Tag: RBI

RBI grants in-principal SFB approval to Centrum Financial Services, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) has recently announced its decision to grant ‘in-principle’ approval to Centrum Financial Services Limited (the applicant) to set up a small finance bank under general “Guidelines for ‘on tap’ Licensing of Small Finance Banks in the Private Sector” dated December 5, 2019.

RBI would consider granting a licence for commencement of banking business under Section 22 (1) of the Banking Regulation Act, 1949, on being satisfied that the applicant has complied with the requisite conditions laid down by RBI as part of “in-principle” approval.

This approval has been accorded in specific pursuance to Centrum Financial Services Limited’s offer dated February 1, 2021 in response to the Expression of Interest notification dated November 3, 2020, published by the Punjab & Maharashtra Co-operative Bank Ltd. in Mumbai.

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RBI pays higher-than-expected price to buy 10-year G-Sec

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The Reserve Bank of India paid about 38 paise more to purchase the 10-year Government Security (G-Sec) under the third tranche of the G-Sec Acquisition Programme 1.0 in a bid to keep bond yields on a tight leash.

The central bank bought this G-Sec (coupon rate: 5.85 per cent) at ₹98.99 (yield: 5.991 per cent) against the previous close of ₹98.6075 (6.045 per cent).

The move to buy the aforementioned security at a higher price had the desired effect as it closed about 18 paise higher at ₹98.79 than the previous close, with the yield declining about 3 basis points to 6.0192 per cent.

Bond yield and price are inversely related and move in opposite directions.

Under G-SAP 1.0, the central has committed upfront to a specific amount (₹1-lakh crore in the first quarter of FY22) of open market purchases of G-Secs to enable a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.

Of the six G-Secs and State development loans of 12 States the central bank intended to buy aggregating ₹40,000 crore, it invested about 67 per cent of the amount (or ₹26,779 crore) in buying the 10-year paper.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “the 10-year G-Sec is the most widely-traded security. It is the signalling rate. Most of the borrowing is in the belly (10-year to 15-year) of the curve.

“In the last two days, prices had fallen based on the upcoming Fed event and profit booking. So probably it was bought 38 paise up.”

He underscored that most of the float is with RBI in 10-year benchmark paper.

“Probably RBI gave an exit to investors holding this paper so that those they can participate in auctions going ahead and support the borrowing,” Irani said.

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HDFC Bank to refund GPS device commission to auto loan customers

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Private sector lender HDFC Bank has said it will be refunding the GPS device commission to auto loan customers who availed of such device as a part of the auto loan funding during fiscal years 2013-14 to fiscal year 2019-20.

“The refund will be credited to the customer’s repayment bank account registered with the bank,” HDFC Bank said in a public notice in a newspaper on Thursday.

The bank has been in the midst of a controversy over alleged mis-selling of GPS devices to its auto loan customers.

Reserve Bank of India had on May 28 imposed a monetary penalty of ₹10 crore on HDFC Bank. This came after the central bank found irregularities based on a whistleblower complaint in the bank’s auto loan portfolio.

An examination of documents in the matter of marketing and sale of third-party non-financial products to the bank’s customers, arising from a whistleblower complaint to RBI regarding irregularities in the auto loan portfolio of the bank, revealed contravention of the provisions of the Act and the regulatory directions, the RBI had said.

HDFC Bank had last year conducted an internal investigation into allegations that customers of its car loans were being given GPS devices without their knowledge. The allegations had initially come up on social media.

The lender’s former Managing Director and CEO Aditya Puri at the annual general meeting on July 18 last year had confirmed that the bank conducted an inquiry into vehicle loans and appropriate action has been taken against employees involved in the misconduct.

The incident had also led to the exit of a number of executives from the bank. The cost of the device is understood to be about ₹18,000.

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Surplus transfer: RBI can be characterised as ‘free-ranging’ goose, says article

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The Reserve Bank of India (RBI) can be characterised as a ‘free-ranging’ goose from the point of the surplus transfer alone, according to an article in the central bank’s latest monthly bulletin.

Referring to the findings of a comprehensive research on central banking in developing countries (Fry, Goodhart and Almeida, 1996), the article said: “In flow terms, we can think of the central bank as the government’s golden goose.

“With an unimpaired balance sheet, the free-range goose conducting conservative monetary policy with a fair degree of independence, produces golden eggs in the form of seigniorage worth 0.5 to 1 per cent of GDP.”

Seigniorage is the profit accruing to the issuer of legal tender, mainly as a result of the difference between the material costs of producing currency and its face value.

The observations in the article ‘State of the Economy’, put together by RBI officials, including Deputy Governor MD Patra, came in the context of the surplus transferred to the government raising considerable heat and dust in the media.

The Reserve Bank of India’s Central Board, on May 22 approved the transfer of ₹99,122 crore as surplus to the Centre for the accounting period of nine months ended March 31, 2021 (July 2020-March 2021). This was 73.50 per cent higher vis-a-vis the ₹57,128 crore transfer approved in the accounting year 2019-20.

The surplus, mainly stemming from saving on balance sheet provisions and employees’ superannuation and other funds, constitutes just 0.44 per cent of GDP (which is taken as a measure of seigniorage), the article said.

In 2020, the transfer of surplus from RBI to the Government was 0.29 per cent of GDP.

Further referring to research by Fry, Goodhart and Almeida, the article said the “battery farm goose”, bred specially for intensive egg-laying, can produce golden eggs in the form of inflation tax yielding 5 to 10 per cent of GDP.

“The ‘force-fed goose’ can produce revenue of up to 25 per cent of GDP for a limited period before its inevitable demise and collapse of the economy.

“All three forms of central bank geese have been sighted in recent years,” the article said.

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Seven ways RBI’s new uniform framework will affect microfinance sector, BFSI News, ET BFSI

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The proposed uniform regulatory framework for the microfinance sector by Reserve Bank would help the sector expand, become competitive yet safeguard the borrowers from the debt trap.

Under the new proposed rules, microfinance institutions (MFIs) can provide collateral-free loans to households at interest rates determined by their boards. They will get the freedom to set rates and end regulatory cap on interest rates

The RBI has proposed a debt-income ratio cap so that the loans should be given in such a way that the payment of interest and repayment of principal for all outstanding loans of a household at any point of time should not cross 50 per cent of the household income.

Here’s how the changes will impact the sector, companies and the borrowers

The proposed regulations provide more flexibility to non-banking finance companies-microfinance institutions (NBFC-MFIs) in the pricing of loans. The removal of the interest rate ceilings is expected to increase competition on loan pricing.

A uniform regulatory framework for the microfinance sector will ensure a level playing field among all regulated players.

Capping the borrowers’ indebtedness at 50% of household income may impact the overall credit growth in the microfinance industry. With a cap on the fixed obligation to income ratio at 50%, the maximum permissible indebtedness of rural microfinance borrowers could be lower than the current levels

The RBI’s recommendations can ensure responsible lending in the microfinance space. A misuse of flexible pricing guidelines for NBFC-MFIs may not be possible because the pricing of loans would be market-driven on the back of competitions.

Bandhan Bank and Ujjivan Small Finance Bank may be the hardest hit, given the high ticket size of their loans. Unlike in the past when no more than two MFIs could lend to the same borrower, this limit will now apply to all lenders.

With the onus of assessment of household income shifting to lenders, they will need a board-approved plan for the same. The stipulation for the assessment of household income may lead to an increase in borrowing costs for customers. Each NBFC-MFI would need to adopt an interest rate model taking into account relevant factors such as cost of funds, margin and risk premium and determine the rate of interest to be charged for loans and advances.

The lifting of the interest rate cap would benefit MFIs as their margins will not be under pressure, but put the onus of fair pricing on MFIs

Key proposals

The key proposals of ”Consultative Document on Regulation of Microfinance” include a common definition of microfinance loans for all regulated entities, capping the outflow on account of repayment of loan obligations of a household to a percentage of the household income, and a board-approved policy for household income assessment.

It also suggests no requirement of collateral and greater flexibility of repayment frequency for all microfinance loans.

As per the consultative paper by the RBI, a microfinance loan would mean collateral-free lending to households with an annual income of Rs 1.25 lakh in rural areas and Rs 2 lakh at urban and semi-urban centres.

The entities engaged in microfinance lending will be required to display board-approved minimum, maximum and average interest rates charged on loans. They will also be required to disclose pricing related information in a standard simplified fact-sheet.

There will be no prepayment penalty, said the consultative paper on which the RBI has invited comments from the stakeholders by July 31.



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RBI’s FAQs addresses some key concerns

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The Reserve Bank of India (RBI) has clarified that its “one year look back” stipulation introduced in its April 27 circular on appointment of statutory auditors in public sector banks, Urban Cooperative Banks and NBFCs will only be applicable prospectively, that is, from financial year 2022-23.

This look back stipulation was introduced to ensure that the audit firm had not provided any non-audit services to the Group entities during the 12 months period before the audit firm was appointed in the bank or NBFC concerned.

RBI clarifies

The RBI has now, in the Frequently Asked Questions (FAQ) on the April 27 circular, clarified that this look-back condition will not apply for auditor appointments for FY 2021-22.

In another significant clarification, the RBI has modified the earlier April 27 prescribed blanket kind of restriction on appointment of audit firms as auditors of banks and NBFCs in situations where the concerned audit firm had provided audit or non-audit service to any group entity of that bank or NBFC.

Cap on assignments

While earlier this norm was seen to be applicable across the Group, the RBI has now in the FAQ made it clear that this restriction does not apply to all group entities, but applies only to entities in the Group that are RBI regulated.

Also, the central bank has in the ‘Frequently Asked Questions’ issued on its April 27 circular made it clear that the cap (upper limit) on number of assignments an audit firm can undertake in a year in respect of banks, UCBs and NBFCs are applicable for audit of all RBI regulated entities, irrespective of their asset size. It maybe recalled that April 27 circular of RBI had stipulated that an audit firm cannot do audit of more than four commercial banks, eight NBFCs and eight UCBs in a year.

Experts’ speak

Jamil Khatri, Partner, BSR& Co LLP, said the concerns of the industry in the areas of the short rotation period, the requirements for joint audit and the cap on the number of audits that can be done by an audit firm, have not been addressed in the current set of clarifications.

Amarjit Chopra, former CA Institute President, said that RBI’s clarification on the one year look back norm and also on the group entity aspect is quite pragmatic and will provide flexibility in the appointment of auditors.

Ashok Haldia, former Secretary of the CA Institute, said that the FAQ has opened the door for an audit firm engaged in audit/non-audit work of group entity (not regulated by RBI) to be appointed as statutory auditor of any of the RBI regulated entity within the group. However, the board/audit committee may find it challenging to assess and take responsibility that there is no conflict of interest and independence of auditor is ensured, as required in FAQ, as in most cases it may be difficult to disentangle explicit and implicit relationship that exists between group entities. These may find it difficult to justify in case doubt arises in future, he added.

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Step-up working capital loans to street vendors: RBI nudges PSBs

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The Reserve Bank of India (RBI) has impressed upon public sector banks (PSBs) the need to step up working capital loans up to ₹10,000 to street vendors, who have taken the brunt of the COVID-19 pandemic and consequent lockdowns.

Given that the livelihood of street vendors (SVs) has been adversely affected in the two waves of the pandemic, the central bank is keen that Banks mount a larger outreach under the PM Street Vendor’s AtmaNirbhar Nidhi (PM SVANidhi) scheme, said a top banker.

As on June 14, 2021, lenders (including Banks, non-banking finance companies, and microfinance institutions) received a total of 42,27,999 applications under the PM SVANidhi scheme, which was launched last year.

However, the ratio of the number of loans sanctioned and disbursed as a percentage of the total applications was only 58 per cent, as per Ministry of Housing and Urban Affairs (MoHUA) data.

The ratio of the number of loans disbursed to loans sanctioned stood at 84.41 per cent. As a result, total loans approved and disbursed by lenders stood at ₹2,457.85 crore and ₹2,059.46 crore, respectively.

According to MoHUA data, the average days to sanction a loan to SVs was 20 days. About 60 per cent of loans disbursed were to male SVs, with the remaining disbursed to female SVs. The average age of the loan applicant was 41 years.

The banker quoted above said the scheme could be tweaked to ensure more coverage of SVs.

The number of SVs accepting digital payments stood at 19,31,272. These vendors received a cashback of ₹50.53 lakh

Street vendors selling vegetables, fruits, ready-to-eat street food, tea, cloth & handloom, beauty & fashion accessories, footwear, artisan products, etc., and barber shops, cobblers, paan shops, laundry services have suffered untold misery in the pandemic.

Covid-19 related lockdowns forced the aforementioned entities to shutter business either temporarily or permanently.

As per the PM SVANidhi scheme, the individual lending institution can form Joint Liability Groups (JLGs) of eligible vendors. The Common Interest Groups (CIGs) of street vendors, already formed by States, can be converted into JLGs by lending institutions.

The scheme has been designed to help formalise the street vendors and open up new opportunities to move up the economic ladder.

Total Applications

Sanctioned

Disbursed

42,27,999

24,63,301

20,79,392

AMOUNT

₹2,457.85 cr

₹2,059.46 cr

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RBI extends timeline for advisory group to submit feedback to GoAs assisting Regulatory Review Authority

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The Reserve Bank of India (RBI) has extended the timeline for submission of feedback and suggestions from all regulated entities, industry bodies and other stakeholders to the Group of Advisors (GoA) assisting the Regulation Review Authority (RRA 2.0) by 15 days till June 30.

This has been done keeping in view the Covid-19 related disruptions and based on the requests received from stakeholders, RBI said in a statement.

RRA 2.0

RRA 2.0 has been set up initially for a period of one year from May 1, 2021. M Rajeshwar Rao, Deputy Governor, RBI, was appointed as the Regulations Review Authority in April 2021.

Also read: RBI sets up advisory group to assist Regulatory Review Authority

To make central bank’s regulations and compliance procedures more effective, On May 7, the RRA constituted a six-member Advisory Group headed by S Janakiraman, Managing Director, State Bank of India, to support it in reviewing the them with a view to streamline and rationalise them.

The terms of reference of RRA 2.0 include making regulatory and supervisory instructions more effective by removing redundancies and duplications, if any; and to obtain feedback from regulated entities on simplification of procedures and enhancement of ease of compliance. The authority will seek to reduce compliance burden on regulated entities by streamlining the reporting mechanism; revoking obsolete instructions if necessary and obviating paper-based submission of returns, wherever possible.

The RRA will examine and suggest the changes required in dissemination process of RBI circulars/ instructions.

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RBI expands scope and coverage of Bharat Bill Payment System

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The Reserve Bank of India (RBI) has expanded the scope and coverage of Bharat Bill Payment System (BBPS) to include all categories of billers who raise recurring bills (except prepaid recharges) as eligible participants, on a voluntary basis.

BBPS, as an interoperable platform for repetitive bill payments, currently covers bills of five segments —Direct to Home (DTH), Electricity, Gas, Telecom (landline, mobile post-paid, broadband) and Water.

BBPS was conceptualised to offer interoperable and accessible bill payment services to customers through a network of agents with multiple payment modes and instant confirmation of payment.

Also read: Amid economic uncertainty, many banks eye capital raising plans

The pilot phase of BBPS was launched on August 31, 2016 and BBPS live operations commenced from October 17, 2017.

The system offers ‘anytime anywhere’ bill payment service to customers using online payments as well as through a network of physical agent locations.

As per NPCI data, the volume of BBPS transactions almost doubled in FY21 to 154.482 crore from 77.809 crore in FY20.

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Bank of Maharashtra plans to raise up to Rs 2,000 crore through QIP, BFSI News, ET BFSI

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MUMBAI: State-run Bank of Maharashtra is looking to raise up to Rs 2,000 crore through qualified institutional placement (QIP) route before July-end, its Managing Director and CEO A S Rajeev said. In April this year, the Pune-based lender had received board approval to raise Rs 5,000 crore by way of QIP/rights issue/ preferential issue or by issuing Basel III bonds.

“We are planning to raise around Rs 2,000 crore equity through QIP immediately. The process has already started and we will raise it before July-end,” Rajeev told in an interaction.

The base size of the issue is Rs 1,000 crore and it has a greenshoe option of another Rs 1,000 crore, he said.

Following this equity raise, the government’s holding in the bank will reduce to below 85 per cent from 94 per cent currently, and the capital adequacy ratio will improve to 17-18 per cent from around 14.49 per cent as of March 31, 2021, Rajeev said.

This fund will be deployed for expansion of the loan book, which the bank is looking to grow by 16-18 per cent to around Rs 1.25 lakh crore in this fiscal from Rs 1.08 lakh crore as of March 31, 2021, he said.

Of the total loan book of the bank at present, the share of corporate loans is 37 per cent and of retail, agriculture and MSME (RAM) segment is 63 per cent, he said adding, “We want the ratio of RAM to the corporate segment to be 65:35 during the current fiscal.”

The bank is envisaging a 20-25 per cent growth in the retail, agriculture and MSME (RAM) segment this year.

The lender’s corporate loan size is close to Rs 40,000 crore and it is targeting to grow it by another Rs 10,000 crore in this financial year. It has a sanction pipeline of Rs 25,000 crore in the corporate and MSME segments for the current fiscal, he said.

“We have churned our portfolio with improvement in the share of lending to better-rated corporates. This will minimise the delinquencies and attract lower capital requirement,” Rajeev added.

In the corporate segment, the bank will continue lending to better-rated corporates, including sunrise sectors such as infrastructure, pharmaceuticals and FMCG, he said.

Under the government’s Emergency Credit Line Guarantee Scheme (ECLGS), the bank’s total disbursement, so far, is around Rs 2,100 crore, and it plans to lend another Rs 500 crore this year.

Rajeev said the bank’s exposure to the healthcare sector is Rs 2,000-2,400 crore, which is 2 per cent of the total advances portfolio. In April and May, it had already disbursed over Rs 225 crore to the sector.

“We intend to double our portfolio under the healthcare sector and make it 4 per cent of our total advances portfolio during the current fiscal. We have also come out with two to three products in tune with the RBI policy,” he said.

Last month, the RBI had announced an on-tap term liquidity facility of Rs 50,000 crore under which banks can provide fresh lending support to a wide range of entities from the healthcare segment.

The government has also announced ECLGS 4.0, under which a 100 per cent guarantee cover to loans up to Rs 2 crore will be provided to hospitals, nursing homes, clinics, medical colleges for setting up on-site oxygen generation plants.

Rajeev further said since the exit from the RBI’s prompt corrective action (PCA) framework in January 2019, the lender has taken several steps to strengthen its balance sheet, which has resulted in a significant improvement in all its financial parameters.

“We have been successful in registering profits quarter on quarter since March 2019. Our net profit rose 41.39 per cent to Rs 550 crore during FY21 from Rs 389 crore in FY20. Operating profit also rose 39 per cent to Rs 3,958 crore in FY21 from Rs 2,847 crore last year,” he said.

The bank’s CASA (Current Account and Savings Account) improved to 54 per cent as of March 31, 2021, which according to Rajeev is one of the best in the banking industry.

The bank has also managed to bring its gross non-performing assets to 7.23 per cent as of March 31, 2021, from 18.64 per cent in September 2018, when it was under PCA. Net NPAs stood at 2.48 per cent as of March 31, 2021.

At present, market capitalisation of the bank stands at Rs 17,500 crore against Rs 3,948 crore as of March 2019, he said.

In FY22, the bank is targeting to bring down gross NPA to below 6 per cent and net NPA to below 2 per cent. Net interest margins (NIM) will remain above 3 per cent in this fiscal, he said.

It has set a recovery and upgradation target of Rs 2,500-2,600 crore during the current year. The lender is also expecting Rs 500 crore recovery from written-off accounts in this fiscal, Rajeev said.

The lender is looking at opening 200 banking outlets with a hub and spoke model in this fiscal, he added.



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