Tag: reserve bank of india

NCUI voices concerns over RBI guidelines for merger of district central co-op banks with state co-op banks, BFSI News, ET BFSI

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The National Cooperative Union of India (NCUI) on Wednesday raised serious concerns over the Reserve Bank‘s guidelines for merging District Central Co-operative Banks (DCCBs) with State Cooperative Banks (StCBs), saying the move will “destroy” the rural cooperative credit institutions. On May 24, the Reserve Bank of India (RBI) issued the guidelines and said it will consider amalgamation of DCCBs with StCBs subject to various conditions, including that a proposal should be made by the state government concerned.

“This is unjustified, and it will destroy the rural cooperative credit institutions in the country causing a lot of problems to the farmers,” NCUI President Dileep Sanghani said in a statement.

National Federation of State Cooperative Banks‘ Managing Director Bhima Subrahmanyam said the intention of RBI guidelines is to destabilise and dismantle the three tier cooperative credit structure in the country.

“The notification is uncalled for, and is provocative, prompting and mischievous,” he said.

During a national conclave of District Cooperative Banks in March, there was vehement opposition to merger of DCCBs with StCBs.



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ICAI says Reserve Bank’s new auditor norms to enhance audit quality, BFSI News, ET BFSI

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Chartered accountants’ apex body ICAI on Wednesday said Reserve Bank‘s new norms for appointment of auditors will help bring in a large number of capable audit firms into the banking and financial sector auditing works as well as enhance audit quality. Noting that the norms are in the “right direction”, ICAI President Nihar N Jambusaria said apart from audit quality, the norms will enhance “auditor independence and strengthen corporate governance”.

In April, the Reserve Bank of India (RBI) came out with the norms for appointment of Statutory Central Auditors (SCAs) and Statutory Auditors (SAs) of commercial banks, Urban Co-operative Banks (UCBs) and Non-banking Financial Companies (NBFCs), including Housing Finance Companies (HFCs).

Issuing a detailed statement, the Institute of Chartered Accountants of India (ICAI) said harmonising norms for appointment of auditors of various entities in the financial sector is the right step towards ensuring independence and transparency in the selection of auditors resulting in enhanced audit quality.

“ICAI has always stood for joint audit as the concept has always worked well for improving audit quality and reliability apart from having fresh perspective from new firms.

“Further, the joint audit will ensure due continuity in the audit process as one of the firms is continuing during rotation. It has an advantage of utilising technical expertise pooled in from participating firms. This also enables each of the joint auditor to focus better on its area of expertise and mitigate systemic risk,” it said.

Further, it said that rotation of audit firms after three years is already prevalent in Public Sector Banks (PSBs) and it was introduced in large companies on completion of five-year cycle by the Companies Act, 2013, “which proved to be effective”.

“Similar rotation of audit firms in other large intermediaries of banking and financial sector will surely result in improved audit quality apart from having fresh perspective,” Jambusaria said.

The new norms will bring in large number of capable audit firms into the banking and financial sector audit, he said adding there is no dearth of talent and the new RBI norms will be taping into the unutilised talent pool in the fraternity.

“Presently, only 10 per cent of the eligible CA firms are appointed as SCAs and with the relaxed norms, the number of eligible firms is expected to increase by three times. This will help the corporates choose their auditors from a larger pool from a location of their choice,” he pointed out.

Regarding restrictions on audit/ non-audit services for related entities, ICAI said it is largely aligned with the institute’s Code of Ethics and the principles in the Companies Act.

The reduction in the tenure of audit engagement and cap on number of audits an audit firm can conduct in the banking and financial sector will not only lead to enhanced audit quality but also capacity building of audit firms, it noted.

The ICAI President also said RBI should prescribe minimum number of SCAs that can be appointed by PSBs instead of maximum since in the past, the actual number of auditors appointed was quite less than the prescribed maximum.

“As per the present norm, compulsory cooling for 3 years of an SCA of a PSB is with that bank only. Instead of that, it should be mandated across all PSBs,” he said.

On Sunday, industry body CII had urged RBI to review its circular regarding appointment of auditors.



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RBI issues guidelines for amalgamation of district central co-op banks with state co-op banks, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank said it will consider amalgamation of District Central Co-operative Banks (DCCBs) with State Cooperative Banks (StCBs) subject to various conditions, including that a proposal should be made by the state government concerned.

The Banking Regulation (Amendment) Act, 2020 has been notified for the StCBs and DCCBs with effect from April 1, 2021. Amalgamation of such banks need to be sanctioned by the Reserve Bank of India.

RBI has come out with the guidelines after a few state governments approached it for amalgamation of DCCBs with StCBs as a two-tier Short-term Co-operative Credit Structure (STCCS).

As per the guidelines, RBI will consider proposals for amalgamation “when the state government of the state makes a proposal to amalgamate one or more DCCB/s in the state with the StCB after conducting a detailed study of the legal framework”.

Besides, there should be a an additional capital infusion strategy, assurance regarding financial support if required, projected business model with clear profitability and proposed governance model for the amalgamated bank.

The scheme of amalgamation has to be approved by the requisite majority of shareholders. Also, NABARD has to examine and recommend the proposal of the state government.

“The proposal for amalgamation of DCCBs with the StCB will be examined by Reserve Bank in consultation with NABARD and the sanction/ approval will be a two-stage process,” the guidelines said.

In the first stage, an ‘in-principle’ approval will be accorded subject to fulfilment of certain conditions, following which the processes for amalgamation may be initiated by all concerned.

After completion of the first stage, NABARD and RBI may be approached for final approval along with compliance report, as per the guidelines.

The guidelines also said that if as a result of share swap ratio based on net worth, shareholders of some DCCBs cannot be allotted any shares, then the state government should infuse sufficient capital in such lenders to ensure that the shareholders are allotted at least one share each.



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Small finance banks less prepared than private banks, BFSI News, ET BFSI

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Small finance banks (SFBs), which depended heavily on loan moratorium last year, are likely to be hit by delinquencies as Covid crimps the incomes of their mainstay borrowers.

However, they are inadequately prepared to face the barrage of asset quality issues that may hit them. In contrast, the top private sector banks are adequately prepared to face the crisis.

The provision coverage ratio, or amount set aside for bad loans, is less than 60% of total bad loans. for three listed banks—Equitas Small Finance Bank Ltd, Ujjivan Small Finance Bank Ltd and AU Small Finance Bank.

AU Small Finance Bank’s PCR fell to 50% in Q4 from 53% earlier, while Equitas Small Finance Bank, the most conservative among the SFBs, saw a 25% decline in the overall provision, compared with last year. Ut made additional provision to Rs 153 crore at the end of the fourth quarter.

Ujjivan Small Finance Bank’s PCR fell to 60% in the fourth quarter, from 80% in the year-ago period. The bank made a provision of Rs 170 crore as of March-end.

Private banks’ PCR

For HDFC Bank total provisions (comprising specific, floating, contingent and general provisions) were 153% of the gross non-performing loans as on 31 March 2021.

ICICI Bank had substantially increased its provision coverage ratio (PCR) to 86 per cent with pro forma PCR of 78 per cent, the highest in the industry.

Axis Bank’s provision coverage ratio, including write-offs, stood at 88% in the fourth quarter.

SLTRO boost

While the small finance banks did not get moratorium relief, the Reserve Bank of India (RBI) has announced a special long-term repo operation (SLTRO) for small finance banks. The central bank conducted the special operation of Rs 10,000 crore at repo rate, Das said.

“Small finance banks (SFBs) have been playing a prominent role by acting as a conduit for the last-mile supply of credit to individuals and small businesses,” Das said earlier this month announcing the relief measures.

“To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic, it has been decided to conduct special three-year long-term repo operations of Rs 10,000 crore at repo rate for the SFBs, to be deployed for fresh lending of up to Rs 10 lakh per borrower,” Das said, adding that the facility will remain open till October 31, 2021.

Priority loans

The RBI also has decided to allow the classification of priority sector lending for loans given by small finance banks (SFB) to micro-finance institutions (MFI) for on-lending to individuals.

The decision has been taken to address the liquidity issues of MFIs amid the severe Covid crisis.

RBI Governor Shaktikanta Das said: “In view of the fresh challenges brought on by the pandemic and to address the emergent liquidity position of smaller MFIs, SFBs are now being permitted to reckon fresh lending to smaller MFIs (with asset size of up to Rs 500 crore) for on-lending to individual borrowers as priority sector lending.” This facility will be available up to March 31, 2022.



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IBA reaches out to govt for refund of compound interest waiver by banks, BFSI News, ET BFSI

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The Indian Banks‘ Association (IBA) on behalf of lenders has approached the finance ministry to refund the burden fallen on their shoulders due to a recent Supreme Court judgment on the waiver of compound interest on all loan accounts which opted for moratorium during March-August 2020.

The March judgment of the apex court directed the banks to waive off compound interest on loans above Rs 2 crore availing moratorium as loans below this got blanket interest on interest waiver in November last year.

Compound interest support scheme for loan moratorium cost the government Rs 5,500 crore during 2020-21, and the scheme covered all borrowers including the prompt one who did not avail moratorium.

Various banks are at the different stages of executing the order.

Punjab & Sind Bank Managing Director S Krishnan said the burden on the bank due to waiver works out to be around Rs 30 crore.

The issue of reimbursement of the waiver amount by the government is being pursued by IBA on behalf of the banks, he said.

Asked if the finance ministry has responded to their request, he said, “So far, we have not heard anything positive on this.”

The apex court order this time is only limited to those who availed moratorium. So, the liability of the public sector bank should be less than Rs 2,000 crore as per rough calculations, sources had said.

The RBI on March 27 last year announced a loan moratorium on payment of instalments of term loans falling due between March 1 and May 31, 2020, due to the pandemic, later the same was extended to August 31.

The Supreme Court on March 23, 2021, directed that no compound or penal interest shall be charged from borrowers for the six-month loan moratorium period, which was announced last year amid the COVID-19 pandemic, and the amount already charged shall be refunded, credited or adjusted.

The apex court refused to interfere with the Centre and the Reserve Bank of India‘s (RBI) decision to not extend the loan moratorium beyond August 31 last year, saying it is a policy decision.

Rejecting pleas for a complete waiver on interest the court opined that such a move would have consequences on the economy. The bench also said that interest waiver would affect depositors. Along with this, the court also rejected pleas for further relief in the matter.

Soon after the order, the RBI asked banks and NBFCs to immediately put in place a board-approved policy to refund/ adjust the “interest on interest” charged to the borrowers during the six-month moratorium, in conformity with the Supreme Court judgment.

The central bank also asked lending institutions to disclose the aggregate amount to be refunded/ adjusted in respect of their borrowers based on the reliefs in their financial statements for the year ending March 31, 2021.



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Forex gains help RBI to give record Rs 99,122 crore dividend to govt, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) is paying a dividend of Rs 99,122 crore to the government, double than the Budgetary Estimates, which will help the government tide over the revenue losses from lockdowns and extend more support to the pandemic hit industries and the poor people.

Analysts had factored in a dividend of Rs 65,000 crore from the RBI, while the government’s budget estimates included Rs 45,000 crore surplus transfer by the central bank. In fiscal 2020, the RBI had paid only Rs 57,128 crore in dividend.

How the funds came

The higher payout followed the Bimal Jalan panel report that had set a new economic framework capital buffer for the central bank along with the contingency risk buffer at 5.5 per cent.

“In our view, the upside surprise could have been driven by increased returns from domestic assets and changes in accounting practices by the central bank — the RBI recently allowed itself to book profits on its FX transactions from a weighted average cost perspective,” Barclays India said in a report.

This move could have helped the central bank boost yields on its foreign asset holdings. Further, increased holdings of domestic government securities likely further amplified the central bank’s income for the year, the report authored by Barclays India chief economist Rahul Bajoria said.

The dividend announcement will relieve some of the fiscal pressure on the government, providing it with more room to spend in the current fiscal year. This could be particularly helpful in alleviating the impact of the second Covid wave, it said.

Fight against Covid

The record dividend payout will relieve some of the fiscal pressure on the government, providing it with more room to spend in the current fiscal. This could be particularly helpful in alleviating the impact of the second wave, Bajoria added.

Aditi Nayar, the chief economist at Icra Ratings, said this considerably higher surplus transfer will offer the government a buffer to absorb the losses in indirect tax revenue that are anticipated in May-June due to the impact of the lockdowns on the level of consumption on discretionary items and contact-intensive services.

“Moreover, high commodity prices at a time when demand and pricing power are subdued will dent the margins of corporates in many sectors, compressing the growth in direct tax collections,” Nayar warned and said this higher dividend will help cushion some of this revenue shock.

After this dividend payout for the accounting period of nine months ending March 2021 (July 2020-March 2021), the RBI is left with a contingency risk buffer at 5.50 per cent of its capital.

Increased spending

Barclays said the government has flexibility now to increase support to the economy while maintaining its fiscal deficit estimate at 6.8% for FY21-22,

“So far, in response to the second Covid wave, the government has reinstated the free food distribution scheme, which should assist 80 crore people, and set aside a budgetary allocation of Rs 26,000 crore for incremental spending. Further, given the rising demand for the government’s rural job scheme, we see some likelihood that spending on the job guarantee scheme could increase further this year. Recent media reports also indicate that the finance ministry is likely working on further relief measures to support the economy,” it said.



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RBI to transfer Rs 99,122 crore to government as surplus, BFSI News, ET BFSI

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The Reserve Bank of India on Friday approved for a transfer of Rs 99,122 crore as surplus to the government for the accounting period of nine months ended March 31.

The central board of directors of RBI in a virtual meeting took the call and decided for surplus transfer.

The board has also reviewed the current economic situation, global and domestic challenges and recent policy measures taken by the Reserve Bank around the impact of second wave of Covid-19 on the economy.

The change in RBI’s accounting year to April-March from earlier June-July the board also discussed the working of the RBI during the transition period of nine months.

“The Board also approved the transfer of Rs 99,122 crore as surplus to the central government for the accounting period of nine months ended March 31, 2021 (July 2020-March 2021), while deciding to maintain the Contingency Risk Buffer at 5.50 per cent.”

Deputy governors Mahesh Kumar Jain, Michael Debabrata Patra, M Rajeshwar Rao, T Rabi Sankar attended the meeting.

Other directors of the Central Board, N Chandrasekaran, Satish K Marathe, S Gurumurthy, Revathy Iyer and Sachin Chaturvedi attended the meeting.

Debasish Panda Secretary, Department of Financial Services and Ajay Seth, Secretary, Department of Economic Affairs were also a part of the meeting.



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Released liquidity may help banks to subscribe to G-Secs

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Liquidity released on account of purchase of Government Securities (G-Secs/GS) aggregating ₹35,000 crore by the Reserve Bank of India (RBI) on Thursday may encourage banks to subscribe to G-Secs aggregating ₹32,000 crore at Friday’s scheduled auction.

Market participants offered to sell seven G-Secs aggregating ₹1,21,696 crore against the notified amount of ₹35,000 crore RBI wanted to buy under the second tranche of its G-sec Acquisition Programme (G-SAP 1.0).

RBI accepted offers for six G-Secs aggregating the notified amount. It rejected all the offers for 7.95 per cent GS 2032.

The Central bank purchased the benchmark 5.85 per cent GS2030 under G-SAP at ₹99.26 (yield: 5.9526 per cent) against the previous close of ₹99.10 (5.9749 per cent). Bond prices and yields are inversely related and move in opposite directions.

Stable and orderly evolution

Under G-SAP, the RBI commits upfront to a specific amount of open market purchases of G-Secs with a view to enabling a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.

Meanwhile, the central bank decided to conduct a 14-day Variable Rate Reverse Repo auction for a notified amount of ₹2-lakh crore under its Liquidity Adjustment Facility on May 21.

The aforementioned auction is conducted by RBI to suck out excess liquidity from the banking system.

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More Covid-hit companies may need recast of loans, BFSI News, ET BFSI

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MUMBAI: Banks have told the Reserve Bank of India (RBI) that the extended restrictions due to the resurgence of the Covid pandemic have caused significant stress on businesses and a restructuring window may be required for more loans.

Although the RBI did allow lenders to restructure loans for borrowers earlier this month, the facility was restricted to loans of up to Rs 25 crore. Since the measures were announced, the second wave of Covid emerged across the country, resulting in most parts of the country observing some form of a lockdown.

On Wednesday, RBI governor Shaktikanta Das met with the CEOs of public sector banks (PSBs) through a video conference. Acknowledging the role played by PSBs in extending various banking services including credit facilities to individuals and businesses during the pandemic, the governor asked them to quickly implement the Covid relief measures already announced. He also reiterated the need for banks to raise capital to increase the resilience of their balance sheet should further shocks arise out of the pandemic.

The governor in the meeting sought feedback from banks on the state of the financial sector and credit flows to different sectors, including small borrowers and micro, small and medium enterprises. The governor also sought information on whether rate reductions by banks were in line with the RBI’s action to bring down the cost of funds.

Bankers said that, while the first quarter is traditionally a sluggish period for credit growth, this year loan pick-up was even lower because of the lockdown. They said that the extended lockdown, while necessary to contain the pandemic, is hurting a large segment of the economy. There is a clear indication of collection efficiency being hit. While earlier the banks were more concerned about the survival of small businesses, they are now worried that larger companies may also start facing liquidity related issues as economic activities in non-essentials have been significantly hit.

Non-banking finance companies (NBFCs) have already asked the RBI for a moratorium for their borrowers and their borrowings from banks. Bankers say that in 2020, NBFCs shrunk their books and reduced debt and obtained cheap finance because of targeted long-term repo operations announced by the RBI, which helped them tide last year’s lockdown. This year, no such package has been announced so far.



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RBI bulletin: ‘Demand shock biggest toll of second Covid wave’

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According to the RBI bulletin, corporate performance, meanwhile, is positioning itself for a turn in the business cycle.

The biggest toll of the current second wave of the Covid-19 pandemic is in terms of a demand shock (loss of mobility, discretionary spending and employment, besides inventory accumulation), although aggregate supply is less impacted, the Reserve Bank of India (RBI) said in its latest monthly bulletin on Monday.

Nevertheless, the loss of growth momentum is not as severe as at this time a year ago, when the country had witnessed a Covid-induced lockdown, it said. In the absence of several high-frequency data for April-May, this assessment, however, is tentative at this stage, it added.

While industrial production in March surged out of a two-month contraction (it shot up by 22.4%) on the tailwinds of a large favourable base effect, seasonally-adjusted annualised month-on-month momentum was positive for the fourth consecutive month. “Yet anecdotal evidence points to feedback loops from the demand contraction seeping through into curtailments of output in the months ahead unless infections ebb,” according to the bulletin.

The Nomura India Business Resumption Index (NIBRI) dropped to 61.9 for the week ending May 16 from 66.1 in the previous week. The index is now at the levels last witnessed in June 2020, even though it had fully recovered in February 2021. This loss of momentum is caused by a plunge in mobility in the wake of renewed Covid-induced curbs. Google’s workplace and retail & recreation mobility indices dropped by 5 percentage points and 8.4 percentage points, respectively, from the week before, while the Apple driving index declined by 3.4 percentage points.

The central bank had last month projected real GDP growth of 26.2% for the first quarter of FY22 (primarily driven by a favourable base effect, as real GDP had contracted by 24.4% in the same quarter last fiscal due to lockdown). However, this forecast was made on April 7, before the full fury of the Covid resurgence.

According to the RBI bulletin, corporate performance, meanwhile, is positioning itself for a turn in the business cycle. The initial set of earnings results declared by 288 Indian listed companies (making up for around 51% of the market capitalisation of all listed non-financial companies) for the March quarter marks a distinct shift from the previous quarters, with top-line growth gaining prominence in a broad-based manner, the RBI said.

Thanks to the pandemic, the consolidated balance sheet of non-banking finance companies (NBFCs) grew at a slower pace in the second and third quarters of FY21. However, NBFCs were able to continue credit intermediation, albeit at a lower rate. “The RBI and the government undertook various liquidity augmenting measures to tackle COVID-19 disruptions, which facilitated favourable market conditions as indicated by the pick-up in debenture issuances,” it said.

The profitability of the sector improved marginally in the second and third quarters of FY21, as NBFCs’ expenditures witnessed a steeper fall than their income. Their asset quality, too, improved in the September and December quarters from a year earlier, mainly due to regulatory forbearance to mitigate the impact of pandemic.

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