Tag: RBI

Public sector banks support for Covid-19 health infra gathers pace

Banking & Finance

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Public sector banks in the country appear to be supporting the government’s efforts to boost Covid-19 related healthcare infrastructure in the country by actively lending to the healthcare and associated segments that are in need of liquidity.

Last month, the Reserve Bank of India (RBI) announced a term liquidity facility of ₹50,000 crore for Covid-related healthcare infrastructure and services in the country. This was done for fresh lending support to a wide range of entities in the healthcare space.

Fresh lending provided under this facility will be classified as ‘Priority Sector Lending’ till the repayment or maturity of these loans. The RBI has also allowed on-lending to other financial entities that are regulated by the Central bank. Further, banks are eligible to park surplus liquidity equivalent to the loan amount in the reverse repo window at a rate that is 40 bps higher than the prevailing reverse repo rate.

After the RBI announcement, public sector banks are reported to be enthusiastically extending credit to healthcare sector players and entities. A couple of banks have already extended more than ₹500 crore worth of loans each under the Covid loan book.

‘Identifying customers’

Padmaja Chunduru, Managing Director & CEO of Indian Bank, said the bank had already identified many of its own customers to lend. She said the bank had fixed a target of ₹4,000 crore for its Covid loan book, while it had sanctioned more than ₹600 crore till a couple of weeks ago under this portfolio. “There is good traction and a lot of enthusiasm to do this business,” she said.

State Bank of India has indicated that it could create a Covid loan book to the tune of about ₹10,000 crore. The bank is keen on supporting the hospitals and nursing homes in augmentation of their oxygen facilities and other requirements.

LV Prabhakar, Managing Director & CEO, Canara Bank, had indicated that the Bank had done a lot of homework as far as medical services financing is concerned, under this Covid loan book. It had sanctioned more than ₹1,200 crore worth of loans under this medical loan book till a few weeks ago and said it could comfortably sanction and disburse about ₹4,000 crore to ₹4,500 crore.

G Rajkiran Rai, Managing Director & CEO, Union Bank of India, said the bank is very positive about building a good Covid-19 loan book. It has products for this category and the branches are already canvassing and reaching out to potential borrowers.

While the pandemic has created a lot of challenges across sectors, it has also thrown up some new opportunities. Banking sector is also expected to be one of the beneficiaries.

With a greater focus by Central and State governments, the healthcare segment offers potential opportunities for the banks to build a good portfolio over the short and medium terms at a time many other segments are grappling with slowdown.

Several private sector lenders, both old and new, are also actively looking at lending opportunities in the healthcare infra space.

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

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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 PTI 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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Forex reserves cross $600 billion for first time on foreign flows, BFSI News, ET BFSI

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MUMBAI: The country’s forex reserves crossed the $600-billion mark for the first time on the back of continued foreign investment flow into the capital markets. According to the RBI, forex reserves increased by $6.8 billion in the week ended June 4 to $605 billion.

The current level of forex reserves is enough to cover nearly 16 months of imports. According to RBI governor Shaktikanta Das, the central bank has enough ammunition to meet challenges arising out of “global spillovers”, a reference to any sudden policy changes in the US or geopolitical shifts that could lead to funds exiting India.

India is now less than $200 million behind Russia, which has an almost identical level of reserves. The pile-up of foreign exchange reserves is an outcome of the RBI’s strategy of buying dollars when there is a sudden spurt of inflows, which causes volatility in the forex markets.

In FY20, the RBI added over $100 billion to the reserves. It has also sold dollars when the rupee came under pressure. In February and March, the central bank had depleted its stockpile by almost $10 billion by selling dollars.
Foreign fund buying of shares and debt in India also added to the reserves. According to the data from CDSL, in FY21, net inflows of about $37 billion came in through these routes and while another $400 million net flows were added to it.

According to a report by Brickworks Ratings, the exchange rate volatility demands more forex interventions by the RBI. Hence, the accumulation of forex reserves helps the RBI to maintain the exchange rate at a comfortable level.

The report points out that doubts over India’s economic recovery led to significant capital outflows in April and May. The RBI’s purchase of dollars also has a corollary impact on rupee liquidity. Every $1 billion that the RBI purchases results in around Rs 7,300 crore of rupee funds being released.



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RBI extends risk-based internal audit system to housing finance firms

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To ensure smooth transition from the existing system of internal audit to RBIA, the companies will have to constitute a committee of senior executives with the responsibility of formulating a suitable action plan, RBI said.

The Reserve Bank of India (RBI) on Friday extended the risk-based internal audit (RBIA) system for housing finance companies (HFCs) to enhance the quality and effectiveness of their internal audit system. The provisions will apply to all deposit-taking HFCs and non-deposit-taking HFCs with asset size of Rs 5,000 crore and above. Such HFCs have been asked to put in place an RBIA framework by June 30, 2022.

In February this year, RBI had issued a circular mandating the RBIA framework for select non-banking financial companies (NBFCs) and urban co-operative banks by March 31, 2022. RBI governor Shaktikanta Das had earlier called upon the financial sector entities to give the highest priority to quality of governance, risk management and internal controls as these are the first line of defence in matters related to financial sector stability.

Dinesh Anand, national managing partner, risk and private equity, Grant Thornton Bharat, said, “Given the regulatory focus around harmonisation of regulations between banking and NBFCs (non-bank financial companies) and the increased focus on governance within financial services, a risk-based internal audit is a step in the right direction.” This will also help build investor confidence further, especially given the increased interest of private equity players in this space, he added.

Similarly, Sonam Chandwani, managing partner at KS Legal & Associates, said that NBFCs, UCBs and HFCs face similar issues in today’s economic climate, however, the effectiveness of the circular is contingent on the nitty-gritties laid down in the shadow financing sector.

RBIA will be linked to the organisation’s overall risk management framework. This will provide an assurance to the board of directors and the senior management on the quality and effectiveness of the organisation’s internal controls, risk management and governance-related systems and processes.

To ensure smooth transition from the existing system of internal audit to RBIA, the companies will have to constitute a committee of senior executives with the responsibility of formulating a suitable action plan, RBI said. The committee may address transitional and change management issues and should report progress periodically to the board and senior management. According to the guidelines, the boards of companies are primarily responsible for overseeing their internal audit functions.

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10-year G-Sec auction sees devolvement

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Government securities (G-Secs) prices rose on Friday despite the Reserve Bank of India (RBI) devolving the 10-year benchmark G-Sec on primary dealers (PDs) at the weekly auction.

Market participants attributed this to the aforementioned security being among the six G-Secs RBI will be buying under the third tranche of open market purchase of G-Secs under the G-Sec Acquisition Programme (G-SAP 1.0).

Though the cut-off price at the auction of the 10-year G-Sec came in at ₹98.97 — about 19 paise higher than previous closing price (of ₹98.7850) — bond dealers say many of the bids would have been below Thursday’s closing price, leading to devolvement of the paper PDs.

PDs, who underwrite G-Sec auctions, had to pick up ₹9975.763 crore worth of this paper out of the total notified amount of ₹14,000 crore.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said the central bank has kept the yield on the 10-year on a tight leash in view of the large Government borrowing programme amid the Covid-19 pandemic, while the market players want it to leave the yields to market forces.

Keeping yields in check

Irani observed that G-Sec prices did not fall despite devolvement of the 10-year G-Sec on PDs as market participants know that RBI will buy this security through G-SAP.

In the secondary market, the benchmark 10-year G-Sec coupon rate: 5.85 per cent) rose 9 paise to close at ₹98.875 (previous close ₹98.785), with the yield declining about a basis point to 6.0072 per cent (6.0199 per cent).

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

The auction of the other two G-Secs — 4.26 per cent GS 2023 and 6.76 per cent GS 2061 — sailed through.

Under G-SAP, RBI commits upfront to a specific amount of open market purchases of G-Secs with a view to enabling a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions. According to State Bank of India’s economic research report “Ecowrap”, the G-SAP programme of the RBI has been largely successful in keeping the bond yields in check.

However, to make the impact more meaningful, RBI may consider shifting the focus on 7-8 year papers while announcing Open Market Operation/ G-SAP, etc., it added.

“This will smoothen the curve and also reduce upward pressure on benchmark yield. Additionally, RBI can also come up with a prior calendar of bucket-wise maturity for GSAP-2.0,” Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said.

Furthermore, more purchases might be done in illiquid securities compared to liquid securities in each bucket. Accordingly, banks will be able to offload their HTM (held-to-maturity) stocks and buy liquid ones.

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BoB pares MCLR by 5 bps in three tenors

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Bank of Baroda has decided to pare its three-month, six-month and one-year marginal cost of funds-based lending rate (MCLR) by 5 basis points each with effect from June 12.

Floating rate rupee loans priced with reference to MCLR will become cheaper to that extent.

MCLR for the three-month tenure will be 7.10 per cent (existing: 7.15 per cent); six-month: 7.20 per cent (7.25 per cent); and one-year: 7.35 per cent (7.40 per cent).

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YES Bank receives board approval to raise ₹10,000 crore through debt securities

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Private sector lender Yes Bank has received approval from its board of directors to raise ₹10,000 crore through debt securities.

“The board of directors of the bank, in its meeting held on June 10, 2021, have considered and approved seeking shareholders’ approval for borrowing or raising funds in Indian or foreign currency up to an amount of ₹10,000 crore by issue of debt securities including but not limited to non-convertible debentures, bonds, Medium Term Note (MTN),” it said in a regulatory filing on Thursday.

The bank’s capital adequacy ratio was 17.5 per cent as on March 31, 2021, while its CET1 ratio was 17.5 per cent.

Prashant Kumar, Managing Director and CEO, Yes Bank had told BusinessLine that the lender may consider fund raising if there is a lot of improvement in the economy, and credit growth takes place.

“All approvals are in place. Depending on the situation, we will take a call. We had taken an overarching approval of ₹10,000 crore but the requirement will not be so much,” he had said after the fourth quarter results of the bank.

Shifting its registered office

Meanwhile, the board also approved a proposal to move the bank’s registered office to Santacruz (East), Mumbai from ONE International Centre, Elphinstone (W), Mumbai. “This is with effect from June 14,” it said in a separate filing.

Significantly, its new office is the old headquarters of Reliance Anil Dhirubhai Ambani Group. The erstwhile Reliance Centre is spread over a 21,432.28 square metre plot.

Reliance Infrastructure Limited had sold off the property to Yes Bank for ₹1,200 crore in April this year. “Entire proceeds from sale of Reliance Centre, Santacruz is utilised only to repay the debt of YES Bank,” Reliance Infra had said in a statement.

Last year, Yes Bank had said that it was taking possession of the properties under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, and comes for non-payment of loans amounting to ₹2,892 crore.

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RBI may give banks/NBFCs more time to appoint auditors

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The Reserve Bank of India may give more time to regulated entities, including banks, to implement the new guidelines on the appointment of statutory auditors.

Regulated entities are of the view that a year’s time should have been given for implementing the guidelines as some of them have already re-appointed auditors for FY22. The RBI’s new norms were unveiled on April 27. The guidelines allow regulated entities to appoint auditors for three years. What this means is that audit firms that have already completed the three-year period will have to discontinue their assignment.

Financial services industry veteran TT Srinivasaraghavan observed that some of the regulated entities have already had their AGMs in which appointment of Statutory Auditors is usually on the agenda. So, industry bodies want some more time (say, from April 1, 2022) for implementation of the guidelines.

“In the meantime, an advisory/ consultative group of key stakeholders — the RBI, the regulated entities, and the CA Institute — can be asked to assess the guidelines and give recommendations within two months… there will be a 360-degree view on the issues and the potential solutions,” Srinivasaraghavan suggested.

Applicable to banks

The guidelines are applicable to commercial banks (excluding Regional Rural Banks), urban co-operative banks and non-banking finance companies (NBFCs), including housing finance companies, from financial year 2021-22. However, non-deposit taking NBFCs with asset size below ₹1,000 crore can continue with their extant procedure.

Chartered Accountant Sethuratham Ravi said regulated entities can ask for a dispensation, seeking continuation of the current auditor for one more quarter. “A regulated entity can write to the RBI that it is in the process of appointing a new auditor and that the same needs to be ratified at the AGM… The RBI could have given one more year for implementation,” Ravi said.

P Sitaram, ED & CFO, IDBI Bank, said the guidelines came at a time when some banks would have proceeded with the appointment/re-appointment of auditors. “So, they should have done it (issued the guidelines) either in January or having issued it, they could have said the guidelines will be applicable from next year,” he said.

Banking expert V Viswanathan underscored that even if an audit firm has completed its three-year term, the status quo of March quarter will continue for the April-June quarter. The bank will apply for RBI approval, and it is given.

“Sometimes, public sector banks get the list (of eligible audit firms from RBI) after September also. In which case, the status quo continues for the second quarter also,” he said.

 

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Is DeMo crackdown coming? Banks asked to preserve CCTV footage, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India (RBI) has asked banks to continue preserving the CCTV recordings of operations at their branches and currency chests for the period from November 8, 2016, to December 30, 2016, in view of the pending investigations and legal proceedings in matters related to illegal accumulation of new currency notes.

On December 13, 2016, the central bank had first asked the banks to preserve the recordings to facilitate coordinated and effective action by the enforcement agencies.

In a notification on Tuesday, the RBI said: “In continuation to the above, keeping in view the investigations pending with law enforcement agencies, proceedings pending at various courts, you are advised to preserve the CCTV recordings of operations at bank branches and currency chests for the period from November 08, 2016, to December 30, 2016, in a proper way, till further orders.”

On November 8, 2016, Prime Minister Narendra Modi had made the surprise announcement of demonetising the then circulating Rs 500 and Rs 1,000 currency notes, thereby rendering them invalid from midnight.

Citizens were given around 50 days to exchange the notes for the new Rs 500 and Rs 2,000 notes.

The Prime Minister and the government had then said that the move was primarily aimed at wiping out black money. After the government announced withdrawal of 500- and 1,000-rupee currency notes on Nov 8, 2016, there have been instances of counterfeit currencies or large amounts being deposited in banks.

Suspicious transactions

The 2016 demonetisation of two high-value currencies has led to an all-time high generation of over 14 lakh suspicious transaction reports (STRs), a record 1,400 per cent jump over the past, by banks and other financial institutions in the country, a FIU report had earlier found.

The elite financial snooping unit of the country has compiled comprehensive data of such instances, including fake currency deposits, for the year 2017-18.

This is the highest-ever figure of STRs since the FIU first started the regime over a decade ago.
The FIU is the central agency under the Union finance ministry that analyses suspicious financial transactions pertaining to money laundering, terror financing and serious instances of tax frauds and crimes.

What’s an STR?

STRs are generated when a transaction either indicates that it has been made in circumstances of unusual or unjustified complexity or appears to have no economic rationale or bona fide purpose and also those transactions that give rise to a reasonable ground of suspicion that it may involve financing of the activities relating to terrorism.

“During the year (2017-18), reporting entities (banks and other financial institutions) continued to examine transactions during demonetisation and as a consequence over 14 lakh STRs were received by FIU-IND.

“This increase is almost 3 times than the STRs received in the last year (2016-17) and 14 times than the STRs received prior to demonetisation,” the agency’s director Pankaj Kumar Mishra had said in the report.



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SBI union, others urge RBI to scrap digital payments plan

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A union representing India’s largest state-run bank and a global alliance have asked the central bank to bar large companies from setting up payment networks, saying in a letter seen by Reuters on Tuesday that privatisation could compromise data safety.

In a bid to reduce concentration risks in the payments sector, India’s central bank (RBI) last year invited companies to forge so-called New Umbrella Entities (NUEs) to create a payments network that would rival the country’s flagship processor, the National Payments Council of India (NPCI).

The NUE will be allowed to operate new payment systems including digital and ATM transactions. Amazon, Google, Facebook and others have applied for such licences in partnership with Indian companies such as Reliance and ICICI Bank.

Also read: Retail payments: Half-a-dozen consortiums set to apply for NUE licence

Involvement of big multi-national companies raises fears of abuse of user data and India’s digital payment networks should continue to operate on a non-profit basis, the All India State Bank of India (SBI) Staff Federation and the UNI Global Union, a vocal critic of tech giants, wrote in the letter.

Opposes NUE

The letter urged the central bank to scrap the “whole process of NUE licensing” and focus on strengthening the domestic payments group, NPCI, which operates as a non-profit.

The RBI did not immediately respond to a request for comment on the letter, which has previously not been reported.

While state-backed NPCI forms the backbone of the country’s digital payments system, India is an increasingly attractive digital payments market for everyone from Amazon to Google. An Assocham-PWC India study in 2019 said digital payments in India could rise to $135 billion in 2023 from $65 billion in 2019.

In the letter, groups including the SBI union, which represents 100,000 of its nearly 250,000 employees, and UNI Global Union, that represents about 20 million workers globally,specifically raised concerns about the NUE application by a consortium led by Amazon. It highlighted the U.S. company was facing several investigations into its business practices in India and abroad.

Amazon did not immediately respond to a request for comment.

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