Tag: RBI

RBI committee to evaluate on-tap applications for universal and small finance banks licenses, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India has taken a step ahead ever since the guidelines on on-tap licensing were announced in early 2016.

The RBI has step up a standing external advisor committee (SEAC) under former deputy governor Shymala Gopinath to evaluate new banking licenses under on-tap application for universal and small finance banks.

The application will be scrutinised by a standing committee and NBFCs floated by corporates could be given licenses.
Apart from Gopinath as chairperson of the committee, the RBI has inducted four members Revathy Iyer who’s central board director of RBI, NPCI’s chairman B Mahapatra, Canara Bank’s former chairman T N Manoharan and SBI’s former MD & PFRDA’s former Chairman Hemant Contractor.

Recently the RBI”s internal working grou had floated a paper on the issue of new licenses to corporate groups wherein NBFCs owned by corporate groups should be allowed to set-up banks, where many in the industry saw it as opening the doors for corporates to get into the banking sector.

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RBI may buy out Centre’s 51% stake in CERSAI

Banking & Finance

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The Reserve Bank of India (RBI) may pick up the Government’s 51 per cent stake in the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI).

CERSAI, which is a Government of India company, operates the central registry dealing with the filing of security interest of immovable, movable, intangible properties and assignment of receivables, among others, by lenders.

As these activities are essentially related to banks and non-banking finance companies, the finance ministry is believed to have sought RBI’s opinion on the possibility of it picking up the Government’s entire stake, said an official of one of the company’s shareholders.

RBI will be better placed to further develop and regulate CERSAI, he added.

While the Centre holds 51 per cent stake in CERSAI, the balance 49 per cent stake is held by select public sector banks, including State Bank of India, Punjab National Bank and Bank of Baroda, and the National Housing Bank.

CERSAI was set up in 2011 under Section 20 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The company is licensed under Section 25 of the Companies Act 1956.

May need amendment to SARFAESI Act

An amendment to the SARFAESI Act may be needed so that RBI can pick up the Government’s 51 per cent stake in CERSAI, said a senior public sector bank official.

The Central Registry was set up in 2011 to prevent frauds in loan cases involving multiple lending from different banks on the same immovable property.

As per a 2011 RBI notification, the records maintained by the Central Registry are available for search by any lender or any other person desirous of dealing with the property.

Availability of such records can prevent frauds involving multiple lending against the security of same property as well as fraudulent sale of property without disclosing the security interest over such property, it added.

CERSAI has also been entrusted with the responsibility of operating and maintaining a Central KYC Record Registry (CKYCRR), which started operating from 2016. This registry is governed under the Prevention of Money Laundering Rules 2005 (Maintenance of Records).

The CKYCRR caters to Reporting Entities (REs) of all four major regulators of the financial sector — RBI, SEBI, IRDAI and PFRDA.

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Post exit from PCA framework, IDBI Bank to focus on improving efficiency ratios, says MD, BFSI News, ET BFSI

Banking & Finance

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Having emerged from regulatory restrictions recently, IDBI Bank is now looking at growing business in a calibrated way with more focus on profitability and in improving efficiency ratios, its Managing Director and CEO Rakesh Sharma said. On March 10, the Reserve Bank of India (RBI) removed the LIC-controlled bank from its prompt corrective action (PCA) framework, which was imposed in May 2017, after it had breached certain regulatory thresholds, including capital adequacy, asset quality and profitability.

“With restrictions imposed by RBI gone, we will like to go in a calibrated way and grow the business in a more profitable fashion so that my efficiency ratios improve. Our revenue, profitability and other ratios will certainly show improvement,” Sharma told in an interaction.

He said in the fiscal 2021-22, the bank will be targeting to improve net interest margin (NIM) to 3 per cent, return of assets (ROA) at above 0.60-0.70 and cost to income ratio to below 50 per cent.

In the nine months ended December 2020, its NIM stood at 2.79 per cent and cost to income at 54 per cent.

“The depositors will now be seeing the strength of the bank. The bad phase is over and the bank is sufficiently strong,” he said.

Sharma said during the last four years, when the bank was under PCA, the focus was on retail and priority sector lending. Currently, the share of retail loans in the bank’s total advances is 60 per cent and that of corporate loans is 40 per cent.

“Going forward we will not be stopping corporate business. We will start doing corporate business and will continue to do retail business. It will be a retail-focussed bank,” he said.

During FY22, the bank is expecting around 8-10 per cent growth in mid and large corporate loan segments, and 12 per cent growth in retail and priority sector loans, he said.

Besides loan against property (LAP), the bank now wants to develop personal loans and gold loans portfolio, where it has a small exposure at present, Sharma said.

The bank doesn’t see much stress in its loan book going ahead due to the better asset quality.

“Due to Covid, we could see minor stress in accounts. But the type of assets that we have built up in our bank, I don’t foresee any problem,” Sharma said.

Overall slippages in fiscal 2020-21 and the next fiscal will be less than 2 per cent, he added.

In FY22, the bank is targeting a total recovery of Rs 3,500-4,000 crore.

Sharma said the bank is well capitalised and there is no immediate need for raising funds.

As of end-December 2020, the bank’s total capital-to-risk weighted assets ratio (CRAR) stood at 14.77 per cent.



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Govt may cancel FY21’s last weekly G-Sec auction

Banking & Finance

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The government may cancel the last weekly securities auction of FY2021 on rising expectations that the overall direct tax collection will exceed the revised target.

This, in turn, could soften Government Security (G-Sec) yields in the run up to the close of the fourth quarter and the financial year.

Market players expect the last weekly G-Sec auction for ₹20,000 crore to be cancelled as advance tax collections have turned positive at the end of the fourth instalment and the government has cash balances with the Reserve Bank of India.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, observed that there were reports that the government will weigh whether it needs money from the last weekly auction of FY2021.

“The government is having balances with the RBI. They could have ideally cancelled tomorrow’s auction (aggregating ₹29,000 crore) and next Friday’s auction (aggregating ₹20,000 crore). Given that we are close to the year end, cancellation of the last auction could help vis-a-vis valuation of banks’ treasury portfolio,” Irani said.

Yield inches up

The yield on the 10-year benchmark G-Sec (coupon rate: 5.85 per cent) inched up 2 basis points on Thursday to close at 6.2023, with its price declining about 12 paise to ₹97.45 over the previous close.

The yields in the secondary G-Sec market moved up on Thursday in sync with the US Treasury yields.

The yield differential between the 10-year benchmark G-Sec and the 15-year G-Sec (coupon rate: 6.22 per cent) is now about 63 basis points.

This differential shows that the RBI is intervening in the market, especially through special open market operations (OMOs), to keep the 10-year benchmark yield from rising, bond market dealers said.

The yield on the 10-year benchmark G-Sec has jumped about 30 basis points, with its price dropping about ₹2 since January-end.

Meanwhile, the RBI has announced that it will conduct special OMO, entailing simultaneous purchase and sale of G-Secs aggregating ₹10,000 crore each on March 25.

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RBI finds Rs 519 crore provisioning divergence by Central Bank of India in FY20

Banking & Finance

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In the absolute terms, gross NPAs of the bank stood at Rs 32,589.08 crore as on March 31 2020, but RBI calculated gross NPAs at Rs 32678.08 crore.

The Reserve Bank of India (RBI) has found divergence of Rs 519 crore in provisioning by Central Bank of India in the financial year 2020 (FY20), according to a regulatory disclosure made by the bank.

Accordingly, the adjusted net loss of the bank for the financial year 2020 has widened by Rs 519 crore to Rs 1,640 crore. The bank has also disclosed that RBI has found divergence of Rs 89 crore in the calculation of banks’ gross non-performing assets (NPAs) as on March 31, 2020. In the absolute terms, gross NPAs of the bank stood at Rs 32,589.08 crore as on March 31 2020, but RBI calculated gross NPAs at Rs 32678.08 crore.

The bank had declared more than required net NPAs during FY20. While the lender had reported net NPAs worth Rs 11,534.46 crore at the end of FY20, the RBI’s assessment showed net NPAs at Rs 11,104.46 crore, implying an extra declaration of net NPAs worth Rs 430 crore by the bank.

The bank is currently under prompt corrective action framework (PCA) of RBI. The banking regulator had placed Central Bank of India under PCA regime in June 2017 due to high net non-performing assets and negative return on assets. The regulator imposes many restrictions on banks under PCA framework, including on lending, management compensation and directors’ fees.

The lender had reported a 6% year-on-year (y-o-y) increase in its net profit at Rs 165 crore during the December quarter in the current fiscal (Q3FY21). Similarly, net interest income (NII) had grown 10% y-o-y at Rs 2,228 crore during Q3FY20.

While the gross NPA ratio of the bank remained at 16.3%, net NPA ratio remained at 4.73% as on December, 2020. On a proforma basis, the net NPAs of the bank remained at 6.58%. The Supreme Court had directed lenders not to declare any fresh NPAs after August 31, 2020. Therefore, banks had disclosed NPAs on a proforma basis to reflect true picture of the asset quality.

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FICCI-IBA survey, BFSI News, ET BFSI

Banking & Finance

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Asset quality of banks, which saw some improvement in the second half of 2020, is likely to worsen during the first six months of 2021, according to a survey.

The findings are part of the 12th round of bankers‘ survey carried out by FICCI-IBA between July and December 2020.

The survey was conducted on 20 banks, including public sector, private sector and foreign banks, representing about 59 per cent of the banking industry, as classified by asset size.

In the current round of the survey, half of the respondent banks reported a decline in NPAs during the second half of 2020. About 78 per cent of participating state-run banks have cited a reduction in NPA levels.

“However, in terms of outlook, nearly 68 per cent of respondent bankers expect the NPA levels to be above 10 per cent in the first half of 2021,” the survey showed.

Close to 37 per cent of respondents expect NPA levels to be upwards of 12 per cent.

The Reserve Bank of India’s Financial Stability Report, released in January this year, showed that gross non-performing assets (NPAs) of banks may rise to 13.5 per cent by September 2021, under the baseline stress scenario.

Some of the high NPA risk sectors identified by majority of respondent bankers in the current round of survey include tourism and hospitality, MSME, aviation and restaurants, the survey showed.

Around 55 per cent of respondents believe NPAs to rise substantially in the tourism and hospitality sector, while another 45 per cent reported that NPAs are likely to increase moderately in this sector.

Another high NPA risk sector reported in the current round of survey is the MSME sector, with 84 per cent respondents expecting an increase in NPAs in this sector.

Close to 89 per cent respondents also expect the restaurant sector to see an increase in NPAs, though only 26 per cent expect NPAs to increase substantially in this segment, it showed.

The survey revealed that there was a significant increase in the requests for one-time restructuring for MSMEs, announced by the RBI in August last year.

“An overwhelming 85 per cent of the respondent banks have cited an increase in requests for restructuring of advances as against 39 per cent in the last round,” it said.

The long-term credit demand has been growing for sectors such as infrastructure, pharmaceuticals and food processing, the findings showed.

“Particularly for the pharma sector, 45 per cent of the respondents have indicated an increase in long term loans in the current round of survey as against 29 per cent in the previous round,” it showed.

Over half of the respondents indicated that they did not avail funds under on-tap targeted long-term repo operations (TLTRO) while about 33 per cent said that TLTRO funds were deployed completely in securities issued by NBFCs/ MFIs, the survey showed.



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All you need to know about Suryoday SFB IPO, BFSI News, ET BFSI

Personal Finance

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The Suryoday Small Finance Bank IPO is now open and live till March 19, with a price band of ₹303-305. Each lot consists of 49 shares. A total of 1.9 crore shares are available for subscription in the IPO. 50% of the issue is reserved for qualified institutional buyers (QIB), 15% for non-institutional bidders and the remaining 35% for retail investors. Employees of the bank will have 5 lakh shares reserved for them, issued at a discount of Rs 30 per share.

The bank is among the leading SFBs in India in terms of Net Interest Margins, Return on Assets, Yields and deposit growth and had the lowest Cost-to-Income ratio among SFBs in India in Fiscal 2020.

Suryoday SFB‘s purpose against launching its IPO
The proceeds of the IPO are proposed to be used for boosting the bank’s Tier-1 capital base to meet future capital requirements. Tier-1 capital refers to the core capital of a bank that consists of equity shares and retained earnings.

According to the bank’s red herring prospectus, the fund-raising will help Suryoday Small Finance Bank to augment its capital base. As of December 31, the bank’s capital adequacy ratio stood at 41.17%, where Tier-1 capital constituted 34.3% reported by The Quint.

Further, small finance banks are required to list within three years of reaching a net worth of Rs 500 crore, as per the Reserve Bank of India (RBI) guidelines governing these lenders. The bank had crossed the milestone in November 2017, making it necessary to list by November 2020.

The bank had applied to the RBI for an extension of timeline for listing till May 31, 2021. However, the RBI rejected the request and asked it to complete its listing at the earliest, according to the prospectus.

Business of Suryoday Small Finance Bank
SSFB received the small finance bank licence from the RBI in 2016. Prior to that SSFB operated as a NBFC and offered small ticket-size loans to women from weaker sections of the society. SSFB serves customers in the unbanked and underbanked categories. It has been serving these segments for over a decade now

SSFB currently provides a wide range of products and services, including housing loans, commercial vehicle loans, micro business loans, unsecured micro and small enterprise loans, among others.

As of December 31, 2020, SSFB’s customer base was 1.44 million and its employee base comprised 4,770 employees and it operated 554 Banking Outlets including 153 Unbanked Rural Centres.



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RBI imposes Rs 2 crore penalty on SBI, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India (RBI) has imposed a penalty of Rs 2 crore on the State Bank of India.

“This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers,” the central bank said in a release.

“The statutory inspection of SBI with reference to its financial position as on March 31, 2017, and March 31, 2018, and the Risk Assessment Reports pertaining thereto, and examination of the correspondence with the bank regarding payment of remuneration to its employees in the form of commission had revealed contravention of the provisions of the Act and specific directions issued by RBI.”

In furtherance to the same, notice was issued to SBI to explain why penalty should not be imposed on it for contravention of the provisions of the Act and directions issued by RBI.

“After considering the bank’s replies to the notice, oral submissions made in the personal hearing and examination of additional submissions made by it, RBI came to the conclusion that the aforesaid charges were substantiated and warranted imposition of monetary penalty,” the release said.



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RBI imposes ₹2 crore penalty on SBI

Banking & Finance

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The Reserve Bank of India (RBI) has imposed a monetary penalty of ₹2 crore on State Bank of India (SBI) for contravention of certain provisions of Section 10 of the Banking Regulation (BR) Act, 1949 and the central bank’s specific directions issued to the bank on payment of remuneration to employees in the form of commission.

Specifically, RBI has referred to contravention of section 10 (1) (b) (ii) of the BR Act, whereby no banking company shall employ or continue the employment of any person whose remuneration or part of the remuneration takes the form of commission or of a share in the profits of the company.

“This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers,” per a central bank statement.

This penalty has been imposed in exercise of powers vested with RBI under the provisions of BR Act, it added.

RBI said the statutory inspection of the bank with reference to its financial position as on March 31, 2017 and March 31, 2018 and the Risk Assessment Reports (RARs) pertaining thereto, and examination of the correspondence with the bank regarding payment of remuneration to its employees in the form of commission, revealed, inter alia, contravention of the provisions of the Act and aforesaid specific directions issued by RBI.

In furtherance to the same, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed for contravention of the provisions of the Act/ specific directions issued by RBI.

After considering the bank’s replies to the notice, oral submissions made in the personal hearing and examination of additional submissions made by it, RBI came to the conclusion that the aforesaid charges were substantiated and warranted imposition of monetary penalty, the statement said.

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