Tag: RBI

RBI asks banks to prepare for transition from LIBOR, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India (RBI) has issued an advisory asking banks to prepare for the transition out of London Interbank Offered Rate (LIBOR).

In August last year, the RBI requested banks to frame a Board approved plan, outlining an assessment of exposures linked to LIBOR and the steps to be taken to address risks arising from the cessation of LIBOR, including preparation for the adoption of the Alternative Reference Rates (ARR).

“Banks and financial institutions are encouraged to cease, and also encourage their customers to cease, entering into new financial contracts that reference LIBOR as a benchmark and instead use any widely accepted ARR (Alternative Reference Rates), as soon as practicable and in any case by December 31, 2021,” an RBI circular said on Thursday.

The directive comes with the objective of orderly, safe, and sound LIBOR transition and considering customer protection, reputational and litigation risks involved, banks or financial institutions.

While certain US dollar LIBOR settings will continue to be published till June 30, 2023, the extension of the timeline for cessation is primarily aimed at ensuring roll-off of USD LIBOR-linked legacy contracts, and not to encourage continued reliance on LIBOR.

“It is, therefore, expected that contracts referencing LIBOR may generally be undertaken after December 31, 2021, only for the purpose of managing risks arising out of LIBOR contracts (e.g. hedging contracts, novation, market-making in support of client activity, etc.), contracted on or before December 31, 2021,” it said.



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‘Inflation spike seems transitory’ – The Hindu BusinessLine

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Government Securities’ (G-Sec) prices rallied on Thursday despite inflationary concerns from rising prices of petrol and diesel as the Reserve Bank of India Governor Shaktikanta Das observed that the inflation spike appears to be transitory.

The price of the widely traded 2035 G-Sec/GS (coupon rate: 6.64 per cent) rose 51 paise to close at ₹99.21 (previous close: ₹98.70) with its yield declining about 6 basis points to 6.73 per cent (6.79 per cent).

Bond prices and yields are inversely related and move in opposite directions. The price of the 5.63 per cent GS 2026 increased by 40 paise to close at ₹99.70 (₹99.30) with its yield declining about 10 basis points to 5.70 per cent (5.80 per cent).

Das, in an interview to a financial daily, said the current inflation spike appears to be transitory, driven largely by supply-side factors, and it is expected to moderate in the third quarter.

Financial stability report

The central bank’s latest financial stability report has cautioned that hasty withdrawal of policy stimulus to support growth before sufficient coverage of the vaccination drive can sap macro-financial resilience and have adverse unintended consequences. CARE Ratings Chief Economist Madan Sabnavis emphasised that the rising prices of petrol and fuel has spooked the market, which sees inflation climbing. This in turn has affected the bond market as the RBI has held on to the yield curve.

‘Bond market edgy’

“It (rising fuel price) enters transport costs which get embedded in the final prices of all commodities. The fact that fuel is not in the GST (goods and service tax) gives freedom to the government to increase taxes without any constraint.

“But allowing prices to increase has distorted inflation which in turn has kept the bond market edgy,” he said.

Sabnavis opined that the RBI’s resolve to manage the yield curve has caused a disconnection between monetary policy action and interest rate action.

Meanwhile, the first tranche of G-sec Acquisition Programme (G-SAP 2.0), entailing open market purchase of five G-Secs aggregating ₹20,000 crore, sailed through.

This sets the stage for banks and primary dealers to bid at Friday’s auction of three G-Secs, including a new 10-year GS.

The Government will be raising ₹26,000 crore via sale of these G-Secs. It will also have the option to retain additional subscription up to ₹6,000 crore against the securities being auctioned.

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RBI imposes monetary penalty on 14 banks for non-compliance

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The Reserve Bank of India (RBI) imposed monetary penalty aggregating ₹14.5 crore on 14 banks for non-compliance with certain provisions of its directions after a scrutiny in the accounts of the companies of a Group.

The central bank imposed ₹2 crore penalty on Bank of Baroda, ₹1 crore each on 12 other banks and ₹50 lakh on State Bank of India.

RBI imposed ₹1 crore penalty each on Bandhan Bank, Bank of Maharashtra, Central Bank of India, Credit Suisse AG, Indian Bank, IndusInd Bank, Karnataka Bank, Karur Vysya Bank, Punjab and Sind Bank, South Indian Bank, The Jammu & Kashmir Bank and Utkarsh Small Finance Bank.

Bank of Baroda and Karnataka Bank, in their stock exchange disclosures, said the penalty has been imposed on them for non-compliance with the directions issued by the RBI with respect to advances sanctioned to Infrastructure Leasing and Financial Services (IL&FS), and its group companies.

Non-compliance

The central bank, in a statement, said the banks were non-compliant with certain provisions of its directions on ‘Lending to Non-Banking Financial Companies (NBFCs)’, ‘Bank Finance to NBFCs’, ‘Loans and Advances – Statutory and Other Restrictions.’

Further, they were also non-compliant with certain provisions of directions on on ‘Creation of a Central Repository of Large Common Exposures – Across Banks’ read with the contents of Circular on ‘Reporting to Central Repository of Information on Large Credits’, ‘Operating Guidelines for Small Finance Banks’ and for contraventions of provisions of two Sections of Banking Regulation Act, 1949.

“A scrutiny in the accounts of the companies of a Group was carried out by RBI and it was observed that the banks had failed to comply with provisions of one or more of the aforesaid directions issued by RBI and/or contravened provisions of the Banking Regulation Act, 1949,” RBI said in a statement.

In furtherance to the same, the central bank issued notices to the banks advising them to show cause as to why penalty should not be imposed for non-compliance with the directions/contraventions of provisions of Banking Regulation Act, 1949.

“The replies received from the banks, oral submissions made in the personal hearings, wherever sought by the banks, and examination of additional submissions, where made, were duly considered, and to the extent the charges of non-compliance with RBI directions/contraventions of provisions of Banking Regulation Act, 1949 were sustained, RBI concluded that it warranted imposition of monetary penalty on aforementioned fourteen banks,” the statement said.

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RBI penalises SBI, 13 other banks for non-adherence to NBFC lending rules

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The banks were also called out on not adhering to restrictions and provisions on loans as well as advances and reporting to the central database on large exposures.

The Reserve Bank of India (RBI) has penalised 14 banks including State Bank of India, IndusInd Bank, Bandhan Bank and Bank of Baroda for non-compliance of various lending norms. RBI found that these lenders were non-compliant with certain provisions of directions that the regulator had issued on lending to Non-Banking Financial Companies (NBFCs). The banks were also called out on not adhering to restrictions and provisions on loans as well as advances and reporting to the central database on large exposures.

In view of this, RBI levied a penalty of Rs 2 crore on Bank of Baroda. For Central Bank of India, IndusInd Bank, Credit Suisse AG, Bandhan Bank, Indian Bank, Bank of Maharashtra, Utkarsh Small Finance Bank, Karur Vysya Bank, Karnataka Bank, South Indian Bank, Punjab and Sind Bank, and Jammu & Kashmir Bank, the regulator has levied a fine of Rs 1 crore. State Bank of India, on the other hand will have to pay a penalty of Rs 50 lakh.

“A scrutiny in the accounts of the companies of a Group was carried out by RBI and it was observed that the banks had failed to comply with provisions of one or more of the aforesaid directions issued by RBI and/or contravened provisions of the Banking Regulation Act, 1949,” RBI said in a statement. The regulator said it had issued notices to these banks seeking show cause as to why RBI should not impose penalty on them for non-compliance.

After examining the replies received from the banks along with oral submissions made in the personal hearings, RBI concluded the imposition of monetary penalty on these banks.

“The penalties have been imposed in exercise of powers vested in RBI under the provisions of section 47 A (1) (c) read with sections 46 (4) (i) and 51 (1), of the Banking Regulation Act, 1949, as applicable. This action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the banks with their customers,” RBI added.

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RBI imposes Rs 50 lakh penalty on an urban co-operative bank in Kerala, BFSI News, ET BFSI

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Mumbai: The Reserve Bank of India (RBI) on Tuesday said it has imposed a penalty of Rs 50 lakh on The Urban Co-operative Bank Ltd No. 1758, Perinthalmanna in Kerala for non-compliance with directions on income recognition and asset classification norms, and on management of advances. One of the directions related to management of advances — UCBS (Urban Co-operative Banks).

Statutory inspection of the bank with reference to its financial position as on March 31, 2019, conducted by RBI, revealed that the bank had not complied with the directions, the central bank said in a statement.

A notice was issued to the bank asking why penalty should not be imposed for non-compliance with the directions issued by RBI.

“After considering the bank’s written reply, RBI came to the conclusion that the charge of non-compliance with aforesaid RBI directions was substantiated and warranted imposition of monetary penalty,” the statement said.

The penalty has been imposed through an order dated December 11.

RBI also said that the action against the co-operative bank is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.



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RBI imposes ₹1 crore penalty on Karnataka Bank

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The Reserve Bank of India (RBI) has imposed a penalty of ₹1 crore on Karnataka Bank, the lender informed the stock exchanges.

In an intimation to the stock exchanges on Wednesday, the bank said: “Pursuant to Regulation 30 of the SEBI (LODR), Regulations, 2015, we wish to inform that Reserve Bank of India (RBI), vide email dated July 7, 2021, has imposed a monetary penalty of ₹1 crore on the bank for contravention of the directions contained in RBI circular on ‘Lending to Non-Banking Financial Companies (NBFCs) and ‘Bank Finance to Non-Banking Financial Companies (NBFCs)’ while sanctioning credit facilities to M/s Infrastructure Leasing and Financial Services Ltd (IL&FS) and its group companies.”

“We further inform that as Bank had already made full loan provision, there is no other financial impact other than the penalty amount,” it said in the intimation to the stock exchanges.

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RBI warns of stress build-up in consumer credit, BFSI News, ET BFSI

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The pandemic and its fallout on the economy has made consumer lending riskier for banks even as it has been the only sector to help banks keep their loan books afloat at such times.

The delinquency rates for such loans are going up particularly for private sector banks and NBFCs during the pandemic warned the Reserve Bank of India‘s latest financial stability report. At the same time the second wave has also affected demand for such loans with a steep fall in demand in April , it said.

The Reserve Bank’s latest Financial Stability Report notes that the delinquency rates for consumer credit in private sector banks doubled from 1.2 per cent in January 2020 to 2.4 per cent in January 2021. While for NBFCs it went up from 5.3 per cent to 6.7 per cent in the same period. Overall consumer credit deteriorated after the loan moratorium programme came to an end in September 2020.

“While banks and other financial institutions have resilient capital and liquidity buffers, and balance sheet stress remains moderate in spite of the pandemic, close monitoring of MSME and retail credit portfolios is warranted.” the report said.

Consumer credit includes home loans, loans against property, auto loans, two-wheeler loans, commercial vehicle loans, construction equipment loans, personal loans, credit cards, business loans, consumer durable loans, education loans and gold loans.

The overall demand for consumer credit in terms of inquiries had stabilised in Q4’2020-21 after a sharp rebound during the festive season in Q3’2020-21 after the first COVID-19 wave receded. But the second wave, however, has sharply affected credit demand, with a steep fall in inquiries across product categories in April 2021. Growth in credit-active consumers- consumers with at least one outstanding credit account- and, outstanding balances, however, remains sluggish compared to the previous comparable period. For unsecured loans, the fastest-growing category in this segment, for example, fell from 39.4 per cent in January’20 to 6.5 per cent in FY’21. For home, which accounts for a major chunk of this segment, the growth rate of credit-active consumers slowed from 12.03 per cent to 0.3 per cent during the period.

On a positive note, loan inquiries are more from better-rated borrowers. “Loan approval rates remain healthy as the risk tier composition of inquiries shows a distinct tilt towards better-rated customers.” the central bank‘s report said.



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Indian bond yields spike to near 4-month highs; crude surge hurts, BFSI News, ET BFSI

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MUMBAI – Indian bond yields jumped on Tuesday as a rally in global crude oil prices raised worries about higher imported inflation, while a selection of papers for this week’s bond buyback by the central bank also disappointed investors.

The most-traded 6.64% 2035 bond was up 6 basis points at 6.79%, while the second-highest traded 5.63% 2026 paper rose 7 bps to 5.83%. Both bonds were trading at levels last seen in mid-March.

The 10-year bond, which is likely to be soon replaced as the benchmark paper, was up 6 bps at 6.15%, its highest since April 16.

HDFC Bank said rising oil prices and lack of liquid papers in this week’s government securities acquisition programme (GSAP) or a form of quantitative easing programme of the Reserve Bank of India, is weighing on bond prices.

“The market was hoping for the inclusion of the 5-year paper in the upcoming debt purchase given the recent devolvement of the paper by the RBI.” HDFC economists wrote.

Underwriters to the auction or the primary dealers had to buy 104.95 billion rupees ($1.41 billion) worth of the 5.63% 2026 bonds at the debt sale last week.

The central bank is scheduled to sell 260 billion rupees worth of bonds on Friday, including 140 billion rupees worth of a new 10-year paper.

RBI announced a buyback of bonds worth 200 billion rupees on Thursday under the GSAP but traders said most securities it has proposed to buy are illiquid and would not necessarily help tame yields and offset the impact of high global crude oil prices.

Oil prices hit some of their highest levels since 2018 after OPEC+ discussions were called off, heightening expectations that supplies will tighten further just as global fuel demand recovers from a COVID-19-induced slump.

India imports more than two-thirds of its oil requirements and higher prices usually translate to higher inflation.

The central bank has voiced to keep rates low to support the economic recovery but rising inflation could force its hand, traders fear.

“Another added pressure for the short end of the curve is the additional borrowing for GST (goods and services tax) compensation shortfall that is likely to be done starting July by selling bonds at shorter tenures (less than 7 years).”

In late May, the government said it will borrow an additional 1.58 trillion rupees to compensate states for their shortfall in revenues.



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RBI to introduce new 10-year G-Sec

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The Reserve Bank of India has decided to introduce a new 10-year Government Security (G-Sec), which will become the benchmark paper, through which the government will borrow ₹14,000 crore at the upcoming auction on Friday.

This announcement was expected by market participants as the outstanding limit in the current 10-year G-Sec/GS (coupon rate: 5.85 per cent) has reached about ₹1.20-lakh crore. At this level of outstanding amount, usually, a new 10-year G-Sec is issued.

Moreover, the RBI has mopped up about three-fourth of the 5.85 per cent GS via its G-Sec Acquisition Programme and special open market operations, and the trading volume in this paper has been gradually drying up.

Since the 5.85 per cent 2030 GS was first issued on December 1, 2020, its yield has jumped about 25 basis points to close at 6.0877 per cent on Monday, with the price declining about ₹1.82 to ₹98.31.

Overall, the government will be borrowing ₹26,000 crore on Friday through auction of the 4.26 per cent GS 2023 (₹3,000 crore), New GS 2031 (₹14,000 crore) and 6.76 per cent GS 2061 (₹9,000 crore). It will also have the option to retain additional subscription up to ₹6,000 crore against the above security/securities.

G-SAP 2.0 on July 8

A day prior to the auction of the aforementioned G-Secs, the RBI will be purchasing five G-Secs aggregating ₹20,000 crore under its G-Sec Acquisition Programme (G-SAP 2.0) on July 8.

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