Tag: RBI

‘Public’s money in PMC, had impact on economy’, BFSI News, ET BFSI

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The special PMLA court recently said no evidence was required to hold that Punjab and Maharashtra Co-op Bank’s (PMC) money was of the public and that it had a direct impact on the nation’s economy.

“There is abundant material to hold that the applicant and his father connived with Waryam Singh (former chairman of PMC), raised huge loans in utter disregard to Reserve Bank of India (RBI) norms. In this way, proceeds of crime is generated, same was layered through bogus companies and ultimately offence of money laundering was committed by applicant (Sarang Wadhwan) and his father, HDIL promoter, Rakesh,” the court said.

Rakesh is also in jail in the case.

Sarang (48) was arrested in October 2019. His earlier attempts for bail were rejected by the court.

“There is absolutely no exceptional strong prima facie case nor change in circumstance for granting bail in this economic offence, wherein huge public money Rs 6117.93 crore had been laundered,” the court reasoned.

Special public prosecutor for Enforcement Directorate, Kavita Patil, had opposed Wadhawan’s plea for bail. In a 26-page order, the court said the defence arguments that since two years, the father and son are in jail without a trial, can neither be capitalized nor can be a grounds for granting bail. The court said restrictions due to Covid-19 were inevitable and no one could be blamed.

It said it was crystal clear that since the rejection of the first bail order in July 2020 until filing of the present plea, time was consumed in dealing with additional bail and other applications. “At the cost of repetition it has to be noted that it is the applicant (Sarang Wadhawan) and his father who are responsible for the same,” the court said.

It held that granting bail in economic offences of this nature would be against the larger interest of public.



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RBI tweak will lead to more NPAs for non-banking lenders: ICRA

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The Reserve Bank of India’s modified norms on non-performing asset (NPA) recognition and upgration will lead to a spike in the NPAs of non-banking financial companies (NBFCs), including housing finance companies (HFCs), in the near term, ICRA has cautioned.

The credit rating agency expected the stricter NPA recognition and upgradation requirement to push up the March 2022 NPAs of NBFCs and HFCs by 160-180 basis points (bps) and 60-80 bps, respectively, over the March 2021 level. One basis point is equal to one-hundredth of a percentage point.

ICRA observed that this will impact earnings over the next few quarters if the forward flows into the NPA category were not contained.

SBR framework: A brand new armour for NBFCs

“The increase in NPAs and corresponding increase in provisions as per IRAC (income recognition and asset classification), on account of the new RBI guidelines, is not expected to significantly impact earnings in the near term.

“However, it would be critical to contain the flow into the NPA category over the medium term,” the agency said in a report.

Internal controls

AM Karthik, Vice-President-Financial Sector Ratings, ICRA, said the increase in NPAs factors in the expected slippages from the restructured book, slippages from the 31- to 90-day category (Stage-2), and the delay in upgradation to the standard category.

He felt that entities would have to tighten their internal controls and augment their MIS for timely recognition and updation of collections, especially cash collections.

NBFC regulation needs to be strengthened

ICRA estimates the restructured books of NBFCs and HFCs to have increased to 4.1-4.4 per cent and 1.8-2.2 per cent, respectively, as of September 2021, vis-à-vis 2.2 per cent and 1.0 per cent, respectively, in March 2021.

The agency estimated the slippage from the NBFC restructured book to be higher, at 20-25 per cent vis-a-vis 3-5 per cent for HFC, considering the prolonged stress witnessed in key NBFC segments, namely vehicle, business loans and so on.

Arrears

Referring to the norm for the upgrade of an NPA to standard category only after all arrears are cleared, the agency said the movement to standard category for NBFC NPAs would be impacted as their target borrowers generally have a limited ability to clear all dues.

Until now, NBFCs have been upgrading an NPA account even with a partial payment of the outstanding overdues, as long as the total overdues on the reporting date were for less than 90 days.

Tightening processes

Provisions made by NBFCs under IndAS are generally higher than the IRAC norms, and the provisions were further augmented because of the pandemic.

Thus, no significant incremental impact is envisaged on the near-term profitability, ICRA said, adding that pressure would be felt over the medium term if the forward flows into the NPA category is not contained.

“Entities would have to tighten their internal processes to capture their collections, especially cash collections by branches, agents etc. It is estimated that 40-45 per cent of NBFC and 5-10 per cent of HFC collections are in cash,” the agency said.

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Only a handful of cryptocurrencies that exist today likely to survive: Raghuram Rajan

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Out of the 6,000-odd cryptocurrencies currently in existence, only a few are likely to survive, according to the former RBI Governor Raghuram Rajan.

Rajan, in a recent interview with CNBC TV-18 said that only one or two, or at most, only a handful of the cryptocurrencies that exist today would survive in the future.

“If things have value only because they will be pricier down the line, that’s a bubble,” Rajan said.

The former RBI governor compared the current mania in cryptocurrencies to the tulip mania in the Netherlands in the 17th century.

Also Read: Explainer: Digital currency vs cryptos – how are they different?

He added that the issue was that most cryptocurrencies did not have permanent value. Additionally, some of them would survive to facilitate payments, especially cross border payments.

“In the US, crypto is a $2.5 trillion problem that nobody really wants to regulate,” he said.

According to Rajan, part of the problem was the lack of understanding of the space and how to regulate it, among regulators.

He added that the government can examine these crypto entities more closely when they get too big to make sure that there isn’t fraud.

Rajan’s remark come as the bill to ban all private cryptocurrencies and facilitate introduction of the Central Bank Digital Currency (CBDC) topped the government’s busy agenda for the Winter Session of Parliament.

Also read: Exchanges on tenterhooks as they await details of proposed cryptocurrencies Bill

Top cryptocurrencies including Bitcoin, Ethereum, USDT, Shiba Inu, Dogecoin, Sandbox among others crashed overnight on Indian crypto exchanges on Wednesday as investors panicked following the government’s plans on the bill seeking to prohibit private cryptocurrencies while allowing certain exceptions to promote the underlying technology.

Additionally, the former RBI Governor said that the government must focus on the underlying blockchain technology, letting it flourish adding that blockchain ways of transacting were much cheaper, especially across borders.

There has been a fair share of regulatory concerns when it comes to cryptocurrencies.

However, despite regulatory uncertainty and the Reserve Bank of India’s (RBI) concerns, India now has close to 400 cryptocurrency-based start-ups offering various services to the crypto ecosystem.

According to data sourced by BusinessLine from Tracxn, there are 380 crypto start-ups and 12 Non-fungible Tokens-based (NFT) start-ups currently operating in the country, as per previous reports.

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Union Bank of India partners Capri Global for co-lending, BFSI News, ET BFSI

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Mumbai: Union Bank of India has partnered Capri Global Capital (CGCL), an NBFC focused on MSMEs, and affordable housing finance segment, for co-lending. The two partners entered into a co-lending agreement under which they aim to disburse MSME loans across over 100 centres in India.

In November 2020, the RBI had issued guidelines enabling banks to co-lend with finance companies to the priority sector. The tie up aims to enhance last-mile credit and drive financial inclusion to MSMEs by offering secured loans between Rs 10 lakh to Rs 1 crore in tier-2 and -3 markets.

The agreement was signed in the presence of Rajkiran Rai G, MD & CEO, Union Bank of India and Rajesh Sharma, MD, Capri Global Capital. The NBFC will have the advantage of low cost funds while the bank will get the benefit of last mile efficiency of the NBFC.

“The partnership with CGCL is part of UBI’s strategy to support the MSMEs by providing tailor-made financial solutions and accelerating the growth of MSMEs to contribute to the country’s economic development,” said Rai.

According to Sharma, the aim is to reach out to a large section of society by offering easy, convenient, and efficient credit solutions and empowering them to be key contributors to fiscal growth. “Our focus is to support the grassroots entrepreneurship that creates economic value,” said Sharma.



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RBI imposes ₹2 cr penalty on Tata Communications Payment Solutions

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The Reserve Bank of India (RBI) has imposed monetary penalty on Tata Communications Payment Solutions(TCPSL) (₹2 crore) and Appnit Technologies Pvt Ltd (ATPL) (₹54.93 lakh) for non-compliance with directions it issued under the Payment and Settlement Systems Act, 2007 (PSS Act).

The central bank’s statement, said: “It was observed that TCPSL was non-compliant with the directions issued by RBI on White Label ATM deployment targets and net-worth requirement.”

“ATPL was non-compliant with the directions issued by RBI on maintenance of escrow account balance and net-worth requirement.”

Observations by RBI

RBI observed that as these were offences of the nature referred to in Section 26(6) of the PSS Act, notices were issued to the entities.

Also read: Banks, ATM operators seek RBI to review penalty scheme for dry ATMs

As per Section 26(6) of the PSS Act, if any provision of this Act is contravened, or if any default is made in complying with any other requirement of this Act…then, the person guilty of such contravention or default, as the case may be, shall be punishable with fine which may extend to ₹10 lakh and where a contravention or default is a continuing one, with a further fine which may extend to ₹25,000 for every day, after the first during which the contravention or default continues.

After reviewing their written responses and oral submissions made during the personal hearing, RBI concluded that the aforesaid charges of non-compliance with its directions were substantiated and warranted the imposition of monetary penalty.

RBI underscored that the penalties have been imposed in exercise of powers vested in it under the provisions of the PSS Act.

“These actions are based on deficiencies in regulatory compliance and are not intended to pronounce upon the validity of any transaction or agreement entered into by the entities with their customers,” the central bank said.

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Kerala to send delegation to Centre over RBI guidelines on cooperative sector, BFSI News, ET BFSI

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The Kerala Cabinet on Wednesday expressed deep concern over the Reserve Bank of India‘s statement cautioning the public against cooperative societies using ‘bank’ in their names as well as accepting deposits from people who are not their members.

The Cabinet meeting, held under Chief Minister Pinarayi Vijayan here, has decided to send a delegation to meet all those concerned at the Centre to see that similar statements should not be put out as they create panic in the state, where the cooperative sector is flourishing.

State Cooperative Minister V.N. Vasavan has already gone on record to state that this move will “destroy” the flourishing cooperative sector in the state and it will be dealt with strongly using all means like discussions with the Centre, holding protests and considering seeking legal redress.

The RBI order that came out on Tuesday stated that after the amendment in the Banking Regulation Act, 1949, effective September 29, 2020, cooperative societies cannot use the words “bank”, “banker” or “banking” as part of their names, except as permitted under the provisions or by the RBI.

Union Home Minister Amit Shah also holds the portfolio of the Cooperative Minister. The Ministry was created in July this year with the aim to strengthen the cooperative movement in the country.

–IANS

sg/svn/bg



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Axis Bank EVP, BFSI News, ET BFSI

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Axis Bank‘s digital penetration has risen to over 70-73%, but it does not see a future without bank branches soon.

“It will probably take another one generation shift, for us to you know sort of planning a strategy in which there is sort of absolutely no branches. But yes, goes without saying that the intensity of branch expansion has sort of come down dramatically now from what it used to be,” Avinash Raghavendra, EVP and Head of Information Technology of Axis Bank, said at the fireside chat, with Amol Dethe, editor of ETBFSI, during the three-day event – ETBFSI Converge.

A bank branch is more like an engagement hub, where customers can come and if they have some essential queries.

“We have 4,500 plus branches and this presence and the reach actually gives visibility in the customers’ mind which any other medium or advertisement will probably not be able to do perform. Somebody taking a home loan would preferably like to deal with an entity whom they have seen. There is a new age of customers millennial customers who are thinking very differently about it, that is where all the digital property is coming into the picture,” he said.

Digital shift

5,000 sq ft to 5 inch is definitely happening, he said, adding, “If you are talking about an inflexion point in 5-6 years people will rarely visit branches. The new next generation will not like to walk into any of the branches.”

Most of the bank’s fixed deposit openings, over 70% of savings bank account openings are coming from digital channels.

“This shift has happened some years back. I mean as far as doing your fund transfer and doing your transaction kind of a thing that shift has also happened,” he said. Right now, the bank is focusing on some of the servicing issues for a lot of customers who used to come to the branch for as basic as updating Aadhar or change of address.”Avinash Raghavendra, EVP and Head of Information Technology of Axis Bank

The only customers these days who are mostly visiting the branches is someone with a locker service because that is a physical kind of a property.

On apps

Axis Bank app has a ‘Do It Yourself’ kind of a feature that allows for 250 plus transactions. “So that’s a very large number, and given the fact that our digital customer base is 73% plus, these customers are seeing traction when it comes to whatever we enable for them on the mobility side,” he said.

Credit card and debit card usage rules, which now RBI has also sort of mandated, have been incorporated inside the app, he said.

The bank engages with UIUH experts and internally has a UX team that does a lot of work.

“We do take a lot of feedback from customers in terms of what features they want. What we have seen there is 20% of features that is used by 80% of customers, so these services should be easily made available to the customers. We are also trying to come with as much of personalisation. Like reminder for FD maturity, basically, providing some sort of intelligent nudges, instead of getting them searching got those particular options,” he said.

On the super app, he said, there is very little that we are not offering in the app at the moment. “Super app is mainly for conglomerates who are doing different kinds of thing. As we are going more and more digital it is actually shaping a personal advisory kind of a function,” Raghavendra said.



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RBI may increase reverse repo by 20-25 bps next month, say economists

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The Reserve Bank of India (RBI) may increase the reverse repo rate by a token 20-25 basis points next month as part of its monetary policy normalisation process, according to economists.

Reverse repo rate is the interest banks receive for parking surplus liquidity with RBI. Currently, this rate is at 3.35 per cent. One basis point is equal to one-hundredth of a percentage point.

The reverse repo rate was cut thrice in calendar year (CY) 2020: from 4.9 to 4 per cent on March 27, 2020, from 4 per cent to 3.75 per cent on April 17, 2020, and from 3.75 to 3.35 per cent on May 22, 2020.

Rahul Bajoria, Director and Chief Economist for India and the Antipodeans, Barclays, said: “We expect the RBI to increase the reverse repo rate by a token 20-25 basis points (bps) at the December policy meeting. However, an increase in the repo rate is likely to only take place in April, 2022.”

Repo rate is the interest banks pay to the RBI for drawing liquidity to overcome short-term mismatches.

This rate was reduced in two stages in CY2020: from 5.15 to 4.4 per cent on March 27, 2020, and from 4.4 to 4 per cent on May 22, 2021.

“With evidence that the economic recovery is well entrenched, policy normalisation could be underway. The RBI has already begun withdrawal of extraordinary stimulus by shelving its bond-purchase programme and stepping-up absorptions through the variable-rate reverse repo rate,” Bajoria said.

According to a Goldman Sachs (GS) economic research report, the RBI is currently in stage 2 (liquidity tightening) of the four-stage monetary policy normalisation process that began with ‘less dovish’ comments from monetary policy committee (MPC) members and will end with repo rate hikes.

“In our view, the RBI will likely move to stage 3 (reverse repo hike) by the end of this year, and start hiking repo rates from Q2 2022. We expect a cumulative 75 bps of repo rate hikes in 2022,” the report said.

GDP growth

Barclays assessed that the Indian economy is still on track to grow in double digits for FY 21-22 at around 10 per cent, along with rapid growth in nominal activity given higher inflation as well.

Strong fiscal and monetary support, along with a rapid improvement in the pace of vaccination has helped nurture a swift economic recovery, it added.

GS expects GDP growth in India to accelerate to 9.1 per cent y-o-y in 2022, from 8 per cent in 2021, post a sharp 7 per cent contraction in 2020.

“We expect consumption to be an important contributor to growth in 2022, as the economy fully re-opens driven by a notable improvement in the virus situation and adequate progress on vaccination.

“We also expect government capital spending to continue, see nascent signs of a private corporate capex recovery, and a revival in housing investment,” the report said.

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PMC Bank’s institutional depositors may have to wait for Unity IPO to get money back, BFSI News, ET BFSI

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Depositors of PMC Bank are set for an agonising wait of ten years till they get their money back.

The Reserve Bank has come out with a draft scheme for the takeover of the crisis-hit PMC Bank by the Delhi-based Unity Small Finance Bank (USFB).

The draft scheme of amalgamation envisages the takeover of the assets and liabilities of PMC Bank, including deposits, by USFB, thus giving a greater degree of protection for the depositors, the RBI said.

In a statement issued later, USFB said with the draft scheme ’96 per cent of all depositors will get immediate access to their full deposits’.

It said 99 per cent of the retail depositors will be paid in full by the fifth year and 100 per cent of retail depositors to be paid in full by the tenth year.

Retail depositors

According to the scheme deposits up to Rs 5 lakh can be claimed by depositors over a period of three to ten years.

The scheme says that depositors can claim up to Rs 50,000 at the end of three years and further can claim Rs 1 lakh at the end of four years, Rs 3 lakh at the end of five years and Rs 5.50 lakh at the end of 10 years. The RBI had doubled the amount depositors can withdraw from PMC Bank to Rs 1 lakh from Rs 50,000 in June 2020, allowing more than 84% of the depositors to withdraw their entire account balance.

RBI said the above limits are for depositors are over and above the withdrawals already made.

According to this schedule, the entire remaining deposits of PMC Bank depositors will be paid back within 10 years from the date the central government notifies this scheme of amalgamation. Further, the central bank has clarified that interest on these deposits shall not accrue after March 31, 2021, for five years.

PMC Bank's institutional depositors may have to wait for Unity IPO to get money back

“No further interest will be payable on the interest-bearing deposits of transferor bank for a period of five years from the appointed date. Provided further that interest at the rate of 2.75 per cent per annum shall be paid on the retail deposits of the transferor bank (PMC) which shall be remaining outstanding after the said period of five years from the appointed date. This interest will be payable from the date after five years from the appointed date,” RBI said.

Institutional depositors

About 80% of uninsured institutional deposits will be converted into Perpetual Non-Cumulative Preference Shares (PNCPS) of Unity SFB with dividend of one per cent per annum payable annually.

After ten years from the appointed date, Unity SFB may consider additional benefits for PNCPS holders either in the form of providing a step up in coupon rate or a call option, upon receipt of approval from the Reserve Bank.

The remaining 20% of the institutional deposits will be converted into equity warrants of Unity SFB at a price of Re.1 per warrant. These equity warrants will further be converted into equity shares of the Unity SFB at the time of the Initial Public Offer (IPO) when it goes for one.

“In respect of every other liability of the transferor bank (PMC) the transferee bank (Unity) shall pay only the principal amounts, as and when they fall due,to the creditors in terms of the agreements entered between them prior to the appointed date or the terms and conditions agreed upon,” RBI said.

PMC Bank's institutional depositors may have to wait for Unity IPO to get money back

In June, RBI had given an in-principle approval to Unity SFB, a joint venture of Centrum Financial Services and Resilient Innovations Pvt. Ltd which runs payments company BharatPe to take over PMC. Unity started operations as recently as November 1.

PMC Bank had 137 branches and deposits of around Rs 11,600 crore, at the time restrictions were announced.

Employees

The draft also said all the employees of the PMC Bank shall continue in service on the same remuneration and terms and conditions of service for three years from the appointed date.

“The draft scheme provides much needed relief and clarity to over 1,100 PMC Bank employees, who will remain employed and continue uninterrupted service to clients,” USFB said in the statement.

The RBI said, “The transferee bank (USFB) may discontinue the services of the key managerial personnel of the transferor bank after following the due procedure at any time, after the appointed date, as it deems necessary and providing them compensation as per the terms of their employment”.



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RBI, BFSI News, ET BFSI

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The Reserve Bank has cautioned the public against co-operative societies using words “bank”, “banker” or “banking” as part of their names unless specifically permitted. It also clarified that deposits with there societies are not eligible for insurance cover.

Some Co-operative Societies are using the word “Bank” in their names in violation of Section 7 of the Banking Regulation Act, 1949 which is applicable to co-operative societies under the Act, according to the Reserve Bank.

“Accordingly, co-operative societies cannot use the words “bank”, “banker” or “banking” as part of their names, except as permitted under the provisions of BR Act, 1949 or by the Reserve Bank of India” the regulator clarified in a release.

“Members of the public are hereby informed that such societies have neither been issued any licence under BR Act, 1949 nor are they authorized by the RBI for doing banking business” RBI said. “The insurance cover from Deposit Insurance and Credit Guarantee Corporation (DICGC) is also not available for deposits placed with these societies. Members of public are advised to exercise caution and carry out due diligence of such Co-operative societies if they claim to be a bank, and look for banking license issued by RBI before dealing with them”

The RBI has also noticed that some Co-operative societies are accepting deposits from non-members which indicates conducting banking business in violation of the provisions of the BR Act, 1949.



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