Tag: reserve bank of india

RBI prescribes qualifications for MDs, WTDs of urban cooperative banks, BFSI News, ET BFSI

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The Reserve Bank on Friday prescribed educational qualifications and ‘fit and proper’ criteria for managing directors (MDs) and whole-time directors (WTDs) of primary urban cooperative banks and barred MPs and MLAs from these posts.

Issuing the guidelines for appointment of MDs and WTDs, the RBI said MPs, MLAs and representatives of municipal corporations will not be eligible to hold such positions in the primary urban cooperative banks (UCBs).

It further said the MD/WTD should be a post graduate or have qualifications in finance discipline. He or she could be either chartered/cost accountant, MBA (finance) or have a diploma in banking or cooperative business management.

The person should not be below 35 years of age or more than 70 years, it added.

“The person shall have a combined experience of at least eight years at the middle/senior management level in the banking sector (including the experience gained in the concerned UCB) or non-banking finance companies engaged in lending (loan companies) and asset financing,” the notification said.

Besides MPs, MLAs and representatives of municipal corporations and local bodies, persons engaged in business, trade or having substantial interest in any company too will not be eligible for appointment to such positions.

Regarding the tenure of appointment, it said the person can be appointed for a maximum of five years and will be eligible for re-appointment.

However, it said the MD or WTD will not hold the post for more than 15 years. After that, the person, if necessary, may be re-appointed after a three-year cooling period.

It further said the “UCBs whose existing MD/CEO has completed a tenure of five years may approach RBI either to seek re-appointment of the incumbent, if he/she is eligible, or for appointment of a new MD/CEO, within a period of two months…”.

In case a UCB decides to terminate the services of MD/ WTD before the expiry of tenure, it will have to seek prior approval of the Reserve Bank.

The directions are applicable to all Primary (Urban) Co-operative Banks, the RBI said.

In a separate circular, the RBI mandated the appointment of Chief Risk Officer (CRO) by UCBs with asset size of Rs 5,000 crore and above.

It is necessary that every UCB focuses its attention on putting in place appropriate risk management mechanism commensurate with its business profile and strategic objectives, it said.

“In this connection, it has been decided that all UCBs having asset size of Rs 5,000 crore or above, shall appoint a Chief Risk Officer (CRO). The Board must clearly define the CRO’s role and responsibilities and ensure that he/she functions independently,” the circular said.

The CRO should have direct reporting lines to MD/CEO or Board or the Risk Management Committee of the Board (RMC), it added.



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RBI extends restrictions on PMC Bank till Dec 31, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) has extended the timeline for restrictions on Punjab and Maharashtra Cooperative (PMC) Bank till December 31, 2021 after taking into account the prospective time required for the restructuring process of the bank.

The decision came a week after the RBI granted an “in principle” approval to Centrum Financial Services for setting up a small finance bank (SFB), thereby clearing the decks for the takeover of th crisis-hit PMC Bank by Centrum and BharatPe as equal partners.

In response to the Expression of Interest (EOI) dated November 3, 2020 floated by PMC Bank for its reconstruction, certain proposals were received. After careful consideration, the proposal from Centrum Financial Services Ltd (CFSL) along with Resilient Innovation Pvt Ltd (BharatPe) has been found to be prima facie feasible, said an RBI statement.

It added that in specific pursuance to their offer dated February 1, 2021 in response to the EOI, the central bank has granted “in-principle” approval, valid for 120 days, to CFSL to set up a small finance bank under the general guidelines for ‘on tap’ Licensing of Small Finance Banks in the Private Sector dated December 5, 2019.

“Taking into account the time required for the completion of various activities involved in the process, it is considered necessary to extend the aforesaid directions,” it said.

“Accordingly, it is hereby notified for the information of the public that the validity of the aforesaid directive dated September 23, 2019, as modified from time to time, has been extended for a further period from July 1, 2021 to December 31, 2021, subject to review,” it added.

PMC Bank, a Mumbai-headquartered multi-state urban cooperative bank, was placed under the All-Inclusive Directions under Sub-section (1) of Section 35-A read with Section 56 of the Banking Regulation Act, 1949 with effect from close of business on September 23, 2019, in the interest of depositor protection. The directions were last extended vide directive dated March 26, 2021 up to June 30, 2021.



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Banks see revival from July, tank up capital to meet loan demand, BFSI News, ET BFSI

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Banks are hoping for revival from the next month as Covid infections and lockdowns ease and have started raising capital to meet the likely loan demand jump.

State-owned Indian Bank has raised Rs 1,650 crore through the QIP launched earlier this week. In March this year, the committee of directors of capital raising of the bank had accorded approval for raising equity capital aggregating up to Rs 4,000 crore through QIP in one or more tranches.

State Bank of India has received its board’s approval to raise Rs 14,000 crore through the issuance of additional tier 1 capital.

Kolkata-based Uco bank has received a board approval for Rs 500 crore tier 2 issue, over and above an earlier approval for up to Rs 3,000 crore through share sales.

Bank of Maharashtra has received shareholders’ approval to raise up to Rs 5,000 crore equity capital through various modes, including rights issue and preference issue.

The shareholders approved the proposal at the bank’s annual general meeting (AGM) held on June 24, 2021, through audio/visual means.

Banks see revival from July, tank up capital to meet loan demand

Gradual recovery

The non-food year-on-year credit growth was recorded at 5.7% as on June 4, slower than 6.2% seen a year back, Reserve Bank of India data showed. This reflects risk aversion from both borrowers and lenders. However, bankers and brokerages are expecting an uptrend here on.

“We continue to believe that credit growth will bounce back in the near-term from the short-term ‘second wave’ disruption,” HDFC Securities said in a note earlier in the month. The credit demand is primarily expected from the retail segment as seen in earlier months while corporate demand is likely to be muted.

Corporate credit growth is likely to be subdued as companies are still deleveraging and may not go for capex soon.

“Corporate willingness for new investments remains low currently as the economy is still recovering from the devastating second wave. Investment scenario is tepid as gauged by new investment announcements, which saw 67% decline in FY21 as per CMIE,” SBI’s economic research said.

Banks are better placed this year to support credit growth with as many as 12 public banks reporting annual net profit in FY21 after five consecutive years of losses. “Apart from trading gains, the return to profitability was supported by lower credit provisions on their legacy non-performing assets, after the high provisions made during the last few years,” ratings company Icra said.

Experts see the revival to be gradual in the second quarter and expected to be much better from September, aided by good monsoon and festive season.

The demand for credit would likely come from the retail and micro, small and medium enterprises segments.



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RBI penalises three Maharashtra-based co-operative banks, BFSI News, ET BFSI

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The Reserve Bank of India on Wednesday imposed a total penalty of Rs 8 lakh on three Maharashtra-based co-operative banks for deficiencies in regulatory compliance. A penalty of Rs 4 lakh has been imposed on Excellent Co-operative Bank, Mumbai, and Rs 2 lakh each on Janseva Sahakari Bank Limited, Pune and The Ajara Urban Co-operative Bank, Ajara (Kolhapur).

The penalty on Excellent Co-operative Bank was imposed for contravention of the directions issued by RBI on ‘Maintenance of Deposit Accounts’ and ‘Know Your Customer (KYC)’.

Janseva Sahakari Bank was fined for contravention of the direction issued by on KYC.

The central bank said the penalty on The Ajara Urban Co-operative Bank has been imposed for contravention of direction on ‘Maintenance of Deposit Accounts’.

The RBI said the penalty was imposed on the three lenders 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 to get option to repay a part of the Gold (Metal) Loan in physical gold

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The Reserve Bank of India (RBI) has asked banks to provide jewellery exporters/ domestic manufacturers of gold jewellery an option to repay a part of the Gold (Metal) Loan (GML) in physical gold in lots of one kg or more.

Currently, these loans are repaid in Rupees, equivalent to the value of gold borrowed, on the relevant date/s.

The option to the borrower to repay a part of the GML in physical gold in lots of one kg or more can be given, subject to conditions that the GML has been extended out of locally sourced/ GMS (Gold Monetisation Scheme)-linked gold; and repayment is made using locally sourced IGDS (India Good Delivery Standard)/ LGDS (LBMA’s Good Delivery Standards) gold.

Also read: How savings were impacted by Covid second wave

The other conditions that have been prescribed are that the gold is delivered on behalf of the borrower to the bank directly by the refiner or a Central agency, acceptable to the bank, without the borrower’s involvement; the loan agreement contains details of the option to be exercised by the borrower, acceptable standards and manner of delivery of gold for repayment; and the borrower is apprised upfront, in a transparent manner, of the implications of exercising the option.

The Central bank asked banks to suitably incorporate the above aspects into the board-approved policy governing GML along with concomitant risk management measures. The banks shall continue to monitor the end-use of funds lent under GML.

As per the extant instructions, nominated banks authorised to import gold and designated banks participating in Gold Monetization Scheme, 2015 (GMS) can extend Gold (Metal) Loans (GML) to jewellery exporters or domestic manufacturers of gold jewellery.

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DIPAM seeks bids for transaction advisor for IDBI Bank strategic disinvestment, last date July 13, BFSI News, ET BFSI

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The department of investment and public asset management (DIPAM) Tuesday issued a request for proposal for appointing transaction advisor for strategic disinvestment and transfer of management control in IDBI Bank Limited.

Among several criteria listed for eligibility, bidders should have completed at least one transaction of strategic disinvestment, strategic sale or merger and acquisition of Rs 5000 crore or more in size, between April 2016 and March, 2021. The last date for submissions is July 13.

The professional financial consulting firm, investment banker, merchant banker, financial institution or bank bidding for the contract, should have at least five years’ experience in providing advisory service in such transactions.

“The Transaction Advisor (TA) will be required to undertake tasks related to all aspects of the proposed strategic disinvestment culminating into successful completion of the transaction and would, inter alia include but not limited to advising and assisting government of India on modalities of disinvestment and the timing,” the department said as it set out terms of reference for the advisor in the RFP.

The advisor would recommend the need for other intermediaries required for the process of sale or disinvestment, help in identification and selection of the same with proper terms of reference, prepare documents such as the Preliminary Information Memorandum (PIM), Confidential Information Memorandum (CIM), Request for Proposal (RFP), Confidentiality Agreement et al.

It will also structure the transaction, organize roadshows, suggest measures to fetch optimum value, position of the strategic sale, invite and evaluate bids, assist and professionally guide during the negotiations with prospective buyers, draw up the sale or other agreements and advise on post-sale matters on a continuous basis.

DIPAM has barred a person or company owning more than 50% equity interest in the merchant banker or controls the merchant bankers, from participating in the competitive process for acquisition of IDBI Bank.

“For clarity, parent entity cannot participate in transaction process in case the selected bidder is subsidiary of an existing retail bank.

In case the interested Transaction Advisor is a subsidiary of an existing retail bank, they need to provide documentation explaining firewall or Chinese-wall structure to maintain confidentiality and conflict of interest.

DIPAM has also barred public sector banks cannot participate as bidders for acquisition of IDBI Bank in the transaction process. Subsidiaries of IDBI Bank – IDBI Capital Markets – cannot participate as bidders for transaction advisors.

The Cabinet Committee on Economic Affairs had given an in-principle approval for the strategic divestment of IDBI Bank in May this year. The extent of shareholding to be divested by the Indian government and Life Insurance Corporation of India will be decided at the time of structuring of transaction in consultation with Reserve Bank of India, it had said.

IDBI Bank is classified as a private sector bank by RBI with government shareholding at 45.48%, LIC of India shareholding at 49.24% and non-promoter shareholding at 5.29%.



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‘Business interest not driven by PMC Bank alone’

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Jaspal Bindra

The Reserve Bank of India (RBI) may have paved the way for the resolution of PMC Bank by granting an in-principle approval for small finance Bank (SFB) to Centrum Financial Services, but its executive chairman Jaspal Bindra says the business interest was not driven by PMC Bank alone. In an Interview with Ankur Mishra, he says the new bank is going to have all of the Centrum’s NBFC business, a good portion of BharatPe’s business, and PMC will also fold into the bank. He also says PMC Bank depositors will have to wait for clarity till the amalgamation scheme is finalised by the regulator. Excerpts:

What has been the reason for showing interest in PMC Bank?

We looked at it on a standalone basis and thought it (PMC Bank) is resolvable. We basically wanted to find a resolution which was better than liquidation for the lender. Our business interest was not driven by PMC Bank alone. We have looked at it as a bank which will also have PMC as a component. The new bank is going to have all of the Centrum’s NBFC business, a good portion of BharatPe’s business, and PMC will also fold into the bank. The reason for looking for a banking licence was to get a deposit franchise.

What was your proposal for the resolution of PMC Bank?

We are putting in some amount of capital. Now it is for RBI to draft a scheme and the government of India to approve it.

How much capital you are going to put into the new bank?

We have underwritten Rs 1,800 crore between partners (CFS and BharatPe), before we start diluting. Whether we dilute or not, Rs 1,800 crore is underwritten by us, of which Rs 500 crore will be there on Day one. Another Rs400 crore will be there within the first year, and other Rs900 crore will be available on tap from the partners. We will increase it as and when required depending on the growth of the business.

How will the procedure of acquiring PMC Bank work out?

Before we can amalgamate the PMC Bank, we will have to be an operational bank. Under Section 45 of the Banking Regulation Act, one can only prepare a merger scheme between two banks and therefore the process will start only once we have been converted into a bank. So, you need to necessarily become a bank first. Then an amalgamation scheme will be proposed to the government of India and then final notification will come after approvals.

How soon can we see small finance bank shaping up?

Our effort is to do as soon as possible, but there is some procedural time in terms of an EGM has to be called, and we have to incorporate our company. Some of these timelines are beyond our control. However, we are hoping to complete it as soon as possible. It will definitely happen within 120 days timeline.

You would have gone through the latest balance sheet of PMC Bank in detail. What are the immediate pain points and how you are going to deal with it?

In terms of pain points, there is a negative net worth and that is an issue in any financial institution. How I am going to deal with it? I cannot tell, because a lot of it will depend on what gets approved in the amalgamation scheme. So, the biggest pain point is the negative net worth which was created due to poor management and fraudulent transactions in the lending side. Otherwise, the bank was well known for good service. And that is what is really hurting depositors, because their money got misused.

What should PMC Bank depositors expect from new owners What is your intent to deal with depositors?

The intent is to start, we must get to a point which is better than liquidation. How much that will be dependent on the scheme.

Was there any discussion with RBI on PMC depositors?

Till this time, the clock was on standstill for PMC Bank depositors, and now at least the clock has started. Now, the question for depositors is when and how much they will be able to withdraw? I think after getting the licence we will be in position to discuss it with RBI.

How will you control PMC depositors moving out of the bank? What is the strategy there?

We will not want to stop PMC depositors. However, we will convince them that there is a new management and a new set-up. We will be able to manage things better. We will try that to an extent that is possible. However, one of the reasons we have been given licence is that if somebody calls for money, we will have to pay.

Is there any incentive you have planned for the depositors?

Over the next four months, we will be giving a thought to these kinds of things to create some incentives. Is there a way we can create some financial incentives? We will work on that. SFBs anyway pay higher than the market even today to depositors.

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NCUI, BFSI News, ET BFSI

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Cooperative body NCUI has welcomed the RBI’s in-principal nod to Centrum Financial Services for the takeover of PMC Bank, but said all depositors should get back their deposits without any condition. Paving the way for the takeover of crisis-ridden Punjab and Maharashtra Cooperative Bank (PMC), the Reserve Bank of India on Friday granted in-principle approval to the Centrum Financial Services to set up a small finance bank.

Centrum Financial Services was one of the applicants for the takeover of the PMC Bank.

Reacting to RBI’s in principle approval to Centrum Financial Services, NCUI President Dileep Sanghani in a statement said, “This is indeed welcome. However, it should be ensured that all the depositors should get back their deposits without any conditionality.”

However, he said it would have been better if all the big UCBs should have mobilised the funds together to revive the bank.

National Federation of Urban Cooperative Banks and Credit Societies Ltd (NAFCUB) President Jyotindra Mehta said, “This is in accordance with the wishes of the sector, and the depositors. This will no doubt boost the image of the sector. However, the culprits who committed the fraud in the bank must be punished.”

GH Amin, Chairman, Cooperative Bank of India, and Chairman, Gujarat State Cooperative Union welcomed the move. “It is a good gesture, of taking over a crisis-hit bank by a small finance bank, and reviving it. The depositors will get an assurance of getting back their deposits.”

National Federation of State Co-operative Banks Ltd (NAFSCOB) MD Bhima Subrahmanyam said, “The move is indeed appreciable. However, all the depositors should get back their deposits without any conditionality”.

Large urban cooperative banks should have taken over PMC Bank and started a small finance bank, as the PMC had an excellent image before the fraud happened, he added. Subrahmanyam is also President International Cooperative Banking Association.

On Friday, the RBI gave ”in-principle” approval to the Centrum Financial Services Limited’s offer of February 1, 2021, for the takeover of PMC Bank Ltd.

The PMC Bank had invited Expression of Interest (EoI) from eligible investors for investment/ equity participation for its reconstruction and had received four proposals.

In September 2019, the RBI had superseded the board of PMC and placed it under regulatory restrictions, including cap on withdrawals by its customers, after detection of certain financial irregularities, hiding and mis-reporting of loans given to real estate developer HDIL.

The restrictions have been extended several times since then. PMC’s exposure to HDIL was over Rs 6,500 crore or 73 per cent of its total loan book size of Rs 8,880 crore as of September 19, 2019.

Initially, the RBI had allowed depositors to withdraw Rs 1,000 which was later raised to Rs 1 lakh per account to mitigate their difficulties.

In June 2020, the RBI had extended the regulatory restrictions on the cooperative bank by another six months till December 22, 2020.

As of March 31, 2020, PMC Bank”s total deposits stood at Rs 10,727.12 crore and total advances at Rs 4,472.78 crore. Gross non-performance assets of the bank stood at Rs 3,518.89 crore at end-March, 2020.



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Karnataka Bank declares loan to Reliance Home Finance as fraud, BFSI News, ET BFSI

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Private sector Karnataka Bank has declared accounts of Reliance Home Finance and Reliance Commercial Finance a fraud with combined loan outstandings of over Rs 160 crore to the lender.

The bank has reported to the Reserve Bank regarding frauds in the credit facilities extended earlier to two listed companies — Reliance Home Finance with loan outstanding of Rs 21.94 crore and Reliance Commercial Finance Rs 138.41 crore as fraud, Karnataka Bank said in a regulatory filing.

The lender said it has been dealing with Reliance Home Finance since 2015 and with Reliance Commercial Finance since 2014.

With regard to loan to Reliance Home Finance, as many as 24 lenders were part of a multiple banking arrangement, while in case of Reliance Commercial Finance as many as 22 lenders were part of the loan arrangement.

Karnataka Bank said its share in the multiple banking arrangement to Reliance Home Finance is 0.39 per cent and to that of Reliance Commercial Finance is 1.98 per cent. The lender said it has made provision up to 100 per cent in both the cases against the loan given to the companies.

“Both the accounts were classified as NPA (non-performing assets) and have been fully provided for. As such, there is no impact on the financials of the bank going forward,” Karnataka Bank said.

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Rakesh Mohan, BFSI News, ET BFSI

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The second wave of COVID-19 may worsen stressed assets in the banking system, adding pressure on the financial stability, said former RBI deputy governor Rakesh Mohan. He said the Indian banking system has been reeling under the pressure of non-performing assets (NPAs) since 2015.

Various resolution measures including Insolvency and Bankruptcy Code were undertaken to bring down NPAs and then COVID-19 hit in 2020 impacting the growth process, he said during a virtual conference organised by India International Centre and Research & Information System for Developing Countries.

Mohan, who served as deputy governor of the Reserve Bank of India (RBI) twice between 2002 and 2009, said “we have more difficult task than other countries because we had a legacy of bad debt before COVID-19”.

As per the Financial Stability Report of December 2020 by RBI, NPA could go up to 13.5 per cent in the later part of this year, he said, adding, “I would imagine that this would be worse because of the second wave…So this is a real challenge for RBI to maintain financial system’s resilience.”

According to a report titled ‘The Response of the Reserve Bank of India to COVID-19: Do Whatever it Takes’ authored by Mohan, despite all the measures implemented to promote the flow of credit to all segments of the market, credit growth has continued to be sluggish except for a significant increase to the SME sector.

“Hence there is a mismatch between the performance of the real sector and financial markets. This could potentially lead to enhanced stresses experienced by both lenders and borrowers, leading to potential financial instability,” the report released earlier this week by the Centre for Social and Economic Progress said.

Thus, he said, financial stability challenges remain for the Indian financial system and its regulator in the months to come.

Mohan’s views come days before RBI’s release of bi-annual Financial Stability Report, which will give investors a clearer picture about the state of India’s banking sector and the outlook.

RBI is slated to come out with the report towards the end of this month.

As per the Financial Stability Report, NPAs of the banking sector were projected to surge to 13.5 per cent of advances by September 2021, from 7.5 per cent in September 2020, under the baseline scenario.

The report had warned that if the macroeconomic environment worsens into a severe stress scenario, the NPA ratio may escalate to 14.8 per cent.

Earlier this year, another former deputy governor H R Khan had observed that non-performing assets (NPAs) or bad loans of public sector banks could cross 18 per cent if there is deterioration in economic activity due to the pandemic.

Mohan further said RBI has been very active before and after COVID-19 and has taken a number of actions to protect financial system from the ravages of the pandemic.

He expressed concern that the number of professionals at RBI in 2020-21 is lower than that in 2007-08.

Compared to any other significant country, he said, the number of professionals at RBI is really small.

There is a need to increase the number of professionals in the central bank in the light of expansion of financial system and transformation of financial space in the last 12-13 years, he observed.



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