Banks begin process of restructuring of loans up to Rs 25 crore, BFSI News, ET BFSI

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To provide support to small businesses hit by the second coronavirus wave, banks have initiated the process of restructuring of loans up to Rs 25 crore in line with the COVID-19 relief measures announced by the Reserve Bank earlier this month. Many lending institutions have got board approval for the resolution framework and eligible borrowers are being contacted.

For example, Bank of India has sent messages to its eligible customers to submit their willingness to debt recast online.

“In these trying times, we offer you a helping hand by extending relief as per RBI Resolution Framework 2.0 dated May 5, 2021. If you are under financial stress caused by the COVID second wave, you may opt for restructuring of your account,” the message said.

Another public sector lender Punjab & Sind Bank said its debt recast plan as specified by the RBI has been approved by the board.

“We will be reaching out to our customers including through BCs…we will get a fair idea about how many customers want to avail the restructuring in the next few days or so,” Punjab & Sind Bank managing director S Krishnan said.

SBI Chairman Dinesh Kumar Khara said for the resolution framework 2.0 announced by the RBI on May 5, all public sector banks have come out with a formulated templated approach for restructuring of loans to individuals, small businesses, MSMEs up to Rs 25 crore.

“The idea behind this is that those who are involved in the implementation of the resolution framework, they should not have any hardship in terms of any implementation,” Khara added.

When asked about the size of the restructuring pool banks are expecting this time, IBA Chairman and Union Bank of India‘s Managing Director and Chief Executive Officer Rajkiran Rai G said it was too early to put a number for potential recasts, as banks are only sending messages to eligible borrowers.

“Last time also we saw that the number of customers opting for this (restructuring) was not that high. So, we need to get some feedback and it is difficult to crystallise a number at this point in time,” he said.

The SBI chairman, Khara, said during the previous restructuring scheme, SBI had about 8.5 lakh SME customers who were eligible for restructuring but only 60,000 borrowers availed it.

The resurgence of the fresh COVID-19 wave has put many MSME, individuals and small businesses under stress. Taking cognisance of the prevailing situation, the RBI announced Resolution Framework 2.0 under which individuals and small businesses having exposure up to Rs 25 crore can opt for loan restructuring if they had not availed the earlier scheme.

In the case of those who had availed the loan restructuring under the earlier scheme, the RBI permitted the banks and lending institutions to modify the plans and increase the period of the moratorium to help alleviate the potential stress.

“In respect of small businesses and MSMEs restructured earlier, lending institutions are also being permitted as a one-time measure, to review the working capital sanctioned limits, based on a reassessment of the working capital cycle, margins, etc,” RBI Governor Shaktikanta Das had said while announcing steps to deal with the impact of the second wave of the COVID-19.

This is a one-time loan restructuring scheme under which the loan would remain standard despite recast and banks would not have to make additional provision in such cases.

This is the second restructuring scheme announced by the central bank in less than one year, with the first unveiled in August last year when the first COVID-19 wave had battered the Indian economy with a contraction of 8 per cent during the financial year ended March 2021.

Borrowers who were classified as “standard” as of March 31, 2021, will be eligible to be considered under Resolution Framework 2.0.

Restructuring under the proposed framework may be invoked up to September 30, 2021, and would have to be implemented within 90 days after invocation. DP MKJ MKJ



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Multiple contempt petitions filed in SC against Shaktikanta Das, bank forum chief, others, BFSI News, ET BFSI

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A number of petitions have been filed before the Supreme Court seeking to initiate contempt of court proceedings against Reserve Bank of India (RBI) Governor, Shaktikant Das, Chief Executive of Indian Banks Association (IBA) and others for allegedly flouting the SC’s earlier order, by turning and declaring the account of the petitioners as Non Performing Assets (NPA) in connection with the moratorium matter.

The petitioners – M/s Azeez Trading Company, Umrazz Trading Corporation, Ajay Hotel and Restaurant, Latur, Maharashtra — have filed their plea through lawyer Vishal Tiwari and Advocate On Record (AOR) Abhigya.

The respondents, Reserve Bank of India (RBI) Governor, Shaktikant Das, Chief Executive of Indian Banks Association (IBA) were duty-bound to promulgate and ensure the compliance of the order of this court throughout the country but they deliberately didn’t, the petition said.

The Supreme Court’s order, dated September 3, 2020, was operational on all lending institutions/banks throughout the country and was passed in favour of all borrowers accounts to grant relief from financial stress during the COVID-19 pandemic, Tiwari said in the petition.

The September 3 order was passed in the presence of the respondents represented by their counsel and all were very well aware of the Stay order, the petition said.

It further claimed that the contemptuous act of the respondents had not only disobeyed the court’s order but also caused severe irreparable damage and loss to the petitioners.

“The petitioners have lost their image and has been defamed as the possession notice was published in the new papers of his locality which made the dignity of the petitioner lower,” it added

The contemptuous act of all the respondents has shaken the confidence of the public and has degraded the trust of the borrowers. In this Covid-19 pandemic where all borrowers are passing through the worst scenario and financial stress, the respondents’ alleged act is very disgraceful and contemptuous. The petitioners thereby sought the issuance of notice to the alleged contemnors for willfully violating the order/directions of the Apex Court passed in a writ petition.

“Punish the contemnors for having committed contempt of this Court,” the petition said.

Further, in the petition, Tiwari said that the stay order was passed in the pandemic COVID-19 for the benefit of stressed borrowers so that they shall not suffer in present financial crisis during the pandemic.

“There is already a slump in the work of the petitioner. The stay order was operating as a lifesaving drug but the contemptuous act of the respondent has brought a major setback to the petitioner and his survival has become critical,” the petition said.

Several petitions have already been filed in the same case before the Supreme Court.



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‘RBI may keep repo rate unchanged’

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The rate-setting monetary policy committee (MPC) is likely to stand pat on the repo rate, in view of sticky inflation and dimming growth prospects amid the second wave of the pandemic.

The six-member MPC has held the repo rate rock-steady at 4 per cent since May 2020.

Retail inflation

Though retail inflation eased to 4.29 per cent in April from 5.52 per cent in March, the surge in wholesale inflation to 10.5 per cent in April from 7.39 per cent in March is expected to engage the committee members’ attention as it could spill over to the retail side.

The MPC will have to walk a tight rope; on the one hand it wants to rein-in inflation, on the other, it wants to support growth. Hence, MPC members may vote to keep the repo rate unchanged as well as continue with the accommodative policy stance.

“In the upcoming June 4 policy meeting, the RBI may want to sit tight in view of the high pandemic cases.

“We think the one change it might make is a markdown in the FY22 GDP growth forecast,” said Pranjul Bhandari, Chief Economist, India, HSBC Securities and Capital Markets (India) Private Ltd; Aayushi Chaudhary, economist; and Priya Mehrishi, associate, in a report.

Surplus liquidity

They observed that starting in Q4 (October-December) 2021, when the proportion of population vaccinated reaches critical mass, the RBI may start lowering surplus liquidity, raising the reverse repo rate, and change its stance to neutral.

“Having said that, an increase in the 4 per cent benchmark repo rate can wait for longer in our view,” said the economists.

The policy repo rate was last reduced from 4.40 per cent to 4.0 per cent on May 22, 2020.

“We believe that the Monetary Policy Committee has no option but to stay accommodative, even as it monitors incipient price pressures and keep all rates on hold, while likely extending its Government Securities Acquisition Program (GSAP),” said Rahul Bajoria, Chief India Economist, Barclays Securities (India) Pvt Ltd, and Shreya Sodhani, Research Analyst, Barclays Investment Bank, Singapore, in a note.

They emphasised that since May’s policy announcements, the growth outlook has degraded further, with greater evidence that inflation headwinds may remain persistent going into H2 (July-December) 2021.

However, with some relief on the virus caseloads, the RBI can balance its message around prospects for a return to economic normality.

In its Annual Report, the RBI observed that looking ahead, the evolving retail/ CPI inflation trajectory is likely to be subjected to both upside and downside pressures. The food inflation path will critically depend on the temporal and spatial progress of the south-west monsoon in 2021.

“Second, some respite from the incidence of domestic taxes on petroleum products through coordinated action by the Centre and States could provide relief, although international crude oil prices continued to be volatile.

“Third, a combination of high international commodity prices and logistic costs may push up input price pressures across manufacturing and services,” said the report.

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PSBs to follow templated approach to restructure loans

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Public Sector Banks (PSBs), under the aegis of the Indian Banks’ Association (IBA), have formulated a templated approach for seamless implementation of RBI’s Resolution Framework 2.0 for restructuring loans to individuals, small business and MSMEs up to ₹25 crore.

Banks have evolved a process flow for individual loans and a templated standardised approach for business and MSME loans up to ₹10 lakh.

Individual loans

The process flow envisaged for individual loans includes a) customer accessing the bank’s portal or manually submitting application for restructuring and b) processing of application and implementation in the system.

The resolution process has to be invoked within 30 days from the receipt of the application. The last date for invocation is September 30.

Invocation means that both the borrower and the bank agree to proceed with the Resolution Plan, which will include rescheduling of payments, granting of moratorium and extension of tenor. Decision in this regard will be communicated to the borrower in writing.

The Resolution Plan has to be implemented within 90 days from the date of invocation, but not later than December-end 2021.

The moratorium period granted will be for a maximum of two years, and it will start immediately after the implementation of the Resolution Plan.

Business, MSME loans

For implementation of resolution framework for business loans, banks have categorised loans into three categories – up to ₹10 lakh, ₹10 lakh and up to ₹10 crore, and above ₹10 crore

Under the templated standardised approach for restructuring Business and MSME loans up to ₹10 lakh, banks have sent bulk SMS to eligible customers including the already restructured accounts.

Offer-cum-acceptance letters, along with application, has been generated centrally. Customers have to provide consent in the offer letter itself. The application will then be processed.

Resolution invocation has to happen within 30 days of receipt of acceptance. Post-invocation, resolution plan has to be implemented within 90 days.

For loans above ₹10 lakh and up to ₹10 crore, and above ₹10 crore, banks will take a graded approach for restructuring. It will also include standard application and assessment formats, standard and simplified documentation, and common outreach approach

Sunil Mehta, Chief Executive, IBA, said a grievance redressal mechanism, comprising nodal officers, has been put in place to address customer complaints.

The Reserve Bank of India (RBI) announced a ‘Resolution Framework 2.0 for Covid-Related Stressed Assets of Individuals, Small Businesses and MSMEs’ on May 5.

Under the framework, borrowers – individuals, small businesses and MSMEs – having aggregate exposure of up to ₹25 crore and have not availed restructuring under any of the earlier restructuring frameworks and were classified as ‘standard’ as on March 31are eligible to be considered under Resolution Framework 2.0.

Restructuring under the framework can be invoked up to September 30, and has to be implemented within 90 days after invocation.

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SBI Chairman Dinesh Khara explains rolling out RBI’s 5-May SME loan relief measures; ECLGS extended

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State Bank of India’s (SBI) Chairman Dinesh Khara talked about loans for SMEs, Covid-19 resurgence, and RBI’s relief measures of 5 May 2021 in a press conference on May 30, 2021.

SBI Press Conference HIGHLIGHTS: State Bank of India’s (SBI) Chairman Dinesh Khara talked about loans for SMEs, Covid-19 resurgence, and RBI’s relief measures of 5 May 2021 in a press conference on May 30, 2021. Chairman Khara explained how RBI’s SME loan relief measures, which were announced on May 5, 2021, will be rolled out. He informed that PSBs have formulated templated approach for restructuring loans to individuals, small businesses and MSMEs up to Rs 25 crore. In order to approach bank for resolution, customers can file an application on the portal at the bank website, they can make manual submission of applications at the branch. Khara also informed that government will provide 100 per cent guarantee cover to loans up to Rs 2 crore to hospitals/nursing homes etc for setting up on-site oxygen generation plants, interest rate capped at 7.5%. The validity of ECLGS has also been extended to September 30, 2021, or till guarantees for an amount of Rs 3 lakh crore is issued. The disbursement under the scheme has been permitted up to December 31, 2021.

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Covid-19: Depositors’ body seeks suspension of penalty on premature FD withdrawal

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The All India Bank Depositors’ Association (AIBDA) wants the Reserve Bank of India (RBI) to direct banks to suspend penalty charges on premature withdrawal of Fixed Deposits (FDs) in view of the Covid-19 pandemic.

In its “Addendum to Memorandum to the Reserve Bank of India,” the AIBDA observed that many depositors are under compulsion to prematurely withdrawal their savings to defray the excessive medical bills for treatment of Covid virus and many have lost their jobs.

Hence, the association requested the RBI for a moratorium on penalty charges for premature deposit withdrawal up to ₹5 lakh.

AIBDA underscored that this request is in light of the accommodation given (with respect to moratorium on loan repayments and resolution framework) to small borrowers, MSME loans up to a given limit.

Depositors need relief

“When borrowers are accommodated then why is there no relief for bank depositors – it is unfair and iniquitous.

“This has become of paramount importance in the current pandemic scenario with unemployment, economic uncertainties, health concerns and unexpected expenses,” said DG Kale, President, and Amitha Sehgal, Honorary Secretary, AIBDA.

The association’s office bearers emphasised that many sections of the society depend on FD interest income as a primary source of income.

“It is only in case of extreme necessity/ emergency that a depositor may withdraw the FD prematurely. It is unfortunate that if they need to break the FD receipt, they also have to forego a part of their income as ‘penalty’,” said Kale and Sehgal.

From the long-term perspective, AIBDA urged the RBI to nudge banks to have a more reasonable penalty structure, that is responsive to the current predicament faced by depositors.

The association said while FD rates are currently hovering at around 4 to 5 per cent per annum, the premature withdrawal penalty can be nearly 0.50 to 1 per cent per annum.

Earlier the FD rates used to hover around 7-8.50 per cent. According to AIBDA’s calculation, the penalty of 1 per cent was reducing the return by approximately by 12 per cent (1 per cent divided by 8 per cent).

Currently, FD rates are hovering around 4 to 5 per cent. The penalty of 1 per cent will bring the return down by 20 per cent (1 per cent divided by 5 per cent).

Unfair to depositors

“This is unfair to depositors. In the best interests of retail/ small depositors and in the light of the current falling interest rate scenario, the existing policy related to penalty on premature withdrawal needs a review,” said the AIBDA office bearers.

AIBDA reiterated its concern that retail depositors are likely to be lured by riskier financial assets to improve on the rate of return on their savings.

Against the backdrop of the impending turbulence and uncertainty in the financial market and a likelihood of stress in the banking/ NBFC/ corporate sector, it is important to take care of this risk, it added.

The association emphasised on the need for some calibration in penalty, linking it to absolute percentage return so that retail depositors are able to meet their objective of generating suitable return from this banking product.

It suggested that the penalty may be linked with the value of the FD, with small value FDs having nil or lower penalty structure.

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RBI devolves ₹7,436 crore worth 2030 G-Sec on PDs

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The Reserve Bank of India (RBI) devolved about 53 per cent of the notified amount of ₹14,000 crore on primary dealers (PDs) at the auction of the benchmark Government Security (G-Sec/GS) maturing in 2030.

However, the auction of the other two G-Secs (4.26 per cent GS 2023 and 6.76 per cent GS 2061) sailed through.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, observed that RBI set relatively higher cut-off rate for additional competitive underwriting (ACU) commission for PDs for the 2030 G-Sec, indicating that market participants were not too keen on buying the paper.

The ACU commission was 13 paise for 2061 G-Sec and 0.42 paise for 2023 G-Sec.

RBI devolved ₹7,436.458 crore worth of the 2030 G-Sec (coupon rate: 5.85 per cent) on PDs. It accepted bids aggregating ₹6,563.542 crore for this paper.

The central bank set a cut-off price of ₹98.97 (yield: 5.9937 per cent) for this paper against its previous closing price of ₹99.015 (5.9873 per cent). Bond yield and price are inversely related and move in opposite directions.

In the secondary market, the 2030 G-Sec closed at ₹98.90 (6.0035 per cent).

RBI accepted bids aggregating ₹3,550 crore for the 2023 G-Sec (against the notified amount of ₹3,000 crore). It accepted bids aggregating to the notified amount of ₹9,000 crore in the case of the 2061 G-Sec.

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Private sector banks increased share in deposits, credit at the cost of PSBs in FY21: RBI

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Bank credit growth decelerated while aggregate deposit growth accelerated in March even as the share of private sector banks in total deposits and credit of scheduled commercial banks (SCBs) increased during 2020-21 at the cost of public sector banks, according to the Reserve Bank of India (RBI).

Bank credit growth decelerated to 5.6 per cent year-on-year (yoy) in March from 6.4 per cent a year ago, according to RBI’s ‘Quarterly Statistics on Deposits and Credit of SCBs: March 2021’.

Public sector and private sector banks credit growth slowed to 3.6 per cent (4.2 per cent in March 2020) and 9.1 per cent (9.3 per cent), respectively, during 2020-21. Lending by foreign banks contracted 3.3 per cent vs 7.2 per cent growth

Combined credit by bank branches in top six centres (Greater Mumbai, Delhi, Bengaluru, Chennai, Hyderabad and Kolkata, which together accounted for over 46 per cent of total bank credit) declined marginally during 2020-21, the RBI said.

Deposit growth picks up

According to RBI data, credit by bank branches in metropolitan areas (includes all centres with population of 10 lakh and above) declined to 1.7 per cent in March 2021 from 4.8 per cent in March 2020. Bank branches in urban, semi-urban and rural areas, on the other hand, recorded 9.4 per cent (8.8 per cent in March 2020), 14.3 per cent (8.4 per cent) and 14.5 per cent (11.5 per cent) credit growth, respectively, during the year.

Aggregate deposits growth accelerated to 12.3 per cent yoy in March 2021 from 9.5 per cent a year ago.

Metropolitan branches, which account for over half of total deposits, recorded nearly 15 per cent growth during 2020-21 from 6.9 per cent a year ago. However, aggregate deposits of branches in rural and semi-urban areas declined to 6.9 per cent (15.5 per cent) and 9.3 per cent (12.3 per cent), respectively.

Aggregate deposits of branches in urban areas increased to 11.4 per cent (10.5 per cent).

RBI said the share of current account and savings account (CASA) deposits in total deposits increased to 44.1 per cent in March from 42.1 per cent a year ago.

Lower growth in credit vis-à-vis deposits led to decline in the all-India credit-deposit (C-D) ratio to 71.5 per cent in March from 76.0 per cent a year ago.

The central bank did not specify the market share gained by private sector banks in deposits and credit.

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RBI imposes monetary penalty of ₹10 crore on HDFC Bank

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The Reserve Bank of India has imposed a monetary penalty of ₹10 crore on private sector lender HDFC Bank. This came after the RBI found irregularities based on a whistleblower complaint in the bank’s auto loan portfolio.

“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,” the RBI said in a statement on Friday.

The penalty is imposed for contravention of provisions of section 6(2) and section 8 of the Banking Regulation Act, 1949 (the Act), it further said.

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 whistle blower 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.

Also read: HDFC Bank commits ₹100 cr under Parivarthan for fighting the pandemic

“In furtherance to the same, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed for contravention of the provisions of the Act and directions,” the RBI further said said.

After considering the bank’s reply to the show cause notice, oral submissions made during the personal hearing and examination of further clarifications and documents furnished by the bank, RBI came to the conclusion that the aforesaid charge of contravention of provisions of the Act was substantiated and warranted imposition of monetary penalty, it further 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.

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RBI imposes Rs 10 crore penalty on HDFC Bank over irregularity in Auto loans, BFSI News, ET BFSI

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The Reserve Bank of India has imposed Rs 10 crore penalty on HDFC Bank after the central bank found irregularity in the bank’s auto loan portfolio.

RBI said in a release, “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.”

A whistle blower complaint led to RBI examining the documents in the matter of marketing and sale of third party non-financial products to the bank’s customers in the auto loan portfolio which is in contravention of the afore-said provision of the act and the regulatory directions.

RBI said, “In furtherance to the same, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed for contravention of the provisions of the Act/directions.”

The RBI added, “After considering the bank’s reply to the show cause notice, oral submissions made during the personal hearing and examination of further clarifications/documents furnished by the bank, RBI came to the conclusion that the aforesaid charge of contravention of provisions of the Act was substantiated and warranted imposition of monetary penalty.”

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