Tag: RBI

It’s time for digital currency to counter crypto, says RBI, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank of India (RBI) has said that it is working towards a phased implementation strategy for its digital currency and examining use cases where it can be deployed with little disruption. Making a strong argument in favour of a central bank digital currency (CBDC) for India, the RBI has said that it would reduce currency costs for the government and would help offset the threat of virtual currencies.

“Developing our own CBDC could provide the public with uses that any private virtual currency can provide and to that extent might retain the public preference for the rupee. It could also protect the public from the abnormal level of volatility some of these virtual currencies experience,” RBI deputy governor T Rabi Sankar said on Thursday at a webinar organised by the Vidhi Centre for Legal Policy. Sankar added that conducting pilots on CBDC in wholesale and retail segments may be a possibility in the near future. “As is said, every idea will have to wait for its time. Perhaps the time for CBDCs is nigh,” he said.

On the consequences of digital currencies on banks, Sankar said that while it could reduce the need for maintaining deposits, the impact would be limited as they cannot pay interest. “Thus, potential costs of disintermediation mean it is important to design and implement CBDC in a way that makes the demand for CBDC, vis-a-vis bank deposits, manageable,” said Sankar.

The key issues examined by the RBI include whether these should be used in retail payments or also in wholesale payments, whether it should be a distributed ledger or a centralised ledger, whether it should be token-based or account-based, whether it should be directly issuance by the RBI or through banks and the degree of anonymity.

In a strong attack against virtual currencies (cryptocurrencies), Sankar said, “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. For the most popular ones now, they do not represent any person’s debt or liabilities. There is no issuer. They are not money.”

The deputy governor said 86% of central banks were actively researching the potential for virtual currencies and 60% were already experimenting with the technology, and 14% are deploying pilot projects. He said that interest had spiked to replace paper and avoid the more damaging consequences of private currencies.

The deputy governor’s statement comes at a time when the RBI has been forced by a Supreme Court order to withdraw a ban on bank services to cryptocurrencies. Although the RBI has earlier spoken about plans to launch a digital currency, this is the first time that the central bank has gone into so much detail. Central banks across the world have drawn up plans to launch their digital currency to battle cryptocurrencies. China has said that its e-CNY has been tested in 70 million transactions.



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Dy Guv, BFSI News, ET BFSI

Banking & Finance

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New Delhi: The RBI is working on phased introduction of its own digital currency and is mulling pilot projects in wholesale and retail segments in the near future, Deputy Governor T Rabi Sankar said on Thursday. He also said several countries have implemented specific purpose Central Bank Digital Currencies (CBDCs) in the wholesale and retail segments.

A CBDC is a 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.

Sankar said developing a domestic CBDC could provide the public with uses that any private virtual currency (VC) offers and to that extent might retain public preference for the rupee.

“It could also protect the public from the abnormal level of volatility some of these VCs experience,” he said while participating in an online discussion organised by The Vidhi Centre for Legal Policy.

Introduction of CBDC, he said, has the potential to provide significant benefits such as reduced dependency on cash, higher seigniorage due to lower transaction costs and reduced settlement risk.

“Introduction of CBDC would possibly lead to a more robust, efficient, trusted, regulated and legal tender-based payments option. There are associated risks, no doubt, but they need to be carefully evaluated against the potential benefits,” he said.

The Deputy Governor said 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 the country in payment systems.

He said CBDCs are likely to be in the arsenal of every central bank going forward. Setting this up will require careful calibration and a nuanced approach in implementation.

Sankar stressed that drawing board considerations and stakeholder deliberations are important, while technological challenges have to be looked at as well.

“RBI is currently working towards a phased implementation strategy and examining use cases which could be implemented with little or no disruption,” he said.

Some key issues under RBI’s examination include, the scope of CBDCs, the underlying technology, the validation mechanism and distribution architecture.

“However, conducting pilots in wholesale and retail segments may be a possibility in near future,” the Deputy Governor said.

Sankar further said legal changes would be necessary as the current provisions have been made keeping in mind currency in a physical form under the Reserve Bank of India Act.

He said consequential amendments would also be required in the Coinage Act, Foreign Exchange Management Act (FEMA) and Information Technology Act.

“As is said, every idea will have to wait for its time. Perhaps the time for CBDCs is near,” he remarked.

He also highlighted some the risks associated with digital currencies, like sudden flight of money from a bank under stress.

“There are associated risks…but they need to be carefully evaluated against the potential benefits,” he added.

The finance ministry, in 2017, had set up a high level inter-ministerial committee to examine the policy and legal framework for regulation of virtual / crypto currencies. It had recommended the introduction of CBDCs as a digital form of fiat money in India.

The RBI has also been exploring the pros and cons of introduction of CBDCs since quite some time.



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UCBs fear disruption as RBI’s deadline on the appointment of MDs looms large

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Hundreds of urban co-operative banks (UCBs) may have to change their Managing Directors by August 25, 2021, if the Reserve Bank of India (RBI) does not give them leeway on its directions on the appointment of Managing Director (MD) and Whole-Time Director (WTD), according to an apex body of co-operatives.

The National Federation of Urban Cooperative Banks and Credit Societies (NAFCUB) has requested the RBI to allow incumbent MDs of UCBs to complete their tenure and make its directions on appointment of MD/WTD applicable only to fresh appointments.

The Federation emphasised that the aforementioned arrangement will be least disruptive and also give banks time to comply with the RBI directions.

Jyotindra Mehta, President, NAFCUB, feared that if RBI insists on adherence to the timeline prescribed in the directions, it could lead to a situation where hundreds of banks will need to change their MDs within two months. He emphasised that it will be not easy for the banks to find suitable candidates.

Cooperative vs corporate structure

He observed that while making most of the provisions of the Banking Regulation Act, 1949, applicable to UCBs, RBI has to keep in mind that the directions/ guidelines it issues under these provisions are compatible with the democratic structure of the cooperative banks and their essential cooperative character.

In a letter to RBI Governor Shaktikanta Das, Mehta underscored that this was an assurance given by the Minister in the Parliament during the discussion on the Bill to amend the Banking Regulation Act, 1949, when some members raised apprehensions that the provisions of Bill would allow authorities to undermine cooperative character of cooperative banks.

He opined that this challenge is most evident when it comes to the provisions regarding constitution and powers of board, appointment of chairman and managing director.

“However, it appears that RBI has largely brought about changes through the directions (on Appointment of MD/ WTD) without visualising the disruption it would cause in the sector.

“It has practically incorporated same provisions that are prescribed for banks that have corporate structure,” Mehta said.

Directions

As per the directions, while MDs of UCBs appointed with prior RBI approval in terms of its guidelines on constitution of Board of Management can continue till completion of his/ her tenure or for a period of three years from the date of initial appointment, whichever is earlier, other UCBs have to review the ‘Fit and Proper’ status of the existing MD in terms of the directions.

Such UCBs have to confirm the same, with the approval of Board of Directors, to RBI’s regional offices within a period of two months from the date of the directions, which were issued on June 25, 2021.

The directions prescribe eligibility and propriety criteria, tenure of MD/WTD, procedure for obtaining RBI approval for appointment/ re-appointment/ termination of MD/WTD, among others.

While NAFCUB appreciated the need for steps to be taken to upgrade professionalism and bring in more transparency in the managements of many of the UCBs, it also stated that about 90 per of these Banks are very small sized entities in comparison to commercial banks and pose no major risk to the banking system.

As at March-end 2020, there were 1,539 UCBs in the country. About 88 per cent of these Banks had deposits of less than ₹500 crore and about 93 per cent had advances of less than ₹500 crore.

Appointment vs election of directors

Referring to UCBs management structure being decades old and, in some cases, even over a century old, Mehta said they will need time to change and to adopt concepts such as “appointment” of directors, (as against elected) “CMD”, “WTD” and so on, which are totally alien to them, as they do not exist in cooperative lexicon

The NAFCUB chief feared that suddenly forcing the banks to implement all these concepts all at once would be highly disruptive, inviting chaos.

He said stretching the appointment exercise over a period of time of, say, 4-5 years or more in stages will help the sector.

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IDFC reverse merger in IDFC First Bank likely as RBI allows exit, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India had allowed IDFC to exit the IDFC First Bank.

In a regulatory filing, IDFC said that the RBI on July 20 clarified that “after the expiry of lock-in period of five years, IDFC Ltd can exit as the promoter of ‘IDFC FIRST Bank Ltd”.

Accordingly, the company can now exit as the promoter of IDFC First Bank, as the five year lock-in period has ended.

The IDFC Bank was created by the demerger of the infrastructure lending business of IDFC to IDFC Bank in 2015.

The RBI clarification could potentially lead to a reverse merger, which would be beneficial to IDFC Limited shareholders by increasing shareholder value.

Reverse merger

IDFC First Bank, which started operations in October 2015, completed five years on September 30, 2020. Under the rules then, a non-operating financial holding company, IDFC Financial Holding Co Ltd was mandated to hold a minimum of 40% of the paid-up capital of the bank for five years. IDFC holds 100% stake in the holding company, and in turn 36.56% in the bank.

The board may consider a reverse merger between IDFC and the bank, and collapse the holding company structure.

An application would have to be submitted for such a reverse merger. The RBI had mandated a holding company structure to ring-fence the bank from other financial services businesses of the group. A reverse merger, which has been in talks, would be beneficial to the shareholders of IDFC as it would remove the holding company discount. While the 2013 rules mandated it, in the 2016 guidelines for “on-tap” bank licensing, the RBI had not sought the requirement of holding a company for promoter if there are no other group entities.

IWG suggestions

The RBI’s internal working group on ownership of private banks had also recommended allowing banks, currently under holding company structure, to exit if they do not have other group entities. Recently, the RBI allowed Equitas Small Finance Bank and Ujjivan Small Finance Bank to apply for the merger of the holding company with the bank.

While the suggestions of the internal working group have not yet been implemented, the regulations are clear in terms of the holding company quitting only if it has no other organisations in its fold, paving an alternative road to departure for corporations like IDFC.



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Will comply with data localisation norms, says American Express Banking Corp India

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American Express Banking Corp India told the Reserve Bank of India that it will comply with the data localisation norms. The RBI, in April this year, had restricted American Express from on-boarding new domestic customers onto their card networks from May 1 for violating data storage norms.

Manoj Adlakha, SVP and CEO, American Express Banking Corp India told BusinessLine that the bank continues to believe India is a strategic market for the company. “We are working very closely with the RBI. We are always very mindful that if there is a law of the land, we would be fully compliant,” Adlakha said.

Meanwhile, the company is working on expanding its presence in the country with higher customer engagements and more merchant partnerships.

“Right now, the key focus is in ensuring customers spend more than what a typical customer spends in the industry. We are focussing on increasing the spends per customer and make sure they stay engaged with us,” he said.

Appealing to millenials

He explained it is a myth that American Express cards attract only High Networth Individuals and said it also appeals millennials. “In 2019, about 40 to 45 per cent of our card acquisition were millennials. We have a suite of products focussed on different target segments,” he said.

The company has also focused heavily on adding new merchants, especially small merchants and everyday spend categories onto its networks. There are close to 15 lakh merchant partners in India. The local merchant coverage has grown 10 times in the last five years, with 5.5 lakh new merchants added in the last two years.

Commenting on trends in spends post the second wave of the Covid-19 pandemic, Adlakha said it’s still very early. He, however, expects a very quick revival of spends — as was seen in the three months of December 2020 and January and February 2021 — if there is no third wave. The bank has not seen any stress in terms of repayments.

“Industries where credit card spends have gone up significantly are groceries, insurance premium, utility bills, health and hygiene, savings, even OTT and entertainment,” he said, adding that within the online category spends there has been an uptake in education, online classes, health and wellness, online retail and dining or ordering in food.

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U GRO Capital, Bank of Baroda in tie-up for ₹1,000-crore MSME co-lending

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U GRO Capital on Wednesday announced the launch of a co-lending partnership for micro, small and medium enterprises with Bank of Baroda.

Called Pratham, it is under Reserve Bank of India’s revised co-lending guidelines.

It is a ₹1,000-crore co-lending programme that will allow MSMEs to avail customised lending solutions at a competitive rate of interest with a significant reduction in turn-around time, U GRO Capital said in a statement.

U GRO Capital launches GRO Micro, adds 25 branches

The loan amount ranges from ₹50 lakh to ₹2.5 crore and will be offered at an interest rate starting from 8 per cent with a maximum tenure of 120 months.

Accessible at nine locations

“We believe that forging such partnerships is the way forward and collaborative efforts leveraging individual entities’ expertise are of utmost importance to take co-lending to MSME segment to the next level,” said Vikramaditya Singh Khichi, Executive Director, Bank of Baroda.

MSMEs including the recently added wholesale and retail traders under priority sector can avail credit through this programme, which is accessible at nine locations.

A call to preserve the ‘value’ of MSMEs at any cost

“The partnership is a reiteration of the value and trust that the bank places on our ability to leverage sectoral expertise and technology to solve the unsolved credit need of the MSMEs,” said Shachindra Nath, Executive Chairman and Managing Director, U GRO Capital.

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RBI launches two key surveys, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank of India (RBI) on Tuesday launched its quarterly Industrial Outlook Survey (IOS) to assess the performance of the manufacturing sector.

The central bank also announced the launch of the next round of the quarterly Services and Infrastructure Outlook Survey (SIOS) for the current quarter.

The 95th round of IOS of the Indian manufacturing sector will assess business sentiment for the current quarter and expectations for the ensuing quarter (Q3:2021-22) based on qualitative responses on a set of indicators pertaining to demand conditions, financial conditions, employment conditions and price situation.

“The survey provides useful insight into the performance of the manufacturing sector,” the RBI said.

The SIOS survey will assess the business situation for the current quarter from selected companies in the services and infrastructure sectors in India and their expectations for the ensuing quarter.

It is based on responses on a set of indicators pertaining to demand conditions, financial conditions, employment conditions and the price situation.



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HDFC AGM| Home loan demand continues to be strong: Deepak Parekh

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Against the backdrop of the pandemic, Parekh said HDFC had articulated that there are three key monitorables – liquidity, growth and asset quality.

Demand for home loans has remained strong even during the Covid-19 pandemic, Housing Development Finance Corporation (HDFC) chairman Deepak Parekh said on Tuesday at 44th annual general meeting (AGM) of the home financier. Although Parekh acknowledged that lockdown restrictions impacted individual loans, according to him the demand surpassed all expectations, once the restrictions were eased.

“The pandemic has reaffirmed that there can be no greater security in life than a home. The inherent demand for home loans continues to remain strong,” Deepak Parekh, chairman, HDFC, said at the company’s AGM on Tuesday. The latest data from Reserve Bank of India (RBI) also affirms continued home loan growth in the system. Home loans grew 10% year-on-year (y-o-y) to Rs 14.62 lakh crore, as on May 21, 2021, as per RBI.

Even in terms of commercial real estate, most companies have not given up their office premises, Parekh said. With the e-commerce boom, demand for real estate is coming from warehousing and fulfilment centres, he added. Similarly, with the build-up of digital infrastructure, demand for data centres has increased. These are segments of the real estate sector that have the potential to grow immensely, he further added.

Against the backdrop of the pandemic, Parekh said HDFC had articulated that there are three key monitorables – liquidity, growth and asset quality. The corporation has always been prudent in identifying loans where there could be stress and has adequately provided for such loans, he said. Parekh also pointed that asset quality has been challenging for non-individual loans at a systemic level.

As of March 31, 2021, gross non-performing loans of HDFC stood at Rs 9,759 crore, constituting 1.98% of the loan portfolio. Its assets under management grew by 10% to Rs 5,69,894 crore as of March 31, 2021. Housing Finance major had reported a 42% y-o-y growth in its net profit to Rs 3,180 crore during the March quarter (Q4FY21). The lender is set to announce its June quarter (Q1FY22) earnings on August 2, 2021.

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SBI, HDFC Bank want RBI inspection reports kept under wraps, BFSI News, ET BFSI

Banking & Finance

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State Bank of India and HDFC Bank have opposed the Supreme Court order that had said the Reserve Bank of India can divulge inspection reports of commercial banks through Right To Information applications. The court has kept the hearing for Thursday. The RBI had allowed making such reports public following a Supreme Court order in 2015. Then, it was agreed that the entire report would not be made public, but the relevant portions on bad debts, and borrowers etc.

However, even such information can disclose much information about the borrowers, which violates various client confidentiality clauses of banks, the lenders argue.

The SC verdict in April

In a major blow to banks, the Supreme Court in April this year had refused to recall its 2015 judgment, which had held that the RBI will have to provide information about the banks and financial institutions (FIs) regulated by it under the transparency law.

Several FIs and banks, including the Canara Bank, the Bank of Baroda, the UCO Bank and the Kotak Mahindra Bank had filed applications in the top court seeking a recall of the 2015 judgment in the Jayantilal N Mistry case, saying the verdict had far-reaching consequences and moreover, they were directly and substantially affected by it.

The banks had contended that the pleas for a recall of the judgment, instead of a review, is “maintainable” as there was a violation of the principles of natural justice in view of the fact that they were neither parties to the matter nor heard.

“A close scrutiny of the applications for a recall makes it clear that in substance, the applicants are seeking a review of the judgment in Jayantilal N Mistry. Therefore, we are of the considered opinion that these applications are not maintainable,” a bench of justices L Nageswara Rao and Vineet Saran said.

The order, written by Justice Rao, said in the instant case, the dispute relates to information to be provided by the Reserve Bank of India (RBI) under the Right to Information Act (RTI) and though the information pertained to banks, it was the decision of the RBI that was in challenge and decided by this court.

The RBI stance

The RBI in 2019 has declined to share details of banks inspection reports citing a section of the transparency law that exempts public authority from disclosing information that may prejudicially affect sovereignty, security or economic interests of the country.

Replying to an RTI query, the central bank also said furnishing the requested information will disproportionately divert the resources of the public authority.

The Reserve Bank of India (RBI) was asked to provide copies of all the annual financial inspection reports, concurrent audit or inspection reports carried out between 2007 and 2015 on foreign currency derivative contracts sold by the 19 banks that were earlier penalised by it.

“The requested information pertains to inspection reports of 19 banks for a period of eight years from April 1, 2007 to March 31, 2015. Therefore the total number of reports would be 152 (one report per bank for 19 banks for eight years i.e. 152).

“Furnishing the requested information will disproportionately divert the resources of the public authority,” the RBI said in reply to the RTI query filed by S Dhananjayan.



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Bank holiday on Eid al-Adha 2021: Banks in these cities will remain functional on Bakra Eid this Wednesday

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Banks will remain shut in Jammu and Srinagar on 22 July as well to observe Eid-Ul-Azha. Image: Reuters

Bakri Eid Bank Holiday 2021: Most of the banks in India will remain closed on 21 July 2021, on account of Bakra Eid. Only the gazetted holidays are observed by banks all over the country. The Reserve Bank of India (RBI) has categorised holidays under three categories — Holiday under Negotiable Instruments Act; Holiday under Negotiable Instruments Act and Real-Time Gross Settlement Holiday; and Banks’ Closing of Accounts. Banks will remain shut in Jammu and Srinagar on 22 July as well to observe Eid-Ul-Azha. According to the list of holidays notified by RBI, there are state-specific holidays for different occasions.

Banks to remain functional in these cities on Bakra Eid 2021

On account of Bakra Eid (Id-Ul-Zuha) (Eid-UI-Adha), banks in most of the states across the country will remain shut on July 21, except in cities such as Aizawl, Bhubaneswar, Gangtok, Kochi, and Thiruvananthapuram. Even as banks will remain shut on Wednesday, customers can avail online services. Moreover, mobile and internet banking will remain operational.

Banks to remain shut for up to 5 days this month

21 July 2021: Bakra Eid, Id-Ul-Zuha, Eid-UI-Adha
22 July 2021: Eid-Ul-Azha (Only in Jammu and Srinagar)
24 July 2021: Fourth Saturday
25 July 2021: Weekly off (Sunday)
31 July 2021: Ker Puja (Only in Agartala)

Including 21 July 2021 off, banks in many cities will remain closed for up to 5 days for the remainder of July month. Banks in Jammu and Srinagar will also remain closed on 22 July on account of Eid-Ul-Azha, according to RBI notification. This week, banks across the country will remain closed on 24-25 July, on account of the fourth Saturday and weekly off. All the public and private sector banks across the country observe holidays on the second and fourth Saturdays of every month, along with a weekly holiday on Sunday. There is a state-specific bank holiday on the last day of July, i.e 31st July 2021 in Agartala on account of Ker Puja.

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