Tag: RBI

Seven steps to reignite India’s growth, according to RBI, BFSI News, ET BFSI

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The second Covid wave has put the brakes on the economy, but the nation is on the “cusp” of strong growth if the government’s capital expenditure combines with companies’ investment cycle, the Reserve Bank of India (RBI) said.

The prospects for the economy though impacted by the second wave remain resilient backed by prospects of another bumper rabi crop, gathering momentum of activity in several sectors, especially housing and road construction, and services activity in construction, freight transportation and information technology, the central bank said in its annual report.

Here are seven ways that put India on the growth path again, according to the central bank.

Public and private investment

“A virtuous combination of public and private investment can ignite a shift towards investment and thereby to a trajectory of sustained growth. Fiscal policy, with the largest capex budget ever and emphasis on doing business better, has swung into a crowding-in role. It is apposite now for Indian industry to pick up the gauntlet.’’

Easy monetary policy

RBI will persist with easy monetary policy during the year to ensure that growth gains traction. The conduct of monetary policy in 2021-22 would be guided by evolving macroeconomic conditions, with a bias to remain supportive of growth till it gains traction on a durable basis,” said the report. The central bank will ensure that system-level liquidity remains comfortable during 2021-22 in alignment with the stance of monetary policy, and monetary transmission continues unimpeded while maintaining financial stability,” according to the annual report 2020-21.

Recovery of private demand

“The recovery of the economy from Covid-19 will critically depend on the robust revival of private demand that may be led by consumption in short-run but will require acceleration of investment to sustain the recovery,” said the report. For a self-sustaining GDP growth trajectory post-COVID-19, a durable revival in private consumption and investment demand together would be critical as they account for around 85 per cent of GDP. Typically, post-crisis recoveries are led more by consumption than investment, it said.

Limiting costs to Q1

The macroeconomic costs of this wave can be limited to Q1 with possible spillovers into July, RBI said, adding that that is the most optimistic scenario that can be envisaged at this juncture.”

Rekindling animal spirits

Private investment is the missing piece in the story of the Indian economy in 2020-21; reviving it awaits an environment in which “animal spirits” are rekindled and entrepreneurial energies are released so that backward and forward linkages and multipliers prepare the ground for a durable investment-driven recovery

Monitor asset quality

Stress tests indicate that Indian banks have sufficient capital at the aggregate level even in a severe stress scenario. Bank-wise as well as system-wide supervisory stress testing provide clues for a forward-looking identification of vulnerable areas,” RBI said. Banks should keep a tab on the Non-Performing Assets (NPAs) and accordingly earmark capital for provisioning, according to the central bank.

Unleashing services demand

The services sector is still “wounded,” but the focus of government spending on infrastructure could unleash pent-up demand in the economy and create a sufficient climate for all-round development, it said.



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Private banks see 21% jump in frauds as online frauds rise, BFSI News, ET BFSI

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The public sector banks seem to have learnt a lesson from the multi-billion dollar Punjab National Bank scam and worked to put their processes in order.

The number of frauds in PSBS fell 34% during fiscal 2020-21, more than double the overall 15% decline in frauds in the banking system. Interestingly, frauds in private banks rose 21% during the period, according to the RBI annual report for fiscal 2021.

The share of PSBs in total fraud value shrank to 59.2% this fiscal, from 80% in fiscal 2020, while it rose to 33.5% in the case of private sector banks this fiscal. In fiscal 2020 private banks had reported a 18.4% share.

The RBI in its annual report stated that a total of 7,363 frauds worth Rs 1,38,422 crore were reported. These frauds have been reported across all banks and areas of operations.

Online frauds rise

The number of frauds in the online space shot up 34.6% at the end of March 2021. About 99% of the total frauds reported in the fiscal year gone by were from the advances category in value terms. However, the value of frauds in the advances category remained almost the same as compared to the last year and the incidence of frauds in the advance category have come down over the previous year.

In value terms, private banks reported a rise of 35% y-o-y in frauds during FY21, and PSBs have reported a decline of 45%.

The average time lag between the date of occurrence of frauds and the date of detection was 23 months for the frauds reported in 2020-21. However, in respect of large frauds of Rs 100 crore and above, the average lag was 57 months for the same period. In terms of area of operations, frauds have been occurring predominantly in the loan portfolio (advances category), both in terms of number and value, RBI said.

Reducing frauds

In the current fiscal, the central bank is looking at enhancing the fraud risk management system, including improving the efficacy of early warning signal (EWS) framework, fraud governance and response system. This includes augmenting the data analysis for monitoring of transactions, introduction of dedicated market intelligence (MI) unit for frauds and implementation of automated unique system generated number for each fraud.

For an account declared fraud, banks have to make 100% provisioning of the outstanding loans, spread over up to four quarters.



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Demand for cash surged in 2020-21 due to Covid-19 pandemic: RBI Annual Report

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The precautionary demand for cash surged in the economy in 2020-21 due to the Covid-19 pandemic, the Reserve Bank of India said in its Annual Report 2020-21.

“The year witnessed a higher than average increase in banknotes in circulation primarily due to precautionary holding of cash by the public induced by the Covid-19 pandemic, and its prolonged continuance,” said the report, which was released on Thursday.

The value and volume of banknotes in circulation increased by 16.8 per cent and 7.2 per cent, respectively, during 2020-21 as against an increase of 14.7 per cent and 6.6 per cent, respectively, witnessed during 2019-20.

“Concerted efforts were made to ensure that Currency Chests remain adequately stocked with all denominations of banknotes in order to maintain timely supply of fresh banknotes across the country,” it further said.

Currency in circulation has been increasing along with the rise in digital payments. The volume of banknotes in circulation has been rising and stood at 12,436.7 crore pieces as on March 31, 2021 versus 11,597.7 crore pieces in 2019-20.

Significantly, the volume and value of ₹2,000 notes in the currency in circulation declined while that of ₹500 notes increased.

In 2020-21, the share of ₹2,000 currency notes of the overall currency in circulation in terms of volume fell to 2 per cent from 2.4 per cent in 2019-20 and 3 per cent in 2018-19. In value terms, it fell to 17.3 per cent in 2020-21 from 22.6 per cent in 2019-20.

In contrast, the share of ₹500 currency notes in terms of volume in the overall currency in circulation rose to 31.1 per cent in 2020-21 from 25.4 per cent in 2019-20. In value terms it increased to 68.4 per cent in 2020-21 from 60.8 per cent in 2019-20.

“In value terms, the share of ₹500 and ₹2,000 banknotes together accounted for 85.7 per cent of the total value of banknotes in circulation as on March 31, 2021, as against 83.4 per cent as on March 31, 2020,” the report said.

In volume terms, ₹500 denomination constituted the highest share at 31.1 per cent followed by ₹10 denomination banknotes, which constituted 23.6 per cent of the total banknotes in circulation as on March 31, 2021, it further said.

The report said the RBI is in the process of introducing varnished banknotes in ₹100 denomination on a field trial basis with a view to elongate the life of the banknote.

Outlining its agenda for 2021-22, the report said it will focus on procurement of new shredding and briquetting systems, augmentation of disposal of soiled notes; and establishment of a state-of-the-art facility for conducting cutting edge research to test robustness of security features of currency notes and introduction of new security features.

“Going ahead, the Reserve Bank’s endeavour would be to enhance the lifespan of banknotes, automate the handling and processing of notes, and rationalise the available infrastructure for maximum utilisation,” it said.

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RBI Annual Report, BFSI News, ET BFSI

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The Reserve Bank of India in its annual report stated that a total of 7,363 frauds worth Rs 1,38,422 crore were reported. These frauds have been reported across all banks and areas of operations.

The RBI said the number of frauds reported in 2020-21 decreased by 15 per cent in terms of number and 25 percent in terms of value as compared to 2019-20. The share of PSBs in total frauds decreased while the number of frauds in private sector banks increased during the corresponding period.

Source: RBI Annual Report

Majority of the frauds have been occurring predominantly in the loan portfolio both in terms of numbers and value. However the value of frauds in advances category remained almost same as compared to the last year and the incidence of frauds in advance category have come down over the previous year.

As per the annual report the average time lag between the date of occurrence of frauds and the date of detection was 23 months for the frauds reported in 2020-21.

Source: RBI Annual Report
Source: RBI Annual Report

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Cyber attacks on banks can trigger more rating action, warns S&P, BFSI News, ET BFSI

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The banking sector is becoming more exposed to cybercrime after the Covid pandemic accelerated digitalisation and remote working, which can impact ratings, S&P Global Ratings said on Tuesday.

Cyber attacks can harm credit ratings mainly through reputational damage and potential monetary losses, the ratings agency said in a report titled ‘Cyber Risk In A New Era: The Effect On Bank Ratings.’

Banks and other financial institutions are attractive targets for cyber criminals because they possess valuable personal data and play a critical role in servicing particular financial or economic needs and segments.

“Cyber attacks have had only a limited effect on bank ratings to date but can trigger more rating actions in the future as cyber incidents become more frequent and complex,” said Credit Analyst Irina Velieva.

Weak governance

Institutions with weak risk governance are less prepared for, and therefore more vulnerable to cyber attacks, it said.

“Although it is crucial to learn from previous attacks and strengthen cyber-risk frameworks in real time, the appropriate detection and remediation of attacks takes precedence because the nature of threats will continue to evolve,” S&P said cyber defence will become an increasingly important part of entities’ general risk management and governance frameworks, in need of increasing spending and more sophisticated tools.

“We acknowledge, however, that this might not be straightforward for many entities, especially the ones with weaker risk-control frameworks and insufficient budget allocated for cyber defence.”

Threats to banks

According to RBI’s annual report for 2019-20, the amount involved in banking frauds grew 2.5 times to Rs 1.85 lakh crore in 2019-20 compared with Rs 71,500 crore in 2018-19.

The internet banking system works through a wide set of applications, networking devices, internet service providers, and many other entities. All of these are potential entry points for attackers.

Several banks and financial establishments use third-party services from other merchants and fintechs. If those outsider merchants don’t have appropriate security set up, the bank could land in a soup.

Under spoofing, hackers find a way to imitate a financial institutions’ website’s URL with a website that looks and functions the same. When customers enter their login data in an impersonated website, the data is then taken by the cybercriminals to utilise it later.

Cybercriminals can utilise a person’s personal and financial data and commit fraud. A privacy breach in a bank can also lead to the information of the bank’s customers being sold or purchased on the dark web by other cybercriminals.



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RBI Guv meets private bank CEOs, seeks implementation of liquidity measures, BFSI News, ET BFSI

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Mumbai, Reserve Bank of India (RBI) Governor Shaktikanta Das on Tuesday asked heads of select private sector banks to boost credit flows to retail and small business borrowers and quickly implement all the measures announced by the apex bank on May 5 as part of Covid-relief measures.

Das met met the MD & CEOs of select Private Sector Banks through video conference in a meeting that was also attended by Deputy Governors M. K. Jain, M. Rajeshwar Rao, Michael D. Patra and T. Rabi Sankar.

In his opening remarks, the Governor recognised the crucial role played by the private sector banks as important stakeholders in the Indian banking sector.

He impressed upon the banks to quickly and swiftly implement the measures announced by RBI on May 5, 2021 in right earnest. He also advised the banks to ensure continuity in provision of various financial services including credit facilities to individuals and businesses in the face of challenges brought on by the pandemic.

On May 5, the RBI governor had announced a slew of measures to counter the impact of the second wave of the Covid-19 pandemic on banks and financial institutions as also their borrowers.

During the meeting, the RBI governor urged bankers to continue focusing on efforts to further strengthen their balance sheets proactively.

The meeting also took time to make an assessment of current economic situation and the state of the banking sector. It also focused on credit flows to different segments of the economy, particularly to small borrowers, MSMEs.

Das also heard the banks over their progress in the implementation of Covid Resolution Framework 1.0, Monetary policy transmission and liquidity scenario; and Implementation of various Covid-related policy measures taken by RBI.



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RBI should appoint statutory auditors for public sector banks: ICAI

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The CA Institute has suggested that appointment of statutory central auditors (SCAs) of public sector banks should be done by the Reserve Bank of India and not by the bank managements.

The audit regulator is keen that the banks’ auditors be appointed on the lines of Comptroller and Auditor General of India appointing public sector entities’ auditors.

“We have suggested that RBI itself should appoint the statutory auditors of public sector banks. The current system of bank managements appointing statutory auditors should be done away with,” Nihar Jambusaria, President, Institute of Chartered Accountants of India (ICAI), told BusinessLine. This suggestion was conveyed to the central bank at a recent virtual interaction between the top brass of the CA Institute and senior RBI officials.

Also, the ICAI has made several suggestions on the RBI’s April 27 circular that prescribed norms for appointment of Statutory Central Auditors/Statutory Auditors in PSBs and statutory auditors for urban cooperative banks, non-banking finance companies and housing finance companies.

‘Minimum numbers’

Jambusaria said that CA Institute has suggested to the RBI that instead of prescribing the maximum number of SCAs in public sector banks, the RBI should set the the minimum numbers to be appointed. “We have suggested that instead of having a cap, there should be a minimum number and the current absence of minimum number is leading to reduction in overall number of auditors in PSBs,” he said.

Selection committee

It maybe recalled that bank managements have been appointing SCAs since 2008-09. However during 2011–14, the appointment was done by a Selection Committee comprising representatives of CAG, Ministry of Finance and IBA on a points-based system.

‘Not for deferring norms’

Asked to comment on corporate India’s recent suggestion to RBI that the entire new norms of the central bank be deferred by at least two years, Jambusaria said that ICAI is not in favour of such deferment. He also said that ICAI does not have any objections to making the concept of joint audits mandatory for banks and NBFCs with asset size of over ₹15,000 crore.

“Except for few changes which we have brought to the notice of RBI for consideration, we are happy with most of the norms in the central bank circular,” he said.

ICAI is also understood to have pitched for the reintroduction of compulsory three-year cooling off period after the completion of a SCAs tenure.

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RBI issues guidelines for amalgamation of district central co-op banks with state co-op banks, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank said it will consider amalgamation of District Central Co-operative Banks (DCCBs) with State Cooperative Banks (StCBs) subject to various conditions, including that a proposal should be made by the state government concerned.

The Banking Regulation (Amendment) Act, 2020 has been notified for the StCBs and DCCBs with effect from April 1, 2021. Amalgamation of such banks need to be sanctioned by the Reserve Bank of India.

RBI has come out with the guidelines after a few state governments approached it for amalgamation of DCCBs with StCBs as a two-tier Short-term Co-operative Credit Structure (STCCS).

As per the guidelines, RBI will consider proposals for amalgamation “when the state government of the state makes a proposal to amalgamate one or more DCCB/s in the state with the StCB after conducting a detailed study of the legal framework”.

Besides, there should be a an additional capital infusion strategy, assurance regarding financial support if required, projected business model with clear profitability and proposed governance model for the amalgamated bank.

The scheme of amalgamation has to be approved by the requisite majority of shareholders. Also, NABARD has to examine and recommend the proposal of the state government.

“The proposal for amalgamation of DCCBs with the StCB will be examined by Reserve Bank in consultation with NABARD and the sanction/ approval will be a two-stage process,” the guidelines said.

In the first stage, an ‘in-principle’ approval will be accorded subject to fulfilment of certain conditions, following which the processes for amalgamation may be initiated by all concerned.

After completion of the first stage, NABARD and RBI may be approached for final approval along with compliance report, as per the guidelines.

The guidelines also said that if as a result of share swap ratio based on net worth, shareholders of some DCCBs cannot be allotted any shares, then the state government should infuse sufficient capital in such lenders to ensure that the shareholders are allotted at least one share each.



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Do not to ignore the probable cost of lower inflation: RBI study

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When inflation is higher than the threshold level, estimated at 6 per cent for India, reduction in inflation rate leads to a much smaller gain in the long-term growth compared to when inflation is lower and rises towards the threshold level, according to a Reserve Bank of India study.

The Study estimated the trade-off between long run inflation and steady State growth (SSG) rate, whereby the long-term growth would fall by 40 basis points/bps (or 0.4 percentage point) if the initial inflation rate was less than the threshold rate.

However, if the initial inflation rate was higher than the threshold rate, it would result in an increase of long-term growth by 15 bps.

“…Of course, there are arguments in favour of lower inflation rate in terms of its favourable redistribution impact particularly on the poor and the financial stability concerns,” said authors Ravindra H Dholakia, Jai Chander, Ipsita Padhi and Bhanu Pratap.

However, the findings of the present study caution the policy makers not to ignore the probable cost of lower inflation in terms of lower long-term growth of output and employment and hence lower rate of the poverty reduction.

These costs and benefits of fixing a long-term inflation target will have to be considered while making the choice, the authors opined.

The findings of the Development Research Group (DRG) Study show that the threshold inflation and corresponding growth are not unique for a country but depend on the other two parameters – Fiscal Deficit (FD)/GDP and Current Account Deficit (CAD)/GDP.

If a country chooses the target values of FD/GDP and CAD/GDP to be achieved in the long run, its potential output growth gets determined through the corresponding value of threshold inflation.

“If the country then chooses an inflation target that is lower than the threshold level, it cannot achieve its potential output growth and the system would remain in long-run disequilibrium requiring constant policy interventions to stabilize,” the authors said.

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Small finance banks less prepared than private banks, BFSI News, ET BFSI

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Small finance banks (SFBs), which depended heavily on loan moratorium last year, are likely to be hit by delinquencies as Covid crimps the incomes of their mainstay borrowers.

However, they are inadequately prepared to face the barrage of asset quality issues that may hit them. In contrast, the top private sector banks are adequately prepared to face the crisis.

The provision coverage ratio, or amount set aside for bad loans, is less than 60% of total bad loans. for three listed banks—Equitas Small Finance Bank Ltd, Ujjivan Small Finance Bank Ltd and AU Small Finance Bank.

AU Small Finance Bank’s PCR fell to 50% in Q4 from 53% earlier, while Equitas Small Finance Bank, the most conservative among the SFBs, saw a 25% decline in the overall provision, compared with last year. Ut made additional provision to Rs 153 crore at the end of the fourth quarter.

Ujjivan Small Finance Bank’s PCR fell to 60% in the fourth quarter, from 80% in the year-ago period. The bank made a provision of Rs 170 crore as of March-end.

Private banks’ PCR

For HDFC Bank total provisions (comprising specific, floating, contingent and general provisions) were 153% of the gross non-performing loans as on 31 March 2021.

ICICI Bank had substantially increased its provision coverage ratio (PCR) to 86 per cent with pro forma PCR of 78 per cent, the highest in the industry.

Axis Bank’s provision coverage ratio, including write-offs, stood at 88% in the fourth quarter.

SLTRO boost

While the small finance banks did not get moratorium relief, the Reserve Bank of India (RBI) has announced a special long-term repo operation (SLTRO) for small finance banks. The central bank conducted the special operation of Rs 10,000 crore at repo rate, Das said.

“Small finance banks (SFBs) have been playing a prominent role by acting as a conduit for the last-mile supply of credit to individuals and small businesses,” Das said earlier this month announcing the relief measures.

“To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic, it has been decided to conduct special three-year long-term repo operations of Rs 10,000 crore at repo rate for the SFBs, to be deployed for fresh lending of up to Rs 10 lakh per borrower,” Das said, adding that the facility will remain open till October 31, 2021.

Priority loans

The RBI also has decided to allow the classification of priority sector lending for loans given by small finance banks (SFB) to micro-finance institutions (MFI) for on-lending to individuals.

The decision has been taken to address the liquidity issues of MFIs amid the severe Covid crisis.

RBI Governor Shaktikanta Das said: “In view of the fresh challenges brought on by the pandemic and to address the emergent liquidity position of smaller MFIs, SFBs are now being permitted to reckon fresh lending to smaller MFIs (with asset size of up to Rs 500 crore) for on-lending to individual borrowers as priority sector lending.” This facility will be available up to March 31, 2022.



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