Tag: reserve bank of india

Indian banks brace for bad loans with stronger balance sheets, says new S&P report, BFSI News, ET BFSI

Banking & Finance

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Indian banks’ prior efforts to strengthen their balance sheets will help them mitigate the impact of asset quality as bad loans ticked higher in the April-to-June quarter following a deadlier wave of the COVID-19 pandemic, according to a new report by S&P Global Market Intelligence research.

“Banks have been taking steps to fortify their balance sheets over the last year or so to face the asset quality impact. These have been through enhancing capital base, increasing provisioning cover and having adequate amounts of liquidity,” said Krishnan Sitaraman, senior director at CRISIL, a unit of S&P Global Inc.

The June quarter saw gross NPAs rising, mainly in retail and small and medium-sized enterprise portfolios for banks.

“That is because these segments have been impacted more by the pandemic and the lockdown measures. The pandemic’s second wave has had a much larger health impact and geographical spread as compared to the first,” Sitaraman said.

State Bank of India, the country’s largest lender by assets, reported total nonperforming loans of Rs 1.36 lakh crore for the fiscal first quarter that ended on June 30, up from Rs 1.28 lakh crore in the previous three months and Rs 1.31 lakh crore in the same period of 2020.

ICICI Bank, the second-biggest private-sector lender, said its gross nonperforming assets rose by Rs 7231 crore in the first quarter, mainly from its retail and business portfolio. State-run Bank of Baroda reported fresh slippages of Rs 5129 crore in the first quarter, versus Rs 2740 crores in the prior-year period.

During the fiscal first quarter, Indian banks saw higher-than-expected slippages of more than 200% year over year that largely arose from retail and SMEs, according to an Aug. 16 research note from Jefferies.

Slippages were higher than expected as new COVID-19 restrictions affected collections, Jefferies analysts said, adding that some banks have started to recover in July and normalcy may return in the fiscal second or third quarter.

India’s economy took a severe hit during the second wave of the coronavirus, with the number of daily cases peaking above 400,000 in May. Cases have tailed off in recent weeks as the government stepped up vaccinations.

Still, the high number of COVID-19 cases and deaths are expected to have had a bigger impact on the economy in terms of jobs lost and businesses shut. Also, most forbearance measures announced last year, including a Supreme Court order stopping banks from classifying delinquent loans as nonperforming assets had been lifted after the economy recovered from the initial wave of infections.

Banks are now seeing the full extent of borrower stress with a one-time debt restructuring facility and the Supreme Court’s standstill on NPA recognition no longer available.

“In the absence of regulatory measures such as moratorium, the gross NPA formation due to the recent wave of COVID-19 is being upfronted in the first half of the current fiscal [year] for the system, including us,” said Sandeep Bakhshi, CEO of ICICI Bank, during a July 24 earnings call. Bakhshi expects the bank’s gross NPA additions to be lower in the second quarter and “decline more meaningfully in the second half of fiscal 2022,” based on expectations of economic activity.

Stress tests by the Reserve Bank of India indicated that the bad loans of all banks may rise to 9.80% by March 2022 from 7.50% in the same month of this year under a baseline scenario. However, the bad loans ratio could rise to as high as 11.22% by March 2022 under a “severe stress” scenario for key macroeconomic indicators, the central bank said in its biannual Financial Stability Report released July 1.

“Many banks have set aside higher provisioning buffers and raised capital in the last one year or so. This should help them absorb the rising stress in their retail book,” said Nikita Anand, an analyst at S&P Global Ratings.

“On the other hand, banks with lower provisioning buffers and weaker capitalization could see a sharp impact on their profits and capital levels,” Anand said. “This could be more acute for banks with significant underlying exposure to small business owners or unsecured retail products where loss given default could be higher.”



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From Amazon to Zomato, a big crowd at RBI doors for payment aggregator licence, BFSI News, ET BFSI

Personal Finance

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Mumbai: A slew of companies harbouring fintech ambitions have made a beeline to the Reserve Bank of India to become licensed Payment Aggregators (PAs) under the central bank’s upcoming regulatory regime for non-bank payment providers.

Firms that have applied for authorisation or in advanced stages of submitting their proposals to the RBI include the Tata group, Amazon, Reliance Industries, Dutch payments startup Adyen, Paytm, BharatPe, PhonePe, CC Avenue, Razorpay, Cred, Zomato, PayU, Worldline, Pine Labs and CAMSPAY, sources involved in the diligence process told ET.

At least 30 firms are learnt to have submitted their proposals, sources said, indicating that the number of applicants could increase before the September 30 deadline for existing and new non-bank firms to apply.

The firms that will be authorised to operate as PAs in India will be under the direct purview of RBI in rendering payment services to merchants, in a step that many industry insiders said would lead towards a more standardised and regulated payments ecosystem.

“For long, the operations of PAs in India have been seen as a blind spot for regulations,” said a payments industry insider. “RBI’s PA/PG rules in this regard were introduced to ensure a standard for those firms offering payment service to merchants.”

“There is a feeling that any internet firm with a mass consumer base will be applying for a PA licence as the eligibility barrier is low and missing out on approval can limit any future expansion in offering fintech services,” the source said.

Under the new rules, any firm acquiring merchants would compulsorily need RBI approval to operate as a licensed PA, the source added.

The central bank’s new Payment Aggregator/Payment Gateway guidelines – introduced formally in March 2020 – mandate that only firms approved by RBI can acquire and offer payment services to merchants. Regulated banks do not need any separate approvals.

As per RBI rules, the eligibility criteria for a firm applying for PA authorisation is a minimum net worth of Rs 15 crore in the first year of application and going up to Rs 25 crore by the second year.

The firm also must fulfil ‘fit and proper’ criteria as well as be compliant with global payment security standards under PCI DSS, an information security protocol maintained by payment firms across the world.

“PhonePe has been operating as a Payment Aggregator, offering payment services to merchants on our network. In line with the RBI guidelines, we would be applying for the PA licence to continue offering payment services to our merchant partners,” a PhonePe spokesperson said.

According to Ramesh Narasimhan, Head – Digital Commerce, Worldline India, “Ingenico ePayments India – a Worldline brand, is in the process of directly applying for the Payment Aggregator license well before the deadline as we remain committed to deepening the reach of online payment solutions in India.”
Spokespersons for Adyen, Razorpay and Cred did not offer comment. Other firms cited earlier in the story did not respond to ET’s email. RBI also did not comment.

Newly listed Zomato said in exchange disclosure that it had already incorporated a wholly owned subsidiary to handle digital payments and payment gateway services.

Sources told ET that many leading e-commerce marketplaces, global payment firms, existing PGs and domestic consumer internet firms are also in line to apply for authorisations.

ET could not independently confirm these names.

“There is almost a sense that RBI is inundated with the rush of applications,” a second source aware of the matter said. “The indication has been that RBI will take a ‘First In, First Out’ approach in scrutinising different proposals. This means that the overall scrutiny process is likely to take a few months.”

“The regulator will also allow firms to continue their operations until they communicate the fate of the respective proposals. For a PA operating in India whose application has been turned down, the expectation is that RBI will offer a window to wind down its operations,” the source, who is the chief executive of one of the firms applying for authorisation, told ET.

RBI defines PAs as entities that facilitate e-commerce sites and merchants to accept various payment instruments from the customers for completion of their payment obligations, without the need for merchants to create a separate payment integration system of their own.

PGs are defined as entities that provide technology infrastructure to route and facilitate processing of an online payment transaction without any involvement in handling of funds.

The motive of the new PA/PG guidelines could also be to have a better supervisory control over payment operations of internet and e-commerce firms in India.

The applicability for PA/PG authorisation could be made ‘on-tap’ after the initial set of approvals, a third source said.



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HDFC Bank shares shed early gains to close marginally lower on bourses, BFSI News, ET BFSI

Banking & Finance

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After giving up morning gains, shares of the country’s leading private sector lender HDFC Bank closed marginally lower on the bourses on Wednesday.

The shares jumped nearly two per cent in early trade after the Reserve Bank‘s decision to allow the lender to issue new credit cards but the momentum could not be sustained, with the scrip ending marginally lower compared to Tuesday’s closing level on the BSE and NSE.

It ended the day at Rs 1,512.90 apiece on the BSE. After opening at Rs 1,550, the scrip touched an intra-day high of Rs 1,564.75 and an intra-day low of Rs 1,508.45.

On the NSE too, shares of the lender shed early gains to close slightly down at Rs 1,511.50 apiece.

It had touched an intra-day high of Rs 1,565.35 after opening at Rs 1,556.70. The intra-day low level was Rs 1,508.35.

In a regulatory filing on Wednesday, HDFC Bank said the Reserve Bank of India (RBI), through its letter dated August 17, has relaxed the restriction placed on sourcing of new credit cards.

The central bank had issued orders in December and February to HDFC Bank on certain incidents of outages in the internet banking /mobile banking/ payment utilities of the bank over the past two years.

HDFC Bank also said the restrictions on all new launches of the digital business generating activities planned under Digital 2.0 will continue till further review by the RBI.

Snapping its four-session record-setting spree, the 30-share benchmark BSE Sensex on Wednesday closed 162.78 points or 0.29 per cent lower at 55,629.49. It touched its all-time peak of 56,118.57 during the session.



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RBI standardises bank locker rules, BFSI News, ET BFSI

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Reserve Bank of India (RBI) has standardised the rules for opening and maintaining bank lockers across banks, in response to directions by a two judge bench of the Supreme Court in February. RBI has asked all bank boards to frame a agreement for safe deposit lockers based on a model locker agreement to be framed by Indian Banks Association (IBA).

Banks have time to comply with the new norms till January 1 2022 and have to renew their locker agreements with existing locker customers by January 2023, RBI said. Banks have been allowed to obtain a term deposit from the locker holder at the time of allotment covering three years’ rent and the charges for breaking open the locker in case of such eventuality to ensure lockers are used and rent paid on time. “Banks, however, shall not insist on such term deposits from the existing locker holders or those who have satisfactory operative account.

The packaging of allotment of locker facility with placement of term deposits beyond what is specifically permitted above will be considered as a restrictive practice,” RBI said. In case the locker rent is collected in advance, the remaining amount from the advance should be refunded to the customers during the surrender of the locker. In case of a merger or closure or shifting of branch warranting physical relocation of the lockers, the bank shall give public notice in two newspapers (including one local daily in vernacular language) and the customers will have to be intimated at least two months in advance along with options for them to change or close the facility.

Banks have also been asked to formulate a policy for nomination and release of contents to nominees. The contents have to be released within 15 days of the death of the depositor. “In order to ensure that the articles left in safe custody and contents of lockers are returned to the genuine nominee, as also to verify the proof of death, banks shall devise their own claim formats, in terms of applicable laws and regulatory guidelines,” RBI said.

Banks have also been directed to maintain a branch-wise list of vacant lockers as well as a wait-list for the purpose of allotment of lockers and ensure transparency in allotment of lockers. Customers who do have any banking relationship with the bank may also be given the facilities of safe deposit locker/safe custody article, RBI said.



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Shares of HDFC Bank rise as RBI lifts credit card ban, BFSI News, ET BFSI

Banking & Finance

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NEW DELHI: Shares in HDFC Bank Ltd jumped after the Reserve Bank of India (RBI) said it would allow the lender to issue new credit cards, partially removing a months-long ban.

The lender will roll out the preparations and strategies it has put in place to “come back with a bang” in credit cards, it said in a statement. It will also “continue to engage with RBI and ensure compliance on all parameters,” it said.

The stock gained as much as 3.4%, the most since May 21, after the bank confirmed the easing of curbs in a stock exchange filing Wednesday, following a Bloomberg News report. Shares were trading 0.6% higher at 1:55 pm in Mumbai.

Still, the central bank will retain a ban on the lender launching new digital products “until further review.”

While recommending a ‘buy’ for HDFC Bank given its attractive valuation, Jefferies India analyst Prakhar Sharma wrote that the bank needs to enhance investment in its technology capacities and strengthen backend monitoring. This will give the RBI greater comfort for lifting the remaining restrictions.

Online glitches

About eight months ago, the country’s most valuable lender was penalized by the RBI for repeated online glitches that hurt its 50 million customers. Following the curbs, the bank, India’s top credit card issuer, lost out to peers including State Bank of India, ICICI Bank Ltd and Axis Bank Ltd.

HDFC Bank’s credit card outstandings shrank by 6.5% in the June quarter from the previous three months, hurting its overall retail portfolio.

The bank has been in the process of setting up digital and enterprise units to strengthen its online infrastructure and handle a larger volume of transactions.

In February, the banking regulator appointed an external audit firm to look into the recurring outages.



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Secondary loan market may help banks exit stressed loans, BFSI News, ET BFSI

Banking & Finance

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Ten lenders, including the State Bank of India and ICICI Bank, have set up a secondary loan market association to promote the growth of the secondary market for loans in India.

The Secondary Loan Market Association (SLMA) is a self-regulatory body that has been set up with the help of the Reserve Bank of India.

Such a body was recommended by the RBI’s task force on the development of the secondary market for corporate loans headed by Canara Bank chairman T N Manoharan.

The other members of SLMA are Canara Bank, Standard Chartered Bank, Kotak Mahindra Bank, Deutsche Bank, Bank of Baroda, Punjab National Bank, Axis Bank and HDFC Bank.

The SLMA role

The SLMA will facilitate, promote and set up an online system for the standardisation and simplification of primary loan documentation, and standardisation of documentation for the purchase and sale/assignment documentation and other trading mechanisms for the secondary loan market and its documentation.

Banks can sell specific loans which could open up more lending opportunities, manage asset-liability mismatches, reduce concentration risk and comply with the RBI’s large exposure framework. The market can provide lenders to exit stressed loans even before a default.

The RBI task force recommendations

The task force recommended that loan documentation be standardised, plus the setting up of a Central Loan Contract Registry (CLCR), an ecosystem for enabling virtual information-sharing with various repositories, and the development of an appropriate menu of benchmark rates to be commissioned by the SRB.

It proposed that, for each corporate account, the SRB stipulate a minimum ticket size for trading as a percentage of the loan outstanding.

The task force has flagged roadblocks and these need to be speedily removed. One is the glaring absence of a systemic loan sales platform, another is the lack of an ‘effective, reliable and diligent’ price discovery mechanism, and, not least, the reality of insufficient participants.

Other issues include stamp duty during due diligence and transfer, and regulatory restrictions too.

The bottom line is that an efficient secondary market for corporate loans would have clear-cut benefits for both borrowers and lenders and lead to an active corporate bond market as well.



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RBI, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: The Reserve Bank of India (RBI) has said that there was a 24% improvement in financial inclusion (FI) as measured by RBI’s FI-Index between March 2017 and March 2021.

The FI-Index incorporates details of banking, investments, insurance, postal as well as the pension sector in consultation with government and respective sectoral regulators. In April this year, the RBI had announced that it would launch the FI-Index to capture the extent of financial inclusion.

On Tuesday, the RBI announced the first numbers of the FI-Index, and will henceforth publish the data once a year in July. The highest weightage in the index (45%) is given to the usage of various financial services, followed by access (35%) and quality (20%).

The index captures information on various aspects of financial inclusion in a single value, ranging between 0 and 100, where 0 represents complete financial exclusion and 100 indicates full financial inclusion.

One of the biggest drivers of financial inclusion in the country has been the Pradhan Mantri Jan Dhan Yojana (PMJDY). There are about 42.6 crore PMJDY account holders with more than 55% being women. While the JDY was launched in 2014, the usage of the accounts picked up with the increase in direct benefit transfers (DBTs), which were facilitated by digital platforms and Aadhaar.

The impact of the digital payment in DBT can be discerned from the fact that Rs 5.5 lakh crore was transferred digitally across 319 government schemes spread over 54 ministries during 2020-21.

Since the pandemic, financial inclusion got a boost due to the increased usage of digital platform by small merchants and peer-to-peer payments.

“Lessons from the past and experiences gained during the Covid pandemic clearly indicate that financial inclusion and inclusive growth reinforce financial stability,” RBI governor Shaktikanta Das had said, speaking at the financial inclusion summit.

“As of March 2021, banks have achieved a digital coverage of 95.9% of individuals, while the achievement for businesses stood at 89.8%,” Das said in the summit.

The rise of the fintech’s have also supported financial inclusion as they innovated to simplify and promote digital payments like the UPI (Unified Payments Interface).

According to a report by Macquarie, while the retail payments (by value) have grown at an 18% CAGR over FY15 to ’21, UPI has grown at a CAGR of around 400% over FY17-21 and now forms 10% of overall retail payments (excluding RTGS) from 2% seen couple of years ago.

“Despite being a late entrant, UPI’s FY21 annual throughput value of around Rs lakh crore was almost 2.8x that of credit and debit card (at POS) combined largely,” the report said.



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Will be “back with a bang” on credit card rollout, says HDFC Bank, BFSI News, ET BFSI

Banking & Finance

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Private lender HDFC Bank on Tuesday said that all preparations are in place to be back with a bang on credit cards and new schemes will be rolled out soon. The bank had earlier stated that it has lined up a series of new card launches in anticipation of RBI lifting its ban.

Eight months after a ban was imposed, in a letter to the HDFC Bank board on Monday, the RBI communicated that it has decided to lift restrictions on launching new credit cards while the restrictions on launching new projects under digital 2.0 was still in place. Last month the lender’s chief Sashidhar Jagdishan had stated that the bank has complied with 85% of the requirements of RBI on the technology front.

“All the preparations and strategies that we have put in place to ‘come back with a bang’ on credit cards will be rolled out in the coming time,” the lender said in a press statement. “We would like to inform all that the Reserve Bank of India has lifted the restriction placed on sourcing of new credit cards. We thank the regulator for this. The board has taken note of the same and the bank is committed to full compliance of the regulatory directions.”

The bank added that it will continue to engage with the regulator and ensure compliance on all parameters, so that the restrictions imposed on new launches of the Digital Business generating activities planned under Digital 2.0 could be lifted soon.

The RBI has asked the bank to submit a board-approved letter indicating continued compliance with its IT examination report.

“The ban has come before the festive season which starts from September onwards in India, so the juggernaut can roll with full force and launch credit cards, attractive schemes within their ecosystem partners and be a force to reckon with,” said Suresh Ganapathy, associate director, Macquarie Capital.

As per Macquarie’s analysis, HDFC Bank lost nearly 180 basis points of market share as of May 2021 since end of November 2020 when the ban on launch of new credit cards came into effect. Their market share slipped to 24% while ICICI Bank and SBI Cards gained 130bps and 37bps to 17.4% and 19.2%, respectively.

The lender also has vast ground to gain and can easily capture back the space it lost after it added 36.5 lakh liability accounts from January to June 2021,1.5-2 lakh credit cards per month pre-Covid.

“Overall, lifting of RBI restrictions before the beginning of festive season is a positive development as HDFC Bank has usually been aggressive during festive season and offers various discounts on consumer products,” said Nitin Aggarwal, research analyst, Motilal Securities.



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Reserve Bank allows HDFC Bank to sell new credit cards

Banking & Finance

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HDFC Bank on Wednesday said Reserve Bank of India (RBI) has relaxed the restrictions placed on the bank to issue new cards.

RBI had issued orders in December and February to HDFC Bank on certain incidents of outages in the internet banking /mobile banking/payment utilities of the bank over the past two years.

“As a further update to the above intimations, we wish to inform you that the RBI vide its letter dated August 17, 2021, has relaxed the restriction placed on sourcing of new credit cards,” it said in a regulatory filing.

Also read:New credit cards: RBI partially lifts curbs on HDFC Bank

The board of directors of the bank has taken note of the said RBI letter, it said. HDFC Bank said the restrictions on all new launches of the digital business generating activities planned under Digital 2.0 will continue till further review by RBI.

“We will continue to engage with RBI and ensure compliance on all parameters,” the bank said. Stock of HDFC Bank traded 2.06 per cent up at ₹1,546.00 apiece on BSE.

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RBI partially lifts ban on HDFC Bank, allows it to sell new credit cards, BFSI News, ET BFSI

Banking & Finance

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Eight months after barring the country’s largest private sector lender HDFC Bank from selling new credit cards, the Reserve Bank of India (RBI) has lifted the ban.

However, the ban on launching new technology initiatives remains.

In December last year, the RBI had come out with an unprecedented action implementing both the bans, after repeated instances of technological outages at the lender, which is the market leader in the credit cards segment.

Rivals ICICI Bank and SBI Cards seized the opportunity to narrow the gap with HDFC Bank.

The bank’s existing users were not impacted by the ban and it had 1.48 crore credit card customers as of June.

The impact

On July 17, the bank’s Chief Executive and Managing Director Sashidhar Jagdishan had said it has complied with 85 per cent of the RBI’s requirements on the improvements desired, and the ball is now in the regulator’s court to re-allow the bank.

Earlier, its technology and credit card vertical had said the time off the market has been utilised to re-draw processes and the teams are raring to go.

Jagdishan had said a technology audit is also over and the RBI will now be “independently” taking a view on when to lift the penal actions taken against the bank.

“We have given a milestone to the regulator in terms of what are the things we are doing on technology, complying with their advisories and directives.

The progress

“We have covered a significant portion as we speak. Almost 85 per cent of what we had to do has been covered,” Jagdsihan, who has been with the lender for over two decades and worked as the ‘change agent’ in the years leading to his elevation, said.

He added that the ball is in the regulator’s court. “As they deem fit, as they see that we are on the right track, I am sure at some point of time, they will lift the embargo.”

Acknowledging that the bank has lost market share in the credit card segment due to the ban, Jagdsihan said tech outages are a global phenomenon but it is the time taken to recover from a setback where the bank erred, leading to the “rap on the knuckles” from the regulator.

The action against HDFC Bank has been followed with a ban on card companies Mastercard and American Express from selling any new cards because of a failure to adhere to data localisation rules.

Also read : HDFC Bank episode shows that digital banking is not easy



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