Tag: reserve bank of india

India Inc cut Rs 1.7 lakh crore debt during pandemic, leave banks high and dry, BFSI News, ET BFSI

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Ignoring the government exhortations to unleash animal spirits and step up investments in the country, India Inc preferred to play safe during the pandemic.

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

According to data analysis SBI research wing, the top 15 sectors with more than 1,000 listed entities reported over Rs 1.7 lakh crore of debt reduction in 200-21.

Refineries, steel, fertilizers, mining & mineral products, and textile alone reduced debt by more than Rs 1.5 lakh crore during FY21.

Fertilizers, mining and minerals, FMCG, cement products, consumer durables, and capital goods were among the sectors where loan reduction of 20 per cent or more was reported during FY21.

According to data from the Reserve Bank of India, loan growth fell to a 59-year low of 5.6% on year as of March 31. Credit was logging a 6.4% in the previous fiscal.

Low interest rates

As interest rates drop to an all-time low, corporates are reducing their loan liabilities to facilitate a lower finance cost, which resulted in the primary issuance of bonds to increase by nine per cent.

The spread of AAA bonds for a 10-year tenor declined from 124 bps in April 2020 to 70 bps in April 2021.

Similarly, the spread for 5 year and 3-year bonds declined from 89 bps and 147 bps in April 2020 to 9 bps and 30 bps in April 2021 respectively.

“This trend is continuing in FY22 also,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

These companies not only reduced their loan liabilities at lower finance cost, but also increased their cash and bank balance by around 35% in March, as compared to March 2020, suggesting a conservative approach to conserve cash during uncertain times.

Corporate willingness for new investments also remains tepid as the economy is still recovering from the second wave.



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RBI nod for Ghosh’s re-appointment as Bandhan Bank MD and CEO for three years, BFSI News, ET BFSI

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Bandhan Bank has received RBI nod to re-appoint Chandra Shekhar Ghosh as its MD and CEO for three years, lower than the five-year tenure approved by the company’s board in November last year. “The Reserve Bank of India vide its communicated dated June 8, 2021, has granted approval for re-appointment of Chandra Shekhar Ghosh, Managing Director & Chief Executive Officer (MD&CEO) of the bank, for a period of three years, with effect from July 10, 2021,” the lender said in a regulatory filing on Tuesday.

On November 2, 2020, the board of the bank had approved re-appointment of Ghosh as the MD and CEO for a period of five years with effect from July 10, 2021, subject to approval of the RBI and shareholders.

Ghosh’s current term comes to an end on July 9, 2021.

With 30 years of experience in microfinance and development, Ghosh had set up Bandhan as an NGO in April 2001 and it was converted into an NBFC later.

Subsequently, it was established as a universal bank in August 2015 after getting licence from the RBI.

The Kolkata-headquartered lender earlier in September 2018 was barred by the RBI from expanding its branch network. The RBI had also freezed Ghosh’s remuneration as the lender failed to comply with a licensing condition that required cutting down promoters’ stake to 40 per cent, from close to 82 per cent, within three years of commencing operations.

The restrictions on expansion were lifted in February 2020 by the RBI even as the bank was not in compliance with the licensing condition, given the efforts made by the lender to comply with the guidelines. It had reduced the promoters’ stake to 62 per cent by then.

RBI had lifted the regulatory restriction on branch opening, on the condition that the bank ensured that at least 25 per cent of the total number of banking outlets opened during a financial year were in unbanked rural centres.

The curbs on Ghosh’s remuneration were lifted in mid-August 2020.

According to RBI’s bank licence norms, a private sector bank’s promoter will need to pare holding to 40 per cent within three years, 20 per cent within 10 years and to 15 per cent within 15 years.

Bandhan had merged with mortgage lender HDFC’s low-value home loan company Gruh Finance in order to reduce the promoter ownership to the 60 per cent level from the earlier 82 per cent.

Bandhan is the first bank in India which has been transformed from a microfinance institution.

As of March 31, 2021, the promoter and promoter group shareholding in Bandhan Bank stands reduced to 39.99 per cent, as per data on BSE.



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RBI imposes Rs 2 lakh penalty on Dhrangadhra People’s Co-op Bank, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) on Tuesday imposed a penalty of Rs 2 lakh on Dhrangadhra People‘s Co-operative Bank, Surendranagar, Gujarat, for non-compliance with certain norms. The RBI said the penalty has been imposed for non-compliance with RBI directions on ‘Placement of Deposits with Other Banks by Primary (Urban) Co-operative Banks (UCBs)’ and ‘Depositor Education and Awareness Fund Scheme 2014’.

Giving details, the RBI said the statutory inspection of the bank conducted by it with reference to the bank’s financial position as on March 31, 2018, and the inspection report thereto, revealed, inter alia, non-compliance with the directions.

Subsequently, a notice was issued to the Dhrangadhra People’s Co-operative Bank.

“After considering the bank’s reply to the notice and oral submissions made during the personal hearing, the RBI came to the conclusion that the aforesaid charges were substantiated and warranted imposition of monetary penalty,” the RBI said.

The central bank added that the penalty is based on 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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RBI gives approval to re-appointment of CS Ghosh as MD & CEO of Bandhan Bank for three years

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Notably, the Kolkata-based private sector lender started operations on August 23, 2015, and it was the first instance of a microfinance entity transforming into a universal bank in India.

The Reserve Bank of India has granted approval for re-appointment of Chandra Shekhar Ghosh, MD and CEO of Bandhan Bank, for a period of three years.

The RBI vide its communication dated June 8 has granted approval for re-appointment of Ghosh for a period of three years, with effect from July 10, 2021, Bandhan Bank said in a stock exchange filing. “The re-appointment as above is subject to the approval of shareholders at the ensuing annual general meeting of the bank,” the filing read.

Notably, the Kolkata-based private sector lender started operations on August 23, 2015, and it was the first instance of a microfinance entity transforming into a universal bank in India. The board of directors of the bank at its meeting held November 2, 2020 approved the re-appointment of Ghosh as the MD & CEO of the bank for a period of five years with effect from July 10, 2021, subject to approval of the RBI and the shareholders.

Ghosh, who has been one of foremost proponents of microfinance in India, founded Bandhan in 2001 as a not-for-profit enterprise that stood for financial inclusion and women empowerment through sustainable livelihood creation. He was on the forefront of its transformation into an NBFC-MFI and finally the universal bank.

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RBI asks banks not to delete CCTV footage from 2016 demonetisation period

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“Banks were advised to preserve the CCTV recordings of operations at bank branches and currency chests for the period from November 08, 2016, to December 30, 2016, until further instructions, to facilitate coordinated and effective action by the enforcement agencies in dealing with matters relating to the illegal accumulation of new currency notes,” the RBI said in a circular.

The Reserve Bank of India (RBI) on Tuesday asked banks not to delete the CCTV recordings of their branch operations and currency chests from the 2016 demonetisation period. The move is aimed at helping enforcement agencies in their probe against illegal activities during the demonetisation period.

“Banks were advised to preserve the CCTV recordings of operations at bank branches and currency chests for the period from November 08, 2016, to December 30, 2016, until further instructions, to facilitate coordinated and effective action by the enforcement agencies in dealing with matters relating to the illegal accumulation of new currency notes,” the RBI said in a circular.

It may be noted that the government had banned the circulation of high denomination notes (Rs 500 and Rs 1,000) on November 8, 2016, in order to curb black money. As a part of the exercise, the government had allowed people to exchange high currency notes (Rs 500 and Rs 1,000) at banks or deposit them in their bank accounts. The government also issued new Rs 500 and Rs 2,000 notes. People lined up in front of banks and ATMs to get new currency notes. There were reports of illegal accumulation of new currency notes.

In order to help in the investigation of such matters, the RBI has asked banks to preserve CCTV footage. “Keeping in view the investigations pending with law enforcement agencies, proceedings pending at various courts, you are advised to preserve the CCTV recordings of operations at bank branches and currency chests for the period from November 08, 2016, to December 30, 2016, in a proper way, till further orders,” RBI said in the circular.

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RBI issues norms on Certificate of Deposit, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank of India (RBI) on Friday said Certificate of Deposit (CD) shall be issued in minimum denomination of Rs 5 lakh and in multiples of Rs 5 lakh thereafter.

CD is a negotiable, unsecured money market instrument issued by a bank as a usance promissory note against funds deposited with it for a maturity period up to one year.

The Master Direction on Reserve Bank of India (Certificate of Deposit) Directions, 2021 further said CDs shall be issued only in dematerialised form and held with a depository registered with the Securities and Exchange Board of India (Sebi).

“CDs may be issued to all persons resident in India,” it said, and added the tenor of the instrument at issuance should not be less than seven days.

Further, banks are not allowed to grant loans against CDs, unless specifically permitted by the Reserve Bank.

As per the RBI, issuing banks are permitted to buy back CDs before maturity, subject to certain conditions.

The central bank had issued draft directions for public comments in December 2020.



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Crisil fears large companies will benefit from RBI sops for contact-intensive sectors, BFSI News, ET BFSI

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Leading domestic ratings agency Crisil on Friday said feared risk aversion among banks may lead to only the large companies benefitting under the Rs 15,000-crore on-tap liquidity window for contact-intensive sectors announced earlier in the day. The Reserve Bank of India‘s (RBI) aggregate debt-eligibility thresholds for small enterprises to avail loan recasts takes the total number of entities able to access the facility to two-thirds of the rated mid-size portfolio, it said.

Earlier in the day, the RBI relaxed the eligibility criteria for the restructuring window offered under the Resolution Framework 2.0 to Rs 50 crore. Earlier, only half of the rated companies were eligible for the package when the loan eligibility threshold was set at Rs 25 crore. It also launched the Rs 15,000-crore liquidity facility.

The on-tap liquidity window for contact-intensive sectors such as hospitality, travel and tourism, and aviation ancillary services, which have borne the brunt of the second wave of the pandemic, is timely also, the agency said.

“There is a possibility that only large existing borrowers in contact-intensive sectors actually benefit from this on-tap liquidity window as banks may have greater comfort with them,” the agency said.

In the current environment, it is possible that a number of banks could be risk-averse and the benefit of on-tap liquidity facility may not, therefore, reach the smaller and lower-rated companies in these sectors fully, it said.

A clarity will emerge once the banks come out with their updated policies after the RBI announcement. Crisil will monitor the impact of the development on its rated credits on a case-to-case basis, it said.

Crisil said it rates 6,800 mid-size companies, excluding those engaged in the financial sector, and 4,700 of those are small and medium enterprises (SMEs), having bank loan exposure of up to Rs 50 crore and were standard accounts as of March 2021.

“The RBI’s relaxation in overall bank exposure threshold is timely, as it now increases the coverage of stressed companies that typically have weaker credit profiles,” its Chief Rating Officer Subodh Rai said.

Rai added that three out of four companies eligible for restructuring have sub-investment category ratings, indicating their relatively weak ability to manage liquidity shocks, he added.

Rescheduling of loan repayments under the restructuring 2.0 window will provide interim relief to these companies against such liquidity shocks, he said.



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No change in RBI’s view on cryptocurrencies, we have major concerns, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank of India (RBI) governor Shaktikanta Das on Friday made it clear that the central bank‘s view on cryptocurrencies like Bitcoin remains unchanged and it continues to have “major concerns” on the volatile instruments.

“There is no change in RBI’s position (on cryptocurrencies). Our circular clarifies the position very well,” Das told reporters in the customary post-policy press conference, when asked if there has been a change in its view.

The RBI had first come out with a circular on the issue in 2018, cautioning people about investing in cryptocurrencies, which do not have any sovereign character.

It had barred entities regulated by it from dealing in such instruments. However, the Supreme Court in early 2020 struck down the circular.

Das said a revised notification to financial institutions on Monday was necessitated because some banks were still referring to the old circular set aside by the apex court and this was an attempt to set the record straight.

The RBI had on Monday asked banks, NBFCs and payment system providers not to refer to its earlier 2018 circular in their communications to customers.

“With regard to RBI’s position (on cryptocurrencies), I had said earlier, we have major concerns around cryptocurrency which we have conveyed to the government,” Das said.

Following Monday’s circular, some stakeholders in the cryptocurrencies trade had welcomed it more as a vindication.

Some of the cryptocurrencies have seen massive dip in their per unit trading prices lately, leading to erosion of investor wealth. Some investors have been looking at cryptocurrencies as an attractive investment class.

Das on Friday said the central bank is not into investment advice, but added that one should make his own appraisal and do his own due diligence before taking such a call.



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RBI issues norms on Certificate of Deposit, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: The Reserve Bank of India (RBI) on Friday said Certificate of Deposit (CD) shall be issued in minimum denomination of Rs 5 lakh and in multiples of Rs 5 lakh thereafter.

CD is a negotiable, unsecured money market instrument issued by a bank as a usance promissory note against funds deposited with it for a maturity period up to one year.

The Master Direction on Reserve Bank of India (Certificate of Deposit) Directions, 2021 further said CDs shall be issued only in dematerialised form and held with a depository registered with the Securities and Exchange Board of India (Sebi).

“CDs may be issued to all persons resident in India,” it said, and added the tenor of the instrument at issuance should not be less than seven days.

Further, banks are not allowed to grant loans against CDs, unless specifically permitted by the Reserve Bank.

As per the RBI, issuing banks are permitted to buy back CDs before maturity, subject to certain conditions.

The central bank had issued draft directions for public comments in December 2020.



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‘Consumer confidence slips to a new low in May’

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Our Bureau The Consumer Confidence Survey released by the Reserve Bank of India for the month of May showed that the consumer confidence for the current period weakened further.

The current situation index (CSI), which has been in the negative territory since July 2019, fell to a new all-time low as consumer perceptions on general economic situation and employment scenario lowered further.

The future expectations index (FEI) moved to pessimistic territory for the second time since the onset of the pandemic. This was driven by sharp fall in expectations on general economic situation, employment scenario and household income over one-year horizon.

Household spending, too, weakened in the latest survey round, with essential spending showing signs of moderation while non-essential spending continues to contract.

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