Tag: reserve bank of india

UCO Bank out of PCA, will RBI blink in case of IOB, Central Bank?, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India (RBI) has removed UCO Bank from its Prompt Corrective Action Framework (PCAF) but the fate of Central Bank and Indian Overseas Bank hangs in balance.

The central bank lifted the PCA on Uco Bank following improvement in various parameters and a written commitment that the state-owned lender will comply with the minimum capital.

However, RBI had reservations over the capital adequacy levels of the banks under PCA.

Interestingly, Indian Overseas Bank and Central Bank were reported to be among the four banks shortlisted by the government for privatisation.

The RBI objection

In FY21, the government infused Rs 20,000 crore in ve banks through the instruments. Central Bank of India was the biggest beneficiary with Rs 4,800 crore, followed by Indian Overseas (Rs 4,100 crore), UCO Bank (Rs 2,600 crore).

However, the RBI had raised questions over the government’s bank capital infusion programme through non-interest-bearing bonds, according to a report.

The RBI reasoned that capital infusion through bonds cannot be taken at face value and, therefore, these banks may still be short of regulatory capital, they said. In such a situation, they will continue under the PCA framework. Under the PCA regime, business restraints are imposed on struggling banks until they regain health.

The government went ahead despite RBI’s initial reservations and now the regulator had expressed serious concerns. The entire fund infusion through such bonds will then not count toward regulatory capital.

RBI is not inclined to pull these lenders out of the PCA framework based on such capital infusion and may further direct lenders to recalculate their capital adequacy ratio based on the actual value of the bonds.

The PCA status

Indian Overseas Bank, Central Bank have reported net non-performing assets (NPAs) below levels that trigger PCA. However, on the proforma net NPA front, Central Bank falls short as its NNPA is 6.58% against the 6% required to be out of PCA.

Even after PCA exit, these banks may still be under RBI watch. In the case of IDBI Bank, which has committed to comply with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis, RBI has said the lender would be under continuous monitoring. “It has been decided that IDBI Bank be taken out of PCA framework, subject to certain conditions and continuous monitoring,” RBI had said.

Privatisation bid

Four banks on the privatisation shortlist included Bank of Maharashtra, Bank of India, Indian Overseas Bank and the Central Bank of India.

Two public sector banks and one general insurance company are expected to be disinvested this year in addition to the divestment of IDBI Bank, Finance Minister Nirmala Sitharaman had announced during the Union Budget presentation.

Bringing the banks out of PCA could boost their valuations in the event of privatisation.



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Know how Banks and Financials performed throughout the week, BFSI News, ET BFSI

Personal Finance

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Domestic benchmark indices witnessed some exhaustion this week, after a healthy rally seen in the past weeks, with the BSE Sensex gaining around 9% last month.

Developments around the US economy, revival of activity in Europe amid rising Covid-19 infections, improving economic data, positive earnings expectations and healthy pick up in daily inoculations were considered to be key market driving factors this week.

Last Friday, the BSE Sensex vaulted above the 58,000-mark, while the Nifty50 touched 17,300 points as investors cheered recovery in the economy.

Monday Closing bell: Market continues winning streak; banks and financials underperform

The Nifty50 had a gap up opening, but couldn’t build upon the early gains. The index traded in a narrow range throughout the day and consolidated its gains. During the second half, markets continued to trade on a positive note on the back of strong global cues and domestic economic activity. The Sensex was up 0.29% at 58,296.91, and the Nifty was up 0.31% at 17,377.80.

Bank Nifty closed with losses, ending 0.5% lower at 36,592 points, while Nifty Financial Services closed 0.3% lower at 18,077 points. Shares of IndusInd Bank fell 1.13% as the top laggard, followed by Kotak Mahindra Bank, and HDFC Bank.

Tuesday Closing bell: Market ends in red, banks, financials continue to lose

The Nifty50 had a cautious start on Tuesday, around levels of 17,400. All sectoral indices opened in the green, except for Nifty Bank. Domestic indices reached fresh all-time highs but failed to hold gains and ended the day with marginal losses. The Sensex closed at 58279.48 points, down 0.03%, while Nifty closed at 17362.10, down 0.09%.

Bank Nifty ended the 0.34% lower at 36,468 while Nifty Financial Services closed at 18,102 gaining 0.15%. Axis bank was among the top Nifty Losers while HDFC and IndusInd Bank were among the top gainers.

Wednesday Closing bell : Indices tad down; banks, financials among top gainers

Domestic equity indices rebounded from lows in the dying hour of trade to end flat with a negative bias, with mid and smallcaps outperforming the benchmarks. The Sensex and Nifty both ended flat, down 0.05% each at 58,250.26 points and 17,353.50 points, respectively.

Among sectors, Nifty Bank, private bank, PSU bank and financial services rose about a percent each. Bank Nifty gained 0.82% to end at 36,768, while Nifty Financial Services gained 0.57% closing at 18,207. Kotak Mahindra Bank jumped 3.5% to be the top index gainer.

Thursday Closing bell: Market closes on positive note; banks, financials underperform

Domestic indices started Thursday’s session on a flat note amid selling pressure seen in financial stocks. Sensex and Nifty both closed with a gain of 0.09%, higher at 58,305.07 and 17,369.25 respectively.

Nifty Bank ended in red at 36,683 down 0.23%, while Nifty Financial services closed at 18,160, down -0.26%. Kotak Bank and Bajaj Finserv were among top blue-chip performers. HDFC Bank, IndusInd Bank and SBI were among the volume toppers. Meanwhile, SBI Life, Axis Bank, Federal bank and Chola Invest were among the top losers.

Industry Key Takeaways

Tamilnad Mercantile Bank files IPO papers with SEBI
Private-sector lender Tamilnad Mercantile Bank has filed preliminary papers with Securities and Exchange Board of India to mop-up funds through an initial share-sale. The initial public offering (IPO) comprises fresh issue of 15,827,495 equity shares and an offer-for-sale of up to 12,505 equity shares by selling shareholders, according to the draft red herring prospectus (DRHP).

LIC Housing Finance partners with India Post Payments Bank
India Post Payments Bank (IPPB) and LIC Housing Finance on Tuesday announced a strategic partnership for providing home loan products to over 4.5 crore customers of IPPB. LIC Housing Finance was quoting at Rs 416.10, up Rs 11.35, or 2.80% on the BSE.

India’s fintech market to triple to ₹6.2 lakh cr by 2025: MoS Finance Karad
The government’s various initiatives have led to fast growth in the fintech sector, which is likely to triple to ₹6,20,700 crore in value terms by 2025, minister of state for Finance Bhagwat K Karad said on Wednesday.

Highlighting that India is a leader in adopting financial technology among emerging markets, he said, the country had an adoption rate of 87% in March 2020, as compared to the global average of 64%.

Paytm Money launches investment advisory marketplace on platform
Paytm Money, the wealth management division of digital payments major Paytm, on Tuesday said it is creating a wealth and investment advisory marketplace on its platform to offer curated advisory services and products to retail investors.

Paytm Money has partnered with investment startup WealthDesk to offer investment portfolios called ‘WealthBaskets’. A ‘WealthBasket’ is a custom portfolio of stocks and exchange traded funds (ETFs) created by SEBI-registered investment professionals.

India to post strong GDP growth in coming quarters: S&P
India is expected to post strong economic growth in the coming quarters, even as inflation, led by food prices, is likely to remain elevated, S&P Global Ratings said on Wednesday.

The economy is expected to clock 9.5 percent growth in the current fiscal year, followed by 7% expansion in the next year, it said, adding high nominal GDP growth would be important for ensuring fiscal consolidation going forward

Kotak Mahindra Bank slashes home loan rates by 15bps to 6.5%
Kotak Mahindra Bank announced today that it has reduced home loan rates by 15 base points, from Friday till November 8.

The bank is offering this rate in view of the upcoming festive period. The rate of 6.5% will be prevalent for both fresh home loans and balance transfers, and will be available across all loan amounts and is linked to a borrower’s credit profile.

UCO Bank shares spike 16% after RBI lifts PCA restrictions
UCO Bank shares received strong buying demand, rising as much as 15.9 percent on September 9 after the Reserve Bank of India lifted Prompt Corrective Action (PCA) restrictions on the bank.

“The performance of the UCO Bank was reviewed by the Board for Financial Supervision under the RBI. As per published results for the year ended March 31, 2021, the bank is not in breach of the PCA parameters,” said the RBI in its press release published on September 8.



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RBI Guv, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: The Reserve Bank of India’s Governor Shaktikanta Das today said that the central bank would like to see credible answers on what would be the contribution of private cryptocurrencies to the Indian economy.

Das, who was speaking at the Indian Express-Financial Times event, reiterated that the central bank has “serious” and “major” concerns about cryptocurrencies and their impact on the financial stability in the country.

The Indian government is currently in the process of formulating a cryptocurrency bill that may seek to outlaw all private cryptocurrency, while laying down the path for the introduction of central bank digital currency in India.

India has emerged as one of the biggest hubs for cryptocurrency adoption in the world with some pegging the total value of cryptocurrency owned by Indians at over $6.5 billion as of May 2021. The ownership of crypto assets in India has ballooned 400 per cent over the past 17 months.

According to a survey by Finder, almost 30 per cent of the respondents in India said that they owned private cryptocurrencies in their investment portfolio making it the third-highest among Asian countries.

The surge in demand for cryptocurrencies has led to an explosion in cryptocurrency exchanges in the country backed by investments from marquee global private equity and crypto investors such as Tiger Global, Binance and others.

Recent media reports have suggested that the government may look at designating cryptocurrency as a commodity, which will allow them to function as an asset class like equity, bonds and gold. However, the government has yet to finalise the bill, which is awaiting the approval of the Cabinet and the Parliament.

In the past, Finance Minister Nirmala Sitharaman has suggested that the government is open to taking a calibrated approach towards cryptocurrencies after facing backlash from the crypto industry, which has since gone on a massive public relations drive to spread awareness on the asset.



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RBI penalises 2 co-op banks for deficiencies in regulatory compliance, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: The Reserve Bank of India (RBI) on Wednesday said it has imposed penalties on two cooperative banks for deficiencies in certain regulatory compliance.

A penalty of Rs 5 lakh has been imposed on The Swasakthi Mercantile Cooperative Urban Bank, Vijayawada, for contravention of/ non-compliance with certain provisions of the directions issued under a 2015 circular on ‘Board of Directors- UCBs’.

In another statement, the RBI said a penalty of Rs 40,000 has been imposed on Shikshak Sahakari Bank, Nagpur, for non-compliance with regulatory directions contained in the directive on ‘Membership of Credit Information Companies (CICs)’ and the provisions of Credit Information Companies Rules, 2006.

In both cases, however, the central bank said the action on the lenders was based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by them with their customers.

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Borrowers of syndicated loans over Rs 2,000 crore may not have to approach all lenders, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India is looking to revise guidelines and creating a new framework for syndicated loan arrangements of Rs 2,000 crore and above that would cut turnaround time.

The Indian Banks‘ Association has submitted a report to the RBI that looks into plugging the shortcomings in the existing arrangement.

How it will work?

Under the new framework, long-term borrowers need not approach all lenders for funding and getting sundry clearances.

It will have a detailed single point inspection of syndicated loan accounts and norms for a more structured approach by lenders to take care of the entire life cycle of the loan.

The new framework envisages the lead bank to draw terms and conditions, and setting up an independent administrative agent who manages the escrow account and routine loan inspections.

IBA will also be addressing issues such as information portal, drafting of common documents and identification of service providers.

The current system

At present, most consortium lending is down-selling of large value loans by the lead bank, while each bank comes up with its own additional terms and conditions.

Currently, the banking regulator supervises loan syndication through various circulars on loans and advances.

International model

The IBA also proposed strengthening the current ecosystem for the syndicated loan system and aligning it to international models such as those being practised in more developed financial markets.

The recommendations are in sync with the current framework followed in the US through Loan Syndications and Trading Association. The new framework may come up with specifics on minimum retention requirement, centralised supervisory oversight and audit, and development of a secondary market for corporate loans.

Banks will also explore whether such a model can deal with existing issues such as stressed assets and the issues relating to non-performing loans can be taken up while structuring security documents.



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RBI lifts Prompt Corrective Action restrictions on UCO Bank, BFSI News, ET BFSI

Banking & Finance

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FILE PHOTO: The Reserve Bank of India seal is pictured on a gate outside the RBI headquarters in Mumbai, India, February 2, 2016. REUTERS/Danish Siddiqui

The Reserve Bank of India today lifted Prompt Corrective Action (PCA) restrictions on UCO Bank, after the Board of Financial Supervision reviewed the financials of the bank, the central bank said in a statement.

The central bank said UCO Bank provided a written commitment that it would comply with the norms of Minimum Regulatory Capital, Net Non Performing Assets and Leverage ratio on an ongoing basis.

UCO Bank will, however, be continuously monitored by the RBI.

Earlier in June, UCO Bank Managing Director Chief Executive Officer AK Goel said that he was hopeful that the central bank would lift PCA restrictions on the bank.

PCA is triggered when banks breach regulatory norms such as return on asset, minimum capital, among others.

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Top bankers may only get bonus after new RBI rule, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India‘s directive to treat grant of employee stock options as an expense is having an unintended impact.

Banks are doing away with ESOPs and adding deferred bonus payments to the senior managerial staff as the new rules could add significant costs to banks, eroding their quarterly earnings.

The shares are required to be valued at a fair value that may add to the costs. Though it is a non-cash cost, it still results in a higher expense in the P&L for the bank, impacting its profits and earnings.

The RBI directive

The RBI said last week the fair value of the share-linked incentives paid to chief executive officers, whole-time directors and other key functionaries by the private banks should be recognised as an expense during the relevant accounting period.

Issuing a clarification in this regard, the RBI said, “the fair value (of share-linked incentives) …should be recognised as expense beginning with the accounting period for which approval has been granted”.

In terms of the extant guidelines, share-linked instruments are required to be fairly valued on the date of grant using the Black-Scholes model.

The Black-Scholes model, also known as the Black-Scholes-Merton model, is a mathematical model for pricing an options contract. In particular, the model estimates the variation over time of financial instruments.

Treatment as expense

The RBI issued the clarification saying “it has been observed” that banks do not recognise grants of the share-linked compensation as an expense in their books of account concurrently.

The RBI also asked all banks, including local area banks, small finance banks and foreign banks to comply with its directions for all share-linked instruments granted after the accounting period ending March 31, 2021.

The central bank had issued guidelines on the compensation of whole-time directors/ chief executive officers/ material risk takers and control function staff in November 2019 in which it had said that share-linked instruments will be included as a component of variable pay.



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IDBI Bank-led consortium seeks EoIs to sell exposure to IVRCL road asset

Banking & Finance

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In Q1FY22, IDBI Bank reported a 318% year-on-year jump in its net profit, aided by a recovery from the Kingfisher Airlines account.

A consortium of lenders led by IDBI Bank on Monday sought expressions of interest for acquiring its Rs 804-crore exposure in a road asset developed by IVRCL. The banks wish to sell IVRCL Chengapalli Tollways (ICTL) to asset reconstruction companies or other financial institutions in line with regulatory guidelines.

IVRCL was among the companies named by the Reserve Bank of India (RBI) in 2017 in its second list of bad assets to be resolved under the insolvency code. The company has since gone into liquidation. The road asset is being offered at a reserve price of `500 crore in an all-cash deal, implying a maximum haircut of 38%. The consortium has sanctioned loans worth Rs 862 crore to the asset. The other lenders in the consortium are Karur Vysya Bank, Union Bank of India, State Bank of India and Bank of Baroda.

Bidders interested in buying the asset will have to send in expressions of interest (EoIs) by September 9 and the last date for submission of bids is September 27. Thereafter, there will be an inter-se bidding among the top three bidders on September 28. “Once the deal is finalised, the assignment deed and other legal formalities will be completed in the shortest possible time as mutually agreed upon,” IDBI Bank said in a notice.

Recoveries from large bad assets have been an important factor behind some banks turning a profit in the June quarter. In Q1FY22, IDBI Bank reported a 318% year-on-year jump in its net profit, aided by a recovery from the Kingfisher Airlines account. The total recovery from the account stood at Rs 733 crore.

IDBI Bank MD & CEO Rakesh Sharma said in July that the bank will be able to reduce its gross non-performing asset (NPA) ratio by 4-5% through growth in the advances or the denominator. “Now the government has also come out with the National Asset Reconstruction Company Ltd. (NARCL) and we may transfer some accounts there as well. Once the NARCL becomes functional, some assets will be transferred and that would further reduce the gross NPA by another 5-6%,” said Sharma. The gross NPA ratio stood at 22.71% at the end of June.

The lender plans to transfer a total of Rs 11,000-12,000 crore of advances to the NARCL, of which live accounts will be to the tune of Rs 7,000-8,000 crore, with the rest being written-off accounts.

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MP HC stays RBI notification on urban cooperative banks, BFSI News, ET BFSI

Banking & Finance

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Jabalpur, Sep 6 (PTI) The Madhya Pradesh High Court has stayed an RBI notification related to appointment and removal of managing directors and whole-time directors in Urban Cooperative Banks (UCBs) operating in states.

A division bench comprising Chief Justice Mohammad Rafiq and Justice VK Shukla, while hearing a petition, on Friday (September 3) stayed the Reserve Bank of India (RBI) circular issued on June 25.

The HC has also issued notices to the RBI, the Centre and state governments on the petition filed by Bhopal-based Mahanagar Nagrik Sahkari Bank Maryadit, the petitioner bank’s counsel, Ajay Gupta, said. The court order said, “Issue notice to the respondents on payment of PF (processing fee) within seven days returnable within eight weeks.” “In the meanwhile, operation and effect of the impugned order dated 25.06.2021 qua ((with regard to) the petitioner shall remain stayed”, the HC said.

The Bhopal-based urban cooperative bank has challenged the constitutional validity of the RBI notification. Gupta said the RBI’s order has regulated appointment, re-appointment and removal of managing directors (MDs) and whole-time directors (WTD) of UCBs. Service conditions of MDs and/or Chief Executive Officers of UCBs is governed under the bye-laws of the MP State Cooperative Societies Act, the petitioner’s counsel said.

The cooperative as a subject falls under Entry 32 in List-II – State list – in the Seventh Schedule of the Constitution, whereas the banking falls under Entry 45 in List-I – Union list – of the Seventh Schedule, he said.

Therefore, the power to legislate and regulate UCBs falls exclusively with the state domain and does not lie in the purview of the Union, much less the RBI, Gupta said. “Thus, the RBI order is absolutely incompetent and lacks in authority,” he claimed. The court has granted eight weeks to the respondents to file their replies to the notices issued to them, Gupta added. PTI COR ADU RSY RSY



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Bom Mercantile bank fined Rs 50L for violating RBI regulations, BFSI News, ET BFSI

Banking & Finance

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Mumbai: Reserve Bank of India has fined Bombay Mercantile Cooperative Bank Rs 50 lakh for sanctioning unsecured advances and offering higher rates on non-resident deposits as compared to domestic deposits.

In a statement, RBI said it observed these violations while inspecting the bank’s books for the financial year ended March 2019.

“A notice was issued to the bank advising it to show cause as to why penalty should not be imposed for contravention of the directions issued by RBI. After considering the bank’s reply to the notice and oral submissions made in the personal hearing, RBI came to the conclusion that the aforesaid charge of non-compliance with RBI directions was substantiated and warranted imposition of monetary penalty,” RBI said.

The bank, which was founded in 1939, has 52 branches in 10 states. It was the first cooperative bank to be granted a scheduled status in 1988 by the RBI.tnn

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