Tag: reserve bank of india

G-Secs: In Monday’s auction, RBI gets tepid response to conversion

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Banks don’t seem too enthused to trade-in short-dated Government Securities (G-Secs/GS) they hold in their investment book for longer-dated G-Secs, going by the results of Monday’s switch/ conversion auction of G-Secs.

The short-dated G-Secs, maturing between 2022 and 2024, carry relatively higher coupon rate vis-a-vis the longer-dated G-Secs, maturing between 2033 and 2061, they were to be converted into.

Of the 10 G-Secs, aggregating ₹20,000 crore, the government wanted to switch into longer-dated G-Secs, only two got favourable response, receiving conversion offers exceeding the notified amount of ₹2,000 crore per G-Sec.

The Reserve Bank of India (RBI), which is the banker and debt manager to the government, accepted offers for conversion of GS 2022 (coupon rate: 5.09 per cent) and GS 2024 (7.32 per cent) for ₹2,000 crore and ₹1,300 crore, respectively, into floating rate bonds (FRBs) maturing in 2033.

Rejects other conversion offers

The Central bank rejected the conversion offers it received for eight other securities. Through the conversion/ switch, the Government postpones redemption of G-Secs to a later date.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “In today’s switch, only two G-Secs were converted. FRB doesn’t get traded so often. Going ahead, interest rates are expected to rise. Hence, FRB is a good switch. Response was lacklustre because tendering happens at previous day FIMMDA prices. If prices are lower, market participants would not like to tender securities.”

RBI started conducting the auction for conversion of G-Secs on the third Monday of every month from April 22, 2019.

Bidding in the auction implies that the market participants agree to sell the source security/ies to the government of India (GoI) and simultaneously agree to buy the destination security from GoI at their respective quoted prices.

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Govt may table amendment to DICGC Act in monsoon session, BFSI News, ET BFSI

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In a bid to ensure timely support to depositors of stressed banks, the government may bring amendment to DICGC Act in the monsoon session with the objective to provide account holders easy and time-bound access to funds to the extent of the deposit insurance cover.

Last year, the government raised insurance cover on deposit five-folds to Rs 5 lakh with a view to provide support to depositors of ailing lenders like Punjab and Maharashtra Co-operative (PMC) Bank. Following the collapse of PMC Bank, Yes Bank and Lakshmi Vilas Bank too came under stress leading to restructuring by the regulator and the government.

The amendment to the Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961 is the budget announcement made by the Finance Minister and the Bill is almost ready, sources said.

It is expected that the Bill will be tabled in the upcoming monsoon session after being vetted by the Union Cabinet, sources added.

Once the Bill becomes the law, it will provide immediate relief to thousands of depositors who had their money parked in stressed lenders such as PMC Bank and other small cooperative banks.

As per the current provisions, the deposit insurance of up to Rs 5 lakh comes into play when the licence of a bank is cancelled and liquidation process starts.

DICGC, a wholly-owned subsidiary of the Reserve Bank of India, provides insurance cover on bank deposits.

Finance Minister Nirmala Sitharaman in the Budget speech in February said the government had approved an increase in the Deposit Insurance cover from Rs 1 lakh to Rs 5 lakh for bank customers last year.

“I shall be moving amendments to the DICGC Act, 1961 in this session itself to streamline the provisions, so that if a bank is temporarily unable to fulfil its obligations, the depositors of such a bank can get easy and time-bound access to their deposits to the extent of the deposit insurance cover. This would help depositors of banks that are currently under stress,” she had said.

It could not be presented in the Budget session due to curtailment of the last session following the spread of second wave of COVID-19 pandemic.

It is to be noted that the enhanced deposit insurance cover of Rs 5 lakh is effective from February 4, 2020. The increase was done after a gap of 27 years as it was static since 1993. The cover is provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the RBI.

With increased insurance cover, the banks are paying a higher premium of 12 paise against 10 paise per Rs 100 deposited without any additional burden on account holders.

The deposit insurance scheme covers all banks operating in India, including private sector, cooperative and even branches of foreign banks. There are some exemptions such as deposits of foreign governments, deposits of central and state governments, and inter-bank deposits.

It can be recalled that way back in 2009, the Raghuram Rajan committee on financial sector reforms had recommended strengthening the capacity of the DICGC, a more explicit system of prompt, corrective action, and making deposit insurance premia more risk-based.



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Have IPL ads led to a fresh clampdown on Indian crypto exchanges?, BFSI News, ET BFSI

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When dogecoin turned to be the new sensation on the crypto street, many Indian investors could just marvel at the image of the dog on the coin, but not buy it.

The reason was their purchases are not going through as some banks have directed payment gateways not to process cryptocurrency­related transactions.

Since early this month, leading banks, notably private sector lenders ICICI Bank and IndusInd Bank, have asked payment gateway partners to stop processing such transactions.

Axis Bank, Kotak Mahindra Bank, Citibank, and others are limiting their exposure to the cryptocurrency market.

Banks, the industry sources said, have stopped issuing merchant IDs to payment gateways, and have asked these intermediaries to tighten scrutiny while dealing with cryptocurrency exchanges in India.

The issue started in late February and according to experts, the recent surge in the market, dogecoin frenzy and advertisements by crypto exchanges during IPL led to a fresh clampdown on the cryptocurrency.

The aggressive marketing push by crypto exchanges on TV during the IPL, OTT channels and through social media influencers has caused the regulator to clamp down as the industry is not licensed in India.

Dogecoin trading volumes from India have more than trebled since April and platforms have witnessed record-breaking transaction volumes.

Regulator against it

According to reports, the Reserve Bank of India, is informally urging lenders to cut ties with cryptocurrency exchanges and traders as the highly speculative market booms, despite a Supreme Court ruling that banks can work with the industry.

The guidance comes as the Indian government is drafting a law to ban cryptocurrencies and penalise anyone dealing in them, which would be among the most sweeping crackdowns on the new investing fad in the world. But with the COVID-19 crisis engulfing the country, no one is sure when such a bill may be passed, adding to investors` confusion.

The Reserve Bank of India (RBI) in 2018 had forbidden banks from dealing in all transactions related to bitcoin and other such assets. That diktat was challenged by the crypto exchanges and in March 2020, India`s top court overturned the RBI ban and allowed lenders to extend banking facilities to them.

With investors continuing to rush into the hot new asset class, however, regulators appear to be gearing up for another try.

Earlier this year, RBI Governor Shaktikanta Das said that they have “major concerns (around crypto) from the financial stability angle.”.

Growing frenzy

Thousands of new users are piling into the system every day at a time when the prices of major digital currencies have been on the rise. There are over 10 million crypto investors in India with total holdings of over Rs 10,000 crore, according to industry estimates. No official data is available.

Crypto platforms, for their part, are in the process of sending a communication to all major banks about the Supreme Court ruling of February 2020 that revoked the banking ban and declared that the central bank cannot issue any formal guidelines or directly regulate these exchanges.



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HDFC Bank retail loan recasts highest among private banks last year, BFSI News, ET BFSI

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The Reserve Bank of India‘s restructuring of loans announcement seems to have come at the right time for small borrowers, going by such recasts last year.

Retail or small borrowers have benefited the most from the restructuring scheme announced by the RBI last year as part of its pandemic relief measures, according to the results put out banks so far.

The total restructured accounts for HDFC Bank were 3.36 lakh accounts, involving loans of Rs 6,508.37 crore, of which 2.87 lakh accounts were for retail loans amounting to Rs 5,456 crore.

About Rs 82.38 crore retail loans of Kotak Mahindra Bank were restructured while the total recast loans were worth Rs 121.5 crore.

The restructured loans of Axis Bank were Rs 844.6 crore, of which retail loans accounted for Rs 503.71 crore.

ICICI Bank saw loan recasts for 1,624 accounts, of which 1,586 were retail accounts and the rest corporate. but the corporate loans recasts were higher at Rs 1,323.28 crore against Rs 643.19 crore for retail loans. Yes Bank saw loan recasts of Rs 1,112.21 crore where corporate loans accounted for Rs 940.11 crore spread 352 accounts.

Restructuring 2.0

Earlier this month, Reserve Bank announced a slew of measures including loan restructuring for individual and small businesses hit hard by the fresh Covid wave.

Borrowers that are individuals and micro, small and medium enterprises (MSMEs) having aggregate exposure of up to Rs 25 crore would be considered for the new scheme.

This would be for those who have not availed restructuring under any of the earlier frameworks, including the Resolution Framework 1.0 of RBI dated August 6, 2020, and who are classified as standard as on March 31, 2021, shall be eligible for the Resolution Framework 2.0, he said.

Under the proposed framework, the bank may be invoked up to September 30, and shall have to be implemented within 90 days after the invocation, he added.

Frame policies

The RBI has asked lenders to frame Board approved policies within a month to implement viable resolution plans for stressed advances of individuals and small businesses under the “Resolution Framework – 2.0” relating to Covid related stress. RBI also announced rationalisation of certain components of the extent know-your-customer (KYC) norms for enhancing customer convenience.

These include extending the scope to video KYC known as video-based customer identification process.

Further, keeping in view the Covid related restrictions in various parts of the country, RBI regulated entities have been asked that for the customer accounts where periodic KYC updating is new or pending, “no punitive restriction on the operation of customer accounts” will be imposed till December 31, 2021, unless warranted, due to any other reason.



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RBI cancels licence of West Bengal-based United Cooperative Bank, BFSI News, ET BFSI

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The Reserve Bank of India on Thursday said it has cancelled the licence of United Co-operative Bank Ltd, Bagnan, West Bengal, as it does not have adequate capital and earning prospects. Consequently, the bank ceases to carry on banking business, with effect from the close of business on May 13, 2021, the Reserve Bank of India said in a statement.

“As per the data submitted by the bank, all the depositors will receive full amount of their deposits from Deposit Insurance and Credit Guarantee Corporation (DICGC),” it said.

On liquidation, every depositor would be entitled to receive deposit insurance claim amount in respect of his/her deposits up to a monetary ceiling of Rs 5 lakh from the DICGC subject to the provisions of the DICGC Act, 1961.

Giving details, the RBI said the bank does not have adequate capital and earning prospects. Also, the bank with its present financial position would be unable to pay its present depositors in full, it added.

United Co-operative Bank has been prohibited from conducting the business of ‘banking’ which includes acceptance of deposits and repayment of deposits with immediate effect.

The RBI has requested the Registrar of Cooperative Societies, West Bengal to issue an order for winding up the bank and appoint a liquidator.



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RBI tells lenders to re-consider ties with crypto exchanges, traders, BFSI News, ET BFSI

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India’s central bank is informally urging lenders to cut ties with cryptocurrency exchanges and traders as the highly speculative market booms, despite a Supreme Court ruling that banks can work with the industry, three sources told Reuters

The guidance comes as India is crafting a law to ban cryptocurrencies and penalize anyone dealing in them, which would be among the most sweeping crackdowns on the new investing fad in the world. But with the COVID-19 crisis engulfing the country, no one is sure when such a bill may be passed, adding to investors’ confusion.

The Reserve Bank of India (RBI) in 2018 had forbidden banks from dealing in all transactions related to bitcoin and other such assets. That diktat was challenged by the crypto exchanges and in March 2020, India’s top court overturned the RBI ban and allowed lenders to extend banking facilities to them.

With investors continuing to rush into the hot new asset class, however, regulators appear to be gearing up for another try.

Thousands of new users are piling into the system every day at a time when the prices of major digital currencies have been on the rise. There are over 10 million crypto investors in India with total holdings of over 100 billion rupees ($1.36 billion), according to industry estimates. No official data is available.

“The regulator has been unofficially asking us that why are we dealing in such business when it is ultra speculative. A lot of money flows overseas via this trade which the RBI is not comfortable with as it may lead to money laundering,” said a senior executive at one of the banks which was contacted.

RBI did not respond to a request for comment.

Private lender ICICI Bank has already asked payment service companies that it works with to stop all crypto-related payment transactions, three sources said, while other lenders are also following suit.

ICICI Bank did not respond to an email seeking comment.

None of the sources wanted to be identified as the discussions with RBI were private and no official order has been issued yet.

“Even though the discussions are informal that is enough. No one wants to go against the regulator,” said another source.

The central bank has often voiced its apprehension about digital currencies. Earlier this year, RBI Governor Shaktikanta Das said that they have “major concerns (around crypto) from the financial stability angle.”.

THE CRYPTO CONUNDRUM
With Indian banks increasingly wary of dealing with them, crypto exchanges are scrambling to find new business partners.

Axis Bank, Citibank, Kotak Mahindra Bank and others are limiting their exposure to the cryptocurrency market, sources said.

“Axis Bank has taken a fairly negative stance against crypto. They are citing internal policy and risk measures and have stopped transactions with crypto exchanges,” said the CEO of a global crypto exchange with presence in India.

IndusInd Bank is also in the process of stopping all crypto-related transasaction, said two sources.

Axis, Kotak and IndusInd did not reply to an email seeking comment while Citibank declined to comment.



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Indians prefer digital swipe, but keep cash handy amid Covid, BFSI News, ET BFSI

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Digital modes of payment have soared manifold since the demonetisation in late 2016, but cash too has kept pace, more so during the Covid pandemic.

Digital transactions have grown at a CAGR of 66.4% to 40.1 billion transactions in FY20 from 3.1 billion transactions in FY15, as per the Reserve Bank of India data. The average daily digital transactions in India in January 2021 were at 142.6 million, up from 8.6 million in 2015.

Interestingly, the currency in circulation is also at its highest in a decade, as people prefer cash storage in anticipation of medical emergencies amid restrictions in movements.

Cash conundrum

From 12% of the GDP in FY16, currency usage slumped to 8% in FY17 following demonetisation and has been gradually rising since.

Currency in circulation rose 17% ( year-on-year) to Rs 28.6 lakh crore by end-March 2021, compared with 14% at the end of the previous fiscal year, the latest Reserve Bank of India (RBI) data showed. Cash in the system further increased to Rs 29.4 lakh crore as of May 7.

Withdrawal of benefit payouts and subsidies from Jan Dhan accounts, better agriculture output and farm-gate receipts are among the various factors attributed for the cash shortage.

Digital transactions

Digital transactions have grown at a CAGR of 66.4% to 40.1 billion transactions in FY20 from 3.1 billion transactions in FY15, as per central bank data. The average daily digital transactions in India in January 2021 were at 142.6 million, up from 8.6 million in 2015.

The growth of digital payments slowed in April 2021 over March, remained higher than in February, according to a report.

The Unified Payments Interface (UPI) transactions dropped from the Rs 5­ lakh crore peak in March to Rs 4.93 lakh crore via 264 crore transactions.

The Immediate Payment Service (IMPS) saw 32.29 crore transactions worth Rs 2.99­lakh crore in April as against 36.31 crore transactions of Rs 3.27 lakh crore in March.

Bharat Bill pay platform processed 3.51 crore transactions worth ₹Rs 5,201.92 crore in April as against 3.52 crore payments amounting to Rs 5,195.76 crore in March.

As the movement of people and goods slowed, the FASTags, AePS transactions through the NETC saw a sharp decline in April at 16.43 crore transactions worth Rs 2,776.9 crore. It was 19.32 crore transactions worth Rs 3,086.32 crore in March.

The Aadhaar enabled Payment System saw 7.42 crore transactions valued at Rs 22,139.05 crore in April as against 7.78 crore payments worth Rs 22,697.82 crore in March.



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Retail loans constitute large share of loan recast by private banks

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Even as Resolution 2.0 announced by the Reserve Bank of India is expected to help small borrowers tide over the current economic uncertainty, trends from the restructuring scheme last year indicate that retail customers were the ones to benefit most from it.

Data released by banks along with their fourth quarter results show that loans by retail borrowers dominated the loan restructuring scheme of last year, while only a few companies used the benefit.

Also read: RBI allows lenders to revamp MSME accounts under Covid-19 related stress

Private sector lender HDFC Bank’s total restructuring was for 3.36 lakh accounts, amounting to ₹6,508.37 crore, of which 2.87 lakh accounts were for retail loans amounting to ₹5,456 crore.

Similarly, the total restructuring by Axis Bank amounted to ₹844.6 crore, of which retail loans accounted for ₹503.71 crore. Kotak Mahindra Bank restructured loans worth ₹121.5 crore, of which ₹82.38 crore were for retail borrowers.

ICICI Bank, YES Bank and IDBI Bank were among the outliers where the amount of corporate loans restructured was higher.

In the case of ICICI Bank, the total loan recast was for 1,624 accounts, of which 1,586 were retail accounts and just 30 were corporate accounts. However, in terms of exposure, retail loan restructuring amounted to ₹643.19 crore, while corporate loan recasts were higher at ₹1,323.28 crore.

For YES Bank, the number of accounts as well as exposure to corporate loans under the recast scheme were higher compared to retail accounts and loans.

Of the total loan recast of ₹1,112.21 crore by YES Bank, corporate loans accounted for 352 accounts valued at ₹940.11 crore.

However, the overall restructuring of loans was low for most private sector banks and they have already made sufficient provisions.

Also read: Covid support for Individuals and Small Biz: RBI asks lenders to frame policies within a month

“We note that the bulk of slippages in 2020-21 has come from retail and MSMEs. Higher restructuring was also availed by both these segments. Among banks, large ones have seen sub-1 per cent restructuring of loans, while mid-size private banks and small finance banks have seen higher loan restructuring,” said Emkay Global Financial Services in a note.

More data will be available on the restructuring trends once public sector lenders also announce their fourth quarter results.

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Divestment hopefuls Bank of Maha, BoI, IOB shoot up on stock market charts, BFSI News, ET BFSI

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Public sector banks Bank of Maharashtra, Bank of India, Indian Overseas Bank and the Central Bank of India, which are reportedly on the privatisation shortlist have risen manifold during the year.

The rally in PSU banks has strengthened in the last few days despite the yo-yoing markets due to the coronavirus pandemic wave.

Bank of Maharashtra shares have nearly doubled from Rs 13.55 at the start of the year to Rs 25.40 per share. It was up 2.21% over the previous close on Wednesday.

From 10.80 at the start of the year, Indian Overseas Bank’s shares have risen over 52% to 16.45. The shares were up 3.13% over the previous close on Wednesday.

From Rs 50.35 a share in January start, the Bank of India share price has climbed to 72.70 on Wednesday. It was up 4.76% over the previous close.

From 14.10 in January, the share price of Central Bank of India has jumped to Rs 18.45 on Wednesday. It was up 7.89% over the previous close.

The top PSU banks including SBI, Bank of Baroda, Canara Bank and PNB are also outperforming over divestment hopes around PSU banks.

More upside seen

Traders see another 10-15% jump in PSB shares if the Nifty holds 14500 levels.

SBI is the top investment pick in case the Nifty holds 14,400, with others offering a good trading opportunity for greater upside on talks around divestment.

PNB, Canara Bank, Bank of Baroda and SBI, which hold 74.63 per cent weight in the Nifty PSU Bank, have rallied between 4 per cent and 17.5 per cent in April 20-May 11, driving the index up by 15.05 per cent to 2,239.7 over the same period. This beats the Bank Nifty’s 6 per cent rally through 32,953 over the comparative period.

On May 12, when the Nifty and Bank Nifty corrected by more than 1 per cent, the Nifty PSU Bank closed up 3.2 per cent, underscoring the buying in these counters.

Futures prices of these stocks along with aggregate open interest change signal the market interest in these counters.

Canara Bank active futures contract has risen 17.5 per cent through 151 between April 20 and May 11. Over this period, the aggregate open interest, which measures traders’ outstanding buy-sell positions, rose 11.25 per cent, implying bullish sentiment on the counter.

Bank of Baroda’s 17 per cent gain in futures was accompanied by an 11.3 per cent decline in aggregate OI, signalling that bears were covering their sell positions. Likewise, SBI active futures contract, which has risen 11 per cent in the relevant period, was accompanied by an 8 per cent decline in aggregate OI, implying short covering. PNB futures, which rose 4 per cent, saw aggregate OI jump 40 per cent, suggesting bullish build-up.

The status

Indian Overseas Bank and Central Bank are under the Reserve Bank of India‘s stringent prompt corrective action framework.

These banks have reported net non-performing assets (NPAs) below levels that trigger PCA. However, on the proforma net NPA front, Central Bank falls short as its NNPA is 6.58% against the 6% required to be out of PCA.

The Reserve Bank of India is likely to delay regularising struggling state-run lenders that are under the prompt corrective action (PCA) framework as it has reservations over their capital adequacy levels.

Two public sector banks and one general insurance company are expected to be disinvested this year in addition to the divestment of IDBI Bank, Finance Minister Nirmala Sitharaman had announced during Budget presentation in February.



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Wilful defaults near Rs 2.5 lakh crore mark during pandemic, BFSI News, ET BFSI

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Banks have tagged 662 borrowers with loans of Rs 38,976 crore as wilful defaults during the last calendar year.

With this, the total wilful defaults have reached Rs 244,602 crore from 12,917 accounts as of December 2020, from Rs 205,606 crore from 12,255 accounts in December 2019, according to a report.

While wilful defaults have doubled since 2017, the recovery from top borrowers remains negligible.

The country’s top 100 wilful defaulters owe Rs 84,632 crore to banks as of March 2020, with the top 10 including Winsome Diamonds & Jewellery and accounting for 32% of it, data from the Reserve Bank of India shows. While banks wrote o nearly three-fourth of it to clean their balance sheet and get tax benefits, the default borrowers continue to appear in RBI‘s internal CRILC database till they clear the default.

Top 100 wilful defaulters

The total size of the top 100 wilful defaults rose 5.34% in FY20 from Rs 80,344 crore as of March 2019.

Mehul Choksi-owned Gitanjali Gems topped the wilful defaulters’ list with Rs 5,693 crore dues, followed by Jhunjhunwala brothers’ REI Agro with Rs 4,403 crore and Jatin Mehta’s Winsome Diamonds & Jewellery with Rs 3,375 crore.

The top 10 wilful defaulters include another jewellery maker Forever Precious Jewellery, and Vijay Mallya’s Kingfisher Airlines Punjab National Bank had the highest exposure to Gitanjali Gems with Rs 4,644 crore of non-performing assets (NPA) as on March 2020. PNB also had Rs 1,447 crore exposure to Gili India and Rs 1,109 crore to Nakshatra Brands.

Write-offs

State Bank of India had Rs 1,875 crore dues from top 10 wilful defaulter ABG Shipyard with the bank writing o the entire amount. Uco Bank had Rs 1,970 crore exposure to REI Agro with half of it being written off.

Write-offs are accounting entries for shifting NPAs from active balance sheet to off-balance sheet accounts. These are backed by 100% provision and therefore any recovery from these accounts adds to net profit.

RBI collects credit data from banks monthly, with data on defaults being collected on a weekly basis. The regulator has mandated banks to provide fully against NPAs older than four years and allowed to write these old NPAs.

The reduction in NPAs during FY20 was largely driven by write-os, RBI had said in its report on Trend & Progress of Banking in India. Banks’ total gross NPA reduced to 8.2% at the end of March 2020 from 9.1% a year earlier.



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