Tag: RBI

Depositors’ body wants banks to take a cue from Govt and not cut deposit rates

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The All India Bank Depositors’ Association (AIBDA) has requested the Reserve Bank of India (RBI) to advise banks to reduce their operating cost and prune the net interest margin, so that the entire burden of cut in interest costs does not fall on depositors.

The Association, in its pre-monetary policy memorandum to RBI, underscored that the depositors in the small income earner and senior citizen categories are suffering the most due to the current negative real interest rate (adjusted for inflation).

“While a pause in repo rate is desirable to support growth at this point in time, too much liquidity in the market works adversely against the depositors without a significant increase in bank credit. As depositors are major stakeholders and risk bearers in the financial system, their interests should not be ignored,” said DG Kale, President and Amitha Sehgal, Honorary Secretary, AIBDA.

They cautioned that a negative real interest rate may increase the wedge between savings and investment in the economy going forward and hamper growth in the long run.

The Association observed that since February 7, 2019, the repo rate (interest at which RBI provides liquidity to banks to overcome short-term mismatches) has been reduced by 250 basis points and has remained unchanged at 4 per cent since May 5, 2020.

Moreover, the RBI has made a liquidity provision of over ₹13-lakh crore in 2020-21.

Flush with liquidity amidst sluggish demand for credit, commercial banks reduced term deposit rates nearly by 200 basis points, it added.

Take a cue from government

The AIBDA office bearers opined that banks could take a cue from government’s decision not to cut the interest rates on Small Savings Schemes.

“In a deregulated environment, it may not be possible for the RBI to re-regulate deposit rates. But the entire burden of cutting interest costs should not fall on depositors. We would like to reiterate that the one-year real deposit rate should be at least 2 per cent for saving-investment equilibrium to be maintained at a reasonably high level,” Kale and Sehgal said.

ATM/POS charges

The Association said no charge should be imposed by the card-issuing bank in case of a failure of transaction at ATM/POS.

Referring to banks imposing a fee every time there is a transaction decline at an ATM or point of sale (POS) due to insufficient balance in the account, the AIBDA reasoned that such transactions are nowhere at par with cheque/ECS returns. These charges are currently of the order of ₹25 + GST.

“It (declined POS/ATM transactions due to insufficient balances) does not involve any intent of systemic inconvenience or distrust to a third party. We would like to mention that NPCI does not consider it as a transaction and there is no cost imposed by NPCI/ acquirer bank onto the card-issuing bank,” said Kale and Sehgal.

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More Covid-hit companies may need recast of loans, BFSI News, ET BFSI

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MUMBAI: Banks have told the Reserve Bank of India (RBI) that the extended restrictions due to the resurgence of the Covid pandemic have caused significant stress on businesses and a restructuring window may be required for more loans.

Although the RBI did allow lenders to restructure loans for borrowers earlier this month, the facility was restricted to loans of up to Rs 25 crore. Since the measures were announced, the second wave of Covid emerged across the country, resulting in most parts of the country observing some form of a lockdown.

On Wednesday, RBI governor Shaktikanta Das met with the CEOs of public sector banks (PSBs) through a video conference. Acknowledging the role played by PSBs in extending various banking services including credit facilities to individuals and businesses during the pandemic, the governor asked them to quickly implement the Covid relief measures already announced. He also reiterated the need for banks to raise capital to increase the resilience of their balance sheet should further shocks arise out of the pandemic.

The governor in the meeting sought feedback from banks on the state of the financial sector and credit flows to different sectors, including small borrowers and micro, small and medium enterprises. The governor also sought information on whether rate reductions by banks were in line with the RBI’s action to bring down the cost of funds.

Bankers said that, while the first quarter is traditionally a sluggish period for credit growth, this year loan pick-up was even lower because of the lockdown. They said that the extended lockdown, while necessary to contain the pandemic, is hurting a large segment of the economy. There is a clear indication of collection efficiency being hit. While earlier the banks were more concerned about the survival of small businesses, they are now worried that larger companies may also start facing liquidity related issues as economic activities in non-essentials have been significantly hit.

Non-banking finance companies (NBFCs) have already asked the RBI for a moratorium for their borrowers and their borrowings from banks. Bankers say that in 2020, NBFCs shrunk their books and reduced debt and obtained cheap finance because of targeted long-term repo operations announced by the RBI, which helped them tide last year’s lockdown. This year, no such package has been announced so far.



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RBI, BFSI News, ET BFSI

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Mumbai, As the severe Covid crisis and the resultant lockdowns have shut down economic activities to a great extent, the monthly RBI Bulletin has said that demand and employment have been among the most impacted economic aspects amid the second Covid wave.

The RBI Bulletin for May 2021 noted that the real economy indicators moderated through April-May 2021.

“The biggest toll of the second wave is in terms of a demand shock – loss of mobility, discretionary spending and employment, besides inventory accumulation, while the aggregate supply is less impacted,” it said.

It, however, said that the resurgence of Covid-19 has dented, but not debilitated economic activity in the first half of Q1 2021-22. Although extremely tentative at this stage, the central tendency of available diagnosis is that the loss of momentum is not as severe as at this time a year ago, it added.

On the NBFC segment, the report said that the consolidated balance sheet of NBFCs grew at a slower pace in Q2 and Q3 2020-21. However, NBFCs were able to continue credit intermediation, albeit at a lower rate, reflecting the resilience of the sector.

The Reserve Bank and the government undertook various liquidity augmenting measures to tackle Covid-19 disruptions, which facilitated favourable market conditions as indicated by the pick-up in debenture issuances.



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Lockdown impact on NBFCs’ asset quality to be evident gradually: RBI

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As Non-Banking Financial Companies (NBFCs) have continued to disburse credit despite the pandemic, the impact of the lockdown will be evident on their asset quality gradually, said an article in the RBI’s monthly bulletin.

“NBFCs continued to disburse credit despite disruptions caused by the pandemic, albeit at a slower pace,” said the article titled ‘Performance of NBFCs during the Pandemic: A Snapshot’.

Credit performance

Incremental credit flows (on year-on-year basis) to the retail sector continued to increase in the second and third quarter of 2020-21, but at a slower pace, while services sector saw marginal increase in the third quarter last fiscal, wherein vehicle loans, gold loans, transport and tourism were the beneficial segments.

However, incremental credit to industries declined in the same period as the sector is yet to shake off the impact of the pandemic, it further noted.

“Agriculture was the bright spot with the highest growth in disbursements in the third quarter of 2020-21, however, it could be partly attributable to a favourable base effect,” the article said.

Significantly, the share of industry in the sectoral deployment of credit by NBFCs was at 61.6 per cent as on December 2020 compared to 67.4 per cent in December 2019. The share of retail loans increased to 24.5 per cent as on December 2020 from 21 per cent a year ago.

“Asset quality of NBFCs witnessed improvement in 2020-21 so far, compared to the fourth quarter of 2019-20, due to regulatory forbearance,” it said.

However, Gross Non-Performing Asset (GNPA) ratio of NBFCs was elevated in the first and second quarter of 2020-21 compared to the corresponding period in 2019-20 but in the third quarter of 2020-21, both GNPA and NNPA ratios fell compared to the third quarter of 2019-20.

“Nevertheless, the true extent of NPAs in the sector may be gauged in the upcoming quarters as the interim order by the Supreme Court on asset classification standstill was lifted in March 2021,” the article further said. Among sectors, industry witnessed sequential reduction in their GNPA ratio while GNPA ratio of retail loans remained low compared to other sectors.

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‘Second wave not a big blow to economic activity in first half of Q1’

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The resurgence of Covid-19 has dented but not debilitated economic activity in the first half of Q1 (April-June) FY22, according to an article in the Reserve Bank of India’s latest monthly bulletin.

Loss of momentum

Although extremely tentative at this stage, the central tendency of available diagnosis is that the loss of momentum is not as severe as at this time a year ago, it added.

“The ferocity of the second wave has overwhelmed India and the world. War efforts have been mounted to stop the second surge in its tracks,” according to the article, ‘State of the Economy’, put together by 18 RBI officials, including Deputy Governor MD Patra.

They estimated that real economy indicators moderated through April-May 2021 as many States imposed restrictions to arrest the renewed surge in infections.

The authors observed that the biggest toll of the second wave is in terms of a demand shock – loss of mobility, discretionary spending and employment, besides inventory accumulation, while the aggregate supply is less impacted.

Impact of new infections

The authors opined that the impact of the new infections appears to be U-shaped. Each shoulder of the U represents sectors that are weathering the storm – agriculture at one end and IT on the other.

“On the slopes of the U are organised and automated manufacturing on one side and on the other, services that can be delivered remotely and do not require producers and consumers to move.

“These activities continue to function under pandemic protocols,” the article said.

According to the authors, in the well of the U are the most vulnerable – blue collar groups who have to risk exposure for a living and for rest of society to survive.

The aforementioned groups include doctors and healthcare workers; law and order; and municipal personnel; individuals eking out daily livelihood; small businesses, organised and unorganised – and they will warrant priority in policy interventions.

The authors underscored that: “It is in this direction that the Reserve Bank, re-armed and re-loaded, has stepped out. This is the beginning. There is more work to be done.”

As per the article, the data show that the wave is shifting from big cities to small towns and villages where testing is low and health infrastructure poor, and this is where the country must refocus our efforts and energies to put down the virus.

“The key lesson from the visitation of the second wave is vaccinate, vaccinate, vaccinate…The road ahead is fraught with danger, but India’s destiny lies not in the second wave, but in life beyond it,” said the authors.

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NEFT upgrade: Service will not be available for about 14 hrs till 2 pm on May 23

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The National Electronic Funds Transfer (NEFT) service will not be available from 12:01 AM to 2 PM on Sunday, May 23, 2021, as the Reserve Bank of India (RBI) will undertake a technical upgrade of the service.

The Central bank, in a statement, said the upgrade is targeted to enhance the performance and resilience and is scheduled after the close of business on May 22, 2021.

RBI asked member banks to inform their customers to plan their payment operations accordingly.

The Real Time Gross Settlement (RTGS) system, which is used to send and receive funds of ₹2 lakh and above, will continue to be operational as usual during this period.

The advantages of NEFT for funds transfer or receipt include round the clock availability on all days of the year; near-real-time funds transfer to the beneficiary account and settlement in a secure manner; positive confirmation to the remitter by SMS/e-mail on credit to beneficiary account; and no charges to savings bank account customers for online NEFT transactions.

While there is no minimum amount for NEFT transactions, the maximum amount is Rs 10 lakh.

RBI had completed a technical upgrade for RTGS on April 18, 2021.

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RBI, BFSI News, ET BFSI

Banking & Finance

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RBI said that NEFT service will not be operational from 00:01 hrs to 14:00 hrs on Sunday, May 23, 2021. A technical upgrade of NEFT, targeted to enhance the performance and resilience, is scheduled after the close of business of May 22, 2021

However, The RTGS system will continue to be operational as usual during this period. Similar technical upgrade for RTGS was completed on April 18, 2021.

NEFT Members will continue to receive event update(s) through NEFT system broadcasts.

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RBI opposes IBC suspension even as demand from banks, industry grows, BFSI News, ET BFSI

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The Reserve Bank of India RBI is not in favour of a fresh suspension of the Insolvency and Bankruptcy Code (IBC) in view of the resurgence in Covid infections shutting down parts of the economy again.

The central bank is of the view that suspension will only show lower non-performing assets. While the government has to take a final decision, the widespread distress after the restrictions may weigh on its mind.

Officials feel the demand was being amplified by a section of the industry that was facing stress even before the pandemic hit India. Besides, by all accounts, the corporate performance has been encouraging up to the March quarter and the assessment is that the recovery this time will be faster than last year, given that businesses have not completely shut down and supply chains remain open.

Growing clamour

Lenders, however, want suspension of the Insolvency and Bankruptcy Code, which was reanimated on March 24 after being suspended for a year.

Banks were planning to petition the government to keep the IBC process under suspension to help companies restructure their finance to face the renewed vigour of the pandemic, according to a report.

Also, the court proceedings are hampered due to the pandemic with courts hearing only urgent matters.

Experts are seeking an extension of IBC to 3-6 months and taking a call after that depending on the situation.

Growing stress

The corporate sector has pitched for a fresh suspension, arguing that there will be additional stress in the wake of the lockdown announced across most states to check the surge in cases, which are still rising by over three lakhs daily.

Industry body Assocham has urged the government to reimpose a moratorium on taking debt-ridden firms to the NCLT under the IBC till December this year following the severe second wave of coronavirus. In a representation to the Finance Ministry, the chamber said that given the increasing pressure on businesses, it would be imperative to extend the NCLT (National Company Law Tribunal) moratorium to ensure that the pandemic “does not wreak havoc” on the economy.

The Indian hotel industry has taken a hit of over Rs 1.30 lakh crore in revenue for the fiscal year 2020-21 due to the impact of the COVID-19 pandemic, the Federation of Hotel & Restaurant Associations of India (FHRAI) said on Sunday.

The apex industry body said it has submitted representation to the Prime Minister and a few other union ministers urging immediate support from the government to save the hospitality sector from imminent collapse and has requested for several fiscal measures for this.



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Auto-debit EMI failures set to rise in May as Covid hits incomes, BFSI News, ET BFSI

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The financial distress due to the Covid pandemic is leading to borrowers defaulting on monthly retail payments.

The rise in cheque bounce cases, which was first reported by HDFC Bank during its fourth-quarter results, is now seen at other payment avenues.

More borrowers missed equated monthly instalments (EMIs) in April, according to the data from the National Payments Corp. of India (NPCI).

In April, about 34.1% of auto-debit transactions on the National Automated Clearing House (NACH) failed, mainly due to insufficient funds.

The percentage of failure was 32.8% in March, when the second wave of Covid hit.

While in the value terms, 27.9% of transactions were unsuccessful in April against 27.5% in the previous month, the rise in the number of failures has alarmed experts, who see more drop in retail payments this month due to the spread of lockdowns to many other states.

This data is only for inter-bank mandates, which means a transaction between a bank and a non-bank lender.

HDFC Bank

HDFC Bank, the top private sector bank in India, first saw a spurt in cheque bounce cases in April, coinciding with the second lethal Covid wave in the country.

Check bounce rates for HDFC Bank were improving up to March 2021. However, bounce rates increased in April, returning to January 2021 levels. Maharashtra, Madhya Pradesh, Punjab, and Telangana were seeing higher check bounce rates.

With the resurgence of Covid cases, the bank continues to make additional contingent provisions to further strengthen the balance sheet. Although, overall asset quality remains stable, with total restructuring at 0.6% of loans and net NPA at 0.4%.

Moratorium demand rises

While the RBI has announced loan recast measures, demand is rising for loan moratorium due to renewed financial stress.

Transporters’ apex body AIMTC has requested the government for a blanket loan moratorium for the sector till August 31, 2021, in the prevailing scenario to help in maintaining business continuity.

In a statement, the All India Motor Transport Congress (AIMTC) pointed out that around 70 per cent of the country is under lockdown and more than 85 per cent of the transporters are small operators having one to five vehicles (both cargo and passenger segment).

“We have requested the government for blanket loan moratorium in the prevailing scenario to help in maintaining business continuity and tackling stressed sectors like the transport sector and help in the survival of crores of these hapless Indian citizens associated with the road transport sector,” it said.



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Govt appoints Vandita Kaul as nominee director on board of Bank of India, BFSI News, ET BFSI

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State-owned Bank of India (BOI) on Friday said the government has appointed Vandita Kaul, additional secretary in the Finance Ministry, to its board as nominee director.

The bank said it has received the communication from the Finance Ministry about Kaul’s nomination on May 13, 2021.

The government has nominated Vandita Kaul, Additional Secretary, Ministry of Finance, Department of Financial Services as government nominee director on the board of directors of Bank of India with immediate effect, the lender said in a regulatory filing.

Bank of India has a total of eight members on its board, including the MD and CEO Atanu Kumar Das, its four executive directors, one nominee director each from the government and the RBI and one shareholder director.



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