Tag: RBI

RBI extends implementation timeline of ATM cassette swap

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The Reserve Bank of India (RBI) has extended the timeline for implementation of cassette swap in all ATMs till March 31, 2022.

This comes in the wake of the Indian Banks’ Association making a representation on behalf of various banks, expressing difficulties in meeting the March 31, 2021 timeline.

Based on the recommendations of the Committee on Currency Movement (CCM), RBI, in April 2018, had advised that banks may consider using lockable cassettes in their ATMs, which shall be swapped at the time of cash replenishment. This is aimed at mitigating risks involved in open cash replenishment/ top-up.

The RBI then said cassette swap in ATMs may be implemented in a phased manner, covering at least one third ATMs operated by the banks every year, such that all ATMs achieve cassette swap by March 31, 2021.

As at March-end 2021, banks had 2.14 lakh ATMs and white label ATM operators had 25,000 ATMs across the country.

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RBI bars Mastercard from onboarding new customers over data storage norms, BFSI News, ET BFSI

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The Reserve Bank of India has asked Mastercard to not onboard domestic customers in India on debit, credit or prepaid platforms on to its card network from July 22, 2021.

RBI said, “Notwithstanding lapse of considerable time and adequate opportunities being given, the entity has been found to be non-compliant with the directions on Storage of Payment System Data. This order will not impact existing customers of Mastercard. Mastercard shall advise all card issuing banks and non-banks to conform to these directions. The supervisory action has been taken in exercise of powers vested in RBI under Section 17 of the Payment and Settlement Systems Act, 2007 (PSS Act).”

Mastercard is a payment system operator (PSO) authorised to operate a card network in the country under PSS Act.

As per RBI norms on Sotrage of Payments System Data dated April 6, 2018 all system providers were directed to ensure that within a period of six months the entire day which was related to payment system operated by them is stored in a system in India only.

Further, they were also required to report compliance to RBI and submit a Board-approved System Audit Report conducted by a CERT-In empanelled auditor within the specified timelines.

Previously in April 2021, RBI had barred American Express and Diners Club International from onboarding new domestic customers over non-compliance of data storage norms.



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Telangana pools in Rs 2,000 crore via auction of bonds, eyes more funds, BFSI News, ET BFSI

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HYDERABAD: Telangana on Tuesday raised Rs 2,000 crore via auction of bonds following Reserve Bank of India’s (RBI) approval last week. The state went for a payment of the longest duration of 30 years.

Andhra Pradesh, Bihar, Goa, Gujarat, Madhya Pradesh, Maharashtra, Rajasthan, Tamil Nadu, Uttarakhand and West Bengal also raised bonds. All these states took loans with interest repayment schedule of seven to 10 years, unlike Telangana.

Besides Telangana, other states on long duration schedule are Bihar (15 years) and AP (14). Telangana also fixed a slightly higher interest rate (7.24%) than other states, which kept it in the range of 6.95% to 7%.

Meanwhile, the state will also go for another round of auction to raise Rs 1,000 crore this month end as per schedule given to RBI. According to the calendar, in the July-September quarter, the state will go for auction of Rs 8,000 crore.

In the last quarter too, it had applied for raising of Rs 8,000 crore, but taken Rs 16,000 crore loan. In June, it had taken Rs 10,000 crore loan.

In the 2021-21 budget, it was proposed to pool in funds worth Rs 47,500 crore via loans. Sources said that in this quarter too, the state will go for more loans than it requested in the calendar to the RBI.

It is estimated that with the implementation of PRC recommendations, the state proposing new schemes, new notification of jobs the requirement of funds will go up. “Unless the state earned income goes up there will be more dependency on loans” said officials.



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Growth expectations of NBFCs moderated in Q1 FY22

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Growth expectations of Non-Banking Financial Companies (NBFCs) have moderated vis-à-vis the expectations six months earlier in view of the possible impact of Covid 2.0 on business in Q1 (April-June) FY2022, according to an ICRA survey.

The survey expects the asset quality related pain to persist in the current fiscal as well.

As per the survey across NBFCs, covering over 65 non-banks, constituting about 60 per cent of the industry assets under management (AUM), 42 per cent of the issuers now expect growth of more than 15 per cent in the AUM in FY2022, much lower than 56 per cent earlier.

The survey includes Micro Finance Institutions (MFIs), NBFCs, and housing finance companies (HFCs), excluding infrastructure finance companies and Infrastructure Debt funds.

ALSO READ NBFC-MFIs: Sector sees nearly 25% decline in FY21

Manushree Saggar, Vice-President, Financial Sector Ratings, ICRA, said: “While 42 per cent of the issuers (by number) are expecting a more than 15 per cent growth in AUM in FY2022, the proportion based on AUM weights is much lower at 8 per cent; indicating that larger players in the segment expect a relatively moderate growth in FY2022.

“With most of the lenders (74 per cent; in AUM terms) indicating an up to 10 per cent AUM growth, we expect the growth for the overall industry to be about 7-9 per cent for FY2022.”

The agency emphasised that within the non-bank finance sector, segments such as MFIs, SME-focused NBFCs and affordable housing finance would continue to record much higher growth than the overall industry averages; supported by good demand and lower base.

Notwithstanding the optimism on AUM growth, the non-bank finance companies are expecting the asset quality related pain to persist in the current fiscal as well, opined ICRA.

The agency said said overall, 87 per cent of issuers (by AUM) expect reported gross stage-3/NPAs to be either same or higher than March 2021 levels, which in turn will keep the credit costs elevated.

This is also reflected in over 90 per cent of lenders (by AUM) expecting the credit costs to remain stable or increase further over FY2021 levels.

ALSO READ RBI links NBFC dividend payout to capital, NPA norms

Restructuring

On the restructuring front, while lenders are expecting marginally higher numbers as compared to the last fiscal, the overall numbers are expected to be low, the agency said in a note.

Almost 73 per cent of lenders (in AUM terms) have indicated an incremental restructuring of up to 2 per cent of AUM and another 21 per cent are expecting a restructuring between 2-4 per cent of the AUM, under Restructuring 2.0.

Within the non-bank finance sector, relatively higher impacted segments such as MFIs, SME lending and vehicles are expected to undergo larger share of restructuring compared with the industry average., according to the note.

The housing portfolio is likely to remain largely resilient, in line with the trend seen in FY2021.

Raise capital

The agency assessed that 80 per cent of the issuers are expected to maintain or increase on-balance sheet liquidity to take care of market volatility. Further, despite the pressure in the operating environment, 94 per cent of the issuers expect higher or stable profitability in FY2022 vis-à-vis FY2021.

The number of issuers expecting to raise capital almost doubled to 56 per cent this year compared with earlier survey results.

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Lenders set up bad bank for loans in default, BFSI News, ET BFSI

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Mumbai: Public sector lenders led by Canara Bank have officially formed the bad bank — the National Asset Reconstruction Company (NARC). Their next step now is to obtain approval from the Reserve Bank of India (RBI) to function as an ARC.

In May, banks decided to appoint Padmakumar M Nair, chief general manager in charge of stressed assets in SBI, as the MD of the NARC. According to RBI norms, an ARC should have minimum net owned funds of not less than 15% of the total financial assets that it plans to acquire on an aggregate basis or Rs 100 crore.

According to industry sources, lenders have identified 22 asset loan accounts worth Rs 82,496 crore. Assuming a book value of half the loan amount, the ARC would have to pay out around Rs 6,000 crore to purchase the assets. This is because the RBI norms require that 15% of the value of the asset has to be paid in cash, while the rest can be paid for by issuing security receipts (SRs). These SRs entitle the holder to a share of the recovery effected by the ARC.

To make the SRs more attractive to buyers, the government will guarantee recovery of up to Rs 31,000 crore. Lenders said that the objective of the guarantee was to provide comfort to investors and the average recovery is usually higher than the guaranteed amount provided. The notification in respect of the guarantee is likely after NARC obtains a registration from the RBI.

The loans that have been approved for transfer to the ARC include Videocon Oil Ventures (Rs 22,532 crore), Amtek Auto (Rs 9,014 crore), Reliance Naval (Rs 8,934 crore), Jaypee Infratech (Rs 7,950 crore), and Castex Technologies (Rs 6,337 crore).



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Equitas resumes works on merger of promoter company into small finance bank, BFSI News, ET BFSI

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The banking regulator has allowed the bank to put an application toward this end.

“RBI vide its communication dated July 09, 2021 has permitted the bank to apply to RBI, seeking approval for scheme of amalgamation,” Equitas said in a regulatory filing.

“We would be initiating steps to finalise the scheme of amalgamation, submit to the boards of the bank and EHL for approval and take further action thereafter in accordance with applicable regulations and guidelines,” the bank said.

The Equitas group since 2018 was looking for the reverse merger of the holding company with the bank but could not take it forward as the sector regulator did not allow it to do so.

Under the licensing agreement, a promoter of a small finance bank can exit or cease to be a promoter after the mandatory initial lock-in period of five years. In case of Equitas, the initial promoter lock-in expires on September 4, 2021.



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RBI may tweak rules to reduce ARCs’ cash outgo when buying stressed assets

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The Reserve Bank of India may tweak the ‘skin in the game’ criteria for Asset Reconstruction Companies (ARCs) in cases where they link-up with an investor to buy stressed assets from lenders on 100 per cent cash basis.

The central bank is examining the possibility of lowering an ARC’s contribution to acquire a stressed asset on all-cash basis from 15 per cent of the acquisition price to 2.5 per cent to 5 per cent.

The reason for this is that there are investors willing to bring in a chunk of money (95-97.5 per cent of the acquisition price) for buying stressed assets.

Given banks’ preference to sell their stressed assets on all-cash basis, the lowering of the ‘skin in the game’ requirement will alleviate ARC’s capital constraints and encourage them to step up purchase of bad loans. This, in turn, will help banks clean up their books. In cases where ARCs acquire stressed assets through a mix of cash and stressed assets, they are required to invest a minimum of 15 per cent of the security receipts. Hari Hara Mishra, Director, UV ARC, observed that in three years from 2018 to 2020, the cash component of purchase consideration paid by ARCs to seller banks and financial institutions went up three times from 28 per cent to 87 per cent.

“There is a long-felt need to reduce minimum contribution by ARCs in 100 per cent cash transactions from existing 15 per cent to 2.5 per cent in line with guidelines as applicable to Alternative Investment Funds (AIFs),” he said.

Reducing stress in sector

Mishra emphasised that this would enable ARCs to arrange more funds and absorb more non-performing assets, thereby reducing stress in the financial sector.

Pallav Mohapatra, MD & CEO, ARCIL, said: “What we want is that when an ARC, along with an investor, acquires a stressed asset on a 100 per cent cash basis from a bank, in such cases the regulator should, I think, reduce the 15 per cent requirement of contribution by ARCs. This can be reduced to 5 per cent.”

Mohapatra underscored that investors are proactive when it comes to seeking regular updates on resolution of stressed assets and recovery. Hence, ARCs will be on their toes despite lower skin in the game.

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SFBs rise as RBI clears holding firm merger

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Shares of Equitas Small Finance Bank, Equitas Holdings, Ujjivan Small Finance Bank and Ujjivan Financial Services surged sharply on Monday after the Reserve Bank of India (RBI) allowed small finance banks (SFBs) and their holding companies to apply for the amalgamation scheme.

Shares of Equitas Holdings and Ujjivan Financial Services jumped the maximum 20 per cent on Monday while those of the other SFBs also rose but could not sustain the early gains. Shares of Ujjivan SFB closed at ₹30.95, recording a gain of 1.48 per cent over the previous day’s close after rising 10.8 per cent to ₹33.80 intra-day. Similarly, Equitas SFB, which jumped to a high of ₹76.75 in intra-day trade, closed at ₹69.50, up 6.76 per cent.

According to analysts, the RBI’s move allowing Equitas Small Finance Bank and Ujjivan Small Finance Bank to apply for merger of their holding companies with themselves is positive for the holding companies.

Discount to narrow

The amalgamation scheme will unlock significant value for shareholders of the holding companies as the hold company discount narrows. However, the fair value for investors would depend on the swap ratio, which will be the key to monitor, said Motilal Oswal Financial Services.

On Saturday, Equitas Small Finance Bank said it would seek the RBI’s approval for amalgamation with Equitas Holdings, while Ujjivan Small Finance Bank said it would initiate steps for the amalgamation of the holding company, Ujjivan Financial Services, with itself.

According to the RBI norms, small finance banks need to dilute promoter-holding to 40 per cent within five years of commencement of business.

“Equitas Holdings currently holds 82 per cent in Equitas SFB and the initial promoter lock-in of five years expires on September 4, 2021. Ujjivan Financial Services holds 83.3 per cent in Ujjivan SFB and the initial promoter lock-in expires on January 31, 2022,” said JM Financial.

Reverse merger

According to the Scheme of Amalgamation, Equitas Holdings and Ujjivan Financial Services are expected to reverse-merge with Equitas SFB and Ujjivan SFB, respectively, and current shareholders of the holding companies will receive the shares of their respective small finance banks, thus effectively leading to the exit of the promoter of the bank, it added

Currently, Equitas Holdings and Ujjivan Financial Services are trading at a discount of 35 per cent and 43 per cent to their fair value, respectively. For Equitas Holdings, the trading discount since listing has been in the range of 24-54 per cent, while for Ujjivan Financial Services, the holding discount has been around 33-57 per cent, said Motilal Oswal.

JM Financial said it believes this to be a positive development for the small finance banks as well as their holding companies.

At the current market price, zero holding company discount implies an upside of 55 per cent and 77 per cent. respectively, for Equitas Holdings and Ujjivan Financial Services. “We maintain ‘Buy’ rating on Equitas SFB and Ujjivan SFB with a target price of ₹75 and ₹48, respectively,” it said.

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Equitas, Ujjivan SFBs share surges on RBI directive

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Shares of Equitas Small Finance Bank and Ujjivan Small Finance Bank surged on BSE on Monday after the Reserve Bank of India permitted the SFBs and respective holding companies to apply for the scheme of amalgamation.

The scrip of Equitas SFB closed 7.3 per cent higher at ₹69.85 apiece on BSE on Monday. Similarly, Ujjivan SFB shares ended at a gain of 1.48 per cent at ₹30.95 apiece on BSE.

In a stock exchange filing on July 10, Equitas SFB had said it would be initiating steps to finalise the Scheme of Amalgamation, submit it to the Boards of the Bank and EHL for approval and take further action.

“RBI vide its communication dated July 9, 2021 has permitted the bank to apply to RBI, seeking approval for Scheme of Amalgamation. RBI has also conveyed that any ‘no-objection’, if and when given on the Scheme of Amalgamation, would be without prejudice to the powers of RBI to initiate action, if any, for violation of any licensing guidelines or any terms and conditions of license, or any other applicable instruction,” Equitas SFB had said.

Similarly, Ujjivan SFB also had said it would be initiating necessary steps for the amalgamation of Ujjivan Financial Services with the bank according to applicable laws and guidelines.

“RBI vide its letter dated July 9, 2021 has informed the said Association that it has decided to permit small finance banks and respective holding companies to apply for the amalgamation of holding company with small finance banks…three months prior to completing five years from the date of commencement of business of small finance bank,” it had said in a stock exchange filing.

Under RBI guidelines, a promoter of an SFB can exit or cease to be a promoter after the mandatory initial lock-in period of five years, depending on the RBI’s regulatory and supervisory comfort and SEBI Regulations in this regard at that time.

In the case of Equitas SFB, the initial promoter lock-in expires on September 4, 2021.

“…the bank had requested RBI if a Scheme of Amalgamation of the promoter and holding company, Equitas Holdings Limited, with the bank, resulting in exit of the promoter, could be submitted to RBI for approval, prior to the expiry of the said five years, to take effect after the initial promoter lock-in expires,” it said.

According to Ujjivan SFB, the Association of Small Finance Banks of India had in April made a representation to RBI on Dilution of Promoter Shareholding requesting it to grant prior in-principle approval to SFBs for a reverse merger with their respective Holding Companies on completion of initial five years from the date of commencement of business.

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