Tag: RBI

Banks seek six months more to implement new standing instruction norms, BFSI News, ET BFSI

Banking & Finance

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Large lenders and payment entities including State Bank of India, ICICI, Citi, HDFC, Axis, HSBC, Visa and Mastercard have asked the Reserve Bank of India (RBI) to postpone the deadline for putting in place a new system to alert customers on ‘standing instruction’ transactions.

The banks were asked to set up the system by March 31, 2021.

The lenders also want RBI to exclude transactions against pre-existing standing instructions and those with international merchants from the new conditions for e-mandates on cards for recurring transactions, according to an ET report.

How does the new system work?

Under the proposed system, as a risk mitigating and customer facilitation measure, the card-issuing bank will have to send a pre-transaction notification to the cardholder, at least 24 hours before the actual charge or debit to the card. While registering e-mandate on the card, the cardholder shall be given the facility to choose a mode among available options (SMS, email, etc.) for receiving the pre-transaction notification from the issuer. On receipt of the pre-transaction notification, the cardholder shall have the facility to opt-out of the particular transaction or the e-mandate.

What is a standing instruction?

A standing instruction is a service offered to customers of a bank, wherein regular transactions that the customer wants to make are processed as a matter of course instead of initiating specific transactions each time.

This service relates to transactions like renewing subscription to OTT platforms, newspapers and magazines, and utility bill payments.

What banks want?

Many banks are not ready and have sought at least three to six months more to build the needed infrastructure. They will have to make investments and incur costs but have little choice as customers could simply move to other banks that offer the transactions.

No bank would like to lose customers who do multiple recurring transactions. Customers would also receive a post-transaction alert from the bank — mentioning, in the communication, the merchant’s name, transaction amount, date and time of debit, reference number of transaction etc, according to the RBI directive.



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India looks set to weather global bond rout with record reserves

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India’s record foreign-exchange reserves and a rare current-account surplus look set to cushion the nation’s currency and bonds from a global surge in interest rates.

While the Reserve Bank of India does have its hands full managing the government’s large debt issuance, strategists see the country in a much stronger financial position now than it was during previous bouts of turmoil in world markets. They cite the rupee, which has eked out a gain this year, defying the slump seen in most emerging-market currencies, and relative stability of India’s bonds.

With reserves closing in on $600 billion and a current-account surplus forecast to exceed 1 per cent of gross domestic product, talk of India as one of five fragile emerging markets has mostly faded away. When the description was coined during the taper tantrum in 2013, inflation in India was running at around 10 per cent.

Data due March 12 is projected to show consumer prices rising at less than half that level, and well below the 6.6 per cent average of last year. Meanwhile, benchmark 10-year bond yields have largely been capped since last year by the central bank and the nation’s stocks continue to see foreign inflows.

“India’s markets are likely to be relatively immune to higher U.S. yields in the weeks ahead,” said Mitul Kotecha, chief EM Asia and Europe strategist at TD Securities in Singapore. “India has been a key beneficiary of equity inflows into Asia and we do not see outflows persisting.”

Ahead of the CPI figures, here is a series of charts highlighting points of strength in India that have been cited by analysts.

Stock inflows

Indian stocks have attracted about $6 billion of foreign inflows this year, the highest in emerging Asia after China, and well above those of the country’s erstwhile ‘Fragile Five’ peers. The prospect of strong economic growth has been underpinned by an early start to India’s coronavirus inoculation campaign, aided by domestically produced vaccines.

FX reserves

The RBI has added $127 billion to its foreign-exchange kitty since the beginning of January last year, the biggest increase among major Asian economies. At the current rate of accumulation, India is on course to pass Russia and take fourth place in global rankings for reserves, behind China, Japan and Switzerland.

This large well of reserves should give authorities fire power to deal with any potential capital outflows driven by external shocks, according to Kaushik Das, Chief India Economist at Deutsche Bank in Mumbai.

Current account

India is expected to post a current-account surplus of 1.1 per cent of GDP in the current fiscal year, along with a balance-of-payments surplus of $96 billion, according to Emkay Global Financial Serviced.

While the current account may swing back to a small deficit next fiscal year, healthy capital flows may keep the balance of payments positive to the tune of $45-50 billion, helping to support the rupee, according to Madhavi Arora, lead economist at Emkay.

Bond returns

India’s sovereign bonds offer more stable returns than many others in emerging markets, as measured against annualised 60-day volatility in benchmark 10-year securities. The RBI has made over ₹3-lakh crore ($41 billion) of bond purchases this fiscal year and plans to buy at least that amount next year, according to RBI Governor Shaktikanta Das, which should help to curb gains in yields.

Economic growth

India’s economy is projected by the International Monetary Fund to grow 11.5 per cent in 2021, a pace that is likely to be the fastest of any major economy, which also augurs well for inflows and the rupee.

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RBI article, BFSI News, ET BFSI

Banking & Finance

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Only private investment is “missing in action” at a time when all engines of aggregate demand are starting to fire to boost economic growth, according to a Reserve Bank article. Observing that there is little doubt today that a recovery based on a revival of consumption is underway, the RBI in the recent article said, “the jury leans towards such recoveries being shallow and short-lived”.

The key to whet the appetite for investment, it said, is to rekindle the animal spirits, a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.

“All engines of aggregate demand are starting to fire; only private investment is missing in action. The time is apposite for private investment to come alive,” said the article prepared by RBI Deputy Governor Michael Debabrata Patra and other officials.

The article published in the RBI Bulletin- February 2021 further said “the time is apposite” for private investment to come alive.

Fiscal policy, with the largest capital expenditure (capex) budget ever and emphasis on doing business better, has offered to crowd it in.

“Will Indian industry and entrepreneurship pick up the gauntlet?,” it said.

The Indian economy is estimated to contract by 8 per cent during the current financial year on account of the impact of the COVID-19 pandemic. The economy is expected to stage a V-shape recovery in the next fiscal and record double-digit growth.

An another article ‘Sectoral Deployment of Bank Credit in India: Recent Developments’ published in the Bulletin said that the muted credit offtake in the recent past needs to be seen in the context of economic slowdown coupled with the COVID-19-induced lockdown.

The RBI said the views expressed in the articles are those of the authors and do not necessarily represent the views of the Reserve Bank of India.

Bank credit growth, which had already started decelerating in 2019-20, experienced a further setback in 2020-21 in the wake of the pandemic.

However, with the gradual resumption of economic activity, credit to agriculture and services sectors has registered accelerated growth in the recent period, it said. Even in the industrial sector, credit growth to medium industries has accelerated, indicative of positive impact of several measures taken by the government and the Reserve Bank of India (RBI).

“However, contraction in credit to large industries and infrastructure remains a cause of concern,” it said.

The Reserve Bank has taken several measures to facilitate credit flow to various sectors of the economy, especially to the MSME and NBFC sectors.

Credit offtake is expected to pick up as the economy is poised to stage a smart recovery in 2021-22 on the back of decline in coronavirus infections and swift roll-out of the vaccination programme. This is in addition to a number of measures announced by the government in the Union Budget 2021-22 to accelerate the growth momentum, the article said.

As per the article, the recent decline in credit growth was mainly due to large industries.

“Owing to the stressed assets in large industries, there was a general reluctance on the part of bankers to lend to these industries, with the problem getting compounded by the pandemic,” it said.



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Reuters, BFSI News, ET BFSI

Banking & Finance

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India’s central bank wants banks to limit ownership stakes in capital intensive insurance companies at a maximum 20%, less than half of what the current regulations permit, three sources with knowledge of the discussions told Reuters.

Reserve Bank of India (RBI) rules allow banks to hold up to 50% stakes in insurers and on a selective basis equity holdings can be higher but must eventually be brought down within a certain period.

The sources, who asked not to be named as the discussions are private, however said the central bank in 2019 unofficially advised banks seeking to acquire stakes in insurers, to limit such stakes to a maximum of 30%, and more recently directed them to cap stake purchases in insurers at 20%.

“Unofficially, banks have been told that the regulator is not comfortable with lenders increasing their stakes because the insurance business is seen as a money guzzler,” one source said.

The RBI wants banks to focus on their main areas of business instead of locking away capital in non-core sectors. The central bank did not respond to a request seeking comment.

The unofficial push suggests the RBI is looking for uniformity around ownership rules for lenders with exposure in the sector, following suggestions made in a working paper by an internal group released in November.

Some lenders such as Kotak Mahindra Bank and State Bank of India have wholly-owned or majority owned insurance subsidiaries, and the paper had suggested that if any lender had more than a 20% stake in an insurer, they should follow a non-operative financial holding company (NOFHC) structure which will ring fence ownership.

Most lenders are not keen to adopt such a structure on concerns it will hurt shareholder value and limit their capital raising ability, one of the sources said.

Recommendations made by the working paper are under consideration by the RBI and it is not clear when the central bank will act on or implement the suggestions. In light of this, the sources said the RBI was likely to stall on any requests by banks to boost or acquire new stakes in insurers.

The move comes at a time when India is keen to woo foreign investment in its insurance sector. Last month, the government said it would allow foreign direct investment of up to 74% in insurers, up from 49%. Many foreign insurers are expected to explore the opportunity as insurance penetration continues to be low in India.

With fears that banks’ bad loans could double amid the COVID-19 pandemic, the RBI does not want banks to lock up money in capital intensive businesses, the sources said.

The RBI may have reservations about banks having more than 20% stakes in any non-core companies, one of the sources said.

Federal Bank, which sought permission from the RBI to increase its stake in Ageas Federal Life insurance after its board approved the deal about a year ago, has still not received RBI approval, one of the sources said.

Federal Bank did not respond to a request seeking comment.

Last year, the RBI had also rejected Axis Bank’s application to directly purchase a 17% stake in Max Life.

The transaction was only approved after Axis restructured it and agreed to purchase the stake with two subsidiaries, bringing down the bank’s direct ownership share to less than 10%.

Axis Bank did not respond to a request seeking comment on whether it restructured the deal on the advice of the RBI.



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UPI volume, value contract for first time in 10 months even as YoY growth nearly doubles

Banking & Finance

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UPI transactions had exited 2020 with the Rs 4-lakh-crore value mark in December.

Unified Payments Interface (UPI) transaction volume and value have witnessed a contraction in February 2021 — the first time since April last year. From 2302.73 million transactions involving Rs 4,31,181.89 crore processed in January 2021, the number of transactions declined to 2,292.90 million worth Rs 4,25,062.76 crore in February 2021, according to the data from the National Payments Corporation of India (NPCI). UPI transactions in April last year had declined to 999.57 million amounting to Rs 1,51,140.66 crore from 1,246.84 million transactions worth Rs 2,06,462.31 crore in the preceding month.

However, the year-on-year growth in UPI transactions stood at 73 per cent in February 2021 even as the value nearly doubled by 91 per cent. February 2020 volume stood at 1,325.69 million transactions worth Rs 2,22,516.95 crore. The number of banks going live on UPI also increased from 146 in February 2020 to 213 in February 2020. UPI transactions had ended 2020 on a high note with the total value storming past the Rs 4-lakh-crore mark in December to Rs 4.16 lakh crore across 2,234.16 million transactions.

Also read: IPO-bound Flipkart rejigs leadership; appoints Unilever veteran Hemant Badri as Senior VP Supply Chain

While the NPCI is yet to release bank and app-wise data for their February UPI transactions, Walmart-owned PhonePe had remained the leading UPI-app in terms of volume and value in January 2021. The company had processed 968.72 million transactions involving nearly Rs 1.92 lakh crore. In fact, PhonePe’s volume was over 100 million transactions higher than Google Pay’s 853.53 million transactions worth Rs 1.77 lakh crore. On the other hand, Paytm Payments Bank had remained the distant third player with a volume of 332.69 million worth Rs 37,845.76 crore. The combined transaction volume of the three leading UPI apps stood at 93.5 per cent share of the total January volume of 2,302.73 million while the value share stood at 94.5 per cent of Rs 4.31 lakh crore.

Importantly, among India’s top 30 UPI remitter banks witnessing UPI transaction failures due to technical reasons, public sector lender Union Bank of India had the highest failure in January. From 10.75 per cent technical decline (TD) in December, the failure rate jumped to 12.89 per cent in January for Union Bank of India. Andhra Bank and Indian Bank recorded the second and third highest TD rate of 10.40 per cent and 9.83 per cent respectively in January.

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Bank loan growth likely to double next fiscal, BFSI News, ET BFSI

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Bank loans are growing at a slower pace while deposits are clipping ahead fast.

The non-food bank credit grew at 5.7% in January 2021 as against an increase of 8.5 per cent in the same month last year, according to RBI data.

As on February 12, outstanding bank loans stood at over Rs 107 lakh crore, which was up 6.6% on year. However, on a fortnightly basis, outstanding loans fell by Rs 1,040 crore between January 29 and February 12.

The contraction

Loans to industry contracted by 1.3% in the reporting month as compared to 2.5%growth in the same period last year, mainly due to contraction in credit to large industries, the data showed.

Credit growth to the services sector decelerated year-on-year moderately to 8.4% in January 2021 from 8.9%.

However, credit to transport operators and trade continued to perform well during the month, registering accelerated growth.

Personal loans growth decelerated by 9.1% in January 2021 compared to 16.9% a year ago, the data showed.

Deposits

However, deposits are going strong as people tend to save money during uncertain times.

As on February 12, bank deposits stood at nearly Rs 148 lakh crore, up 11.8% on year, while investment by banks was 17.9% higher at close to Rs 45 lakh crore.

Due to lower credit demand, banks were forced to park their surplus deposits in investments such as government bonds and corporate debt papers.

Why the drop?

Experts say credit growth has been supported for the last few months by retail loans, especially home loans, along with disbursements to micro, small and medium enterprises under the government’s Emergency Credit Line Guarantee Scheme.

However, companies have restricted their borrowing from banks and some are tapping the bond market for their credit requirements.

Also, the availability of low-cost funds under the RBI’s targeted long-term operations has hit credit growth.

According to CRISIL Ratings, corporate credit growth is likely to contract this financial year as the companies have put capital expenditure on the back burner.

The silver lining

Bank credit is expected to grow at a higher pace during the next fiscal by at least 9% to 10%. This is in contrast to the bank credit growth which was seen rising at around 4% to 5%, despite the Covid-induced contraction.



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Time apposite for private investment to come alive: RBI Bulletin

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The time is apposite for private investment to come alive as fiscal policy, with the largest capital expenditure budget ever and emphasis on doing business better, has offered to crowd it in, according to an article in the Reserve Bank of India’s (RBI) monthly bulletin.

“All engines of aggregate demand are starting to fire; only private investment is missing in action…Will Indian industry and entrepreneurship pick up the gauntlet?” per the article “State of the Economy” put together by RBI Deputy Governor MD Patra and 19 other RBI officials.

The authors underscored that there is little doubt today that a recovery based on a revival of consumption is underway.

“The jury leans towards such recoveries being shallow and short-lived. The key is to whet the appetite for investment, to rekindle the animal spirits…,” they said.

GDP reclaims positive territory

Referring to real GDP in Q3 (October-December 2020) shrugging off the contraction of H1 (April-September 2020) and reclaimed positive territory, the article observed that with this emergence from recession as businesses reopen and consumers venture back to offices and shops, the Indian economy has turned a corner.

“These developments are all inflation positive. With pulses production 6 per cent higher than a year ago, inflationary pressures on the food front are set to ebb, but core inflation will warrant deft and dogged attention,” the article said.

Also read: Will the bad bank appeal to everybody’s palate?

While disproportionately high excise duties on petroleum products are hostage to the state of public finances, buoyancy in other heads of revenue could loosen this stranglehold, bring down pump prices of petrol, diesel and of cooking gas to more internationally comparable levels, improve the inflation outlook and expand consumer welfare, it added.

“From an internationally competitive perspective too, it is important for India to recover from being an inflation outlier and turn to structural reforms that reposition the economy to reap the gains of productivity and efficiency,” the authors said.

Rock and hard place dilemma

The article assessed that the evolution of financial conditions as 2020-21 draws to a close and the new financial year commences will pose a challenge.

The authors opined that fiscal policy authorities face the ‘rock’ of stimulating the economy and the ‘hard place’ of ensuring sustainable finances.

Monetary authorities encounter a similar dilemma of conflicting pulls – ensuring an orderly evolution of the interest rate structure in the face of still enlarged borrowing needs against the need to remain accommodative and support the recovery.

“While policy authorities exhibit resoluteness in their commitment, markets are assailed by uncertainty and sporadic shifts between hunts for returns and flights to safety.

“A shared understanding and common expectations will likely be the anchor in this turbulence,”the article said.

The authors feel the markets have to rely on the track record of authorities during the most trying year in a century – of keeping markets and institutions functioning; of easing borrowing costs and spreads; of keeping finance flowing – “in fact, there is very little else to hang a hat on.”

They emphasised that“An orderly evolution of the yield curve serves all. A vibrant and self-sustaining economy will lift all boats and markets can do no better than supporting policy authorities as they struggle to regain that stride.”

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Why IndusInd Bank FD is an attractive short-term choice

Personal Finance

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With fixed deposit (FDs) rates ruling at historical lows, investors using bank FDs for regular income or as an avenue to build a risk-free corpus are left with few choices.

In this backdrop, FDs from IndusInd Bank, are worth considering, given their reasonably competitive rates as well as improving financial parameters. At the height of the pandemic, IndusInd was witness to the fallout of the YES Bank crisis and it rubbed off on depositor sentiment, rise in delinquencies and significant moderation in loan growth. With Covid-19 threat beginning to dissipate, the problems at IndusInd are also beginning to disperse. Deposit growth has improved, loan growth is better, gross bad loans (GNPAs) have shrunk and provisioning has picked up. Plus, the recent capital injection from promoters last week is a boost.

Yes, some small finance banks offer better rates than IndusInd. If you already have exposure to small finance banks, considering the bettering financials of IndusInd, you can go for this option. Given the current low rates , investors are better off putting their money in shorter-tenure deposits and hence one-year FDs are a good choice.

Attractive rates

IndusInd Bank offers 6.5 per cent per annum on its one- to two-year tenure. For senior citizens, the rate is 7 per cent, that is, an extra 0.5 percentage points.

For similar one- to two-year deposits, public sector banks offer rates of 4.9-5.4 per cent and most private sector banks offer less than 6.5 per cent. As a thumb rule, senior citizens will get an additional 0.5 percentage points on the card rates from most banks.

Investors are better off putting their money in shorter-tenure deposits. This strategy will help them prevent their money from getting locked in longer tenures, and one can retain the flexibility to hunt for better returns once the rate cycle turns. Hence, one-year FDs of IndusInd Bank are a good option now. You can, of course, opt for deposits of below one year too, but the interest rates on these are lower.

Apart from booking an FD in person at the bank branch, investors can also book one online on the bank’s website. Do note the maximum deposit amount allowed online is ₹ 90,000 using Aadhaar eKYC.

In the event of premature withdrawal before the specified tenure, the interest rate applicable will be the rate corresponding to the withdrawn amount and basis the actual run period.

Improving financials

IndusInd’s bettering financials lend comfort.

The bank’s financial performance across last three quarters shows improvement in various metrics. Deposit growth is up by 8 per cent and 5 per cent, respectively, in the September and December quarters (quarter-on-quarter). Gross non-performing assets (GNPA) has steadily declined from 2.53 per cent in Q1, to 2.21 per cent in Q2 and now to 1.74 per cent in Q3. While proforma gross non-performing loans stands at 2.93 per cent as of December (this is on the lower side compared to other frontline banks), the overall restructuring pool was limited to 1.8 per cent.

The bank has improved Provision Coverage Ratio from 67 per cent in Q1 to 87 per cent in Q3 on reported GNPAs and maintained PCR at 77 per cent even after including proforma NPAs. It added ₹1,100 crore to Covid provisions taking total Covid provisions to ₹3,261 crore, and fully provided for unsecured retail and microfinance loans conservatively.

In Q3, IndusInd has reported improvement in collection efficiency (97 per cent in Dec-20) to near pre-Covid levels across segments. Retail loans are seeing healthy traction (up 5.8 per cent y-o-y), with disbursements in vehicles/micro-finance segment now at pre-Covid levels.

Its capital adequacy ratio including nine months of FY21 profits was at 16.93 per cent as of December 31, 2020 and this got augmented to a comfortable 17.68 per cent, with IndusInd on February 18 raising ₹2,021 crore of common equity capital via conversion of preferential warrants issued to promoter entities.

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RBI gives 3-month extension to Rupee Cooperative Bank

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The bank has taken steps such as attachment of properties of defaulter borrowers and public auctions of the same, filing criminal suits against defaulter borrowers/guarantors, etc for recovery.

The Reserve Bank of India (RBI) has granted a further three-month extension of its banking licence to the Rupee Cooperative Bank (RCB), Pune, till May 31, 2021. Till January 2021, the bank made total recovery of Rs 258.11 crore, and aggregate operating profit of Rs 53.19 crore in the last four years, Sudhir Pandit, chief administrator of the board of directors, said.

As on January 31, 2021, total deposit of the bank stood at Rs 1,292.84 crore. Total advances were at Rs 295.10 crore. Up to January 31, 2021, the bank made an operating profit of Rs 19.93 crore and paid Rs 366.54 crore to 92,602 depositors under the Hardship Scheme, officials said.

The bank has taken steps such as attachment of properties of defaulter borrowers and public auctions of the same, filing criminal suits against defaulter borrowers/guarantors, etc for recovery. The bank has also informed the names of its defaulter borrowers/guarantors to other banks for effective recovery, he said. Pandit said the bank has been earning operating profit since the last five years.

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Banks coming together for new umbrella entity for retail payments

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Two leading private sector lenders HDFC Bank and Kotak Mahindra Bank seem to be readying plans for a new pan-India umbrella entity (PUE) licence for retail payments.

HDFC Bank late on Thursday night said it has executed an agreement for subscribing to 4,995 equity shares of the face value of ₹10 each fully paid up issued by Ferbine Private Limited for a consideration of ₹10 per equity share.

“Post investment, bank will hold 9.99 per cent of the equity shareholding of Ferbine,” it said in a regulatory filing. The acquisition for cash consideration of ₹49,950 will be completed by February end, HDFC Bank said.

Umbrella entity for retail payments could see robust response

Earlier in the evening, Kotak Mahindra Bank too had said it picked up 9.99 per cent stake in Ferbine.

Promoted by Tata Sons Private Ltd, Ferbine was incorporated on January 18, 2021, to make an application to RBI for the PUE licence.

“The main business of the company would be to operating a pan-India umbrella entity for retail payment systems, as would be allowed/licensed by RBI, subject to approval of the PUE application,” Kotak Mahindra Bank said in the filing.

Retail payment systems: RBI opens doors to private sector

The acquisition in Febrine Private Limited by Kotak Mahindra Bank is likely to be completed on or prior to February 26, 2021.

“It may be noted that the Bank may participate in future capital raise by Ferbine,” the bank said.

RBI deadline

The announcement comes just ahead of the RBI deadline for accepting applications for umbrella entity for retail payments by February 26, 2021.

Earlier, So Hum Bharat Digital Payments had announced that it is in talks with private sector lender YES Bank for a 9.99 per cent equity investment and will work together on the proposed new umbrella entity.

Other banks, including State Bank of India, are also understood to be evaluating and applying to the RBI under the guidelines.

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