Tag: RBI

PMC Bank’s retail depositors face long wait to get full money, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: Retail depositors with over Rs 15 lakh in Punjab and Maharashtra Cooperative (PMC) Bank will have to wait for 10 years to get all their money back. The timeline is in terms of a resolution plan drawn up by the RBI, which involves the defunct cooperative lender’s amalgamation with the newly formed Unity Small Finance Bank (SFB).

The resolution of PMC Bank through private investment using the SFB licence route is the first time such an exit option has been adopted for stakeholders in a failed bank.

Institutional depositors, including cooperative housing societies and cooperative credit societies which have deposits in the bank, will end up taking a haircut. The resolution plan envisages 80% of their funds being converted into perpetual non-cumulative preference shares with a dividend of only 1% per annum. After 10 years, the bank can decide if it wants to increase the dividend or repay investors. The remaining 20% of institutional funds will be converted into equity warrants of Unity SFB at Re 1 per warrant. These warrants will be converted into shares whenever Unity SFB floats a public issue. For retail investors, interest at the rate of 2.75% will be paid on deposits that are outstanding after five years from the date of notification of the scheme.

The draft proposals will be finalised and implemented through a government notification after taking into account suggestions and objections up to December 10, 2021. Going by experience, major changes are unlikely under the scheme as there is a huge gap between the assets and liabilities of the bank due to large-scale fraud and there are no other bidders to take over the business.

“Given the financial condition of the PMC Bank, and in the absence of proposals for capital infusion, the bank was not viable on its own. In that event, the only course of action could have been the cancellation of its licence and taking it for liquidation, wherein depositors would have received payment up to the insurance ceiling of Rs 5 lakh,” the RBI said.

Unity SFB, which has been promoted by Centrum and Bharat Pe, said that 96% of all depositors will get immediate access to their deposits and 99% will get paid in full by the 5th year. It added that the scheme saves the bank from liquidation and protects the interest of stakeholders.

“The draft scheme provides much-needed relief and clarity to over 1,100 PMC Bank employees, who will remain employed and continue uninterrupted service to clients,” the statement said. It added that the bank was operationalised in record time after RBI’s approval on October 12, 2021. “Our shareholders have committed capital of over Rs 3,000 crore through cash and warrants which will be used to build a strong foundation for the bank,” the SFB said.



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‘Co-op Societies not authorised to conduct banking biz’

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The Reserve Bank of India (RBI), in an advisory to the members of the public, said co-operative societies have neither been issued any licence under Banking Regulation (BR) Act, 1949 nor are they authorised for doing banking business.

Further, insurance cover from the Deposit Insurance and Credit Guarantee Corporation (DICGC) is also not available for deposits placed with these societies.

“Members of the public are advised to exercise caution and carry out due diligence of such co-operative societies if they claim to be a bank, and look for banking licence issued by RBI before dealing with them,” the central bank said in a statement.

Forbidden word

Simultaneously, RBI asked co-operative societies to desist from using the words “bank”, “banker” or “banking” as a part of their names, except as permitted under the provisions of BR Act, 1949 or by the Central bank.

RBI has noticed some co-operative societies are using the word “Bank” in their names in violation of Section 7 of the BR Act, 1949 (As Applicable to Co-operative Societies) (the BR Act, 1949).

“It has also come to the notice of RBI that some co-operative societies are accepting deposits from non-members/ nominal members/ associate members which tantamount to conducting banking business in violation of the provisions of the BR Act, 1949,” the Central bank said.

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No exception from ownership norms for PSBs on selloff list, BFSI News, ET BFSI

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NEW DELHI: The Reserve Bank of India (RBI) is unlikely to make an exception for ownership changes to privatise state-run banks. Instead, it will issue comprehensive guidelines that will also deal with corporate ownership of Indian lenders.

Sources told TOI that the RBI will soon start the process of new norms, but it is yet to take a decision on allowing corporate houses into the banking business amid sharp divisions on the issue.

The current norms do not allow corporate houses to enter the arena, although several large business houses such as the Birlas and the Tatas have a large financial services presence and may be interested in either acquiring a stake or setting up a bank in future. An internal working group set up by the RBI had submitted a new licensing policy for banks several months ago but the regulator is yet to take a call on the issue, given that it has received multiple inputs from stakeholders and it has been caught up with combating the impact of Covid on the economy.

The Centre and the RBI have agreed on the legislative amendments that may be required to pave the way for privatisation of banks, for which three candidates have been identified.

First off the block is expected to be IDBI Bank, whose name has been made public, with Indian Overseas Bank and Central Bank of India the other candidates in the pipeline, which have been shortlisted by the Niti Aayog with the final decision to be taken by a core group of secretaries. IDBI Bank was on the sell-off list for the current financial year along with a state-run insurance company and two public sector banks. But all the four transactions are not possible until the next financial year.

The law to allow for privatisation of a general insurer has been cleared by Parliament but Dipam is yet to make much headway. And, in the absence of a road map for shareholding in banks, the IDBI Bank sale is not expected anytime soon as bidders would want to know the eligibility conditions and how much they can buy and how they need to dilute.



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Despite regulatory concerns, over 400 start-ups jump onto crypto ecosystem

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Despite regulatory uncertainty and the Reserve Bank of India’s (RBI) concerns, India now has close to 400 cryptocurrency-based start-ups offering various services to the crypto ecosystem.

According to data sourced by BusinessLine from Tracxn, there are 380 crypto start-ups and 12 Non-fungible Tokens-based (NFT) start-ups currently operating in the country. Per industry players, in 2021 alone, at least 100 cryptocurrency start-ups have been launched.

“There are many start-ups that are focussed on creating new coins, supporting the exchanges and ecosystem, and some businesses are building investor communities around cryptos. These activities have been very strong this year. Roughly 50-60 crypto start-ups came up last year itself,” Sathvik Vishwanath, co-founder and CEO of cryptocurrency exchange Unocoin, told this newspaper.

Crypto transactions had hit a pause early last year when the RBI told banks not to fulfil payments related to cryptocurrencies. However, with the Supreme Court staying the RBI order, the crypto industry has grown significantly. Start-ups in the space saw funding grow 73 per cent in the first six months of calendar 2021 compared to the whole of 2020. Bengaluru-based crypto exchange CoinSwitch Kuber and Mumbai-based CoinDCX hit unicorn valuations recently. The average investment per individual has also gone up to ₹10,000 from ₹6,000-8,000 a year or two ago.

‘Protect, don’t ban’

According to experts, policymakers should consider the growth in the ecosystem while putting in place adequate regulations to protect investors.

Seeing the growth in this space, some entrepreneurs such as fintech Walrus’ founder Bhagaban Behera entered the crypto market. Behera and his co-founders decided to launch a social crypto exchange Defy last week, wherein users could create their profiles and share their portfolios and investment thoughts with friends and followers. “For India, the cryptos NFT segment is quite nascent. We want to build simple software and eventually launch crypto mutual funds, credit cards, fixed deposits, SIP plan,” Behera said.

Growth of NFTs

The NFT segment too is slowly gaining ground and finding new formats.

There are all kinds of NFT start-ups from exchanges, start-ups building APIs, tools, infrastructure for creating NFTs etc. “People are going crazy around entertainment, sports, utility-based NFTs, with possibilities to enter into the Metaverse. There is a lot of FOMO around NFTs in the market and we feel it will remain there for some time,” Toshendra Sharma, Founder and CEO, NFTically, told BusinessLine.

 

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RBI moves to prevent illegal digital lending via apps, BFSI News, ET BFSI

Banking & Finance

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Seeking to safeguard the interest of customers, a Reserve Bank working group has suggested the enactment of separate legislation to prevent illegal digital lending through apps.

The other suggestions of the working group include subjecting the digital lending apps to a verification process by a nodal agency and establishing a Self-Regulatory Organisation (SRO) covering the participants in the digital lending ecosystem.

“The thrust of the report has been on enhancing customer protection and making the digital lending ecosystem safe and sound while encouraging innovation,” RBI said in a release.

The RBI had in January 2021 constituted the working group under the chairmanship of Executive Director Jayant Kumar Dash on digital lending, including lending through online platforms and mobile apps.

The working group was set up in the backdrop of business conduct and customer protection concerns arising out of the spurt in digital lending activities.

The stakeholders can send their comments on the report to the RBI by December 31.

The recommendations

Among other things, the group suggested the development of certain baseline technology standards and compliance with those standards as a pre-condition for offering digital lending solutions.

The loans, it added, should be disbursed directly into the bank accounts of borrowers and serviced only through bank accounts of the digital lenders.

Data collection with prior and explicit consent of borrowers should have verifiable audit trails and should be stored in servers located in India.

It is further stipulated that use of unsolicited commercial communications for digital loans should be governed by a Code of Conduct to be put in place by the proposed SRO.

Algorithmic features used in digital lending should be documented to ensure necessary transparency, the report said.

Standardised code of conduct

The lending companies should also be required to follow a standardised code of conduct for recovery to be framed by the proposed SRO in consultation with RBI.

The SRO should also be required to maintain a ‘negative list’ of lending service providers. Each digital lender should be required to provide a key fact statement in a standardised format including the Annual Percentage Rate, it said.

The Reserve Bank had constituted the Working Group (WG) on digital lending on January 13, 2021, to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players so that an appropriate regulatory approach can be put in place.

The report highlighted that lending through digital mode relative to physical mode is still at a nascent stage in the case of banks (Rs 1.12 lakh crore via digital mode vis-a-vis Rs 53.08 lakh crore via physical mode).



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Industry players welcome RBI Working Group report on digital lending

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Industry players have welcomed the report of the Working Group set up by the Reserve Bank of India (RBI) on digital lending and have said it would ensure higher standards of ethical behaviour and code of conduct for the digital lending platforms, and ensure consumer protection from unethical lenders.

“Self-regulatory organisation is the call of the hour in order to structure the industry and to set the rules for the fintech members and customers. Fintech Association for Consumer Empowerment (FACE) members have always abided with the disclosure of all relevant information including the interest rates, as it believes that transparency and proactive commitment to consumers builds brand trust. Data privacy is of utmost importance and should be strictly adhered to,” said FACE.

Recommendations

Gaurav Chopra, Founder and CEO, IndiaLends and founding member of Digital Lending Association of India, noted that recommendations such as auditable logs for every action that a user performs on the app will demolish many existing loan sharks and curb unfair practices.

Also read: RBI calls for public comments on digital lending

“Moreover, the recommendation for digital lenders to provide a key fact statement in a standardised format including the annual percentage rate will give a better perspective to borrowers about the high percentage rate they are willing to bear. Overall, the report seeks to safeguard consumers from unregulated digital lenders who have the potential to exploit borrowers with unfair or predatory terms,” he noted.

As a founding member of DLAI, IndiaLends abides by the strict code of conduct as implemented in May 2020, which is in alignment with the suggestions of the Working Group, he further said.

The RBI had on November 18 released the report of the Working Group on digital lending including lending through an online platform and mobile apps, which has called for legislation against illegal digital lending activities as well as a verification process for these lenders and a self-regulatory organisation (SRO). It has sought public comments by December 31, 2021.

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RBI panel pitches for strict regulation of digital loan apps

Personal Finance

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The RBI may provide general guidance and recognise such an SRO in respect of its regulated entities and their outsourced agents.

A working group set up by the Reserve Bank of India (RBI) to review working of digital lending has made a case for stronger regulation of loan apps in its report. The recommendations range from subjecting digital lending apps (DLAs) to a verification process by a nodal agency to a separate legislation to prevent illegal digital lending activities.

The report said there were approximately 1,100 lending apps available for Indian Android users across over 80 application stores, of which 600 were illegal.

The group was constituted amid widespread complaints of harassment and unfair recovery practices by a host of lending apps which are virtually unregulated. While acknowledging the importance and role of technological advancements in the growth of the credit ecosystem, the report of the group, headed by RBI ED Jayant Kumar Dash, highlighted the risks arising out of recent developments. “… there have been unintended consequences on account of greater reliance on third-party lending service providers mis-selling to unsuspecting customers, concerns over breach of data privacy, unethical business conduct and illegitimate operations,” the report said.

One of the near-term recommendations, implementable in the next one year, is that a nodal agency be set up to primarily verify the technological credentials of DLAs of the balance sheet lenders and lending service providers (LSPs). It will also maintain a public register of the verified apps on its website. Styled as Digital India Trust Agency (DIGITA), the institution would be set up in consultation with stakeholders including regulators, industry participants, representative bodies and the government, the report said.

The report recommends that a self-regulatory organisation (SRO) covering DLAs and LSPs may be set up. The RBI may provide general guidance and recognise such an SRO in respect of its regulated entities and their outsourced agents. The government may also like to take similar action for digital lending business carried out by entities which are not regulated entities of the RBI.

Analogous to the central law on the banning of unregulated deposit schemes, the government could consider bringing through a legislation styled as “the Banning of Unregulated Lending Activities (BULA) Act” which would cover all entities not regulated and authorised by the RBI for undertaking lending business or entities not registered under any other law for specifically undertaking public lending business. “The recommended legislation may also define ‘public lending’ to bring clarity,” the group said in its report.

The group recommended that all loan servicing and repayments should be executed directly in a bank account of the balance sheet lender and disbursements should always be made into the bank account of the borrower.

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Auction of three G-Secs aggregating ₹24,000 crore sails through

Banking & Finance

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The auction of three Government Securities (G-Secs) aggregating ₹ 24,000 crore sailed through on Thursday, with the cut-off on the widely-traded benchmark 10-year G-Sec coming in about 2 basis points lower vis-a-vis the previous close.

The cut-off yield on the benchmark 10-year G-Sec (maturing in 2031 and carrying coupon rate of 6.10 per cent) came in at 6.3441 percent against the previous closing yield of 6.3612 per cent.

The cut-off price on the aforementioned G-Sec was about 12 paise higher at ₹ 98.25 against the previous close of ₹ 98.1275. Bond yields and prices are inversely correlated and move in opposite directions.

The Government mopped up ₹13,000 crore through auction of this paper.

A dealer with a public sector bank said G-Sec yields trended lower on the back of thaw in the US treasury yields. Further, buoyant tax collections and expected pick up in public sector disinvestment are likely to ensure that the government may not go in for additional borrowing.

In the secondary market, yield on the 10-year benchmark G-Sec closed lower at 6.3455 per cent against the previous close of 6.3612 per cent. Price of this security ended up about 11 paise at ₹98.24 against the previous close of ₹98.1275.

Brickwork Ratings, in a recent, report opined that yields are expected to maintain a hardening trend in the short and medium term, and the 10-year gilt yield is expected to remain at around 6.25 per cent in the short run and rise to 6.5 per cent in the later part of the second half (H2) 2022 owing to the augmented government borrowings and the inflationary trend.

The Government raised ₹4,000 crore via auction of the Floating Rate Bond maturing in 2034 at a cut-off yield of 4.8827 per cent and cut-off price of ₹99.25.

Further, the Centre mopped up ₹7,000 crore via auction of a new G-Sec maturing in 2061 at a cut-off yield of 6.9500.

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