Tag: RBI

RBI wants open offer exemption for ARCs buying bad assets from banks, BFSI News, ET BFSI

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The Reserve Bank of India has sought open offer exemption from capital markets regulator Securities and Exchange Board of India (Sebi) for equity stake purchases by Asset Restructuring Companies (ARCs).

Under the current Takeover Code rules, commercial banks and public financial institutions are exempt from making an open offer if they acquire shares beyond a threshold by invoking a pledge. ARCs acquire loans that qualify as non-performing assets from banks.

Banks sell bad loans to an ARC for a lower price and cut losses. In this process, all the collateral that was pledged in favour of the bank will be transferred to ARC.

If the collateral exceeds 25% of the total equity of the company, then such pledge invocation will need the ARC to give an open offer to the minority investors.

Takeover code

Sebi’s takeover code is triggered when an entity acquires over 25% stake in a listed company. At this point, the acquirer has to declare an open offer and buy at least 26% more stake from public shareholders.

Until 2019, the open offer exemption was available to all classes of investors undertaking debt restructuring. In 2019, Sebi changed the rules because RBI dissolved all the debt restructuring schemes and instead all the liquidation was being done through the Insolvency and Bankruptcy Code (IBC).

Market participants say the open offer requirement also slows down the resolution process since a lot of minority shareholders would view it as their last chance to cash in on the shares of a company that is most probably going to be liquidated.

Revised norms

In 2018, the RBI revised norms for bad loan resolution. Until then, banks were allowed to recast the corporate debts by converting their debt into equity.

In February 2018, the central bank phased out the debt restructuring schemes and made it mandatory for banks to refer all bad loans to the IBC process after a specific timeline. This circular of RBI prompted Sebi to revise its rules.

The RBI is mulling easier rules for ARCs. Earlier this month, an expert panel led by former RBI executive director Sudarshan Sen submitted its report to the central bank aimed at simplifying regulations for these financial institutions.

What Sudarshan Sen panel says

In the interest of debt aggregation, the scope of Section 5 of the SARFAESI Act, and other related provisions, may be expanded to allow ARCs to acquire ‘financial assets’ as defined in the Act, for the purpose of reconstruction, not only from banks and ‘financial institutions’ but also from such entities as may be notified by the Reserve Bank.

Reserve Bank may consider permitting ARCs to acquire financial assets from all regulated entities, including AIFs, FPIs, AMCs making investment on behalf of MFs and all NBFCs (including HFCs) irrespective of asset size and from retail investors.

ARCs should be allowed to sponsor SEBI registered AIFs with the objective of using these entities as an additional vehicle for facilitating restructuring/ recovery of the debt acquired by them.



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Time to clear the air on cryptos

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While the government has had mixed and probably even alternating stance on cryptocurrencies, the currency regulator RBI had been silent for a long time and, of late, has shared its concerns on cryptos with the government.

The securities regulator SEBI could be the ideal regulatory candidate if cryptos were to be treated as an asset class.

The Indian investor community has been euphoric about the instrument, despite noise that crypto investing could become illegal or taxed harshly. All this, when the issue of crypto was purportedly settled last year with the Supreme Court of India lifting the RBI’s crypto ban of 2018.

A to G of crypto

Arbitrary actions and reactions will continue as the financial industry has showcased so far. A few months ago, some banks stalled operations or pass-through of the crypto exchanges; purportedly, as the market guesses, to avoid irritating their regulator. The day there is clarity on how crypto would be seen under Indian law, and if it is for holding crypto as an asset, every BFSI and fintech would jump onto the bandwagon.

The banking sector’s lack of understanding of cryptos continues. It is more about understanding the liquidity of various cryptos available. As long as the rules bring clarity on what other information other than KYC would be needed, the sector can chug ahead.

Crypto consumers will stay invested probably until they get hurt by crypto falsehood or misleading investments. It is rightfully the RBI’s endeavour to have consumer protection in mind. But as we regulate the sector, we also have to move to a market-led economy, where, as long as the consumers get into an investment position without being mis-sold or forced to invest, the industry should not be ostracised.

It is also worthwhile to mention that the RBI is planning to launch its own CBDC (central bank digital currency). Debt leverage worry of the lending community will continue until they are allowed by the regulator. End-usage fears that cryptos could potentially be used for terror financing, etc., seem far-fetched, considering the granularity of its traceability. Interestingly, usage of gold or realty seems far in the wrong end of illegal funding.

Functionality of its core, which is blockchain, cannot be brushed away. It has tremendous usage and potential across public finance, banking and financial services; this could help build a secure financing backbone for the entire country as we seek to expand the inclusive-nature of our financial offerings.

The government’s stand cannot vacillate on policy matters without taking wide range of inputs, not just from a commercial angle but also from a deeper technological understanding if it can bring potential good. Let’s remember that our grandparents could not have imagined mobile-payments or transactions without seeing/touching the monies or writing a cheque. So let us not discount the emerging digital monies, for the short term notion of “not wanting it happen in my watch.”

Any asset class’ trade-worthiness and consequent liquidity is determined by a crucial factor: “trust”. Regulations can offer confidence around legality of the asset class and its usage, but cannot determine public acceptance or asset pricing. Regulations can surely offer consumer confidence and consumer protection if they are light-touch and use latest digital supervisory capabilities.

It is essential that the government does not give into knee-jerk reactions of the stakeholders, and takes a pragmatic call. It has displayed tremendous initiative by adopting digital across various facets including financial markets, e-governance, public outreach, etc. It should engage in depth with various stakeholders to understand how digital finance can be used for larger public good, and not give in to short-term worries and lack of capacity.

It’s a good sign that the Parliamentary Standing Committee on Finance has invited crypto industry players to hear their views on the opportunities and challenges. If our regulators take a leaf from this and invite multi-stakeholder discussions and seek inputs about the draft Bill, it would be a comforting exercise.

In the spirit of democratic transparency, it would be welcome if the ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ is put in public domain, and comments sought.

The writer is corporate advisor and markets commentator

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RBI officers, employees withdraw call for agitation

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The United Forum of Reserve Bank Officers and Employees, the umbrella organisation representing employee and officer unions in the Central Bank, have withdrawn its call for an agitation to press the pending issue of wage revision.

Protest programmes were scheduled to begin from Tuesday, but the United Front said that they are being withdrawn in response to an intervention by the Chief General Manager-in-Charge of the Human Resources Management Department.

HRM Department intervenes

“The CGM-in-Charge requested that in view of issues related to wage settlement in the Bank being in an advanced stage, our agitational program may be withdrawn and cooperation extended” for an early closure, said Samir Ghosh, Arun Samaddar, Gavin Coelho and Meet Pathak, leaders of the constituent unions of the United Front.

“Our leaders demanded a formal letter from the Bank, which was separately made available to the constituent unions late on Tuesday evening. We discussed amongst ourselves and decided to respond to the call and facilitate the wage settlement early.”

Earlier, the United Front had said that RBI officers and employees were embarking on an agitational path from today (Tuesday) after their ‘several attempts’ to revive talks on the long-pending issue of wage settlement failed repeatedly.

‘Several bids had failed’

“We have no option but to protest strongly the Central Bank’s inexplicable dilly-dallying on a very highly sensitive matter such as wage revision of the staff, pending for the last four years and more,” said leaders of the constituent unions had said.

Lunch-time gate demonstrations were to begin from Thursday and officers and employees would wear a badge during November 23 to 26. Lunch-time mass deputations would be taken out to the offices of the Regional Directors/Officers-in-charge on November 26. All staff coming under the current wage settlement were to go on mass casual leave on November 30.

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RBI governor to banks, BFSI News, ET BFSI

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RBI governor Shaktikanta Das on Tuesday asked lenders to proactively identify loans to firms that have turned non-viable but not yet recognised as a non-performing asset (NPA) due to the special dispensation during Covid. The governor also asked banks to review the usability of capital for absorbing losses during a crisis.

Pointing out that numerous high-frequency indicators are showing that economic recovery is taking hold, Das said that there have been several resolution frameworks announced in the wake of the pandemic. “As the support measures start unwinding, some of these restructured accounts might face solvency issues over the coming quarters. Prudence would warrant proactive recognition of such non-viable firms for pragmatic resolution measures,” said Das.

Speaking at an economic conclave organised by the State Bank of India, Das noted that banks have weathered the Covid shock better than expected and, according to early trends, their bad loans and capital position has improved in September 2021 from their levels in June 2021. He said that the profitability metrics of banks were highest in several years. However, the improved parameters partly reflect regulatory relief provided to banks during Covid as well as fiscal guarantees and financial support given by the government, he said.

“Certain concerns have re-emerged from the crisis which warrant our attention. Most importantly, we are faced with the question of capital and provisioning buffers of banks, their adequacy and resultant usability during a crisis,” said Das. He urged banks to focus and further improve their capital management processes to envisage the capacity for loss absorption as an ongoing responsibility of the lending institutions.

In his speech, the governor also cautioned banks on the “technological invasion” that they face. “A word of caution is in order: Globally, the ‘phygital’ revolution has played out into several collaborative models between banks, NBFCs and fintech players such as incubation, capital investment, co-creation, distribution and integration… it must be recognised that the risks ultimately lie in the books of banks and NBFCs and hence the collaboration should be appropriately strategised,” Das said.



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RBI Governor, BFSI News, ET BFSI

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The central bank is closely monitoring the business models and strategies of banks, Reserve Bank of India Governor Shaktikanta Das said on Tuesday. He, however, clarified that the central bank’s move is not intended at interfering in banks’ commercial decisions, but it will red flag lenders if there is any risk building up.

“At the RBI, we have started taking a closer look at the business models and strategies of banks.

“Take your commercial decisions, we will not interfere, but we will see what kind of vulnerabilities and what kinds of risks are building up, and our first priority would be to caution banks themselves,” Das said at the SBI’s Banking and Economic Conclave.

He said the RBI’s supervision is now almost on a real-time basis and is not an annual exercise anymore. Technology has enabled a more intensive look towards the supervision process.

While banks take their commercial decisions, they should also factor in the available liquidity and also the kind of interest rate structures they are providing. These decisions should be taken based on prudent principles, he said.

The governor said irrespective of the fact that liquidity is in surplus, the risk pricing of various loans being extended by banks has to be done diligently by banks themselves.

“The mere fact that there is excess liquidity should not lead to any mispricing of loans because this excessive liquidity is not going to be a permanent feature,” Das said.

At a particular time last year, the economy needed liquidity because the financial markets were freezing up and there were episodes of mutual funds suddenly collapsing, and the RBI had to step in with massive liquidity support, he added.

The liquidity support ensured the orderly functioning of the financial markets.

The RBI is now moving towards a rebalancing of liquidity. It is making efforts to provide only that much liquidity which the system requires, Das noted.

“Let me make it very clear that there will always be adequate liquidity to meet the requirements of the productive sectors of the economy. But slowly we want to rebalance the economy in a manner that banks are left with that much liquidity which they need and not excess,” he added.

Earlier in his speech, the governor said banks should ensure that their business models and business strategies are conscious choices, following a robust strategic discussion in the Board, instead of being driven by a mechanical ‘follow the market’ approach.

“In their endeavour to grow, banks should avoid herd mentality and look for differentiated business strategies. Certain banks had followed the high risk and high return business strategy, with a skewed priority for serving only the interest of their investors,” he said.

According to him, the active role of the Board, especially in challenging the proposals of the management, becomes critical and will contribute towards a more diligent and balanced approach to decision making.

He said the board of directors carry the responsibility of being guardians of the trust that depositors have reposed in a bank.

“The RBI has high expectations from the oversight role of the Board, its composition, Directors’ skill profile, strong risk and compliance structure and processes, more transparency and a robust mechanism of balancing various stakeholder interests,” he added.

Das said banks have weathered the COVID-19 shock better than expected, with the gross non-performing assets and capital adequacy ratios of banks further improved in September 2021 from June 2021 levels.

“Going forward, there are risks and challenges, which require serious introspection and action on the part of the banking system,” he cautioned.

Das said one of the challenges banks are likely to face would be in dealing with the stressed borrowers impacted by COVID-19.

During the two waves of COVID-19, the RBI announced Resolution Framework 1.0 and 2.0 to provide relief to the borrowers and banks.

“As the support measures start unwinding, some of these restructured accounts might face solvency issues over the coming quarters. Prudence would warrant proactive recognition of such non-viable firms for pragmatic resolution measures,” he said.



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Jana Small Finance Bank ties up with three TReDS platforms to help SMEs, BFSI News, ET BFSI

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BANGALORE: Jana Small Finance Bank has tied up with M1xchange, RXIL, and A.TReDS. The partnership with Jana Small Finance Bank will now provide buyers and suppliers registered on all the TReDS platforms with a variety of options to secure funds by discounting invoices after sale.

The Trade Receivables Discounting System (TReDS) has been set up by RBI in order to resolve the credit challenges faced by the MSME suppliers by enabling discounting of their invoices and bills of exchange. TReDS ensures timely payments to MSMEs that access credit by posting their trade receivables on the system and getting them financed at a competitive rate through an auction mechanism where multiple financiers can bid on invoices accepted by PSUs, corporate buyers.

For MSME suppliers, TReDS offers the benefits of easy and quick availability of finance by discounting receivables at competitive rates, minimum and simple documentation, and overall better working capital management. For buyers of the goods or services such as corporates, government departments, PSUs, the platform helps to optimize working capital, reduced procurement cost, improve vendor management and lower administration cost for vendor financing, payments and settlements.

With the economy recovering after the COVID pandemic, Jana Small Finance Bank has been seeking to bolster its goal of building a robust and diverse MSME portfolio by stepping up its focus on supply chain financing. This partnership with all the three TReDS platforms is inclusive and provides access to a broad range of MSME loan-seekers.

In a statement, Sumit Aggarwal, Head of MSE, Supply Chain & Financial Institutions, Jana Small Finance Bank said, “MSMEs contribute 30% of India’s GDP, their growth depends on the availability of convenient, collateral free funding solutions to finance average outstanding receivables of Rs 500,000 crore per year, due to the time lapse between raising an invoice and receiving payment. By partnering with all available TReDS exchanges, we intend to become the go-to solution provider of supply chain finance to MSMEs that wish to unlock working capital without having to post collaterals or go through lengthy loan application processes.”



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PIDF corpus at ₹614 crore

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The corpus of the Payments Infrastructure Development Fund (PIDF) stands at ₹613.89 crore. Over 2.45 lakh physical devices and more than 55.36 lakh digital devices were deployed for payment acceptance under the PIDF by September-end 2021.

“Contribution to the PIDF is made by the Reserve Bank, authorised card networks and card issuing banks; the corpus currently stands at ₹614 crore,” the Reserve Bank of India said on Tuesday in a status update on the scheme.

RBI’s contribution

Of this amount, while the RBI has contributed ₹ 250 crore, authorised card networks have contributed ₹153.72 crore and card issuing banks have put in ₹210.17 crore.

The PIDF Scheme, operationalised by the RBI from January 1, 2021, subsidises deployment of Points of Sale infrastructure (physical and digital modes) in Tier-3 to Tier-6 centres and north-eastern States of the country.

From August 26 this year, beneficiaries of PM Street Vendor’s AtmaNirbhar Nidhi in Tier-1 and Tier-2 centres are also covered.

In terms of deployment of payments acceptance devices, 98,504 physical devices and 20,46,075 digital devices were deployed in Tier 3 and 4 centres. Another 84,968 physical devices and 30,47,750 digital devices were deployed in Tier 5 and 6 centres.

Physical devices include PoS, mobile PoS, GPRS, PSTN or Public Switched Telephone Network and digital devices include inter-operable QR code-based payments such as UPI QR, Bharat QR.

In the north-eastern States, 18,449 physical devices and 2,42,145 digital devices were deployed while under the PM SVANidhi Scheme, 44,021 physical devices and 2,00,708 digital devices were deployed.

PIDF will be operational for three years from January 1, 2021 and may be extended for two more years depending upon the progress. It aims to increase payments acceptance infrastructure by adding 30 lakh touch points – 10 lakh physical and 20 lakh digital payment acceptance devices every year.

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PMC Bank: Proposed scheme of amalgamation could be a test case for RBI

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The proposed amalgamation of the scam-hit Punjab and Maharashtra Co-operative (PMC) Bank with the newly floated Unity Small Finance Bank could be a test case for the Reserve Bank of India (RBI) regarding its approach towards how individual depositors with deposits up to ₹2 crore and those with deposits of ₹2 crore and above can be dealt with when it comes to withdrawal of money.

The Scheme being put together by the central bank is expected to be placed in public domain in a week or so for suggestions and objections from members, depositors and other creditors of transferor bank (PMC Bank) and transferee bank (Unity SFB).

As per Reserve Bank of India (Interest Rate on Deposits) Directions, 2016, a “Bulk Deposit” means a single Rupee term deposit of ₹2 crore and above for Scheduled Commercial Banks (excluding Regional Rural banks) and Small Finance Banks.

So, a deposit of up to ₹2 crore is considered as a “Retail Deposit”.

The question uppermost on individual depositors’ (under the bulk deposit category) mind is whether the central bank will treat retail deposit and individual bulk deposit on an equal footing vis-a-vis withdrawal.

Phased withdrawal

Chander Purswani, President, PMC Depositors’ Forum, said the Scheme should clearly specify the threshold up to which individual deposits can be freely withdrawn and how deposits beyond this threshold can be withdrawn in a phased manner over, say, 3-5 years.

City Co-op Bank wants to emulate PMC Bank for reconstruction

Further, interest accrued on individual depositors’ deposits, be it retail or bulk, should be allowed to be withdrawn in toto.

He underscored that PMC Bank depositors have suffered over the last 26 months amid the Covid-19 pandemic as deposit withdrawal has been capped at ₹1 lakh of the total balance in their account(s) during the entire period that their Bank is under RBI’s Directions.

What this means is that depositors, especially senior citizens (who usually depend on interest earnings to meet monthly expenses), had to make do with only ₹3,846 a month over the last 26 months.

PMC Bank’s resolution could become a template for rescuing other weak UCBs

Purswani assessed that after taking into account deposit withdrawals of up to ₹1 lakh, PMC Bank has about 1.42 lakh depositors with deposits of over ₹1 lakh. Of this, there are about 43,000 depositors, including individuals, trusts, cooperative societies, etc, with deposits of over ₹5 lakh.

DICGC, a wholly-owned subsidiary of RBI, had upped the limit of insurance cover for depositors in the insured banks fivefold to ₹5 lakh per depositor with effect from February 4, 2020.

Individual depositors, including those with large deposits, need an assurance that they can systematically withdraw their money from Unity SFB, the Forum’s chief said.

Limited period incentive

He opined that the Scheme could also incorporate a limited period incentive, whereby PMC Bank depositors can earn higher interest rate over the card rate so that they are encouraged to keep the deposits with Unity SFB.

PMC Bank came to grief as its high exposure to real estate company HDIL turned non-performing.

The central bank red-flagged the fraud/financial irregularities in the bank and manipulation of its books of accounts.

Last month, RBI granted banking licence to Unity SFB, which has been established jointly by the Centrum Financial Services Ltd (CFSL) and Resilient Innovations Private Limited (BharatPe), to carry on SFB business in India.

RBI had accorded “in-principle” approval to CFSL, which is a wholly-owned subsidiary of Centrum Capital Ltd, on June 18, 2021, to set up an SFB.

The “in-principle” approval was in specific pursuance to CFSL’s February 2021 offer in response to PMC Bank’s November 2020 Expression of Interest (EoI) notification.

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RBI officers, staff chalk out agitation plan to press wage revision

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Officers and employees of the Reserve Bank of India are on an agitational path from today (Tuesday) after their ‘several attempts’ to revive talks on long-pending issue of wage settlement have failed repeatedly.

“We have no option but to protest the inexplicable dilly-dallying on a highly sensitive matter such as wage revision pending for last four years and more,” said Samir Ghosh, Arun Samaddar, Gavin Coelho, and Jeet Pathak, who represent employees, workers and officers’ unions under the United Forum of Reserve Bank Officers and Employees.

‘Wait in vain’

The United Forum told the constituents in a circular that “we felt very strongly to embark on protest earlier, but in deference to the wishes of some well-meaning friends, collectively decided to hold on till this week. The Governor was reportedly scheduled to hold talks with the Human Resources Management Department and we were expecting a solution to emerge.”

“Our wait is in vain, unfortunately,” the circular said. Having exhausted all avenues of peaceful solution, it has been decided that delegations of joint office-bearers/executive committee meet with Regional Directors of the RBI during lunch recess today (Tuesday) demanding immediate resumption of the process of finalisation of wage talks.

Mass leave

Lunch-time gate demonstrations will be launched on Thursday and officers and employees will wear a badge during November 23 to 26. Lunch-time mass deputations will be taken out to the offices of the Regional Directors/Officers-in-charge on November 26.

All staff coming under the current wage settlement will go on mass casual leave on November 30, the circular said.

A senior retired RBI official said that although employees and staff have the goodwill of the RBI’s name, they have had to struggle at different times for either fair and respectable salary revisions or other service conditions.

Pensioners suffer worst

“Since September 2008, these struggles have been more marked, frequent and regrettable, as the independence of the Bank even in staff matters had been surrendered to outside authority,” he said on condition of anonymity.

It is an ironic coincidence that on a day the Prime Minister dedicated some of the functions of the RBI to the nation, the staff has had to announce an agitational programme for getting a fair and honourable wage settlement.

Pensioners and family pensioners have been worse sufferers since counterparts in the government institutions have benefited far more, the retired official said.

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Economy set to recover on low interest rates, softening inflation: RBI bulletin

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The Indian economy is poised to regain the ground lost to the pandemic and re-emerge as among the fastest growing countries in the world, supported by the decadal low interest rates, softening inflation and a modest current account surplus, according to a article in the Reserve Bank of India’s latest monthly bulletin.

The Indian economy is clearly differentiating itself from the global situation, which is marred by supply disruptions, stubborn inflation and surges of infections in various parts of the world, per article ‘State of the Economy’, put together by 21 RBI officials.

The authors, however, underscored that the global economic outlook remains shrouded in uncertainty, with headwinds from multiple fronts corralling together at a time when many economies are still struggling and are at nascent stage of their recovery.

They cautioned that growing likelihood of policy normalisation by major central banks to quell fast rising inflation may tighten financial conditions and stutter the ongoing growth impulses.

Vaccination drive

The authors noted that domestically, there have been several positives on the Covid-19 front, in terms of reduced infections and faster vaccinations.

Mobility is rapidly improving; the job market is recouping and overall economic activity is on the cusp of a strengthening revival. Overall monetary and credit conditions stay conducive for a durable economic recovery to take root.

The authors assessed that in India, the recovery gained strength, though the speed and pace of improvement remains uneven across different sectors of the economy.

“Indicators of aggregate demand posit a brighter near-term outlook than before. On the supply side, the Rabi season has set in early on a positive note on the back of a record Kharif harvest and manufacturing is showing improvement in overall operating conditions, while services are in strong expansion mode. “Overall monetary and credit conditions stay conducive for a durable economic recovery to take root,” the article said.

The authors opined that the economy is gradually healing amidst an uncertain and volatile global environment, battered by supply chain and logistics disruptions, inflation shocks and geopolitical tensions.

“Incoming high frequency indicators show that the recovery is taking hold in several spheres, though some others are still lagging behind.

“With the gradual uptick in confidence, mobility indicators have edged up,” the article said.

Job market

The job market is exhibiting signs of ebullience on the back of uptick in business optimism and faster pace of vaccination, it added.

India’s merchandise exports have staged a smart turnaround, with surging double-digit growth for the eighth consecutive month in a row

Collections under the Goods and Services Tax (GST) have marked their second highest level in October since its introduction on the back of better tax administration and ongoing economic recovery.

Referring to the issuance of e-way bills being the highest in their history, the authors felt that this bodes well for GST collections going forward.

After exhibiting moderation in the month of September 2021, power consumption has registered an uptick despite supply side constraints.

“The headline manufacturing purchasing managers’ index (PMI) recorded expansion for the fourth consecutive month in October with anticipation of an improvement in demand conditions.

“The services sector is convalescing with the headline PMI rising to a decadal high in the same month,” the authors said.

Festival boost

With attractive offers by developers amidst the festival season, property registrations have also surged.

Overall, the growth momentum in digital transactions over the past few months indicates that the economy is gradually shaking off the shackles of the second wave of the pandemic, the authors said.

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