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The Reserve Bank of India has appointed Jose J. Kattoor as Executive Director (ED) with effect from May 4.
Prior to this, Kattoor was heading RBI’s Bengaluru Regional Office as Regional Director for Karnataka.
As ED, Kattoor will look after Human Resource Management Department, Corporate Strategy and Budget Department and Rajbhasha Department, the RBI said in a statement.
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They have asked the RBI to let them sell assets of defaulting promoters back to them and want corporates and high net worth individuals to be allowed to invest in troubled loans through the securities issued by ARCs.
Level-playing field
Responding to the RBI’s call for suggestions to overhaul their structure in the country, it has said that special regulatory dispensation/benefit if any given to proposed ARC should apply to all existing ARCs and level playing field from the regulatory perspective be given to all existing ARCs.
ARCs were allowed to sell bad loans back to defaulting promoters under the SARFAESI Act. However, it was disallowed under the IBC clause, which has hampered the ARCs.
ARCs have asked for this minimum investment to be brought down to 2.5% in cases where the bank selling the bad loan is not the investor. Other suggestions include a request to be classified as non-banking financial companies, which will enable ARCs to borrow from banks.
Bad bank
National Asset Reconstruction Company Ltd (NARCL), the name coined for the bad bank announced in the Budget 2021-22, is expected to be operational in June.Bad bank refers to a financial institution that takes over bad assets of lenders and undertakes resolution.
The new entity is being created in collaboration with both public and private sector banks.
NARCL will take over identified bad loans of lenders. The lead bank with offer in hand of NARCL will go for a ‘Swiss Challenge’, where other asset reconstruction players will be invited to better the offer made by a chosen bidder for finding higher valuation of an NPA on sale.
The company will pick up those assets that are 100 per cent provided for by the lenders, he added.
Finance Minister Nirmala Sitharaman in Budget 2021-22 announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books.
“An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt,” she had said in the Budget speech. It will then manage and dispose of the assets to alternate investment funds and other potential investors for eventual value realisation, she added.
Last year, IBA had made a proposal for creation of a bad bank for swift resolution of non-performing assets (NPAs). The government accepted the proposal and decided to go for asset reconstruction company (ARC) and asset management company (AMC) model for this.
Mehta further said NARCL will pay up to 15 per cent of the agreed value for the loans in cash and the remaining 85 per cent would be government-guaranteed security receipts.
The government guarantee would be invoked if there is loss against the threshold value, he added.
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Following the financial turmoil from the pandemic, customer interest for credit cards is on the rise, as it gives access to quick money that is not available in your bank account. Even if you have some investments which can be tapped to meet your emergency needs, it takes some time to break them. Hence, people tend to prefer credit cards where funds are available on tap. While credit cards do come in handy during emergencies, customers should also remember that with salespersons sitting on heightened targets to acquire customers, mis-selling of credit cards may be quite rampant. You must fully be aware of the terms and conditions, do’s and don’ts, lest your liabilities pile up.
In the Annual Report of Ombudsman Schemes 2019-20 (latest available), the RBI highlighted that about 28,713 complaints received (9 per cent of total complaints) were with respect to credit card mis-selling.
Taking cues from these complaints, we highlight certain things you need to be aware of before you take up a credit card.
Ever experienced pre-approved credit cards landing in your mailbox ? Well, the money may be handy, but the problems may not be far behind. Banks are clearly prohibited from issuing such unsolicited cards. Even for their existing clientele, banks can only issue inactive credit cards, without the prior approval of the customer.
The activation of the card can solely be done by the customer, and until such time no charges whatsoever can be levied. If you receive an unsolicited card, you should immediately sort this out with the bank to avoid fraudulent use of such card or any ensuing levy of charges.
Hence, it pays to be alert and keep a tab on your bank communications and statements. Even in your savings account, do a thorough check of every charge, however petty. These charges can alert you on any such wrongful or unintended activation of credit cards in your name.
Also, most banks have the credit card tabs included in their mobile application and net banking website. Visiting the credit card section once in a while will help you keep a tab on all active credit cards, the amount billed and due on the same, etc. If any such unauthorised cards are activated, immediately report the same with the bank.
Instances were also reported of wrongful charges being levied on authorised credit cards. While the bank personnel could have presented the card as a completely free one, sudden levy of annual maintenance charge (AMC) or other charges would have taken you by surprise.
Turns out the waiver on AMC was only applicable for the first year and has been wrongly communicated to the customer. Or only some charges have been waived while a set of other charges continue to be levied.
Quite often these charges also don’t form part of the many brochures and statement of charges that are mailed along with your card, which leaves the customer in a tricky spot.
However, it is not that sellers alone are at fault. Customer ignorance is also to be blamed in many instances as per the Annual Report of Ombudsman Schemes.
Credit card cash withdrawal related complaints show such examples of customer unawareness. Banks often highlight the limit of cash withdrawals on your credit card, along with the credit limit. But what goes unnoticed mostly is that, while you have a 30-45 day interest free window to pay your normal dues on credit card, no such leeway exists for cash withdrawn from credit cards. Not only is an interest levied at exorbitant rates (23.8-42 per cent, per annum currently) from the date of withdrawal, but most banks also charge you a cash advance fee, that ranges from 2.5 to 3.5 per cent per month, on the amount withdrawn. This cash advance fee is also added to your dues and attracts interest from the date of withdrawal.
Another category of customer complaints relate to wrongful reporting to credit bureaus such as CIBIL, which affect the credit score. But again, this is more due to lack of awareness on the customer’s side than mis-selling on the part of the bank.
Are you aware that multiple applications for credit card made in a short span works against your credit score? Any liability on stolen/ lost cards that is not reported immediately, may also hamper your credit score.
Besides, many of those who only pay their minimum dues are also often unaware that the remaining amount due is treated on par with a loan – along with interest being levied, the dues form part of your credit report too.
Every late payment or non- payment of credit card dues also affects your credit score negatively. Whether the delay was on account of any disputed charge or not often isn’t mentioned in the report. Six months of missed payments and the bank can even ‘charge off’ your credit card. This ‘charge off’ status will remain on your credit report for as long as seven years.
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Under the scheme, banks can provide fresh lending support to a wide range of entities including vaccine manufacturers; importers/suppliers of vaccine and priority medical devices; hospitals and dispensaries; and pathology labs and diagnostic centres.
They will also provide finance to manufacturers and suppliers of oxygen and ventilators; importers of vaccines and COVID-related drugs; COVID-related logistics firms; and also patients for treatment.
The RBI said requests from banks desirous of availing funds from the central bank will be subject to availability of funds as on the date of application. Funds cannot be guaranteed in case the total amount of Rs 50,000 crore is already availed.
“Furthermore, banks should endeavour to lend within a reasonable period, i.e., not later than 30 days from the date of availing the funds from the RBI,” it said in a statement adding that there is no tenure restriction regarding lending by banks under the scheme.
However, the banks will have to ensure that the amount borrowed from the RBI should at all times be backed by lending to the specified segments till maturity of the scheme.
Banks are being incentivised for quick delivery of credit under the scheme through extension of priority sector lending (PSL) classification to such lending up to March 31, 2022. These loans will continue to be classified under PSL till repayment/maturity, whichever is earlier.
Banks can deliver these loans to borrowers directly or through intermediary financial entities regulated by the RBI.
“Under the scheme, banks are expected to create a COVID-19 loan book.
“By way of an additional incentive, such banks will be eligible to park their surplus liquidity up to the size of the COVID-19 loan book with the RBI under the reverse repo window at a rate which is 25 bps lower than the repo rate,” the RBI said.
Banks that want to deploy their own resources without availing funds from the RBI under the scheme for lending to the specified segments will also be eligible for the incentives.
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The Reserve Bank of India’s Regulations Review Authority (RRA 2.0) has constituted a six-member Advisory Group headed by S Janakiraman, Managing Director, State Bank of India, to support it in reviewing the central bank’s regulations and compliance procedures with a view to streamlining/ rationalising them to make them more effective.
The Authority has been set up initially for a period of one year from May 1, 2021. M. Rajeshwar Rao, Deputy Governor, RBI was appointed as the Regulations Review Authority last month.
“The Group will assist the RRA by identifying areas/ regulations/ guidelines/ returns which can be rationalised and submit reports periodically to RRA containing the recommendations/ suggestions,” RBI said in a statement on Friday.
The other members of the Group are — TT Srinivasaraghavan, Former MD and Non-Executive Director, Sundaram Finance; Gautam Thakur, Chairman, Saraswat Co-operative Bank; Subir Saha, Group Chief Compliance Officer, ICICI Bank; Ravi Duvvuru, President and CCO, Jana Small Finance Bank; and Abadaan Viccaji, Chief Compliance Officer, HSBC India.
The Group has decided to invite feedback and suggestions from all regulated entities, industry bodies and other stakeholders. Suggestions and feedback can be e-mailed to the Group latest by June 15, 2021.
The terms of reference of RRA 2.0 include making regulatory and supervisory instructions more effective by removing redundancies and duplications, if any; and to obtain feedback from regulated entities on simplification of procedures and enhancement of ease of compliance. The authority will seek to reduce compliance burden on regulated entities by streamlining the reporting mechanism; revoking obsolete instructions if necessary and obviating paper-based submission of returns, wherever possible.
The RRA will examine and suggest the changes required in dissemination process of RBI circulars/ instructions.
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The Mangaluru-based Karnataka Bank navigated the challenges posed by the Covid pandemic last year, and earned a net profit of ₹451.20 crore in the first nine months of 2020-21 against the profit of ₹431.78 crore for the full year of 2019-20.
In an interview to BusinessLine, Mahabaleshwara MS, MD and CEO of the bank, highlighted the strategies that helped the bank to perform better, and its plans for the current financial year amidst the second Covid wave. Excerpts from interview:
India is witnessing the second wave of Covid. How is your bank planning to tackle this fresh challenge?
The first half of the last fiscal was spent in understanding and fighting the pandemic while the business was muted and there was no clear picture about the Covid pandemic. Our innovative business principle of ‘conserve, consolidate and emerge stronger’ immensely helped us to tide over the said crisis-like situation and be able to come out with satisfactory numbers. But now the situation is different. At least now, we have one year of experience in navigating through the pandemic and that is a huge advantage.
To overcome Covid wave 2.0, as in the previous fiscal, our bank will continue to practice the principle of ‘conserve, consolidate and emerge stronger’ along with the required cost cutting measures this year too. We will continue to be cautious and conservative. We will focus on developing a cost-light liability portfolio by concentrating more on CASA and low-cost retail term deposits besides developing a healthy asset portfolio which is largely protected against the ill effects of pandemic in the long run to tide over the economic challenges associated with the Covid wave 2.0.
Your recent letter to the shareholders mentioned that the bank is aiming at a ‘moderate’ growth of 12 per cent for 2021-22. What are the reasons for this moderate outlook?
Yes. The bank has set a moderate growth target of 12 per cent for business turnover for the current fiscal. Considering the Covid second wave that is sweeping the country with enormous impact on health and business in the short and medium term, we expect growth challenges in key sectors during the first half of the current year. Even though MSME and agriculture sectors are less impacted which are the main components of our retail loan book growth, the entire ecosystem of the economy already took a shock and it may need sufficient time to come out of this, if there are no more waves of Covid going forward.
We also expect the customers to be conservative in investing in new or big projects or expansion of business. Our focus will be to conserve, maintain the asset quality and grow steadily with quality during this fiscal. However, the bank will always be in a ‘ready mode’ to catch up business at any stage of economic rebound, beating our own guidance level. We have superior digital loan journey infrastructure and in a better position to encash such opportunities on the very first sight of economic turnaround.
Do you think the fresh Covid wave will lead to the increase in the NPAs in the coming days? If yes, how are you planning to handle that?
Even though the economic impact of the second wave of Covid pandemic and the related lockdowns ,etc have just started unfolding, no one can take it lightly and it may be too early to foresee the impact. The banking industry in India has fully exhibited its resilience and was able to face the challenges posed by the first wave of Covid, mainly because of the ‘economic vaccines’ in the form of regulatory packages such as moratorium, OTR / MSME restructuring, Emergency Credit Line Guarantee Scheme, charging of simple interest during moratorium, etc announced by the Government / Reserve Bank of India.
By opting for the said ‘economic vaccines’, the borrowers managed their cash flow with extended loan period. However, now the country is better placed with all its populace in the age group of 18 years and above are poised to get vaccines. Further, the borrowers have also remodelled their business and became more agile. However, it is also expected that revival and recovery may take more than the expected time. RBI has also recently announced a ‘booster dose’ with various relief measures both for the bankers as well as individual borrowers, small borrowers and MSMEs. This is expected to give the required impetus to the economy. Hence, the response for Covid 2.0 and going beyond, should be collective, comprehensive, decisive and long lasting besides forward looking.
Going by the current trend (until a major portion of India gets vaccinated), Covid waves are likely to recur at regular intervals. How is your bank planning to handle this?
The good news is that the Government has allowed vaccination for individuals aged 18 years and above. With vaccination initiatives and also with more awareness being created among the public about the this, it is hoped that maximum people would get vaccinated in about two-three months considering the current progress. It is expected that once the herd immunity is developed, the surge of Covid would also come down significantly. Like previous fiscal, our bank would continue to be cautious in lending and would ensure adding remunerative and quality assets besides focusing on a cost-light liability portfolio. Necessary steps will be taken at our disposal to protect the interest of all our stakeholders. With the strong fundamentals and improved capital adequacy ratio, we are confident of sailing smooth this year also in spite of unforeseen challenges.
Like earlier economic shocks such as the global recession, global financial crisis of 2007-08, this time too Indian banking sector, I am sure, will withstand the challenges and come out with flying colours. We will stand rock solid with the Government, RBI and the customers.
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The Reserve Bank of India (RBI) on Friday said Banks should lend to stakeholders in the Covid-related healthcare infrastructure and services within 30 days from the date of availing funds from it under the ₹50,000 crore“On-Tap Term Liquidity Facility to Ease Access to Emergency Health Services scheme”.
As per the scheme, there is no tenor restriction regarding lending by Banks. However, they will have to ensure that the amount borrowed from RBI should be backed by lending to the specified segments until the scheme’s maturity.
The scheme, which opens an on-tap liquidity window of ₹50,000 crore for Banks with tenors of up to three years at the repo rate till March 31, 2022, has been launched to boost immediate liquidity, ramping up Covid-related healthcare infrastructure and services in the country.
The scheme will remain operational from May 07, 2021, till March 31, 2022.
Banks can provide fresh lending support to a wide range of entities under the scheme, including vaccine manufacturers; importers/ suppliers of vaccine and priority medical devices; hospitals/ dispensaries; pathology labs and diagnostic centres; manufacturers and suppliers of oxygen and ventilators; importers of vaccines and Covid-related drugs; Covid-related logistics firms and also patients for treatment.
RBI will aggregate requests from Banks and release funds every Monday (on the subsequent working day if Monday is a holiday) by initiating a 3-year repo contract with the requesting bank.
If a bank places multiple requests during the week, all such requests will be aggregated, and a single repo contract will be created on the date of operation.
The eligible collateral and margin requirements for availing funds under the scheme will remain the same as applicable for Liquidity Adjustment Facility operations.
The central bank said Banks could park their surplus liquidity up to the size of the Covid loan book they build in a special 14-day reverse repo window to be conducted on each reporting Friday.
RBI will offer 40 basis points higher interest than the current reverse report rate on such liquidity.
The first such special reverse repo operation will be held on May 21, 2021. These 14-day reverse repo operations would continue till March 31, 2022 and will be reviewed thereafter.
Banks are being incentivised for quick delivery of credit under the scheme through the extension of priority sector lending (PSL) classification to such lending up to March 31, 2022.
RBI said Banks desirous of deploying their own resources without availing funds under the scheme for lending to the specified segments mentioned above would also be eligible for the additional incentives.
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The Rs 10,000-crore support from the Reserve Bank of India (RBI) as part of its pandemic relief measures announced on Monday is set to make small finance banks more competitive. The SFBs would get such funds at 4% for three years, which is significantly lower than their average cost of lending. The new facility would help them to get about 1-1.5% positive carry on the borrowed funds, even after investing the same amount into government securities as mandated by the central bank.
This window is an opportunity for SFBs with surplus g-secs to turn competitive as the lenders can deploy the available fund at a higher spread. Small banks generally lend at rates in the range of 10-20% depending on borrowers’ profile.
The banking system including small finance banks is sitting on a cash surplus of Rs 7.12 lakh crore.
Banks carrying surplus short-term securities could liquidate it and deploy the funds for lending.
SLTRO boost
Reserve Bank of India (RBI) has announced a special long-term repo operation (SLTRO) for small finance banks, amid the second wave of Covid cases in the country. The central bank will conduct 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 during an unscheduled address.
“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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The issue size is said to be in the range of Rs 1,200-Rs 1,400 crore and would comprise of a fresh issue and offer for sale by the existing shareholders, according to market sources. Fincare SFB backed by investors such as True North, TA Associates, Tata Opportunities Fund and SIDBI, is the latest small finance bank (SFB) to announce plans to go for initial public offering.
ICICI Securities, Axis Capital, and Ambit Capital are the book running lead managers for the issue.
TPG-backed Jana Small Finance Bank, ESAF Small Finance Bank and Utkarsh Small Finance Bank have already filed DRHP with the regulator for IPOs and are expected to hit the market over the next couple of months.
Fincare SFB was one of the 10 micro finance institutions that received RBI permission to convert into a small finance bank. Under RBI norms, SFBs are required to list within three years of reaching a net worth of Rs 500 crore and Fincare SFB has to list before September 2021 as per RBI rules for small finance banks.
SFBs were in the limelight recently as RBI has decided to allow the classification of priority sector lending for loans given by small finance banks to micro-finance institutions (MFI) for on-lending to individuals. The decision has been taken to address the liquidity issues amid the severe Covid crisis. SFB stocks like Ujjivan Small Finance Bank and Equitas Small Finance Bank have been performing well on the bourses on the back of strong investor interest in the sector.
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Banks on Thursday offered to sell three Government Securities (G-Sec) aggregating ₹63,012 crore to the Reserve Bank of India (RBI) against the notified amount of ₹10,000 crore at the first special Open Market Operation (OMO) — simultaneous purchase and sale auction of G-Secs — of FY22.
Of the three G-Secs the RBI intended to purchase under OMO Purchase and Sale (Operation Twist), it accepted offers aggregating ₹10,000 crore only for the benchmark 2030 G-Sec (coupon rate: 5.85 per cent).
The central bank jad rejected all the offers it received for the 2026 G-Sec (6.97 per cent) and 2028 G-Sec (7.17 per cent).
RBI set the cut-off price for the purchase of the 2030 G-Sec at ₹99.10 (previous closing price: ₹99.07), with the cut-off yield coming in at 5.9742 per cent (5.9783 per cent).
The central bank received bids aggregating ₹36,471 crore at the sale of two 182 day Treasury Bills under the Operation Twist against the notified amount of ₹10,000 crore. It accepted bids for the notified amount.
Under Operation Twist, RBI simultaneously buys long-term G-Secs and sells Treasury Bills to lower longer-term interest rates.
G-Sec prices moved in a narrow band in the secondary market as auction of four G-Secs aggregating ₹32,000 crore is scheduled on May 7.
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