Tag: RBI

Bond losses seen in India as dissent breaks out at RBI, BFSI News, ET BFSI

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NEW DELHI: India’s bond yields will rise by year-end as disagreement among central bank’s rate-setting panel members indicates they are moving toward a more hawkish stance, a Bloomberg survey has found.

The benchmark 10-year yield will climb to 6.40% by December, while the five-year yield will increase to 5.90%, according to the median estimate in the survey of 15 traders, fund managers and economists conducted this week. The 10-year yield closed at 6.23% on Thursday, and the five-year at 5.74%.

Bearishness toward the country’s sovereign debt increased after one of the six Reserve Bank of India monetary policy panel members voted against the lower-for-longer stance at last week’s policy meeting. That was a departure from previous gatherings this year when they had been unanimous on the need to support growth amid the coronavirus.

“What caused the unease for the market was that the vote for the accommodative stance was 5-1,” said Badrish Kulhalli, head of fixed income at HDFC Life Insurance Ltd in Mumbai. “The expectation is that, once the minutes are out, they may show a greater amount of debate about the time period for maintaining the accommodative stance.”

Two other bond negatives also came out of the meeting. The RBI raised its average inflation forecast for the current fiscal year to 5.7% from 5.1%, and said it would increase the amount of money it drains from the banking system via its variable rate reverse repurchase agreements.

The dissent from monetary policy committee member Jayanth Rama Varma came after India’s annual inflation rate topped 6% in both May and June, putting it back above the upper end of the RBI’s target band. While this wasn’t the first time Varma dissented, it added to a slew of negatives for the nation’s debt including rising supply, stubborn inflation and speculation the global recovery is gathering pace.

The Bloomberg survey also found a wide divergence of views about when the RBI will start raising its key reverse repurchase rate. Six of the analysts forecast the first move will take place in December, while two said February, six April and one in June.

Swap markets are currently predicting the initial hike will take place in October, while 40 basis points are priced in by December, according to ICICI Securities Primary Dealership Ltd.

“The RBI could straddle this divide between market expectations and its own patient approach by guiding the market for a December hike using growth and vaccination goalposts,” ICICI economists including A. Prasanna in Mumbai wrote in a research note. “Such a contingent guidance in the October review would plausibly prevent premature tightening of financial conditions.”

RBI purchases

Another crucial determinant for India’s bond yields is how aggressive the RBI will be in trying to prevent them from rising. The central bank is scheduled to buy Rs 1.2 lakh crore ($16.2 billion) of bonds this quarter under its government securities acquisition programme.

“The way the market moves will depend on supply and how much the RBI buys in its so-called GSAP purchases,” said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank Ltd in Mumbai. “It’s pure supply and demand driven right now. The market is not in a bearish mode, but completely in a holding pattern.”



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RBI empanels South Indian Bank as ‘Agency Bank’

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The Kerala based private sector lender South Indian Bank has been empanelled as an ‘Agency Bank’ by Reserve Bank of India to undertake general banking businesses of Central and State government on behalf of the RBI.

South Indian Bank is now authorised to undertake transactions related to government businesses such as revenue receipts and payments on behalf of the Central/State governments, pension payments in respect of Central/State governments, work related to Small Savings Schemes (SSS), collection of stamp duty through physical mode or e-mode and any other item of work, specifically devised by the RBI as eligible for agency commission.

Murali Ramakrishnan, Managing Director and CEO of South Indian Bank said, “We are proud to be one among the private sector banks empanelled by the RBI to facilitate transactions related to government businesses. With our state-of-the-art digital solutions and an ever-expanding network of branches, we are well-equipped to offer seamless banking services pertaining to government businesses to the customers.”

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Rupee Bank administrator meets FM, BFSI News, ET BFSI

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Pune: The administrator of the stressed Rupee Cooperative Bank, Sudhir Pandit, met Union finance minister Nirmala Sitharaman on Wednesday and sought a resolution of the current situation of the bank, which was denied permission to merge with Maharashtra State Cooperative Bank by RBI last week.

The meeting was also attended by the Pune Lok Sabha MP Girish Bapat. “I apprised the FM of the situation of the bank, which is more than a century old, and the issues that senior citizens will face, who comprise nearly all of the high-value depositors. The FM assured me that she will look into the issue for a resolution. I told her of the plans that we have drawn up regarding the revival of the bank into a small finance bank,” he said.

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RBI imposes Rs 1 cr penalty on Cooperatieve Rabobank U.A., BFSI News, ET BFSI

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Reserve Bank of India (RBI) on Thursday said it has imposed a penalty of Rs 1 crore on Cooperatieve Rabobank U.A. for deficiencies in regulatory compliances.

The penalty has been imposed for contravention of certain provisions of the Banking Regulation Act, 1949 and directions related to ‘transfer to reserve funds’.

RBI said it conducted a statutory Inspection for Supervisory Evaluation (ISE) of the bank with reference to the bank’s financial position as on March 31, 2020.

Examination of the risk assessment report pertaining to the same, revealed contravention of the provisions of the Banking Regulation Act and the directions issued by RBI.

A show cause notice was issued to the bank.

“After considering the bank’s reply to the notice, oral submission made during the personal hearing and examination of additional submissions made by the bank, RBI came to the conclusion that the charge of contravention of… provisions of the Act and RBI directions was substantiated and warranted imposition of monetary penalty on the bank,” RBI said in a statement.

In another statement, RBI said a penalty of Rs 5 lakh has been imposed on Village Financial Services Ltd, Kolkata, for non-compliance with certain provisions of the Know Your Customer Directions, 2016.

The central bank, however, said the penalties are 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 banks with their customers.

On Wednesday, RBI imposed penalties on two co-operative banks for deficiencies in regulatory compliances.

It imposed penalty of Rs 13 lakh on Ahmednagar Merchant’s Cooperative Bank, Ahmednagar, Maharashtra, and Rs 2 lakh on The Mahila Vikas Co-operative Bank, Ahmedabad, Gujarat.



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DCB Bank gets RBI nod to conduct govt related transactions, BFSI News, ET BFSI

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DCB Bank on Thursday said it has received RBI nod to conduct government related transactions. The Reserve Bank has empanelled DCB Bank as an agency bank to facilitate banking and payment transactions for the central and state governments, it said in a release.

This empanelment follows the announcement by the Finance Ministry in May 2021 lifting the embargo on further allocation of government business to private sector banks.

Through this arrangement, DCB Bank will carry out specific banking services on behalf of both the central and state governments, while continuing to offer SME, micro SME and individual customers the convenience of routine financial transactions through its advanced banking platform, it said.

“DCB Bank’s focus is SME, micro SME, agri and inclusive banking, we look forward to supporting them by providing access to CBDT, CBIC, GST transactions amongst others,” said Praveen Kutty, Head of Retail Banking, DCB Bank.



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Bank credit may catch up to deposit growth

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Bank credit seems to be catching up to deposit growth, going by the Reserve Bank of India’s data.

The advances of all scheduled banks increased by ₹31,692 crore in the fortnight ended July 30. Deposits during the reporting fortnight were up ₹33,886 crore.

With the increase in advances, banks’ outstanding investment in central and state government securities came down by ₹13,514 crore, as per RBI’s “Scheduled Banks’ Statement of Position in India”.

The advances portfolio of all scheduled banks declined by ₹49,490 crore in the previous fortnight ended July 16, 2021. However, deposits swelled by ₹63,398 crore.

Vidya Shankar, Principal Director (Ratings), and Hemant Sagare, Senior Manager (Ratings), Brickwork Ratings (BWR), observed in a report that the measures of the Government and RBI have always been proactive in enhancing credit growth to support the business cycle across segments.

“While advances to the industry continue to grow slowly, measures including vaccination and the unlocking of services will surely assist in its revival, with supportive measures from the regulator for this segment as well.

“The business community also seems to be better prepared to accept the pandemic and resume their business activities under the ongoing pandemic scenario,” the authors said.

Considering the existing asset quality levels, a likely increase is expected over the medium term. However, BWR is of the view that maintaining healthy capitalisation levels shall assist the appetite of banks for enhancing their credit risk.

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RBI slaps ₹1-cr penalty on Cooperatieve Rabobank U.A.

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The Reserve Bank of India imposed a monetary penalty of ₹1-crore on Cooperatieve Rabobank UA

Coöperatieve Rabobank UA, Mumbai Branch, is a part of the Netherlands-based Rabobank Group.

The penalty has been imposed for contravention of Section 11 (2) (b) (ii) of the Banking Regulation Act, 1949, and Reserve Bank directions on Sections 17(1) and 11(2)(b)(ii) of Banking Regulation Act, 1949- Transfer to Reserve Funds, the central bank said in a statement.

The central bank said, “The statutory inspection for supervisory evaluation (ISE) of the bank was conducted by RBI with reference to its financial position as of March 31, and the examination of the Risk Assessment Report pertaining to the same revealed, inter-alia, contravention of above-mentioned provisions of the Act and the directions issued by the RBI.

“In furtherance to the same, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed on it for contravention of the provisions of the Act and the RBI directions, as stated therein”, the statement added.

After considering the bank’s reply to the notice, oral submissions made during the personal hearing, and examination of additional submissions made by the bank, RBI came to the conclusion that the charge of contravention of aforesaid provisions of the Act and RBI directions was substantiated and warranted imposition of monetary penalty on the bank, the statement said.

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ATM companies wary of RBI’s Rs 10,000 cash-out fine, BFSI News, ET BFSI

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There is a mixed reaction to the move by the Reserve Bank of India (RBI) to penalise banks Rs 10,000 for each instance of an ATM being out of cash for 10 hours. ATM operators (known in the industry as managed service providers, or MSPs) and cash-in-transit companies are throwing up their hands, stating that they will not bear the penalty.

In a circular to banks this week, the RBI said that they should monitor the availability of cash in ATMs and ensure that there are no cash-outs. The circular said that banks would be fined Rs 10,000 if there is a cash-out at any ATM for more than 10 hours in a month.

“There are certain locations where ATMs run out of cash within hours of being loaded. These machines may not become feasible to operate if there is a penalty every month,” said a senior executive in an MSP firm. There are 2,13,766 ATMs in the country, and most of them are managed by MSPs who appoint cash-in-transit companies to replenish the currency notes in the machines.

According to MSPs, the regulations are well-intentioned as they recognise the role of cash in the economy and put the onus on banks to ensure cash availability. However, they say that the penalty is not well thought out because banks outsource most of the work and treat the regulations as something to be passed through to the MSPs.

“While the intent behind this RBI circular is welcome, penalty approach alone is unlikely to resolve the issue of ATM currency outage. In fact, it is quite likely that this penalty will become a pass-through, from banks to MSPs, and from MSPs to cash logistics agencies,” said Rituraj Sinha, group managing director at SIS, the largest security and cash-in-transit company in India.

According to Sinha, what needs to be addressed is the root causes of ATMs running dry, such as sub-optimal cash forecasting and delays in availability of ATM-fit currency.

“On-ground implementation of the RBI circular dated April 2018 is the real solution, not just before better security but also more accurate cash forecasting and on-time availability of currency to enable cash logistics agencies to upload ATMs on time and with an adequate amount of currency,” he said.

The 2018 circular requires banks to put in place stringent measures such as transporting cash in cassettes, in prescribed vehicles sticking to government norms on the transport of currency during specified hours of the day.

According to banks, it is difficult to implement all these norms under present cost structures.



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Yes Bank seeks partners for asset recast company, BFSI News, ET BFSI

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MUMBAI: Yes Bank has invited bids from potential partners for a proposed asset reconstruction company that will undertake recovery of bad loans. Management consultancy firm Ernst & Young is assisting the bank in the process.

In an advertisement on Wednesday, the private bank invited applications from investors with assets under management of at least $5 billion and possessing substantial experience in the distressed asset space. According to bankers, given the $5-billion assets under management eligibility criteria, it will be largely global distressed asset funds that will qualify.

Yes Bank had collapsed under the weight of bad debts in March 2020 and was placed under a moratorium by the RBI. Although Yes Bank was part of a consortium of lenders in most of the default cases, it was the worst hit because its exposure was disproportionate to its size and the bank had a presence in almost every major stressed asset. It was reconstructed through a government-notified scheme with banks led by SBI bringing in significant capital.

Given the complexity of recovering from large defaulters, Yes Bank’s new management had pursued setting up an asset reconstruction company from the time it took over in early April 2020. Addressing analysts in a post-results call last week, the bank’s MD & CEO Prashant Kumar said that it had made a cash recovery of Rs 5,000 crore last year, and the recoveries were much more than the provisions.

“The kind of effort that the engagement with those NPA customers which we have made during the last year — and which continued — I think would give us much better recoveries during the current fiscal year, and our recoveries would also result in significant gain on the P&L and there would not be any need to make any additional provision for this,” said Kumar.

The bank had total gross non-performing exposures of Rs 38,821 crore at the end of June 2021 as against Rs 39,034 crore in the previous quarter. “On the recovery side, our specialised stressed asset management team of about 100 professionals have demonstrated a significant track record of cash recoveries. He added that the team is divided into two parts — core resolution & recovery team, and support function. “We expect to have cash recoveries of Rs 5,000 crore in the current financial year,” said Kumar.



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Global banks unwind lucrative India trades after RBI warning, BFSI News, ET BFSI

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NEW DELHI: Foreign banks have been forced to unwind billions of dollars worth of profitable currency trades at the behest of India’s central bank, according to people with knowledge of the matter.

The issue in focus is a flurry of currency swap trades that involved the banks converting rupee-denominated deposits into dollars that were then used to buy foreign sovereign debt including US Treasuries, which are unlisted in India. The Reserve Bank of India warned the banks of a regulatory breach last week, saying they must limit their holdings of such unlisted securities to no more than 10% of investments classified as the non-statutory liquidity ratio portfolio.

Some lenders had racked up exposures of more than $1 billion each by using a regulatory loophole created in February to convert rupee deposits into dollars using a buy-sell swap — buying the greenback now while selling the same amount at a specified date in the future. They then used the proceeds to purchase US government debt and profited from the arbitrage, paying around 3.5% on the local currency deposits and earning 4.9% on the 12-month yield on the currency pair.

As the biggest buyer of the greenback in the forwards market, the RBI was effectively funding some of the trading profits.

The central bank, as part of its intervention strategy, had been offsetting its dollar purchases in the spot market, by entering into sell-buy swaps in the forwards markets. That had swelled its forwards book to over long $70 billion, causing dollar/rupee forward premiums to spike and foreign banks to book arbitrage gains from the trade earlier this year.

Indian entities were net buyers of almost $3 billion worth of Treasuries over April and May, according to US government data, the first inflows from the South Asian nation since October.

The biggest beneficiaries of the swap trades have been overseas lenders in India, which have easy access to large dollar investments, the people said. An email to the RBI was unanswered.

The banks are in the process of unwinding the trade, the people said. They are selling Treasuries and conducting sell-buy swaps — selling the greenback and agreeing to buy at a later date specified in the contract.

The impact of the unwinding was visible in the forward dollar-rupee rates. The implied 12-month yields rose 7 basis points on Friday and Monday after the order and is currently trading at 4.34%.



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