Tag: RBI

Mastercard to file an independent audit report

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In a bid to get the ban on issuing new cards revoked, payments major Mastercard is planning to submit an additional audit report by an independent agency to the Reserve Bank of India to show its compliance with the data localisation norms

According to sources close to the development, Mastercard has already submitted to the RBI its annual System Audit Report showing compliance with the data norms, but there were delays in sending a supplemental audit report due to which the central bank barred the company from issuing cards.

The company hopes the additional report will address the RBI’s concerns and enable Mastercard to go back to business as usual, said a source.

Reports rejected

According to banking industry sources, the initial system audit report was found to be deficient by the RBI. “The compliance by Mastercard was not satisfactory. The company had been dragging its feet on meeting the regulatory norms,” said a source aware of the regulatory processes.

Mastercard is understood to have taken time in submitting a third-party audit report on compliance with data localisation norms and had not appointed a domestic auditor certified by CERT-in. A part of the payments data on the Indian leg of the transaction being processed abroad was not deleted within the mandated 24 hours.

‘Slight delay’

To an email query from BusinessLine, Mastercard said: “When RBI required us to provide additional clarifications about our data localisation framework in April 2021, we engaged our government- empanelled, audit firm to address those points. That report was slightly delayed and submitted to the RBI on July 20, 2021.”

“We are hopeful that this latest filing provides the assurances and insights required to address their concerns and move toward a resolution on the matter,” it said, adding that it is focussed on ensuring that its current business continues to operate as usual.

“Since the RBI’s 2018 directive on data localisation and storage was issued, we have worked closely with the RBI and the Indian government to ensure we are compliant with both the letter and the spirit of the order,” Mastercard said.

Mastercard has been betting big on the Indian market with plans to invest $1 billion over a five year period to build digital payment infrastructure and work on innovations in the digital payments space.

It has also been one of the largest players in terms of issuances for cards and plans of many banks have been impacted by the ban.

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Govt of UT of Ladakh gets RBI nod to acquire 8.23% stake in J&K Bank

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The Reserve Bank of India has accorded its approval to the Government of the Union Territory (UT) of Ladakh to acquire 8.23 per cent of the paid-up equity capital of Jammu and Kashmir Bank Ltd as on the date of enforcement of Jammu and Kashmir Reorganisation Act, 2019 ( October 31, 2019).

This move follows the Government of Jammu and Kashmir’s October 30, 2020, Order regarding the transfer of 8.23 per cent shareholding (about 4.58 crore equity shares) in Jammu and Kashmir Bank as of October 31, 2019, to the UT of Ladakh, the bank said in a statement.

This is subject to compliance with the relevant provisions of Banking Regulation Act, 1949, RBI Master Direction on Prior approval for the acquisition of shares or voting rights in private sector banks, Master Direction on Ownership in Private Sector Banks, among others, it added.

As of June end 2021, the Government of Jammu and Kashmir was the majority shareholder, owning 68.18 per cent stake in the bank.

The bank, which declared its financial results on July 14, reported a net profit of ₹317 crore in the fourth quarter ended March 31, 2021, against a net loss of ₹294 crore in the year-ago quarter and a net profit of ₹66 crore in the December 2020 quarter.

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Federal Bank board clears IFC’s Rs 916 crore investment, BFSI News, ET BFSI

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Mumbai: The International Finance Corporation (IFC) Group has invested Rs 916 crore in Federal Bank. In a notice to the stock exchange, the Kerala-based bank said that the board approved the decision in its meeting on July 23.

The board approved the allotment of 10.5 crore shares of face value Rs 2 to the IFC Group at an issue price of Rs 87.4. With this allotment, the paid-up capital of the bank has risen from 199.6 crore shares to 210.1 crore of Rs 2 each. The bank said in a statement that the decision by IFC to acquire 4.9% in the bank was a testimony to its belief in the brand and its operational efficiency.

As of end June 2021, mutual funds held 35.6% in the bank followed by foreign investors (24%) and insurance companies (10.8%). Individual shareholders and others held the remaining 29.3%. The investment from IFC comes at a time when the bank’s CEO Shyam Srinivasan received RBI’s approval for a three-year extension.

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Minister, BFSI News, ET BFSI

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Non-performing assets (NPAs) or bad loans of banks have declined by Rs 61,180 crore to Rs 8.34 lakh crore at the end of March 31, 2021, as result of various steps taken by the government, Minister of State for Finance Bhagwat K Karad said on Monday.

Scheduled commercial banks (SCBs) were carrying NPAs worth Rs 8.96 lakh crore on their balance sheet at the end of March 2020.

“Primarily as a result of transparent recognition of stressed assets as NPAs, gross NPAs of SCBs, as per RBI data on global operations, rose from Rs 3,23,464 crore as on 31.3.2015, to Rs 10,36,187 crore on 31.3.2018, and as a result of Government’s strategy of recognition, resolution, recapitalisation and reforms, have since declined to Rs 9,33,779 crore on 31.3.2019, Rs. 8,96,082 crore as on 31.3.2020, and further to Rs 8,34,902 crore (provisional data) as on 31.3.2021,” he said.

Karad in a written reply to the Lok Sabha said COVID-19 Regulatory Package announced by RBI permitted lending institutions to grant a moratorium of six months on payment of all instalments falling due between March 1 and August 31, 2020, in respect of all term loans and to defer the recovery of interest for the same period in respect of working capital facilities.

Replying to another question, Karad said, gross NPAs of public sector banks (PSBs) peaked at Rs 8,95,601 crore on March 31, 2018.

As a result of Government’s strategy of recognition, resolution, recapitalisation and reforms, NPAs have since declined to Rs 7,39,541 crore on March 31, 2019, Rs 6,78,317 crore on March 31, 2020 and further to Rs 6,16,616 crore as on March 31, 2021 (provisional data).

“The net NPAs have displayed a similar trend, increasing initially from Rs 1,24,095 crore on 31.3.2014 to Rs 2,14,549 crore on 31.3.2015, Rs 3,24,372 crore on 31.3.2016, Rs 3,82,087 crore on 31.3.2017 and peaking at Rs 4,54,221 on 31.3.2018, and declining thereafter to Rs 2,84,689 crore on 31.3.2019, Rs 2,31,551 crore on 31.3.2020 and further to Rs 1,97,360 crore as on 31.3.2021 (provisional data),” he said.

Throughout this period, he said, PSBs continued to post aggregate operating profits of Rs 1,37,151 crore, Rs 1,58,994 crore, Rs 1,55,603 crore, Rs 1,49,819 crore, Rs 1,74,640 crore in the financial year 2015-16, 2016-17, 2017-18, 2018-19 and 2019-20 respectively.

“However, primarily due to continuing ageing provision for NPAs, they made aggregate provision for NPAs and other contingencies of Rs 1,55,226 crore, Rs 1,70,371 crore, Rs 2,40,956 crore, Rs 2,17,481 crore and Rs 2,00,404 crore respectively in the said years, resulting in aggregate net losses of Rs 17,993 crore, Rs 11,389 crore, Rs 85,370 crore, Rs 66,636 crore and Rs 25,941 crore respectively and returning to profitability thereafterwith aggregate net profit of Rs 31,820crore in FY2020-21,” he said.

At the same time comprehensive steps were taken to control and to effect recovery in NPAs, which enabled PSBs to recover Rs 5,01,479 crore over the last six financial years, he added.

In a reply to another question, Karad said overall credit growth of Scheduled Commercial Banks (SCBs) has remained positive for 2020-21 despite contraction in GDP (-7.3 per cent) due to the COVID-19 pandemic.

‘Gross Loans and Advances – Outstanding’ of SCBs increased from Rs 109.19 lakh crore as of March 31, 2020 to Rs 113.99 lakh crore as of March 31, 2021, he said.

Further, he said, as per RBI data of loans to agriculture and allied activities, micro, small & medium enterprises, housing and vehicle have witnessed a year-on-year growth of 12.3 per cent, 8.5 per cent, 9.1 per cent and 9.5 per cent respectively during the year.

Ability of PSBs to further increase lending is evident through Capital to Risk Weighted Assets Ratio which stood at 14.04 per cent as of March 31, 2021, as against regulatory requirement of 10.875 per cent, he added.



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Banks feel the regulatory heat as RBI imposes penalties amid pandemic shadow, BFSI News, ET BFSI

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As it moves to risk-based supervision, the Reserve Bank of India has stepped up the heat on banks.

In the first half of this year, the central bank has imposed fines of over Rs 43 crore on 23 banks for various regulatory non-compliances and lapses. The RBI had imposed a fine of Rs 20 crore on eight banks in 2020.

After the Nirav Modi scam, RBI had stepped up its surveillance and imposed a hefty Rs 143 crore fine on 49 banks in 2019. While the amount of fine was small individually in 2019, the RBI has increased it multifold as it has fined HDFC BankRs 10 crore, Bank of India Rs 4 core, Punjab National Bank Rs 2 crore and SBI Rs 50 lakh.

In January this year, the central bank had imposed Rs 2 crore penalties on Deutsche Bank and Standard Chartered Bank. It has imposed penalties on various cooperative banks during the year.

Risk based supervison

In May this year the Reserve Bank has decided to review and strengthen the Risk Based Supervision (RBS) of the banking sector with a view to enable financial sector players to address the emerging challenges.

The RBI uses the RBS model, including both qualitative and quantitative elements, to supervise banks, urban cooperatives banks, non-banking financial companies and all India financial institutions.

“It is now intended to review the supervisory processes and mechanism in order to make the extant RBS model more robust and capable of addressing emerging challenges, while removing inconsistencies, if any,” the RBI said while inviting bids from technical experts/consultants to carry forward the process for banks.

In case of UCBs and NBFCs, the Expression of Interest (EOI) for ‘Consultant for Review of Supervisory Models’ said the supervisory functions pertaining to commercial banks, UCBs and NBFCs are now integrated, with the objective of harmonising the supervisory approach based on the activities/size of the supervised entities (SEs).

“It is intended to review the existing supervisory rating models under CAMELS approach for improved risk capture in forward looking manner and for harmonising the supervisory approach across all SEs,” it said.

Annual financial inspection of UCBs and NBFCs is largely based on CAMELS model (Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Systems & Control).

The RBI undertakes supervision of SEs with the objective of assessing their financial soundness, solvency, asset quality, governance framework, liquidity, and operational viability, so as to protect depositors’ interests and financial stability.

The Reserve Bank conducts supervision of the banks through offsite monitoring of the banks and an annual inspection of the banks, where applicable.

In the case of Urban Cooperative Banks (UCBs) and NBFCs, it conducts the supervision through a mix offsite monitoring and on-site inspection, where applicable.

A technical advisory group consisting of senior officers of the RBI would examine the documents submitted by the applicants in connection with EOI.



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Net profit rises 32% YoY to Rs 1,642 cr; asset quality weakens, BFSI News, ET BFSI

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MUMBAI: Kotak Mahindra Bank today reported a 32 per cent year-on-year rise in its net profit to Rs 1,641.9 crore for the quarter ended June, which was below analysts’ expectations.

The private sector lender reported net interest income growth of 6 per cent on-year to Rs 3,942 crore, which was also below analysts’ estimates.

Provisions and contingencies in the quarter declined to Rs 935 crore from Rs 962 crore in the year-ago quarter. However, the lender saw a deterioration in asset quality in the reported quarter.

Kotak Bank’s gross non-performing loans ratio stood at 3.56 per cent in the reported quarter as against 3.25 per cent at the end of the March quarter. Similarly, the net NPA ratio expanded to 1.28 per cent from 1.21 per cent in the previous quarter.


The private sector bank’s net profit in the quarter was largely boosted by a sharp uptick in other income. Other income in the reported quarter jumped to Rs 1,583.03 crore from Rs 773.5 crore in the year-ago quarter.

Covid-related provisions as on June 30 were maintained at Rs 1,279 crore. In accordance with the Resolution Framework for Covid-19 and MSME announced by the RBI, the bank implemented total restructuring of Rs 552 crore as on June 30, Kotak Bank said.


In terms of loan growth, the quarter was tepid for the bank affected by the second wave as well as its conservative approach. Advances in the quarter grew merely 6 per cent on-year, which was lower than many of its peers.

At the same time, the current account-to-savings account ratio of the lender further improved to 60.2 per cent at the end of the June quarter from 56.7 per cent a year ago.

Kotak Bank’s operating performance was sturdy as operating profit jumped 19 per cent year-on-year to Rs 3,121 crore in the reported quarter.



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RBI raises loan limit to Directors on bank boards to Rs 5 cr, BFSI News, ET BFSI

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Mumbai, The Reserve Bank of India (RBI) has raised the limit of loan that can be given by banks to a Director on the board of a bank to Rs 5 crore from the previous cap of Rs 25 lakh.

In a circular issued on Friday, the central bank said that unless sanctioned by the Board of Directors or the Management Committee, banks should not grant loans and advances aggregating Rs 5 crore and above to any relative other than spouse and minor or dependent children of their own Chairmen and Managing Directors or other Directors. Same would be the rule in terms of relatives of Chairman or Managing Director or other directors of other banks.

Further, any credit facility given to the Directors and relatives of Directors have to be sanctioned by the appropriate authority in the financing bank, and the matter has to be reported to the board, it said.

Board approval would be required for loans given to major shareholders of the bank, or his relatives, where the shareholder holds more than 10 per cent in the bank.

There have been instances in the past wherein existing Directors allegedly misused their position to grant loans to favour their family members, as in the case of the former ICICI bank MD & CEO Chanda Kochhar who is alleged to have misused her official post to grant a massive Rs 3,250 crore loan to Videocon.

Allegedly, the loan was part of a quid pro quo arrangement under which Venugopal Dhoot invested Rs 64 crore in Chanda Kochhar’s husband’s NuPower Renewables.



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RBI devolves 10-year G-Sec auction

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The Reserve Bank of India (RBI) devolved the recently issued 10-year government security (G-Sec) on primary dealers (PDs) to the tune of 80 per cent of the notified amount at the weekly auction held on Friday as bidders wanted to the buy the paper at a lower price vis-a-vis the prevailing market price.

By devolving the paper on the PDs, the central bank is trying to keep the G-Sec yields in check. Bond price and yields are inversely related and move in opposite directions.

At the auction, PDs had to pick up the GS 2031 aggregating ₹11,144.145 crore against the notified amount of ₹14,000 crore.

The cut-off price for the paper came in at ₹99.63 (versus the previous close of ₹99.7225). Cut-off yield was at 6.1498 per cent (6.1373 per cent).

In the secondary market, price of the aforementioned G-Sec closed about 20 paise lower at ₹99.52 vis-a-vis the previous close. Its yield rose about 3 basis points to close at 6.1648 per cent.

The auction of the other two papers — 4.26 per cent GS 2023 (notified amount: ₹3,000 crore, with greenshoe amount of ₹750 crore being accepted) and 6.76 per cent GS 2061 (₹9,000 crore, with greenshoe amount of ₹2,250 crore being accepted).

PDs play vital role

Madan Sabnavis, Chief Economist, CARE Ratings, observed that the G-Sec auctions on Friday followed the familiar path of PDs playing an important role in subscribing to the offerings.

“We can see that the 10-year yield has been crawling up over the weeks and while the RBI did manage the yield curve and keep the rate at around 6 per cent, the market has been demanding a higher return. The average cost for these three papers is 6.28 per cent,” he said.

Sabnavis noted that there will be one more auction next week before the Monetary Policy Committee meets and the market is awaiting the tone of the discourse.

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RBI ups threshold for personal loans given by a bank to directors of other banks

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The Reserve Bank of India (RBI) has upped the threshold up to which a bank can grant personal loans to any director of other banks by 20 times from ₹25 lakh to ₹5 crore.

The upward revision in the threshold is aimed at reflecting the increase in general prices, encourage professionals with the expertise to join the boards, and reduce the cases requiring approval at the board/management committee level without diluting the regulatory intent. The ₹25 lakh threshold was fixed way back in 1996.

However, the RBI said unless sanctioned by the board of Directors/Management Committee, banks cannot grant loans and advances aggregating ₹5 crore and above (hitherto ₹25 lakh and above) to any relative (other than spouse) and dependent children of Chairmen, Managing Directors or other Directors of their own bank as well as other banks.

The central bank said the proposals for credit facilities of an amount less than ₹25 lakh or ₹5 crore to these borrowers may be sanctioned by the appropriate authority in the financing bank under powers vested in such authority, but the matter should be reported to the board.

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Reserve Bank working towards phased implementation of digital currencies

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The time for introduction of central bank digital currencies (CBDCs) is possibly near, with the Reserve Bank of India (RBI) currently working towards a phased implementation strategy and examining use cases which could be implemented with little or no disruption, according to Deputy Governor T Rabi Sankar.

Referring to countries generally implementing specific purpose CBDCs in the wholesale and retail segments, Sankar observed that going forward, after studying the impact of these models, launch of general purpose CBDCs will be evaluated.

A CBDC is the legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different.

Some key issues under examination by the RBI relate to the scope of CBDCs – whether they should be used in retail payments or also in wholesale payments; the underlying technology — whether it should be a distributed ledger or a centralised ledger, for instance, and whether the choice of technology should vary according to use cases, the Deputy Governor said.

Further, the validation mechanism — whether token-based or account-based distribution architecture — whether direct issuance by the RBI or through banks; degree of anonymity etc., are also being examined.

However, conducting pilots in wholesale and retail segments may be a possibility in near future.

Benefits and risks

At a webinar organised by New Delhi-based Vidhi Centre for Legal Policy, Sankar emphasised that introduction of CBDC has the potential to provide significant benefits such as reduced dependency on cash, higher seigniorage due to lower transaction costs, reduced settlement risk.

“Introduction of CBDC would possibly lead to a more robust, efficient, trusted, regulated and legal tender-based payments option,” he said.

The Deputy Governor cautioned that there are associated risks, no doubt, but they need to be carefully evaluated against the potential benefits.

He underscored that it would be the RBI’s endeavour, as we move forward in the direction of India’s CBDC, to take the necessary steps which would reiterate the leadership position of India in payment systems.”

Sankar said CBDC is a digital or virtual currency but it is not comparable to the private virtual currencies that have mushroomed over the last decade.

“Private virtual currencies sit at substantial odds to the historical concept of money. They are not commodities or claims on commodities as they have no intrinsic value; some claims that they are akin to gold clearly seem opportunistic.

“Usually, certainly for the most popular ones now, they do not represent any person’s debt or liabilities. There is no ISSUER. They are not money (certainly not CURRENCY) as the word has come to be understood historically,” he cautioned.

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