Tag: reserve bank of india

RBI penalises SBI, 13 other banks for non-adherence to NBFC lending rules

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The banks were also called out on not adhering to restrictions and provisions on loans as well as advances and reporting to the central database on large exposures.

The Reserve Bank of India (RBI) has penalised 14 banks including State Bank of India, IndusInd Bank, Bandhan Bank and Bank of Baroda for non-compliance of various lending norms. RBI found that these lenders were non-compliant with certain provisions of directions that the regulator had issued on lending to Non-Banking Financial Companies (NBFCs). The banks were also called out on not adhering to restrictions and provisions on loans as well as advances and reporting to the central database on large exposures.

In view of this, RBI levied a penalty of Rs 2 crore on Bank of Baroda. For Central Bank of India, IndusInd Bank, Credit Suisse AG, Bandhan Bank, Indian Bank, Bank of Maharashtra, Utkarsh Small Finance Bank, Karur Vysya Bank, Karnataka Bank, South Indian Bank, Punjab and Sind Bank, and Jammu & Kashmir Bank, the regulator has levied a fine of Rs 1 crore. State Bank of India, on the other hand will have to pay a penalty of Rs 50 lakh.

“A scrutiny in the accounts of the companies of a Group was carried out by RBI and it was observed that the banks had failed to comply with provisions of one or more of the aforesaid directions issued by RBI and/or contravened provisions of the Banking Regulation Act, 1949,” RBI said in a statement. The regulator said it had issued notices to these banks seeking show cause as to why RBI should not impose penalty on them for non-compliance.

After examining the replies received from the banks along with oral submissions made in the personal hearings, RBI concluded the imposition of monetary penalty on these banks.

“The penalties have been imposed in exercise of powers vested in RBI under the provisions of section 47 A (1) (c) read with sections 46 (4) (i) and 51 (1), of the Banking Regulation Act, 1949, as applicable. 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 banks with their customers,” RBI added.

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RCom bidding may be back to square one, haircut may exceed 65%, BFSI News, ET BFSI

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Lenders of Reliance Communications are staring at lesser recovery prospects as they may have to go for fresh bidding.

They are worried that similar to the Aircel case, the Reserve Bank of India (RBI) is unlikely to permit asset reconstruction firm UVARCL buying RCom’s spectrum and other assets under a resolution plan.

The delay is rapidly eroding the value of the assets, especially spectrum, further depleting the amount the lenders were hoping to recover.

Aircel case

In the Aircel case, RBI denied UVARCL permission to buy Aircel’s assets for flouting norms under the Sarfaesi (Securitisation and Reconstruction of

Financial Assets and Enforcement of Securities Interest) Act. The RBI decision came even after the National Company Law Tribunal (NCLT) had approved the Aircel resolution plan.

According to the Sarfaesi Act, asset reconstruction companies cannot infuse equity into an insolvent company at the resolution stage.

The RCom resolution

RCom’s committee of creditors (CoC) cleared the resolution plan in March 2020, which would have seen UVARCL buy all assets, including spectrum, under RCom and Reliance Telecom, while a Reliance Jio unit was to buy the company’s towers housed under Reliance Infratel.

The plans were filed in the NCLT a few days later.

While the NCLT has cleared the tower sale to Jio, it has not cleared the transfer of the other assets to UVARCL yet. The tower sale, though, has not yet been implemented, with Jio recently approaching the NCLT with fresh concerns. RCom had filed for bankruptcy in 2019.

Under the resolution plan, UVARCL is expected to pick up RCom’s spectrum for Rs 12,760 crore, with the total recovery expected to be in the Rs 20,000-23,000 crore range against claims of Rs 57,382 crore, a roughly 65% haircut for lenders. Jio is to buy the towers for nearly Rs 5,000 crore.

Recovery worries

The IBC process has recently come under criticism after high-profile accounts such as Videocon were sold for near liquidation value and settlement in the case of Siva Industries yielded pittance.

The realisation for financial creditors from IBC declined significantly in FY2021 with a total resolution amount of around Rs 26,000 crore, almost a quarter of the realisations in fiscal 2020.

The pandemic has increased operational challenges for the various parties involved in a CIRP, which resulted in limited cases yielding a resolution plan. The suspension of new proceedings under the IBC for the entire FY21 resulted in a sharp slowdown in the resolution process.

Out of the total 4,300 cases that have been admitted to bankruptcy courts since FY17, only 8% has been resolved and nearly 40% of the cases are still pending. About 30% of the cases have seen liquidation.



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RBI to banks, BFSI News, ET BFSI

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New Delhi: Days after the government announced that wholesale and retail trade would come under the ambit of micro, small and medium enterprises, the Reserve Bank of India (RBI) has written to banks that wholesale and retail traders are now allowed to be registered on the Udyam Registration Portal and get classified as an MSME.

Udyam Registration Portal is the official portal to register an MSME.

The Ministry of Micro, Small and Medium Enterprises through an office memorandum had said that retail and wholesale trade would be classified as MSMEs for the limited purpose of priority sector lending and they would be allowed to be registered on Udyam Registration Portal.

The beneficiary segments of the change in norm would be wholesale and retail trade and repair of motor vehicles and motorcycles, wholesale trade except of motor vehicles and motorcycles and retail trade except of motor vehicles and motorcycles.

Citing the National Industrial Classification Codes of the three segments, the RBI circular said: “The Enterprises having Udyog Aadhaar Memorandum (UAM) under above three NIC Codes are now allowed to migrate to Udyam Registration Portal or file Udyam Registration afresh.”

UAM is a one-page registration form which constitutes a self-declaration format under which the MSME will self-certify its existence, bank account details, promoter’s Aadhaar details and other required information.



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RBI imposes penalty on 14 banks for contravention of various norms, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank of India (RBI) on Wednesday said it has imposed penalties on SBI, Bank of Baroda, IndusInd Bank, Bandhan Bank and 10 other lenders for contravention of various regulatory norms, including on lending to NBFCs.

The penalty imposed on the 14 banks totals Rs 14.5 crore, with a maximum Rs 2 crore fine on Bank of Baroda.

As per a release, Rs 1 crore penalty has been imposed each on Bandhan Bank, Bank of Maharashtra, Central Bank of India, Credit Suisse AG, Indian Bank, IndusInd Bank, Karnataka Bank, Karur Vysya Bank, Punjab and Sind Bank, South Indian Bank, The Jammu & Kashmir Bank, and Utkarsh Small Finance Bank.

The penalty imposed on the State Bank of India is Rs 50 lakh.

Giving details, the Reserve Bank of India said scrutiny in the accounts of the “companies of a Group” was carried out and it was observed that the banks had failed to comply with certain provisions.

Notices were issued to the banks, advising them to show cause as to why a penalty should not be imposed for non-compliance with the directions/contraventions of provisions of the Banking Regulation Act, 1949.

The penalties have been imposed for non-compliance with certain provisions of directions issued by the RBI on ‘Lending to Non-Banking Financial Companies (NBFCs)’, ‘Bank Finance to Non-Banking Financial Companies (NBFCs)’, ‘Loans and Advances – Statutory and Other Restrictions’, and ‘Creation of a Central Repository of Large Common Exposures – Across Banks’, among others.

The RBI, however, said penalties have been imposed 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 banks with their customers.



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RBI warns of stress build-up in consumer credit, BFSI News, ET BFSI

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The pandemic and its fallout on the economy has made consumer lending riskier for banks even as it has been the only sector to help banks keep their loan books afloat at such times.

The delinquency rates for such loans are going up particularly for private sector banks and NBFCs during the pandemic warned the Reserve Bank of India‘s latest financial stability report. At the same time the second wave has also affected demand for such loans with a steep fall in demand in April , it said.

The Reserve Bank’s latest Financial Stability Report notes that the delinquency rates for consumer credit in private sector banks doubled from 1.2 per cent in January 2020 to 2.4 per cent in January 2021. While for NBFCs it went up from 5.3 per cent to 6.7 per cent in the same period. Overall consumer credit deteriorated after the loan moratorium programme came to an end in September 2020.

“While banks and other financial institutions have resilient capital and liquidity buffers, and balance sheet stress remains moderate in spite of the pandemic, close monitoring of MSME and retail credit portfolios is warranted.” the report said.

Consumer credit includes home loans, loans against property, auto loans, two-wheeler loans, commercial vehicle loans, construction equipment loans, personal loans, credit cards, business loans, consumer durable loans, education loans and gold loans.

The overall demand for consumer credit in terms of inquiries had stabilised in Q4’2020-21 after a sharp rebound during the festive season in Q3’2020-21 after the first COVID-19 wave receded. But the second wave, however, has sharply affected credit demand, with a steep fall in inquiries across product categories in April 2021. Growth in credit-active consumers- consumers with at least one outstanding credit account- and, outstanding balances, however, remains sluggish compared to the previous comparable period. For unsecured loans, the fastest-growing category in this segment, for example, fell from 39.4 per cent in January’20 to 6.5 per cent in FY’21. For home, which accounts for a major chunk of this segment, the growth rate of credit-active consumers slowed from 12.03 per cent to 0.3 per cent during the period.

On a positive note, loan inquiries are more from better-rated borrowers. “Loan approval rates remain healthy as the risk tier composition of inquiries shows a distinct tilt towards better-rated customers.” the central bank‘s report said.



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RBI to conduct Rs 20,000 crore bond purchase on July 8, BFSI News, ET BFSI

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Mumbai: The Reserve Bank of India (RBI) will conduct the open market purchase of government bonds worth Rs 20,000 crore under the G-sec Acquisition Programme (G-SAP 2.0) on July 8.

The RBI said in a statement that it reserves the right to decide on quantum of purchase of individual securities, accept bids for less than the aggregate amount, purchase marginally higher/lower than the aggregate amount due to rounding off and accept or reject any or all the bids either wholly or partially without assigning any reasons.

On July 4, RBI Governor Shaktikanta Das had announced that the central bank will conduct the open market purchase of government securities of Rs 1.2 lakh crore under the G-SAP 2.0 in Q2 of the current financial year to support the market.

The next purchase under G-SAP 2.0 will be conducted on July 22 for Rs 20,000 crore. The government securities to be purchased in the auction will be communicated in due course, said the RBI.

The government raises money from the market to fund its fiscal deficit through dated securities and treasury bills.

The RBI has said it remains committed to use all instruments at its command to revive the economy by maintaining congenial financial conditions, mitigate the impact of Covid-19 and restore the economy to a path of sustainable growth while preserving macroeconomic and financial stability.



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Indian bond yields spike to near 4-month highs; crude surge hurts, BFSI News, ET BFSI

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MUMBAI – Indian bond yields jumped on Tuesday as a rally in global crude oil prices raised worries about higher imported inflation, while a selection of papers for this week’s bond buyback by the central bank also disappointed investors.

The most-traded 6.64% 2035 bond was up 6 basis points at 6.79%, while the second-highest traded 5.63% 2026 paper rose 7 bps to 5.83%. Both bonds were trading at levels last seen in mid-March.

The 10-year bond, which is likely to be soon replaced as the benchmark paper, was up 6 bps at 6.15%, its highest since April 16.

HDFC Bank said rising oil prices and lack of liquid papers in this week’s government securities acquisition programme (GSAP) or a form of quantitative easing programme of the Reserve Bank of India, is weighing on bond prices.

“The market was hoping for the inclusion of the 5-year paper in the upcoming debt purchase given the recent devolvement of the paper by the RBI.” HDFC economists wrote.

Underwriters to the auction or the primary dealers had to buy 104.95 billion rupees ($1.41 billion) worth of the 5.63% 2026 bonds at the debt sale last week.

The central bank is scheduled to sell 260 billion rupees worth of bonds on Friday, including 140 billion rupees worth of a new 10-year paper.

RBI announced a buyback of bonds worth 200 billion rupees on Thursday under the GSAP but traders said most securities it has proposed to buy are illiquid and would not necessarily help tame yields and offset the impact of high global crude oil prices.

Oil prices hit some of their highest levels since 2018 after OPEC+ discussions were called off, heightening expectations that supplies will tighten further just as global fuel demand recovers from a COVID-19-induced slump.

India imports more than two-thirds of its oil requirements and higher prices usually translate to higher inflation.

The central bank has voiced to keep rates low to support the economic recovery but rising inflation could force its hand, traders fear.

“Another added pressure for the short end of the curve is the additional borrowing for GST (goods and services tax) compensation shortfall that is likely to be done starting July by selling bonds at shorter tenures (less than 7 years).”

In late May, the government said it will borrow an additional 1.58 trillion rupees to compensate states for their shortfall in revenues.



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Can FDI investor also be an FPI, Zomato IPO will answer, BFSI News, ET BFSI

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Investors in Zomato want more of it as the company heads for an IPO.

Several foreign investors who have pumped in money in Zomato are keen to subscribe to the company’s upcoming Rs Rs 8,250 crore initial public offering.

However, they may not be able to invest according to a 2019 rule which debars investment in a company through both FDI and FPI routes.

“A person resident outside India may hold foreign investment either as FDI or as FPI in any particular Indian company,” according to Foreign Exchange Management (Non-debt Instruments) Rules of October 2019.

Investors have now approached Reserve Bank of India (RBI) and Securities and Exchange Board of India (Sebi) to figure out whether existing foreign investors in the company can participate in the maiden equity offering.

FDI

Foreign direct investment or FDI pertains to international investment in which the investor buys a lasting interest in an enterprise in another country. It may take the form of buying or constructing a factory in a foreign country or adding improvements to such a facility, in the form of property, plants, or equipment. FDI is a cross-border investment, by a resident or a company domiciled in a country, to a company based in another country, with an objective of establishing a lasting interest in the economy.

FPI

Foreign Portfolio Investment or FPI refers to the investment made in the financial assets of an enterprise, based in one country, by foreign investors. FPI involves the purchase of securities that can be easily bought or sold. The intent with FPI is generally to invest money into another country’s stock market with the hope of generating a quick return. Such an investment is made with the aim of making short-term financial gain and not for obtaining significant control over the managerial operations of the enterprise.

Zomato IPO

Zomato has filed preliminary papers with Sebi to raise Rs 8,250 crore through an initial share sale.

The IPO comprises fresh issue of equity shares worth Rs 7,500 crore and offer for sale to the tune of Rs 750 crore by Info Edge (India) Ltd, draft red herring prospectus filed with Sebi showed on Wednesday.

Proceeds from the fresh issue would be used towards funding organic and inorganic growth initiatives; and general corporate purposes.



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Bank loans to industrial sector shrink during Modi rule, BFSI News, ET BFSI

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The share of banks in loans to the industrial sector dropped massively during 2014-2021 even as credit to the retail sector, including home loans, saw a boom.

As per the data, industrial credit fell to 28.9% by March 2021 from 42.7% at the end of March 2014.

“Over recent years, the share of the industrial sector in total bank credit has declined whereas that of personal loans has grown,” the Reserve Bank of India said in its Financial Stability Report.

The environment for bank credit remains lacklustre in the midst of the pandemic, with credit supply muted by persisting risk aversion and subdued loan demand and within this overall setting, underlying shifts are becoming more evident than before, it said.

Loans to the private corporate sector declined from 37.6% in 2014 to 27.7% at the end of March 2021. During the same period, personal loans grew from 16.2 to 26.3%, in which housing loans grew from 8.5% to 13.8%.

Fiscal 2021

Bank credit growth to the industrial sector decelerated 0.8% year-to-date as of May 21, 2021, due to poor loan offtake from the corporate sector.

Growth in credit to the private corporate sector, however, declined for the sixth successive quarter in the fourth quarter of the last fiscal and its share in total credit stood at 28.3 per cent. RBI said the weighted average lending rate (WALR) on outstanding credit has moderated by 91 basis points during 2020-21, including a decline of 21 basis points in Q4.

Overall credit growth in India slowed down in FY21 to 5.6 per cent from 6.4 per cent in FY20 as the economy was hit hard by Covid. and subsequent lockdowns.

Credit growth to the industrial sector remained in the negative territory during 2020-21, mainly due to the COVID-19 pandemic and resultant lockdowns. Industrial loan growth, on the other hand, remained negative during all quarters of 2020-21.”

The RBI further said working capital loans in the form of cash credit, overdraft and demand loans, which accounted for a third of total credit, contracted during 2020-21, indicating the impact of the coronavirus pandemic.

Shift to bonds

The corporate world focused on deleveraging high-cost loans through fundraising via bond issuances despite interest rates at an all-time low. This has led to muted credit growth for banks.

Corporates raised Rs 2.1 lakh crore in December ended quarter and Rs 3.1 lakh crore in the fourth quarter from the corporate bond markets. In contrast, the corresponding year-ago figures were Rs 1.5 lakh crore and Rs 1.9 lakh crore, respectively.

Bonds were mostly raised by top-rated companies at 150-200 basis points below bank loans. Most of the debt was raised by government companies as they have top-rated status.

For AAA-rated corporate bonds, the yield was 6.85 per cent in May 2020, which fell to 5.38 per cent in April 2021 and to 5.16 per cent in May 2021.



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