Tag: RBI

Non-food credit growth of banks slackens to 5.9% in May

Banking & Finance

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Non-food credit growth of scheduled commercial banks (SCBs) slackened to 5.9 per cent in May 2021 compared to 6.1 per cent in May 2020 due to deceleration in credit growth to industry and services sector.

Per the Reserve Bank of India’s statement on sectoral deployment of bank credit for May 2021, credit to agriculture and allied activities continued to perform well, registering an accelerated growth of 10.3 per cent in May 2021 as compared to 5.2 per cent in May 2020.

Credit growth to industry decelerated to 0.8 per cent in May 2021 from 1.7 per cent in May 2020, the central bank said.

Size-wise, credit to medium industries registered a robust growth of 45.8 per cent in May 2021 as compared to a contraction of 5.3 per cent a year ago.

Credit growth to micro and small industries accelerated to 5 per cent in May 2021 as compared to a contraction of 3.4 per cent a year ago, while credit to large industries contracted by 1.7 per cent in May 2021 as compared to a growth of 2.8 per cent a year ago.

Credit growth to the services sector decelerated to 1.9 per cent in May 2021 from 10.3 per cent in May 2020, mainly due to deceleration in credit growth to NBFCs, transport operators and commercial real estate, RBI said.

However, credit to the trade segment continued to perform well, registering accelerated growth of 12.4 per cent in May 2021 as compared to 7.7 per cent a year ago.

The central bank said personal loans registered an accelerated growth of 12.4 per cent in May 2021 as compared to 10.6 per cent a year ago, primarily due to accelerated growth in vehicle loans and credit card outstanding.

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HDFC Bank, BFSI News, ET BFSI

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The RBI‘s ban on selling new credit cards has impacted market share on an incremental basis, HDFC Bank said on Wednesday, promising to get back to the market “with a bang” once the “temporal” embargo is lifted and recoup the losses. The bank’s head of consumer finance, digital banking and information technology, Parag Rao, said that it has used the last six months to “introspect, re-engineer and innovate” about the cards business, where it has 15.5 million customers.

The bank has lost its market share by a couple of percentage points because of the ban, but the actions taken internally have ensured that it continues to hold on to market share by spends, he said.

In December, the RBI acted against repeated technological outages at HDFC Bank over two years by slapping unprecedented penalties, which included a ban on any new credit card issuance and also prohibition on launching new digital initiatives.

“We have got very aggressive plans to get back in the market with a big bang… You will rapidly see HDFC Bank not just regaining market share but also significantly increasing our spend market share,” Rao said.

Without sharing any details over when he expects the ban to be lifted, Rao said within 3-4 months of the ban getting lifted, one should expect a correction in the incremental market share back to the pre-ban levels, launch of new products and features and also partnerships which have been forged during this period.

“We were very clear that this is at best a temporal situation. During the six months when we were not issuing new credit cards, we increased our merchant acceptance base, our liability franchise increased and today we are sitting on a large base of already analytically data mined customers who have already kept ready and pre-approved,” he said.

The “large sales force” has been trained, re-skilled and primed for the aggressive play ahead and backend processes for them have also been made more streamlined, Rao said.

He admitted that rivals have seized up on the opportunity once HDFC Bank stopped issuing the cards, amidst reports on how ICICI Bank and SBI, among others have grown. It can be noted that HDFC Bank’s credit card customers decreased by 4.67 lakh between December and April, when they stood at 14.9 million, while SBI has gained over 6 lakh new cards and ICICI gained 10 lakh.

The bank has been in constant discussion with RBI ever since the ban was imposed and has upgraded its systems as per the indications from the regulator, Rao said, adding that it has now presented a plan which focuses on the immediate, short term, mid-term and long term plan to the central bank.

“We are awaiting the comments from the RBI. We are hopeful that RBI will be satisfied with the plan which we had submitted,” he said.

Rao said the bank’s investments in technology were already at par with global standards, but the recent regulatory action will see higher spends on technology over the next two or three years.

Reiterating its focus outlined earlier, he said outages do happen and they happen with rivals as well, but the important aspect will be how it manages its way out of a crisis.

The bank’s shares were trading 0.17 per cent down at Rs 1,499 apiece on the BSE at 1344 hrs, as against gains of 0.28 per cent on the benchmark. AA MKJ



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How corporates gorged on RBI’s easy money, shunned banks?, BFSI News, ET BFSI

Personal Finance

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Corporates took the advantage of liquidity offered by Reserve Bank‘s special liquidity windows to raise funds from the bond market, reducing their dependence on bank loans during the quarter

While the corporate bond market is still dominated by financial companies, non-financial companies have increased borrowing in the last one year.

The corporates tapped the long-term repo operations (LTRO) funds, and targeted LTRO offered by the RBi last year, raising funds for up to three years. Firms raised funds aggressively during the third and fourth quarters of the last year for deleveraging high-cost debt.

The fundraise

Corporates raised Rs 2.1 lakh crore in December ended quarter and Rs 3.1 lakh crore in the fourth quarter from the corporate bond markets. In contrast, the corresponding year-ago figures were Rs 1.5 lakh crore and Rs 1.9 lakh crore, respectively.

Bonds were mostly raised by top-rated companies at 150-200 basis points below bank loans. Most of the debt was raised by government companies as they have top-rated status.

For AAA-rated corporate bonds, the yield was 6.85 per cent in May 2020, which fell to 5.38 per cent in April 2021 and to 5.16 per cent in May 2021.

Debt reduction

The corporate world focused on deleveraging high-cost loans through fundraising via bond issuances despite interest rates at an all-time low. This has led to muted credit growth for banks.

According to data analysis by the SBI research wing, the top 15 sectors with more than 1,000 listed entities reported over Rs 1.7 lakh crore of debt reduction in 2000-21.

Refineries, steel, fertilizers, mining & mineral products, and textile alone reduced debt by more than Rs 1.5 lakh crore during FY21.

Fertilizers, mining and minerals, FMCG, cement products, consumer durables, and capital goods were among the sectors where loan reduction of 20 per cent or more was reported during FY21.

According to data from the Reserve Bank of India, loan growth fell to a 59-year low of 5.6% on year as of March 31. Credit was logging a 6.4% in the previous fiscal.

Low interest rates

As interest rates drop to an all-time low, corporates reduced their loan liabilities to facilitate a lower finance cost, which resulted in the primary issuance of bonds increasing by nine per cent.

The spread of AAA bonds for a 10-year tenor declined from 124 bps in April 2020 to 70 bps in April 2021.

Similarly, the spread for 5 year and 3-year bonds declined from 89 bps and 147 bps in April 2020 to 9 bps and 30 bps in April 2021 respectively.

This trend is continuing in FY22 also.

These companies not only reduced their loan liabilities at lower finance cost but also increased their cash and bank balance by around 35% in March, as compared to March 2020, suggesting a conservative approach to conserve cash during uncertain times.

Corporate willingness for new investments also remains tepid as the economy is still recovering from the second wave.



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RBI imposes penalties on 4 cooperative banks, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank on Tuesday said it has imposed penalties on four co-operative banks, including a Rs 112.50 lakh fine on Hyderabad-based Andhra Pradesh Mahesh Co-operative Urban Bank, for contravention of certain regulatory directions. A penalty of Rs 62.50 lakh has been imposed on The Ahmedabad Mercantile Co-operative Bank, Ahmedabad; Rs 37.50 lakh on SVC Co-operative Bank, Mumbai; and Rs 25 lakh on Saraswat Cooperative Bank, Mumbai.

The penalty on Andhra Pradesh Mahesh Co-operative Urban Bank was for non-compliance with directions issued by RBI contained in Master Directions on ‘Interest Rate on Deposits’ and ‘Know Your Customer’.

The Ahmedabad Mercantile Co-operative Bank has been penalised for violation of norms contained in Master Directions on ‘Interest Rate on Deposits’.

As per the RBI, it imposed penalty on SVC Co-operative Bank for non-compliance with directions on ‘Interest Rate on Deposits’ and ‘Frauds Monitoring and Reporting Mechanism’.

Saraswat Cooperative Bank was penalised for non-compliance with directions on ‘Interest Rate on Deposits’ and ‘Maintenance of Deposit Accounts’.

The penalties, the RBI said, have been imposed for based on deficiencies in regulatory compliance and are not intended to pronounce upon the validity of any transaction or agreement entered into by the banks with their customers.



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RBI sets July 30 deadline for banks to move current accounts, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India (RBI) has set a deadline of July 30 for banks to give up current accounts of all companies where their exposure is below a cut-off decided by the regulator.

RBI communicated this in a letter to banks a fortnight ago, two senior bankers told ET.

The move, initiated more than a year ago, could trigger a migration of many lucrative current accounts – which lower a bank’s fund cost and cash management business – from MNC banks to public sector lenders and some of the large private sector Indian banks.

According to the new rule, a bank with less than 10% of the total approved facilities – which include loans, non-fund businesses like guarantees, and daylight overdrafts (or intra-day) exposure – to a company is barred from having the client’s current account.

“RBI is probably upset that banks are taking a long time to shift the accounts. But the delay may also be because several PSU banks may not be ready with the technology. Now, RBI can’t direct companies which have been doing business with a bank for years to move to another bank. At one point many MNC banks and companies had opposed it, but they have realised that it’s fait accompli,” said a banker.

Notified in August 2020, the regulation after a review was expected to be implemented by January 31, 2021.

Backed by a former chairman of the country’s largest lender State Bank of India and some of the PSU bankers, the regulation stems from the belief that errant corporate borrowers will find it tougher to divert funds if their current and collection accounts lie with lending banks.

Regulation doesn’t cover MFs, insurers
It’s aimed at curbing the practice of companies who run current accounts to collect sale proceeds and other receivables with banks outside the lending consortium to delay loan servicing.

Over the years, some of the MNC banks, without being large lenders, had put in place technology to integrate fund flows between a large company and its customers, vendors and associates. Besides enjoying the float, the relationship with the corporate opened an opportunity to cross-sell products to group companies. Significantly, it was a strategy to earn fees without committing larger capital for loans, and the risk of some turning into NPAs.

However, the present rule, said another banker, could also impact a few smaller Indian banks, including state-owned lenders. Some large private banks, who are in favour of the rule, have been raising their exposure above the 10% threshold to retain the current accounts. As per the rule, a bank having a current account with less than 10% exposure will be required to move funds to another bank which meets the exposure rule. The 10% rule does not pertain to regulated entities like mutual funds and insurers.



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RBI imposes monetary penalty on 4 co-operative banks

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The Reserve Bank of India (RBI) has imposed monetary penalty on Andhra Pradesh Mahesh Co-operative Urban Bank, (₹112.50 lakh); Ahmedabad Mercantile Co-operative Bank (₹62.50 lakh), SVC Co-operative Bank (₹37.50 lakh) and Saraswat Co-operative Bank (₹25 lakh).

RBI, in a statement, said it has imposed monetary penalty on Hyderbad-based Andhra Pradesh Mahesh Co-operative Urban Bank (Hyderabad) for non-compliance with its directions on ‘Interest Rate on Deposits’and ‘Know Your Customer’.

The central bank said it has imposed monetary penalty on The Ahmedabad Mercantile Co-operative Bank for non-compliance with its directions on ‘Interest Rate on Deposits.’

RBI said it has imposed monetary penalty on Mumbai-based SVC Co-operative Bank for non-compliance with its directions on ‘Interest Rate on Deposits’ and ‘Frauds Monitoring and Reporting Mechanism’.

In the case of Saraswat Co-operative Bank, the central bank said, it has imposed monetary penalty for non-compliance with its directions on ‘Interest Rate on Deposits’and ‘Maintenance of Deposit Accounts’.

In all the four aforementioned cases, RBI said: “This action 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.”

Saraswat Co-operative Bank, SVC Co-operative Bank , Andhra Pradesh Mahesh Co-operative Urban Bank, and Ahmedabad Mercantile Co-operative Bank are among the top 10 urban co-operative banks in the country.

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Investors’ interest in 2030 G-Sec wanes

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Bond market players seem to have lost interest in the so-called 10-year benchmark Government Security (G-Sec) as the central bank has accumulated a chunk of this paper, reducing its attractiveness for trading.

The number of trades in the 2030 G-Sec (carrying 5.85 per cent coupon rate) has shrunk drastically from 993 on May 28 to 31 on June 29.

The Reserve Bank of India (RBI) has been mopping up this paper via Special Open Market Operations (OMO) and G-Sec Acquisition Programme (G-SAP).

This is aimed at keeping G-Sec yields on a leash as the government has a huge borrowing programme of ₹12.10 lakh crore in FY22. RBI has been focussed on buying this paper to ensure a stable and orderly evolution of the yield curve.

New benchmark

Given that the central bank is holding almost three-fourth of the ₹1.20 lakh crore outstanding amount in the 5.85 per cent 2030 G-Sec and liquidity has dwindled in this paper, market experts say it’s time the government introduced a G-Sec maturing in 2031, which will become the new 10-year benchmark.

They emphasised that at the weekly auctions of the 5.85 per cent 2030 G-Sec over the last one month or so, RBI has either devolved it on primary dealers (PDs) or rejected all the bids as investors want to buy it at a lower price (or higher yield).

Referring to the tug-of-war between institutional investors and RBI, experts say investors want the yields to go up, but the central bank wants to suppress the yields to ensure that the government can borrow at a cheaper rate.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “They (Government) may float a new 10-year G-Sec after a week or two. Nobody has interest in the 5.85 per cent 2030 G-Sec.

“About three-fourth of this paper is with RBI and the rest is with nationalised banks. So, who will trade in it? There is no tradability in this paper.”

Madan Sabnavis, Chief Economist, CARE Ratings, observed that the market is still demanding more (in terms of yield) from the government given the large borrowing programme as well as the rising inflation trend.

Since the 5.85 per cent 2030 G-Sec was first introduced on December 1, 2020, its price has declined by ₹1.455 to Rs 98.67 on Tuesday, with its yield rising about 20 basis points to about 6.04 per cent. Bond price and yields are inversely related and move in opposite directions.

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Credit guarantee scheme for facilitating MFIs loans announced, BFSI News, ET BFSI

Banking & Finance

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New Delhi, The government on Monday announced a new credit guarantee scheme that will facilitate loans to 25 lakh people through micro finance institutions (MFIs).

The announcement was made by Finance Minister Nirmala Sitharaman as part of economic relief package provided to spur investment climate in the country affected by the Covid pandemic.

As per the new scheme, guarantee will be provided to Scheduled Commercial Banks for loans to new or existing NBFC-MFIs or MFIs for on lending up to Rs 1.25 lakh to approximately 25 lakh small borrowers.

Interest Rate on Loans from banks will be capped at MCLR plus 2 per cent.

Maximum loan tenure 3 years, 80 per cent of assistance to be used by MFI for incremental lending, interest at least 2 per cent below maximum rate prescribed by RBI.

The focus of the scheme will that lending would be for new activities and not repayment of old loans. Loans to borrowers to be in line with extant RBI guidelines such as number of lenders, borrower to be member of JLG, ceiling on household income and debt.

All borrowers (including defaulters upto 89 days) will be eligible for guarantee cover for funding provided by MLIs to MFIs/NBFC-MFIs till March 31, 2022 or till guarantees for an amount of Rs 7,500 crore are issued, whichever is earlier.

Guarantee upto 75 per cent of default amount for up to 3 years through National Credit Guarantee Trustee Company (NCGTC) which will also not charge any guarantee fee.

–IANS

sn/kr



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SBI Chairman, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: Although the second wave of the Covid-19 pandemic again brought businesses and economic activities to a standstill, Chairman of the State Bank of India (SBI), Dinesh Kumar Khara has expressed hope that the country’s economy would recover in the ongoing financial year.

The Chairman noted that the global economy contracted by 3.3 per cent in 2020 with the pandemic causing significant loss of lives and livelihood.

The GDP in India contracted by 7.3 per cent in FY2021 and the country experienced a second wave of infections with cases rising rapidly since March 2021, he said while addressing the 66th Annual General Meeting of the bank.

He, however, said that policy measures and the coordinated efforts of the Reserve Bank of India (RBI) and the Centre were directed towards enabling growth on a more durable basis during these difficult times.

“Notwithstanding the second wave of Covid-19, Indian economy, through its resilience, is poised for a recovery in FY2022,” the SBI chief told the shareholders of the bank.

Speaking on the performance of the bank in FY21, he said that although the last fiscal was an exceptionally challenging year for the entire world, the state-run bank was able to function against all odds with minimal disruption for the customers.

“The business continuity plans that were chalked out have worked well for the Bank and this is reflected in various parameters of the Bank’s performance in FY 2021.”

Notably the bank has achieved high level of digitization with share of Alternate Channels in total transactions increasing to 93 per cent in FY2021, thereby converting a challenging situation into an opportunity, the Chairman said.

He said that in the current financial year, SBI will continue to accelerate its digital agenda, adding that the scope and reach of YONO will be expanded further.

“With the rollout of pre-package insolvency for resolution, resumption of courts and formation of National Asset Reconstruction Company, efforts will be in full force to keep the momentum in stressed asset recovery in the current financial year.”

The bank is comfortably placed in terms of growth capital. Opportunities for lending in promising sectors will be explored to diversify the portfolio and contain risk.

“In conclusion, the bank adjusted to the challenges posed by the Covid-19 pandemic and is better positioned to tackle any subsequent wave. I am cautiously optimistic that the performance trajectory of FY2021 will continue in FY2022 as well.”



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RBI hunts for entity that can develop multimedia publicity material for awareness campaign, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: Seeking to accelerate its general awareness campaign, the Reserve Bank of India (RBI) has started looking for an entity that can develop multimedia publicity material in 14 languages.

The pan-India campaign to educate the general public about the essential rules and regulations will be launched in Hindi, Assamese, Bangla, Gujarati, Kannada, Malayalam, Marathi, Oriya, Punjabi, Sindhi, Tamil, Telugu and Urdu besides English.

The media mix, according to an RBI document, will include traditional as well as new media.

Besides newspapers, magazines, radio, television channels and cinema halls, the campaign will also cover digital media, web portals and social media, the RBI said while inviting applications from advertising agencies for designing the creatives for the awareness campaigns.

“The public awareness campaigns of RBI will be full-fledged multimedia, multilingual, pan-India level campaigns. The objective of the campaigns is to create general awareness among citizens of India about the RBI regulations and other initiatives,” said the request for proposal (RFP) in this regard.

Financial inclusion and education are two important elements in the RBI’s developmental role.

Towards this, the central bank has created a critical volume of literature and has uploaded on its website in 13 languages for banks and other stakeholders to download and use. As per the RBI website, the aim of the initiative is to create awareness about financial products and services, good financial practices, going digital and consumer protection.

The central bank runs a media campaign ‘RBI Kehta Hai’, is an initiative to educate the public about its regulations which are aimed at enhancing the quality of customer service in banks.

The number of followers of the Reserve Bank’s Twitter handle @RBI surpassed the one million mark touching 1.15 million as of March 31, 2021, signifying the “largest following among the central banks” of the world, said the RBI’s annual report.

During 2021-22, the apex bank aims to use public awareness programmes, social media presence and other channels of communication to further deepen engagement with the society.



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