore outstanding cards as of June 2021. The temporary halt on sourcing of cards had to some extent, impacted its business and also enabled competitors such as ICICI Bank and SBI to increase their market share.

Analysts said the RBI decision before the beginning of festive season is a positive development. “…lifting of RBI restrictions before the beginning of festive season is a positive development as HDFC Bank has usually been aggressive during festive season and offers various discounts on consumer products,” Motilal Oswal said in a research note.

Also read: New credit cards: RBI partially lifts curbs on HDFC Bank

It pointed out that HDFC Bank had nearly lost about 6 lakh cards since the date of embargo. On the other hand, ICICI Bank, SBI Cards and Axis Bank almost added 13 lakh, 7.5 lakh and 3 lakh cards respectively over the similar period.

“Other players such as ICICI Bank and SBI Cards have sharply ramped up their incremental market share at about 49 per cent and 28 per cent during this period,” it said.

During recent quarters HDFC Bank has reported moderation in fee income/NII, due to the RBI restriction on credit cards sourcing as this segment contributes about 25 per cent to 33 per cent of the total fee income for the bank. HDFC Bank scrip was up 1.83 per cent in morning trade at BSE.

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Reserve Bank allows HDFC Bank to sell new credit cards

Banking & Finance

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HDFC Bank on Wednesday said Reserve Bank of India (RBI) has relaxed the restrictions placed on the bank to issue new cards.

RBI had issued orders in December and February to HDFC Bank on certain incidents of outages in the internet banking /mobile banking/payment utilities of the bank over the past two years.

“As a further update to the above intimations, we wish to inform you that the RBI vide its letter dated August 17, 2021, has relaxed the restriction placed on sourcing of new credit cards,” it said in a regulatory filing.

Also read:New credit cards: RBI partially lifts curbs on HDFC Bank

The board of directors of the bank has taken note of the said RBI letter, it said. HDFC Bank said the restrictions on all new launches of the digital business generating activities planned under Digital 2.0 will continue till further review by RBI.

“We will continue to engage with RBI and ensure compliance on all parameters,” the bank said. Stock of HDFC Bank traded 2.06 per cent up at ₹1,546.00 apiece on BSE.

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RBI lauds Paytm IPO, says 2021 may turn out to be India’s year of IPO, BFSI News, ET BFSI

Personal Finance

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The $ 2.2 billion proposed listing by a payment and financial services app symbolises investor excitement surrounding India’s digitalisation – digital payment solutions; e-commerce; logistics, says an RBI article.

The year 2021 could turn out to be India’s year of IPO with the domestic unicorns through their public issues setting “domestic stock markets on fire and global investors in a frenzy”, an RBI article said on Tuesday.

The successful Initial Public Offerings (IPOs) by new age companies in the recent months are a reflection of bullishness about Indian technology, it said.

“…growth impulse is igniting financial markets. 2021 could well turn out to be India’s year of the IPO. Debut offerings by Indian unicorns – unlisted start-ups – kicked off by a food delivery app’s stellar IPO that was oversubscribed 38 times, have set domestic stock markets on fire and global investors in a frenzy,” the central bank said in an article on the ‘State of Economy’.

The article has been authored by a team lead by RBI Deputy Governor Michael Debabrata Patra. The central bank said views expressed in the article are those of the authors and do not necessarily represent the views of the Reserve Bank.

The RBI article was referring to the IPO of Zomato which got oversubscribed 38 times.

Paytm IPO

The article further said that “the $ 2.2 billion proposed listing by a payment and financial services app symbolises investor excitement surrounding India’s digitalisation – digital payment solutions; e-commerce; logistics”.

Noting that the IPO of a specialty chemical manufacturing exporter was subscribed 180 times, the RBI said “these IPOs of new age companies arrive as bullishness about India mounts, especially around Indian tech”.

India’s tech boom, it added, has been long awaited, with strong global and domestic appetite for what are widely believed to be world class businesses in the pipeline, notwithstanding initial losses that have largely stemmed from the deep discount business models adopted by them.

These listings coincide with a broader rush by Indian companies to tap the market and the fomo (fear of missing out) factor driving investors, which have taken the benchmark indices to records, the RBI article said.

“A new era has clearly begun. It is estimated that India has 100 unicorns (Credit Suisse, 2021), with 10 new ones created in 2019, 13 in 2020 in spite of the pandemic and 3 a month in 2021 so far. They do not rely on inherited wealth or dependence on bank loans or extra-business connections, but on talent and innovative ideas. These are the children of liberalisation, not of the wealthy,” it said.

Maharaja Mac

Referring to the recent update by the UK-based The Economist of its Big Mac Index, an informal guide to currency valuation, the RBI article said that in terms of Maharaja Mac, India is currently the fourth-largest economy in the world.

“…we decided to give the Big Mac’s currency valuation powers a go by and turned it on its head. Looking at affordability or how many burgers can a currency buy relative to the US dollar, we measure how much a country’s GDP is valued in purchasing power terms,” the article said.

“Voila! The results uphold conventional wisdom – in terms of the Maharaja Mac, India is currently the fourth-largest economy in the world after China, the US and Japan.”



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RBI partially lifts ban on HDFC Bank, allows it to sell new credit cards, BFSI News, ET BFSI

Banking & Finance

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Eight months after barring the country’s largest private sector lender HDFC Bank from selling new credit cards, the Reserve Bank of India (RBI) has lifted the ban.

However, the ban on launching new technology initiatives remains.

In December last year, the RBI had come out with an unprecedented action implementing both the bans, after repeated instances of technological outages at the lender, which is the market leader in the credit cards segment.

Rivals ICICI Bank and SBI Cards seized the opportunity to narrow the gap with HDFC Bank.

The bank’s existing users were not impacted by the ban and it had 1.48 crore credit card customers as of June.

The impact

On July 17, the bank’s Chief Executive and Managing Director Sashidhar Jagdishan had said it has complied with 85 per cent of the RBI’s requirements on the improvements desired, and the ball is now in the regulator’s court to re-allow the bank.

Earlier, its technology and credit card vertical had said the time off the market has been utilised to re-draw processes and the teams are raring to go.

Jagdishan had said a technology audit is also over and the RBI will now be “independently” taking a view on when to lift the penal actions taken against the bank.

“We have given a milestone to the regulator in terms of what are the things we are doing on technology, complying with their advisories and directives.

The progress

“We have covered a significant portion as we speak. Almost 85 per cent of what we had to do has been covered,” Jagdsihan, who has been with the lender for over two decades and worked as the ‘change agent’ in the years leading to his elevation, said.

He added that the ball is in the regulator’s court. “As they deem fit, as they see that we are on the right track, I am sure at some point of time, they will lift the embargo.”

Acknowledging that the bank has lost market share in the credit card segment due to the ban, Jagdsihan said tech outages are a global phenomenon but it is the time taken to recover from a setback where the bank erred, leading to the “rap on the knuckles” from the regulator.

The action against HDFC Bank has been followed with a ban on card companies Mastercard and American Express from selling any new cards because of a failure to adhere to data localisation rules.

Also read : HDFC Bank episode shows that digital banking is not easy



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RBI paper, BFSI News, ET BFSI

Banking & Finance

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The newly created small finance banks (SFB) are serving the intended marginalised and under-served people, and doing so profitably, an analysis by RBI officials has revealed. This category of banks was started in 2017, and a bulk of the entities are microfinance institutions, which converted themselves into lenders, which gave them access to public deposits.

“The SFBs have been provided license with the objective to serve the under-served and marginalised sections of the society…preliminary analysis reveals SFBs to be leading in serving the priority sector,” the paper by Nitin Kumar and Sarita Sharma said.

The study contains an initial assessment of the performance of SFBs for early policy inputs, it said, stressing that its assessment should not be considered as the view of the central bank.

A basic examination reveals a relatively high credit deposit ratio of SFBs and most of them displayed healthy profitability with further improvements in recent quarters, it said.

The study went into operational financials between March 2017 and March 2020 and indicated that bank-level factors like efficiency, leverage, liquidity and banking business are significant in determining SFBs’ profitability during this early period of operation.

It can be noted that the first quarter of the FY22 was a difficult time for many of the SFBs, as the collection efficiencies declined because of the second wave of the pandemic.

Meanwhile, another paper in the RBI bulletin for August on the targeted long term repo operations said that non-bank lenders, which accessed funds through the route, have displayed an improvement in their short-term liquidity buckets compared to others.

As NBFCs were finding their footing after the IL&FS default, the COVID-19 pandemic started a chain of adverse reactions, which exacerbated their liquidity position, the paper by KM Neelima, Nandini Jayakumar, and Jibin Jose said.

The RBI and government swung into action to address the stress through a slew of measures, including the TLTRO scheme that aimed at providing targeted liquidity to sectors and entities, which were experiencing liquidity constraints and restricted market access, it added.

Banks were provided funds at the repo rate and were directed to invest in investment-grade papers of corporates, including NBFCs, it said.

The policy was beneficial in alleviating the liquidity stress faced by the treatment NBFCs in the period following COVID-19 and helped them navigate the tough times, the paper said, adding that this happened at a time when both banks and credit markets were averse to help such entities.

“The empirical exercise undertaken in this article, therefore, suggests that the Reserve Bank’s intervention for easing financial conditions proved to be timely and effective for the NBFC sector,” it noted.



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Robust Q1 earnings could brighten growth picture, says Axis Bank chief economist, BFSI News, ET BFSI

Banking & Finance

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NEW DELHI: The million-dollar question on every Indian economist’s mind is when the country shall return on a path of sustainable growth after the deep scars left by the COVID-19 crisis.

Saugata Bhattacharya, chief economist at Axis Bank, and a veteran when it comes to analysing the vicissitudes of economic cycles, believes that the proverbial glass is half full rather than half empty when it comes to India’s GDP growth.

“There are a few developments which could lend some upside to the forecast. First is the way the NSO estimates growth in the initial rounds. The Advance Estimates are constructed with significant inputs from corporate results,” Bhattacharya said in an interview with ETMarkets.com

“The financial results of manufacturing and services companies are adjusted with GDP deflators to arrive at real growth estimates. Obviously there are other quantity based indicators like IIP, freight, etc. which are also inputs. But a large contribution to the estimates comes from the corporate results. And corporate results in Q1 seem to be quite robust .Based on this, our sense is there might be an upside to this estimate of growth.”

The RBI has projected GDP growth of 9.5 per cent for the financial year 2021-22.

As the experience of the last year (and the myriad of growth downgrades emanating from entities like the RBI to the IMF) has shown, forecasting India’s growth amid a Black Swan event like COVID is no easy task.

Bhattacharya, however, bases his view on an analysis of certain high-frequency indicators.

“… signs from high-frequency indicators we track suggest that recovery has been better and deeper than what we had initially estimated,” he said.

“Automobile sales and numbers on the consumer durables – suggest demand resilience.”

The veteran economist did, however, flag concerns about the revival prospects of a large grouping of smaller companies.

“We are grappling with how much the degree of economic scarring due to the pandemic might have been, including a potential drawdown of savings, permanent reduction in incomes, etc.,” he said.

Bhattacharya maintained that at the current juncture, the most that policymakers – who are admittedly in a bind – can do is deal with the problems at hand at present, while prioritising the public health situation.

“The other economic variables are more exogenous. Be it inflation, funds flows, etc, much of those things are relatively exogenous to their control, the only thing really that policymakers, public health policy particularly, can control is vaccination.”



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RBI to put in place a “PRISM” to strengthen compliance by lenders

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The Reserve Bank of India (RBI) is putting in place a Platform for Regulated Entities for Integrated Supervision and Monitoring (PRISM), a web-based end-to-end workflow automation system, to strengthen compliance by supervised entities (SEs).

This comes in the backdrop of continuous engagement and more frequent reviews of risk profiles and supervisory assessments being envisaged for supervised entities, including banks and non-banking financial companies.

With the growing intensity and reach of the Reserve Bank’s supervisory function, the focus of its new approach to ‘continuous supervision’ is on early identification of risks and conduct of supervisory actions, according to an article in RBI’s latest monthly bulletin.

This is aimed at helping supervised entities to strengthen their internal defences and resilience and bringing focus on root cause analysis (RCA).

PRISM will have various functionalities (inspection; compliance; incident functionality for cyber security; complaints; and returns functionalities), with built-in remediation workflows, time tracking, notifications and alerts, management information system (MIS) reports and dashboards.

Strengthening supervisory framework

In its latest annual report (2020-21), RBI said it has been working towards strengthening the supervisory framework for both banking and non-banking sectors.

“The supervisory approach is now more forward-looking and root-cause oriented than before, incorporating both quantitative and qualitative elements into assessment processes.

“During the year, initiatives were taken towards (a) integration of supervisory functions meant for different supervised entities; (b) specialisation and reinforcement of supervision through both vertical and horizontal risk assessments; (c) setting up a dedicated College of Supervisors for capacity development; and (d) harnessing SupTech (supervisory technology),” the report said.

The report underscored that a special thrust is being given from the current supervisory cycle towards carrying out Root Cause Analysis (RCA) which, inter alia, includes a detailed assessment of governance, oversight and assurance function, business strategy and risk and compliance culture.

In 2021-22, the RBI’s department of supervision (DoS) plans to strengthen the on-site assessment of oversight and assurance functions including risk and compliance culture as also business strategy/model.

DoS intends to adopt innovative and scalable SupTech to enhance the efficiency and efficacy of supervisory processes by modifying its capacity and capability.

The department also plans to streamline the process of data collection from all the banks and their off-site assessment and on-site supervision of select banks based on the outcome of risk-based model developed for KYC/AML supervision.

Additionally, DoS is seeking to enhance Fraud Risk Management System, including improving efficacy of Early Warning Signal (EWS) framework, strengthening fraud governance and response system, augmenting the data analysis for monitoring of transactions, introduction of dedicated market intelligence (MI) unit for frauds and implementation of automated unique system generated number for each fraud.

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New credit cards: RBI partially lifts curbs on HDFC Bank

Banking & Finance

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In a major relief for HDFC Bank, the Reserve Bank of India has partially lifted the ban on the private sector lender and has allowed it to issue new credit cards.

“The bank has received a letter from the RBI lifting the restriction on sourcing of new cards,” said a person briefed on the development.

The bank will have to submit a board-approved letter of commitment to continued compliance with IT requirements, the person said, adding that it is expected the lender will submit it shortly. The restriction on digital launches will continue as of now.

The Reserve Bank of India had in December last year directed HDFC Bank to temporarily halt sourcing of new credit card customers as well as launches of digital business generating activities planned under its proposed programme Digital 2.0.

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MPC voted to give growth a chance to claw back into the sunlight: RBI Bulletin

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The Monetary Policy Committee (MPC) voted to give growth a chance to claw its way back into the sunlight, according to an article in the Reserve Bank of India’s latest monthly bulletin.

The MPC’s decision — to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 4 per cent and continue with the accommodative stance — is backed by all available evidence – mobility-, activity- and survey-based, according to the article ‘State of the Economy’.

 

“Yet it is, in the ultimate analysis, a judgement call because at the heart of the association between growth and inflation, a sacrifice is embedded,” according to the article put together by 23 RBI officials, including Deputy Governor MD Patra.

The authors observed that a reduction in the rate of inflation can only be achieved by a reduction in growth; an increase in growth is only possible by paying the price of an increase in inflation, always and everywhere.

 

“Called the sacrifice ratio in economics, the latest estimates for India suggest that for a one percentage point reduction in the rate of inflation, 1.5-2 percentage points of GDP growth have to be foregone,” assessed the authors.

The authors posed the question: “But what if the MPC doggedly attacks the supply shock induced price pressures in spite of the current state of the pandemic-ravaged economy and as a consequence, economic activity wilts into depression?”

The authors emphasised that no amount of humility will wipe away the tears then.

“Also, our MPC is India-focused; it has to be. It must choose what is right for India, emulating none, not emerging nor advanced peer,” they added.

The article noted that so far, inflation is on track to staying within the trajectory envisaged (average 5.7 per cent in FY22) and it is likely to stabilise during the rest of the year.

“In our view, this is a credible forward-looking mission statement for the path of inflation,” the authors said.

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