Tag: RBI

Uday Kotak, BFSI News, ET BFSI

Banking & Finance

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Mumbai, May 3 () With the RBI capping top managements’ tenure at lenders, Kotak Mahindra Bank‘s head Uday Kotak on Monday said his current term as the managing director and chief executive is till December 2023 and the board will take a call on succession in due course. Kotak also stressed that the commitment to institution building has been a core value for the entity over the last 36 years of its existence.

The RBI last week capped MD and CEOs’ terms at private sector lenders at 15 years, from October 1 onwards, but has allowed the serving bank heads to complete their current appointments.

Uday Kotak, who is also among the promoters of the lender, has been at the helm for over 17 years already.

“The tenure for me is up to 31st December 2023. So, you are going to see me around as CEO at least till then,” Kotak told reporters at a virtual press conference.

He added that the board and the bank are fully committed to long-term stakeholder value and will do whatever is required to ensure stakeholder and shareholder value for the future.

“The commitment to institution building long term is the core to our values and we will take whatever (step) is necessary to maintain that,” Kotak said.

He added that the journey for the entity started in 1985 as a non-bank finance company with a capital of Rs 30 lakh.

To a question on succession planning, he hinted that the board does not have to wait till the RBI puts a cap, and added that in the current times of COVID-19, it is all the more necessary.

“Any financial institution or any company for that matter always plans for what happens if the senior leader gets run over by a bus. In today’s time, the risk of being affected by COVID is even higher. Therefore, succession planning has to be a continuous process which every institution constantly thinks about,” he noted.

The board will act in a manner which is appropriate and responsible, he added. AA ABM ABM.



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IDBI Bank back in black in FY21 after 5 years, posts profit of Rs 1,359 cr, BFSI News, ET BFSI

Banking & Finance

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LIC-controlled IDBI Bank turned profitable in the fiscal ended in March 2021 after five years, posting a net profit of Rs 1,359 crore for the year. In 2019-20, the lender had posted a net loss of Rs 12,887 crore.

IDBI Bank is back in black after five years, said the lender.

In the last quarter of the fiscal year 2020-21, the bank reported a nearly four-fold jump in its net profit to Rs 512 crore, IDBI Bank said in a release. The bank had posted a profit of Rs 135 crore in the year-ago quarter.

The bank, which came out of the RBI‘s prompt corrective action (PCA) framework earlier in March this year, said its turnaround strategies led to the transformation.

Total income during Q4FY21 rose to Rs 6,969.59 crore from Rs 6,924.94 crore in the same period of 2019-20.

The full year income, however, was down at Rs 24,557 crore as against Rs 25,295 crore.

Gross NPA (non-performing asset) ratio improved to 22.37 per cent as on March 31, 2021 as against 27.53 per cent in the year-ago period. Net NPA improved to 1.97 per cent from 4.19 per cent, IDBI Bank said.

The bank said its recovery from technically written off accounts improved to Rs 269 crore in Q4FY21 as against Rs 105 crore in the third quarter FY21.

Provisions for bad loans and contingencies were raised to Rs 2,457 crore during the reported quarter as against Rs 1,584 crore.

The bank said it has made Covid-related provisions of Rs 363 crore at the end of March 2021.

IDBI Bank shares traded at Rs 36.25 on BSE, up 2.69 per cent from the previous close.



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As Covid rises, RBI sharpens risk tools to gauge banks, NBFCs, BFSI News, ET BFSI

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The Reserve Bank has decided to review and strengthen the Risk Based Supervision (RBS) of the banking sector to enable financial sector players to address the emerging challenges.

The RBI uses the RBS model, including both qualitative and quantitative elements, to supervise banks, urban cooperatives banks, non-banking financial companies and all India financial institutions.

More robust

It is now intended to review the supervisory processes and mechanism in order to make the extant RBS model more robust and capable of addressing emerging challenges, while removing inconsistencies, if any,” the RBI said while inviting bids from technical experts/consultants to carry forward the process for banks.

In case of UCBs and NBFCs, the Expression of Interest (EOI) for ‘Consultant for Review of Supervisory Models’ said the supervisory functions pertaining to commercial banks, UCBs and NBFCs are now integrated, with the objective of harmonising the supervisory approach based on the activities/size of the supervised entities (SEs).

It is intended to review the existing supervisory rating models under CAMELS approach for improved risk capture in forward looking manner and for harmonising the supervisory approach across all SEs,” it said.

RBI monitoring

Annual financial inspection of UCBs and NBFCs is largely based on CAMELS model (Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Systems & Control).

The RBI undertakes supervision of SEs with the objective of assessing their financial soundness, solvency, asset quality, governance framework, liquidity, and operational viability, so as to protect depositors’ interests and financial stability.

The Reserve Bank conducts supervision of the banks through offsite monitoring of the banks and an annual inspection of the banks, where applicable.

NPA threat

As per the Financial Stability Report of RBI, the NPAs of the banking sector were projected to surge to 13.5 per cent of advances by September 2021, from 7.5 per cent in September 2020, under the baseline scenario.

The report had warned that if the macroeconomic environment worsens into a severe stress scenario, the NPA ratio may escalate to 14.8 per cent.

Risk based internal audit

RBI earlier this year issued guidelines on risk-based internal audit (RBIA) system for select non-bank lenders and urban co-operative banks (UCBs)

to strengthen the quality and effectiveness of the internal audit system. While NBFCs and UCBs have grown in size and become systemically important, prevalence of different audit systems/approaches in such entities has created certain inconsistencies, risks and gaps, RBI said. The entities have to implement the RBIA framework by March 31, 2022, and have been asked to constitute a committee of senior executives, to be entrusted with the responsibility of formulating a suitable action plan



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RBI to strengthen risk-based supervision of banks, NBFCs, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank has decided to review and strengthen the Risk Based Supervision (RBS) of the banking sector with a view to enable financial sector players to address the emerging challenges.

The RBI uses the RBS model, including both qualitative and quantitative elements, to supervise banks, urban cooperatives banks, non-banking financial companies and all India financial institutions.

“It is now intended to review the supervisory processes and mechanism in order to make the extant RBS model more robust and capable of addressing emerging challenges, while removing inconsistencies, if any,” the RBI said while inviting bids from technical experts/consultants to carry forward the process for banks.

In case of UCBs and NBFCs, the Expression of Interest (EOI) for ‘Consultant for Review of Supervisory Models’ said the supervisory functions pertaining to commercial banks, UCBs and NBFCs are now integrated, with the objective of harmonising the supervisory approach based on the activities/size of the supervised entities (SEs).

“It is intended to review the existing supervisory rating models under CAMELS approach for improved risk capture in forward looking manner and for harmonising the supervisory approach across all SEs,” it said.

Annual financial inspection of UCBs and NBFCs is largely based on CAMELS model (Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Systems & Control).

The RBI undertakes supervision of SEs with the objective of assessing their financial soundness, solvency, asset quality, governance framework, liquidity, and operational viability, so as to protect depositors’ interests and financial stability.

The Reserve Bank conducts supervision of the banks through offsite monitoring of the banks and an annual inspection of the banks, where applicable.

In case of Urban Cooperative Banks (UCBs) and NBFCs, it conducts the supervision through a mix offsite monitoring and on-site inspection, where applicable.

A technical advisory group consisting of senior officers of the RBI would examine the documents submitted by the applicants in connection with EOI.

EOI said the consultant would be required to work in close co-ordination with officers of RBI’s Department of Supervision in Mumbai.



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ICAI to move RBI for tweaking of bank auditor appointment norms

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The Reserve Bank of India’s new rules on statutory auditor appointments for banks and NBFCs has not come as any jolt for the audit profession, but the CA Institute plans to approach the central bank for certain inclusions in order to improve overall bank audit and get a better outcome for the fraternity, Nihar N Jambusaria, President, ICAI, said.

The missing points in the new guidelines as regards the cooling-off period for auditors, the need to give higher weightage for experienced firms compared to new firms, and fixing the minimum number of Statutory Central Auditors while leaving the decision of the maximum number to the banks are some of points the ICAI would like to see in the new guidelines and will pitch for them, Jambusaria told BusinessLine.

The RBI had, on April 27, brought in new set of rules — without sharing them with the ICAI for its views — for appointment of statutory auditors of banks and non-bank finance companies (NBFCs), including housing finance firms.

Joint audit

The central bank has now made joint audit mandatory for entities with asset size of ₹15,000 crore and above, capped the number of audits a firm can perform in a year (four banks, and eight NBFCs and urban cooperative nanks) and reduced the tenure of auditors to three years from four. It has also done away with the concept of cooling period that was part of the previous set of guidelines. Approval of the central bank is mandatory for the appointment of statutory auditors of commercial banks.

Currently, if one firm has done audit of a bank for three years, there has to be a cooling period for three years. “There are many capable firms that are getting a chance to do audit. Now what they (the RBI) have decided is that after completion of the tenure of three years, the same firm can be appointed by another bank without any rest. Continuing with the cooling period concept will be better as more firms will be able to do audits. Many capable firms are there. They will all get a chance, too. The concept of cooling period should be retained and we will pitch for it,” Jambusaria said.

Instead of leaving it to banks to decide on the minimum number of Statutory Central Auditors (SCAs), it should be set by the RBI. The maximum number can be decided by the banks and this would enable smooth conduct of audits, he said.

Experienced vs new firms

The ICAI President said the new guidelines do not distinguish between the experienced and the new firms. Previously, the old guidelines had a ratio — 60 per cent for experienced firms and 40 per cent for new firms — in the appointment of auditors.

“…the 60:40 ratio should be there. Its removal may help big firms and banks will be at liberty to appoint all new or all experienced auditors. The balance will be lost. It needs to be retained,” he said.

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Distraught depositors want PMC Bank revived soon

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Distraught depositors of the scam-hit Punjab and Maharashtra Co-operative (PMC) Bank want the Reserve Bank of India (RBI) to speed up revival/reconstruction of the bank as they are in dire need of money to meet exigencies arising from the second wave of the Covid-19 pandemic.

Some of the depositors, especially the elderly, are barely able to get by despite having lakhs and crores of rupees locked up in the bank, as the RBI clamped down on deposit withdrawal since September 24, 2019, capping it at ₹1 lakh per depositor for the entire period that the bank is under Directions.

With RBI extending its Directions against the bank for the fourth time from April 1 to June 30, 2021, depositors are wringing their hands in despair that even after 19 months no solution to their woes is in sight.

RBI extends ‘directions’ against PMC Bank by 3 months

They pointed out that while depositors of other troubled banks such as YES Bank and Lakshmi Vilas Bank were rescued in double-quick time, when it comes to their bank, the rescue process has been drawn out.

Complex process, says RBI

Chander Purswani, President, PMC Depositors’ Forum, said: “The Bank should be revived/ reconstructed on SOS basis…Depositors are losing their lives amid the raging pandemic. These are testing times for all of us. The authorities should have some mercy on us.”

PMC Bank revival: Phased deposit withdrawal likely for customers

In a statement issued on March 26, 2021, the RBI observed that PMC Bank had received binding offers from certain investors for its reconstruction, in response to the Expression of Interest (EOI) floated by the bank in November 2020.

“RBI and PMC Bank are presently engaging with prospective investors in order to secure best possible terms for the depositors and other stakeholders while ensuring long-term viability of the reconstructed entity,” the central bank said.

The RBI also emphasised that given the financial condition of PMC Bank, the process is complex and is likely to take some more time.

Depositors’ angst: tweets say it all

Vasu Chhabria (@vasuchhabria) tweeted: “Reqst PMCBank Reconstruction/Resolution on war footing. Depositors losing lives. Pls don’t punish innocent citizens tax payers.

“Delay is costing lives. 19 months passed 118 depositors dead. What is their fault? It’s their hard earned money…”

Prem Kodnani (@drkodnani) tweeted: “If corona virus symptoms 1: difficult to get tested 2: difficult to get ambulance 3: difficult to get bed 4: difficult to get oxygen 5: difficult to get Remedesivir 6: to get all this, we require money…”

Srikanth Iyer (@SrikanthIyer10) tweeted: “Pls have humanity towards us v r also citizens of India rescue us by merging Pmc Bank with nationalised bank immediately it’s need of the hour…We can’t have access to our own hard-earned money.”

PMC bank was placed under RBI Directions with effect from the close of business on September 23, 2021, due to a huge fraud perpetrated by the promoter of a real estate group and some bank officials.

The Centrum-BharatPe combine is believed to be the front-runner in the race to buy PMC Bank.

As per the EOI floated by PMC Bank in November 2020, subsequent to commencement of the normal day-to-day operations, it will be open for the investor(s) to convert the bank into a Small Finance Bank (SFB) by making an application to RBI, subject to compliance with the RBI guidelines on Voluntary Transition of Primary (Urban) Co-operative Banks (UCBs) into SFBs.

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What is inflation-adjusted return – The Hindu BusinessLine

Personal Finance

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A phone call between two friends leads to a talk about inflation-adjusted returns.

Akhila: What are you up to, Karthik?

Karthik: I was planning to buy a television set for ₹50,000. But I later changed my mind to save and invest that amount to buy a better version next year.

Akhila: I hope inflation doesn’t eat into your returns.

Karthik: What do you mean?

Akhila: A few economists expect inflation to rise going ahead. If that happens, your inflation-adjusted returns can be low or even negative.

Karthik: Can you explain that?

Akhila: If you invest that ₹50,000 at four per cent p.a. in a fixed-income instrument, your investment will be worth ₹52,000 by year-end. Say, the average inflation over the next one year is six per cent and the price of the TV set which you decided not to buy, becomes ₹53,000. Let alone buying a better version, your investment amount won’t be sufficient to buy even the current model.

Karthik: Ouch!

Akhila: Inflation-adjusted returns, also called real returns takes into account the inflation rate while calculating the return on an investment.

Karthik: How do I calculate real returns?

Akhila: You can simply subtract the rate of inflation from the return on your investment. In the above example, the real return on your investment would be -2 per cent. That is, 4 per cent return minus the inflation rate of 6 per cent.

Karthik: That’s pretty simple.

Akhila: The above formula gives an approximate rate of real return. To be precise, you can use the formula — ((1+return)/(1+inflation rate)) – 1.

Karthik: Are there any savings instruments in the market that offer returns linked to inflation?

Akhila: There used to be inflation-indexed bonds but they are no longer available.

Karthik: Equities would give higher returns, right?

Akhila: Equity is said to deliver inflation-beating returns in the long-run. But remember, for the sake of earning higher inflation-adjusted returns, you should not go for investments that do not fit your risk appetite.

Karthik: What are the alternatives in the fixed income space?

Akhila: You can consider floating-rate instruments, coupon rates on which are linked to interest rate movements in the economy, which are a play of inflation as well.

Karthik: I remember reading the Simply Put column in BL Portfolio a few weeks back that talked about floating rate instruments such as Floating Rate Savings Bonds 2020, the PPF and the Sukanya Samriddhi Yojana.

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RBI Governor meets MD, CEOs of small finance banks, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India on Friday held a meeting with heads of small finance banks on credit flows to different segments of the borrowers and get a sense of emerging stress on banks’ balance sheet in view of the current economic situation.

The video conference meeting, chaired by RBI Governor Shaktikanta Das, was also attended by Deputy Governors M. K. Jain, M.D. Patra, M. Rajeswar Rao and a few other senior RBI officials.

In his opening remarks, the Governor recognised the important role of the SFBs in delivering credit and other financial services to individuals and small businesses. He also emphasised the supervisory expectations in terms of maintaining their business resilience and managing risks prudently.

Das advised the banks to pay focussed attention on improving customer grievance redress process while also strengthening IT systems in the interest of the banks and their customers.

A lot of discussions hovered around assessing liquidity scenario for banks and making an assessment of bad assets emerging from current economic situation.

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RBI joins network for greening financial system, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) on Thursday said it has joined the Central Banks and Supervisors Network for Greening the Financial System (NGFS) as a member. The central bank joined the NGFS on April 23, 2021. Green finance assumed significance in the context of climate change.

Launched at the Paris One Planet Summit on December 12, 2017, the NGFS is a group of central banks and supervisors willing to share best practices and contribute to the development of environment and climate risk management in the financial sector, while mobilising mainstream finance to support the transition towards a sustainable economy.

The RBI said it expects to benefit from the membership of NGFS by learning from and contributing to global efforts on green finance, which has assumed significance in the context of climate change.

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RBI launches latest round of surveys to get inputs for monetary policy, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank on Wednesday announced the launch of the latest round of households’ surveys to capture inflation expectations and consumer confidence, which provides useful inputs for its monetary policy.

The central bank has been regularly conducting these surveys.

Announcing the launch of the May 2021 round of Inflation Expectations Survey of Households (IESH), the RBI said it aims at capturing subjective assessments on price movements and inflation of approximately 6,000 households, based on their individual consumption baskets, across 18 cities.

“The survey seeks qualitative responses from households on price changes (general prices as well as prices of specific product groups) in the three months ahead as well as in the one year ahead period and quantitative responses on current, three months ahead and one year ahead inflation rates,” it said.

The cities include Ahmedabad, Bengaluru, Bhopal, Bhubaneswar, Chandigarh, Delhi, and Guwahati.

The May 2021 round of Consumer Confidence Survey (CCS) will cover approximately 5,400 respondents across 13 cities, including Ahmedabad, Bengaluru, Bhopal, Chennai, Kolkata, Lucknow, Mumbai and Thiruvananthapuram.

The CCS seeks qualitative responses from households, regarding their sentiments on general economic situation, employment scenario, price level, households’ income and spending.

The agency engaged by the RBI will conduct the surveys over telephone (instead of regular personal interview mode) in view of the COVID-19 pandemic.

The next meeting of the rate-setting Monetary Policy Committee (MPC) is scheduled during June 2 to 4, 2021.



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