Tag: reserve bank of india

Govt lists bill in winter session to ban all private cryptocurrency, BFSI News, ET BFSI

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NEW DELHI: The government on Tuesday listed the Cryptocurrency and Regulation of Official Digital Currency Bill for introduction during the winter session of Parliament, which will seek to “prohibit all private cryptocurrencies” but provide for certain exceptions “to promote the underlying technology” and “its uses”.

The proposed bill — which will also put in place a framework for Reserve Bank of India (RBI) to create an official digital currency — comes amid a raging debate over whether the government should ban private cryptocash or regulate them like shares and bonds.

A very vocal lobby led by unregulated exchanges has been campaigning for their inclusion under a regulatory system, as opposed to an outright ban the government had earlier proposed.

RBI has been backing a ban on cryptocurrency, arguing it can be used for illegal purposes apart from limiting the central bank’s ability to manage inflation, foreign exchange and the overall economy.

It, however, sees no problems with the use of technology for managing logistic chains or land records but is opposed to its use as a financial instrument.

It cannot be called a currency since the sovereign only enjoys that right,” the apex bank has pointed out. The Centre, however, seems inclined to ban bitcoins, making it clear that dabbling in them carries a clear risk.

While there have been observations that a ban will be tough to enforce, or that it will only drive the entire growing trade underground, those supporting a prohibition have argued that even gambling or drug trafficking are illegal and those found violating the law face strict action.

The divergent views had prompted PM Narendra Modi to recently hold consultations and call for global cooperation on the issue. While China recently banned all cryptocurrencies, El Salvador is the sole country to permit them for official use.

Government sources said the bill has not been finalised yet and is unlikely to be introduced during the first week of the winter session that starts on Monday. But all eyes are on how the government defines the “uses” of cryptocurrency.

In case it allows it to be treated as an asset or a commodity, as a section within the government has argued, it will pave the way for their trading on exchanges. The fear is that trading would allow the instrument to be used as a store of value, although officially it will not be a medium of exchange. There are concerns that the moment trading is permitted, people may use cryptocurrencies such as bitcoins, for making part payment for purchase of property or for overseas transfer.

While the RBI had banned investments in cryptocurrencies, the Supreme Court had held the circular illegal. In the meantime, the government-appointed committee headed by SC Garg, the then economic affairs secretary, submitted its recommendations seeking a ban and the government had planned to introduce a legislation during the Budget session.

But with the session cut short, the bill “prohibiting” private cryptocurrencies could not be introduced, resulting in a fresh round of consultations.



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RBI, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank has cautioned the public against co-operative societies using words “bank”, “banker” or “banking” as part of their names unless specifically permitted. It also clarified that deposits with there societies are not eligible for insurance cover.

Some Co-operative Societies are using the word “Bank” in their names in violation of Section 7 of the Banking Regulation Act, 1949 which is applicable to co-operative societies under the Act, according to the Reserve Bank.

“Accordingly, co-operative societies cannot use the words “bank”, “banker” or “banking” as part of their names, except as permitted under the provisions of BR Act, 1949 or by the Reserve Bank of India” the regulator clarified in a release.

“Members of the public are hereby informed that such societies have neither been issued any licence under BR Act, 1949 nor are they authorized by the RBI for doing banking business” RBI said. “The insurance cover from Deposit Insurance and Credit Guarantee Corporation (DICGC) is also not available for deposits placed with these societies. Members of public are advised to exercise caution and carry out due diligence of such Co-operative societies if they claim to be a bank, and look for banking license issued by RBI before dealing with them”

The RBI has also noticed that some Co-operative societies are accepting deposits from non-members which indicates conducting banking business in violation of the provisions of the BR Act, 1949.



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RBI details draft amalgamation plan for PMC Bank, BFSI News, ET BFSI

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Mumbai: The Reserve Bank of India (RBI) has detailed a draft scheme for the merger of sick Punjab and Maharashtra Cooperative (PMC) Bank with the newly-formed Unity Small Finance Bank Ltd (USFB), more than two years after PMC was put under restrictions on account of fraud that led to a steep deterioration in the networth of the bank.

According to the scheme, deposits of up to 5 lakh can be claimed by depositors over a period of three to 10 years.

The scheme says depositors can claim up to 50,000 at the end of three years, 1 lakh at the end of four years, 3 lakh at the end of five years and 5.50 lakh at the end 10 years.

It may be recalled that the RBI had doubled the amount depositors can withdraw from PMC Bank to 1 lakh from 50,000 in June 2020, allowing more than 84% of the depositors to withdraw their entire account balance. RBI said the above limits are for depositors over and above the withdrawals already made.

According to this schedule, the entire remaining deposits of PMC Bank depositors will be paid back within 10 years from the date the central government notifies this scheme of amalgamation.

Further, the central bank has clarified that interest on these deposits shall not accrue after March 31, 2021 for five years.

“No further interest will be payable on the interest bearing deposits of transferor bank for a period of five years from the appointed date. Provided further that interest at the rate of 2.75% per annum shall be paid on the retail deposits of the transferor bank (PMC), which shall be remaining outstanding after the said period of five years from the appointed date. This interest will be payable from the date after five years from the appointed date,” RBI said.

According to the scheme, 80% of uninsured institutional deposits will be converted into perpetual non-cumulative preference shares (PNCPS) of Unity SFB with dividend of 1% per annum payable annually.

After 10 years from the appointed date, Unity SFB may consider additional benefits for PNCPS holders either in the form of providing a step-up in coupon rate or a call option, upon receipt of approval from RBI.

The remaining 20% of the institutional deposits will be converted into equity warrants of Unity SFB at a price of `1 per warrant. These equity warrants will further be converted into equity shares of the Unity SFB at the time of the initial public offer when it goes for one.

“In respect of every other liability of the transferor bank (PMC), the transferee bank (Unity) shall pay only the principal amounts, as and when they fall due, to the creditors in terms of the agreements entered between them prior to the appointed date or the terms and conditions agreed upon,” RBI said.

“Our shareholders have committed capital of over `3,000 crore through cash and warrants, which will be utilised to build a strong foundation for the bank, hire the right talent and bring best-in-class technology,” Unity Small Finance Bank said in a statement.

In June, RBI had given an in-principle nod to Unity SFB, a joint venture of Centrum Financial Services and Resilient Innovations that runs BharatPe, to take over PMC.



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‘Co-op Societies not authorised to conduct banking biz’

Banking & Finance

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The Reserve Bank of India (RBI), in an advisory to the members of the public, said co-operative societies have neither been issued any licence under Banking Regulation (BR) Act, 1949 nor are they authorised for doing banking business.

Further, insurance cover from the Deposit Insurance and Credit Guarantee Corporation (DICGC) is also not available for deposits placed with these societies.

“Members of the public are advised to exercise caution and carry out due diligence of such co-operative societies if they claim to be a bank, and look for banking licence issued by RBI before dealing with them,” the central bank said in a statement.

Forbidden word

Simultaneously, RBI asked co-operative societies to desist from using the words “bank”, “banker” or “banking” as a part of their names, except as permitted under the provisions of BR Act, 1949 or by the Central bank.

RBI has noticed some co-operative societies are using the word “Bank” in their names in violation of Section 7 of the BR Act, 1949 (As Applicable to Co-operative Societies) (the BR Act, 1949).

“It has also come to the notice of RBI that some co-operative societies are accepting deposits from non-members/ nominal members/ associate members which tantamount to conducting banking business in violation of the provisions of the BR Act, 1949,” the Central bank said.

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No exception from ownership norms for PSBs on selloff list, BFSI News, ET BFSI

Banking & Finance

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NEW DELHI: The Reserve Bank of India (RBI) is unlikely to make an exception for ownership changes to privatise state-run banks. Instead, it will issue comprehensive guidelines that will also deal with corporate ownership of Indian lenders.

Sources told TOI that the RBI will soon start the process of new norms, but it is yet to take a decision on allowing corporate houses into the banking business amid sharp divisions on the issue.

The current norms do not allow corporate houses to enter the arena, although several large business houses such as the Birlas and the Tatas have a large financial services presence and may be interested in either acquiring a stake or setting up a bank in future. An internal working group set up by the RBI had submitted a new licensing policy for banks several months ago but the regulator is yet to take a call on the issue, given that it has received multiple inputs from stakeholders and it has been caught up with combating the impact of Covid on the economy.

The Centre and the RBI have agreed on the legislative amendments that may be required to pave the way for privatisation of banks, for which three candidates have been identified.

First off the block is expected to be IDBI Bank, whose name has been made public, with Indian Overseas Bank and Central Bank of India the other candidates in the pipeline, which have been shortlisted by the Niti Aayog with the final decision to be taken by a core group of secretaries. IDBI Bank was on the sell-off list for the current financial year along with a state-run insurance company and two public sector banks. But all the four transactions are not possible until the next financial year.

The law to allow for privatisation of a general insurer has been cleared by Parliament but Dipam is yet to make much headway. And, in the absence of a road map for shareholding in banks, the IDBI Bank sale is not expected anytime soon as bidders would want to know the eligibility conditions and how much they can buy and how they need to dilute.



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RBI moves to prevent illegal digital lending via apps, BFSI News, ET BFSI

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Seeking to safeguard the interest of customers, a Reserve Bank working group has suggested the enactment of separate legislation to prevent illegal digital lending through apps.

The other suggestions of the working group include subjecting the digital lending apps to a verification process by a nodal agency and establishing a Self-Regulatory Organisation (SRO) covering the participants in the digital lending ecosystem.

“The thrust of the report has been on enhancing customer protection and making the digital lending ecosystem safe and sound while encouraging innovation,” RBI said in a release.

The RBI had in January 2021 constituted the working group under the chairmanship of Executive Director Jayant Kumar Dash on digital lending, including lending through online platforms and mobile apps.

The working group was set up in the backdrop of business conduct and customer protection concerns arising out of the spurt in digital lending activities.

The stakeholders can send their comments on the report to the RBI by December 31.

The recommendations

Among other things, the group suggested the development of certain baseline technology standards and compliance with those standards as a pre-condition for offering digital lending solutions.

The loans, it added, should be disbursed directly into the bank accounts of borrowers and serviced only through bank accounts of the digital lenders.

Data collection with prior and explicit consent of borrowers should have verifiable audit trails and should be stored in servers located in India.

It is further stipulated that use of unsolicited commercial communications for digital loans should be governed by a Code of Conduct to be put in place by the proposed SRO.

Algorithmic features used in digital lending should be documented to ensure necessary transparency, the report said.

Standardised code of conduct

The lending companies should also be required to follow a standardised code of conduct for recovery to be framed by the proposed SRO in consultation with RBI.

The SRO should also be required to maintain a ‘negative list’ of lending service providers. Each digital lender should be required to provide a key fact statement in a standardised format including the Annual Percentage Rate, it said.

The Reserve Bank had constituted the Working Group (WG) on digital lending on January 13, 2021, to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players so that an appropriate regulatory approach can be put in place.

The report highlighted that lending through digital mode relative to physical mode is still at a nascent stage in the case of banks (Rs 1.12 lakh crore via digital mode vis-a-vis Rs 53.08 lakh crore via physical mode).



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Industry players welcome RBI Working Group report on digital lending

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Industry players have welcomed the report of the Working Group set up by the Reserve Bank of India (RBI) on digital lending and have said it would ensure higher standards of ethical behaviour and code of conduct for the digital lending platforms, and ensure consumer protection from unethical lenders.

“Self-regulatory organisation is the call of the hour in order to structure the industry and to set the rules for the fintech members and customers. Fintech Association for Consumer Empowerment (FACE) members have always abided with the disclosure of all relevant information including the interest rates, as it believes that transparency and proactive commitment to consumers builds brand trust. Data privacy is of utmost importance and should be strictly adhered to,” said FACE.

Recommendations

Gaurav Chopra, Founder and CEO, IndiaLends and founding member of Digital Lending Association of India, noted that recommendations such as auditable logs for every action that a user performs on the app will demolish many existing loan sharks and curb unfair practices.

Also read: RBI calls for public comments on digital lending

“Moreover, the recommendation for digital lenders to provide a key fact statement in a standardised format including the annual percentage rate will give a better perspective to borrowers about the high percentage rate they are willing to bear. Overall, the report seeks to safeguard consumers from unregulated digital lenders who have the potential to exploit borrowers with unfair or predatory terms,” he noted.

As a founding member of DLAI, IndiaLends abides by the strict code of conduct as implemented in May 2020, which is in alignment with the suggestions of the Working Group, he further said.

The RBI had on November 18 released the report of the Working Group on digital lending including lending through an online platform and mobile apps, which has called for legislation against illegal digital lending activities as well as a verification process for these lenders and a self-regulatory organisation (SRO). It has sought public comments by December 31, 2021.

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Former RBI DG says central bank’s concerns on crypto stem from money laundering, valuation concerns, BFSI News, ET BFSI

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Former RBI Deputy Governor N S Vishwanathan on Wednesday said money laundering and lack of clarity on valuations are the primary concerns of central banks in being circumspect about the introduction of cryptocurrencies. If the government goes ahead and allows cryptocurrencies, bankers need to be wary and not confuse persons’ wealth with the amount of crypto assets they hold even if they do not use it as collateral for lending, Vishwanathan said.

The comments come amid a heated debate over whether to allow private cryptocurrencies into the country, which has seen the RBI being vocal about its concerns, while the government seems to be more amenable.

RBI Governor Shaktikanta Das had on Tuesday reiterated his concerns over cryptocurrencies, saying there are ‘far deeper issues’ involved in virtual currencies that could pose a threat to the country’s economic and financial stability. The government is likely to introduce a bill on cryptocurrencies during the winter session of Parliament, beginning November 29.

Vishwanathan said world over, central banks are concerned with cryptocurrencies and wondered what makes governments more supportive of it.

“The central bank’s concerns come from two fundamental areas. One, of course, is that crypto-assets are seen as a possible source of money laundering, number two is that the valuations,” he said, speaking at the 8th SBI Banking and Economic Conclave.

He said we should not confuse cryptocurrencies with dematerialisation, where there is an underlying asset, which comes up in a digital form.

The career central banker added that we do not know what defines a value of a crypto asset, and the limited understanding is demand-supply forces govern the value.

The value of bitcoin, probably the most popular among the crypto assets, “gyrated” to USD 10,000 and swings between USD 7-17,000 per coin, he noted.

Vishwanathan said a person’s crypto holdings should not determine the wealth because the constant volatilities in the value can make a rich person seem poor or vice-versa.

Bankers should be extra careful and should not look at the crypto holdings while assessing a wealth of a potential borrower and should not lend against such assets, he added.

Earlier, Vishwanathan said, central banks prefer central bank digital currencies (CBDC) over the private and unregulated crypto assets and added that the introduction of the CBDC will help foreign trade.

The former DG said the activity of big tech companies like Google in aspects like deposit mobilisation for lenders is not so high that the RBI needs to be concerned about.

SBI Chairman Dinesh Kumar Khara said our experiences with the past will ensure an orderly exit from the present stimulus given by the RBI.

Replying to a question on whether banks are overcharging for forex commissions to small exporters, Khara said the market forces can ensure that no one is over-charged, while Swaminathan J, a managing director of SBI, said any enterprise works on cross-subsidisation, where it earns higher from a particular revenue stream and less from another.

Swaminathan added that various fee and commission streams have closed down with time, and banks will take an appropriate call on this particular one and case of regulatory action.



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UBS revises GDP forecast to 9.5% from 8.9% for FY22, BFSI News, ET BFSI

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Mumbai, Nov 17 (PTI) Citing faster-than-expected recovery, rising consumer confidence and the resultant spending spike, Swiss brokerage UBS Securities has revised upwards its growth forecast for the current fiscal to 9.5 per cent from 8.9 per cent in September. The brokerage also sees the economy clipping at 7.7 per cent in FY23 but moderating to 6 per cent in FY24, as it expects the benefit of the low-interest rate regime to end by the end of FY23, and it sees the central bank hiking policy rates by 50 bps in the second half of the next fiscal.

The Reserve Bank also forecasts 9.5 per cent GDP growth this fiscal while the average projection ranges from 8.5 to 10 per cent. The government projection is around 10 per cent.

The GDP grew 20.1 per cent in the June quarter of FY22.

In its September review, UBS said on a seasonally adjusted sequential basis, the real GDP declined by 12.4 per cent in the June quarter against the -26 per cent in the same period last year.

Therefore, we maintain the base case estimate of GDP growth at 8.9 per cent in FY22 compared to the consensus of 9.2 per cent against the deeper 7.3 per cent contraction in FY21, UBS Securities said.

The economy is bouncing back on progressive reopening, and the recovery from the second wave has been more pronounced than what we anticipated, Tanvee Gupta Jain, the chief economist at UBS Securities India said on Wednesday. Therefore pencilled in a higher-than-expected GDP run this fiscal.

Without giving an exact number, she said the economy will grow by 9-10 per cent in Q3 and 6-6.5 per cent in Q4 this fiscal, leading to higher overall full-year growth.

Gupta-Jain told reporters in a concall that she sees real GDP clipping at 9.5 per cent this fiscal, up from 8.9 per cent forecast earlier, 7.7 per cent in FY23 — which is more optimistic than the consensus 7.4 per cent for the year, but the growth momentum will moderate to 6 per cent in FY24 as the output gap will remain negative amidst the global growth engine slowing down.

Their optimism comes from their internal UBS India Activity Indicator data, which suggest economic activity has improved sequentially by an average of 16.8 per cent in the September quarter after contracting 11 per cent in the June quarter. Even for October, the indicator was up 3.1 per cent month-on-month on the festive demand bounce.

The brokerage bases the more-than-consensus growth optimism on the following: though consumption growth may moderate measures to boost public Capex and early signs of a recovery in the residential real estate sector may offset some of the adverse impacts.

Similarly, exports could also moderate next year from the very high rates this year due to a shift from goods to service consumption at the global level as the pandemic recedes.

They also see a potential credit accelerator effect in the country aiding the recovery. The baseline assumption is that activity continues to normalise, and remaining mobility restrictions are gradually removed.

Downside risks to the outlook include the following: a mutant virus that is resistant to vaccines is the biggest downside risk, as it may leave the government no choice but to begin new mobility restrictions, another could be a more than the expected spike in inflation and the resultant hike in repo rates to the tune of 75 bps next fiscal. If both materialise, then FY23 growth will be much lower at 5 per cent, she said.

And the upsides would be a successful and timely implementation of the recently announced structural reforms boosting growth beyond our baseline forecast, which will also lead to the economy closing the output gap faster.

According to the brokerage, potential growth has slowed to 5.75-6.25 per cent currently compared to over 7 per cent in 2017, due to longer-than-expected disruption caused by the pandemic and balance sheet concerns faced by economic agents.

Beyond FY22, Gupta-Jain believes Capex, especially infrastructure spending, manufacturing and exports will be the next key growth drivers.

On inflation, she expects CPI to decelerate to 4.8 per cent in FY23 from 5.4 per cent in FY22, assuming the RBI gradually starts unwinding its ultra-easy policy as the economic recovery gains momentum. In a base case scenario, she expects a policy rate hike of 50 bps in H2 FY23.

On the fiscal front, she expects the government to remain committed to fiscal consolidation and narrow the deficit to 8.8 per cent in FY23 from 10.1 per cent in FY22.



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RBI Governor Das urges banks to be investment-ready as recovery gathers pace, BFSI News, ET BFSI

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RBI governor Shaktikanta Das

Shaktikanta Das, governor of Reserve Bank of India, has asked banks to be investment-ready when the private Capex cycle picks up, as the pandemic-battered economy is on a strong recovery path that will demand huge investments to sustain in the long run.

Crediting the faster-than-expected recovery primarily to the improved vaccination pace and the resultant steady fall in the infection caseload, Das said this has led not only to lower extreme health outcomes like mortality/ hospitalisation but also boosted consumer confidence, which was visible in the festival demand.

Addressing an event by State Bank of India, Das said it is heartening to note that the economy is gradually getting back on its feet after the devastating second wave, which is very visible from the numerous high-frequency indicators that suggest that economic recovery is taking hold.

Since contact-intensive services are yet to regain the lost capacity despite rapid improvement in the recent period, it is clear that there still exists a significant gap in private consumption and investment relative to their pre-pandemic levels in FY20.

So, while the economy is picking up pace, it is yet to cover a lot of ground before it gets broad-based and entrenched. This points to the need for sustained impetus so that growth could return to or, better still, exceed the pre-pandemic trend, he said.

The growth triggers

Stating that the country has the potential to grow at a reasonably high pace after the pandemic, Das pointed to the several factors that are stacked in our favour of faster growth.

First, as a developing economy, it has significant potential to catch up with the rest of the world supported by favourable demographics, improving skill base and strong domestic demand.

Secondly, the government is providing necessary support, especially through Capex and reforms in various sectors like infrastructure, manufacturing and telecom, apart from other institutional changes to boost productivity, ease supply constraints and improve the business environment.

Thirdly, he said the pandemic has opened new opportunities for growth in the digital and green technology and also on account of resetting of global supply chains that could be advantageous to us and finally exports have been a bright spot since recent months and are likely to benefit further from global economic recovery.

With such enabling conditions and supportive policies, I have no doubt that we have a unique opportunity to step up growth as we emerge from the pandemic, Das said.

Private consumption

Calling private consumption as the backbone of overall economic growth, he said private consumption contributes the largest share of aggregate demand with around 56 per cent of GDP and is thus critical for inclusive, durable and balanced growth.

There are many signs that consumption demand triggered by the festive season is making a strong comeback. This would encourage companies to expand capacity and boost employment and investment amidst congenial financial conditions, he said, adding the recent tax cuts on petroleum products will give a further fillip to consumption.

Stating that reinvigorating private investment is crucial to realise the growth potential, Das said various policy measures such as a cut in corporate taxes, taxation reforms, the introduction of a performance-linked incentive scheme for 13 major sectors, enhanced focus on infrastructure development and asset monetisation, and proactive liquidity measures by the RBI etc are all leading to investment demand.



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