reserve bank of india – Page 3

RBI appoints additional director on board of Ujjivan SFB

November 29, 2021 root Banking & Finance

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The Reserve Bank of India has appointed P.N. Raghunath, General Manager, Reserve Bank of India, as an Additional Director on the board of Ujjivan Small Finance Bank for a period of two years.

“…we hereby inform you that the Reserve Bank of India vide its letter dated November 29, 2021, has appointed PN Raghunath, General Manager, Reserve Bank of India, Bengaluru, Regional Office, as an Additional Director on the board of the bank for a period of two years with effect from November 29, 2021 to November 28, 2023 or till further orders, whichever is earlier,” Ujjivan SFB said in a stock exchange filing on Monday.

Previously, the RBI had on September 16 appointed a special committee of directors, with three independent directors as members, to oversee the day-to-day operations.

The bank has been facing some amount of turmoil in recent months. Its Managing Director and CEO, Nitin Chugh, resigned earlier this year.

The lender has also had problems with asset quality as gross non-performing assets surged to Rs 1,712.65 crore or 11.8 per cent of gross advances as on September 30, 2021.

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RBI imposes ₹1 crore penalty on Union Bank of India

November 29, 2021 root Banking & Finance

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The Reserve Bank of India (RBI) has imposed a monetary penalty of ₹1 crore on Union Bank of India (UBI) for non-compliance with certain provisions of its directions relating to fraud classification and reporting and sale of stressed assets.

The central bank, in a statement, said its inspection of UBI revealed, inter alia, non-compliance with the above-mentioned directions to the extent of (i) failure to classify an account as Red Flag Account despite presence of Early Warning Signals and (ii) failure to disclose ageing of and provisioning for Security Receipts (SRs) in its Annual Report.

RBI imposes ₹1 crore penalty on SBI

RBI had conducted Statutory Inspection for Supervisory Evaluation (ISE) of UBI with reference to its financial position as on March 31, 2019 (ISE 2019). It examined the Risk Assessment Report, Inspection Report and all the related correspondences pertaining to ISE 2019.

Following the revelations in ISE, RBI issued a notice to the bank advising it to show cause as to why penalty should not be imposed on it for non-compliance with the RBI directions, as stated therein.

RBI slaps ₹56-lakh penalty on Nainital Bank

After considering the bank’s reply to the notice, oral submissions made during the personal hearing and additional submissions made by the bank, RBI came to the conclusion that the charge of non-compliance with its directions was substantiated and warranted imposition of monetary penalty on the bank, to the extent of non-compliance with the aforesaid directions, per the statement.

RBI said this action is based on the 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.

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Why did RBI deny banking licences to corporates again?, BFSI News, ET BFSI

November 29, 2021 root Banking & Finance

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The Reserve Bank of India has disappointed big corporates that are looking to enter the banking sector, as it kept in abeyance the proposal of its internal working group to allow large industrial houses in the sector.

RBI said it had accepted 21 recommendations with some modifications of the 33 proposed by the committee in November last year. The most contentious proposal by the five-member panel was to allow large corporate houses as promoters of banks after amendments to the Banking Regulation Act. Experts pointed that RBI would face challenges in supervising non-financial sector entities, and supervisory resources could be further strained.

Former RBI governor Raghuram Rajan and deputy governor Viral Acharya were foremost among the experts who had opposed the proposed move last year.

“The history of such connected lending is invariably disastrous – how can the bank make good loans when it is owned by the borrower? Even an independent regulator, with all the information in the world, finds it difficult to be in every nook and corner of the financial system to stop poor lending,” they said in a joint article. In August 2011, the then RBI Governor D. Subbarao said in one of his speeches, “by far the biggest apprehension is about self-dealing — that companies will use the bank as a private pool of readily available funds.”

The argument against

While corporates can bring in capital, business experience and managerial competence, the biggest risk of allowing industrial houses to promote banks is the conflict of interest. A bank is an intermediary which channels public deposits to borrowers. It was not easy for supervisors to prevent or detect self-dealing or connected lending as banks could hide connected party or related party lending behind complex company structures and subsidiaries or through lending to suppliers of promoters and their group companies. RBI also has had an unsatisfactory record in its role as the banking supervisor. Recent governance failures in private banks can be traced to a lack of independence within the board.

The current status

Individuals and companies, directly or indirectly connected with large industrial houses, can participate in the equity of a new private sector bank up to 10 per cent but without controlling interest in the bank. Such shareholders are not allowed to have any Director on the board of the bank on account of shareholder agreements or otherwise, according to the RBI Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector issued in August 2016. A group with assets of Rs 5,000 crore or more with the non-financial business of the group accounting for 40 per cent or more in terms of total assets or in terms of gross income, will be treated as a large industrial house, the RBI said.

Tech disruption

The real transformation in banking is coming from tech companies. A core function of traditional banking, payments, has already been disrupted by fintech. Now, Big Tech is pushing the envelope in financial intermediation. Data is central to the digital economy. It’s given Big Tech an opening, leading to the so-called DNA (data-network-activities feedback loop) advantage. Navigating the risks here is the emerging regulatory challenge. In this situation, there’s no pressing need to add another risk in terms of allowing industrial houses to promote banks.

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Metro branches bring life back in bank credit growth, BFSI News, ET BFSI

November 27, 2021 root Banking & Finance

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The rise in credit growth during the current financial year has been led by gradual revival of lending by bank branches in metropolitan centres, while private sector banks raised their market share further, Reserve Bank of India said Friday.

Credit-deposit ratio for metropolitan branches stood at 82.8 per cent in September against 88.4 per cent a year ago, reflecting the fact that deposit mobilisation outpaced lening growth. All-India credit-deposit ratio dipped to 70 per cent from 72 per cent over the same period.

Banks’ deposit growth, however, moderated a bit to 10.1 per cent in September from 11 per cent a year ago. The share of current account and savings account (CASA) deposits in total deposits has been gradually rising and it stood at 44.3 per cent in September 2021.

Private sector banks recorded 10.9 per cent and 16 per cent year-on-year growth in credit and deposit respectively in September. Correspondingly, growth in public sector banks stood much lower at 3.7 per cent and 7.4 per cent, respectively.

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RBI keeps big business houses out of banking, BFSI News, ET BFSI

November 27, 2021 root Banking & Finance

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MUMBAI: Reserve Bank of India has not accepted a proposal to consider large corporates or industrial houses for a banking licence.

It has however allowed promoters of banks to hold up to 26% in their banks, which is a positive for many lenders including Kotak Mahindra Bank, IndusInd Bank, Bandhan Bank and CSB Bank. The new norms allow those who have already diluted stakes to hike their shareholding.

RBI on Friday said it has accepted 21 of the 33 recommendations made last year by an internal working group to review extant ownership and corporate structure for Indian private sector banks. A key proposal that was accepted was to increase the capital requirement for new applicants to Rs 1,000 crore instead of Rs 500 crore.

In November 2020, the Internal Working Group to Review Extant Ownership Guidelines and Corporate Structure for Indian Private Sector Banks had said that corporates may be allowed as promoters of banks only after necessary amendments to the Banking Regulations Act, 1949. This would enable RBI to have the power to do consolidated supervision of conglomerates.

It had also said that well-run NBFCs including those owned by corporate houses should be considered for bank licences. Industry insiders speculate that Bajaj Finserv, L&T Finance and Piramal might be the corporate houses still interested in pursuing bank licences. While Bajaj is active in most banking activities, Piramal has acquired DHFL as part of its goal to increase retail business and has bought in a former banker to head its financial services. L&T Finance had earlier declared its intent to pursue a bank licence.

The recommendation had faced criticism from several quarters and RBI too has been uncomfortable to allow business houses into banking. The regulator remained mum on this specific proposal but said that the proposals not accepted are under examination.

One of the proposals not accepted in full was that payments banks be allowed to convert into small finance banks after three years.

Current rules require promoters’ stake in private banks to be diluted to 15% after 15 years. According to sources, RBI agreed to this as the ceiling on the voting rights which a shareholder in a banking company may exercise has been raised by RBI in July 2016 to 26%, which is the level permitted in Banking Regulation Act, 1949 and the new limit aligns with the legislative intent. This is also consistent with the foreign direct investment policy.

Bankers said that a higher limit was required as it will enable promoters to infuse higher funds/capital which is critical for the growth of banks and function as a cushion during distress or a cyclical downturn.

Ashok Hinduja, chairman of IIHL, Mauritius, promoter entity of IndusInd Bank, said the increased promoter holding of 26% will benefit all stakeholders, particularly at this time when Indian economy is poised for exponential growth. “We eagerly await the operating guidelines as it gives the promoters an opportunity to inject capital to increase stake up to 26%,” he said.

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RBI stays mum on allowing corporate entities to own banks, allows raising of minimum holding, BFSI News, ET BFSI

November 26, 2021 root Banking & Finance

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MUMBAI: The Reserve Bank of India on Friday has accepted the majority of the recommendations made by the internal working group on the review of ownership guidelines and corporate structure of private sector banks.

The central bank has accepted 21 out of the 33 recommendations made by the internal panel with certain modifications.

However, the central bank has kept under examination one of the most crucial recommendations by the internal working group pertaining to allowing corporate entities to own banks.

Among the most important recommendations accepted by the RBI is raising the long-term holding cap of promoters in private sector banks to 26 per cent from 15 per cent currently. Further, under the same recommendation, existing promoters with holdings below the 26 per cent threshold will be allowed to raise their stake.

“The promoter, if he/she so desires, can choose to bring down holding to even below 26 per cent, any time after the lock-in period of five years,” the RBI circular said.

The regulator has also modified the long-term cap on non-promoter shareholding in banks. The RBI said that long-term non-promoter shareholding will be capped at 10 per cent for natural persons and non-financial entities. However, the same for financial entities will now stand at 15 per cent of the paid-up voting equity share capital.

The RBI has also accepted the working group’s recommendations to allow banks that have a non-operative financial holding company structure to exit the same if they do not have any other group entities. However, the structure of NOFHC will continue to prevail for new licensees with other group entities.

In a setback for payments banks hoping to convert into small finance banks, the RBI said that the criteria of 5 years of experience as a payments bank to get an SFB license will continue along with other requirements mentioned in on-tap licensing for SFBs.

The regulator has also accepted the recommendation that will allow promoters to pledge their shareholding in the bank during the lock-in period. The central bank also said that a new reporting requirement will be brought for disclosures pertaining to pledging of holdings by bank promoters.

The RBI has also raised the minimum capital requirement for applicants for various types of banks. The initial capital for universal banks has been raised to Rs. 1,000 crore from Rs. 500 crore, for SFBs it has been raised from Rs. 200 crore to Rs. 300 crore and for UCBs transitioning to SFBs to Rs. 150 crore from Rs. 100 crore.

The central bank said that the circulars, amendments and instructions for the implementation of the accepted recommendations of the internal working group be notified in “due course”.

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‘Public’s money in PMC, had impact on economy’, BFSI News, ET BFSI

November 26, 2021 root Banking & Finance

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The special PMLA court recently said no evidence was required to hold that Punjab and Maharashtra Co-op Bank’s (PMC) money was of the public and that it had a direct impact on the nation’s economy.

“There is abundant material to hold that the applicant and his father connived with Waryam Singh (former chairman of PMC), raised huge loans in utter disregard to Reserve Bank of India (RBI) norms. In this way, proceeds of crime is generated, same was layered through bogus companies and ultimately offence of money laundering was committed by applicant (Sarang Wadhwan) and his father, HDIL promoter, Rakesh,” the court said.

Rakesh is also in jail in the case.

Sarang (48) was arrested in October 2019. His earlier attempts for bail were rejected by the court.

“There is absolutely no exceptional strong prima facie case nor change in circumstance for granting bail in this economic offence, wherein huge public money Rs 6117.93 crore had been laundered,” the court reasoned.

Special public prosecutor for Enforcement Directorate, Kavita Patil, had opposed Wadhawan’s plea for bail. In a 26-page order, the court said the defence arguments that since two years, the father and son are in jail without a trial, can neither be capitalized nor can be a grounds for granting bail. The court said restrictions due to Covid-19 were inevitable and no one could be blamed.

It said it was crystal clear that since the rejection of the first bail order in July 2020 until filing of the present plea, time was consumed in dealing with additional bail and other applications. “At the cost of repetition it has to be noted that it is the applicant (Sarang Wadhawan) and his father who are responsible for the same,” the court said.

It held that granting bail in economic offences of this nature would be against the larger interest of public.

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Crypto industry urges govt to take nuanced approach, asks investors to remain calm, BFSI News, ET BFSI

November 25, 2021 root Personal Finance

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The cryptocurrency industry on Wednesday urged the government to take a nuanced approach towards regulating crypto assets in India and asked investors in the country to remain calm and not arrive at a rushed conclusion, a day after the government listed for introduction a Bill to ban all such cryptocurrencies, with some exceptions.

‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021′, to be introduced in the winter session of Parliament beginning November 29, seeks to “create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses”.

BuyUcoin CEO Shivam Thakral said it expects the Bill to accommodate the aspirations of Indian crypto owners, Indian crypto entrepreneurs, and investors who have put their faith in India’s crypto growth story.

“The crypto Bill should be flexible enough for young blockchain projects to flourish and we strongly believe that there is a strong case for a standard process for new cryptocurrencies before they get listed on any exchange in India for trading.

“I think popular crypto-assets like Bitcoin and Ethereum will be pre-approved by the regulators for getting listed on the exchange. We also request the government to give immediate clarity on the taxation and filing of crypto assets,” Thakral said.

CoinSwitch Kuber founder and CEO Ashish Singhal said the industry has been actively communicating with all stakeholders keeping investor protection at the forefront.

“Our discussions in the last few weeks indicate there is a broad agreement on ensuring that customers are protected, financial system stability is reinforced and India is able to take advantage of the crypto technology revolution…

“As of now, I urge all crypto asset investors in the country to remain calm, do their own research before arriving at a rushed conclusion,” said Singhal, who is also the co-chair of the Blockchain and Crypto Assets Council (BACC).

Cryptocurrency exchange CoinDCX’s spokesperson said a well-assessed and thought-through regulation will pave the way for greater adoption of the technology and will help millions of Indians embrace this new-age asset class.

OKEx.com CEO Jay Hao said India is home to the highest number of crypto owners in the world and the onus lies on the government to protect the interest of a large number of crypto investors in the country.

“We urge the government to take a nuanced approach towards regulating crypto assets in India. With the positive outcome of the cryptocurrency Bill, India will embark on an exciting journey of becoming the global leader in crypto, Defi, and NFTs,” Hao said.

Currently, there is no regulation or any ban on the use of cryptocurrencies in the country. Against this backdrop, Prime Minister Narendra Modi earlier this month held a meeting on the cryptocurrencies with senior officials, and indications are that strong regulatory steps could be taken to deal with the issue.

There has been a rising number of advertisements, featuring even film stars, promising easy and high returns on investments in cryptocurrencies in recent times, amid concerns over such currencies being allegedly used for luring investors with misleading claims.

Last week, the Standing Committee on Finance, chaired by BJP member Jayant Sinha, met the representatives of crypto exchanges and BACC, among others, and arrived at a conclusion that cryptocurrencies should not be banned, but it should be regulated.

The RBI has repeatedly reiterated its strong views against cryptocurrencies saying they pose serious threats to the macroeconomic and financial stability of the country and also doubted the number of investors trading on them as well as their claimed market value.

RBI Governor Shaktikanta Das has also reiterated his views against allowing cryptocurrencies saying they are a serious threat to any financial system since they are unregulated by central banks.

The RBI had announced its intent to come out with an official digital currency, in the face of proliferation of cryptocurrencies like Bitcoin about which the central bank has had many concerns.

Private digital currencies/ virtual currencies/ crypto currencies have gained popularity in the past one decade or so. Here, regulators and governments have been sceptical about these currencies and are apprehensive about the associated risks.

On March 4, 2021, the Supreme Court had set aside an RBI circular of April 6, 2018, prohibiting banks and entities regulated by it from providing services in relation to virtual currencies.

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Kerala to send delegation to Centre over RBI guidelines on cooperative sector, BFSI News, ET BFSI

November 24, 2021 root Banking & Finance

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The Kerala Cabinet on Wednesday expressed deep concern over the Reserve Bank of India‘s statement cautioning the public against cooperative societies using ‘bank’ in their names as well as accepting deposits from people who are not their members.

The Cabinet meeting, held under Chief Minister Pinarayi Vijayan here, has decided to send a delegation to meet all those concerned at the Centre to see that similar statements should not be put out as they create panic in the state, where the cooperative sector is flourishing.

State Cooperative Minister V.N. Vasavan has already gone on record to state that this move will “destroy” the flourishing cooperative sector in the state and it will be dealt with strongly using all means like discussions with the Centre, holding protests and considering seeking legal redress.

The RBI order that came out on Tuesday stated that after the amendment in the Banking Regulation Act, 1949, effective September 29, 2020, cooperative societies cannot use the words “bank”, “banker” or “banking” as part of their names, except as permitted under the provisions or by the RBI.

Union Home Minister Amit Shah also holds the portfolio of the Cooperative Minister. The Ministry was created in July this year with the aim to strengthen the cooperative movement in the country.

–IANS

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