Tag: reserve bank of india

RBI wants open offer exemption for ARCs buying bad assets from banks, BFSI News, ET BFSI

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The Reserve Bank of India has sought open offer exemption from capital markets regulator Securities and Exchange Board of India (Sebi) for equity stake purchases by Asset Restructuring Companies (ARCs).

Under the current Takeover Code rules, commercial banks and public financial institutions are exempt from making an open offer if they acquire shares beyond a threshold by invoking a pledge. ARCs acquire loans that qualify as non-performing assets from banks.

Banks sell bad loans to an ARC for a lower price and cut losses. In this process, all the collateral that was pledged in favour of the bank will be transferred to ARC.

If the collateral exceeds 25% of the total equity of the company, then such pledge invocation will need the ARC to give an open offer to the minority investors.

Takeover code

Sebi’s takeover code is triggered when an entity acquires over 25% stake in a listed company. At this point, the acquirer has to declare an open offer and buy at least 26% more stake from public shareholders.

Until 2019, the open offer exemption was available to all classes of investors undertaking debt restructuring. In 2019, Sebi changed the rules because RBI dissolved all the debt restructuring schemes and instead all the liquidation was being done through the Insolvency and Bankruptcy Code (IBC).

Market participants say the open offer requirement also slows down the resolution process since a lot of minority shareholders would view it as their last chance to cash in on the shares of a company that is most probably going to be liquidated.

Revised norms

In 2018, the RBI revised norms for bad loan resolution. Until then, banks were allowed to recast the corporate debts by converting their debt into equity.

In February 2018, the central bank phased out the debt restructuring schemes and made it mandatory for banks to refer all bad loans to the IBC process after a specific timeline. This circular of RBI prompted Sebi to revise its rules.

The RBI is mulling easier rules for ARCs. Earlier this month, an expert panel led by former RBI executive director Sudarshan Sen submitted its report to the central bank aimed at simplifying regulations for these financial institutions.

What Sudarshan Sen panel says

In the interest of debt aggregation, the scope of Section 5 of the SARFAESI Act, and other related provisions, may be expanded to allow ARCs to acquire ‘financial assets’ as defined in the Act, for the purpose of reconstruction, not only from banks and ‘financial institutions’ but also from such entities as may be notified by the Reserve Bank.

Reserve Bank may consider permitting ARCs to acquire financial assets from all regulated entities, including AIFs, FPIs, AMCs making investment on behalf of MFs and all NBFCs (including HFCs) irrespective of asset size and from retail investors.

ARCs should be allowed to sponsor SEBI registered AIFs with the objective of using these entities as an additional vehicle for facilitating restructuring/ recovery of the debt acquired by them.



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RBI governor to banks, BFSI News, ET BFSI

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RBI governor Shaktikanta Das on Tuesday asked lenders to proactively identify loans to firms that have turned non-viable but not yet recognised as a non-performing asset (NPA) due to the special dispensation during Covid. The governor also asked banks to review the usability of capital for absorbing losses during a crisis.

Pointing out that numerous high-frequency indicators are showing that economic recovery is taking hold, Das said that there have been several resolution frameworks announced in the wake of the pandemic. “As the support measures start unwinding, some of these restructured accounts might face solvency issues over the coming quarters. Prudence would warrant proactive recognition of such non-viable firms for pragmatic resolution measures,” said Das.

Speaking at an economic conclave organised by the State Bank of India, Das noted that banks have weathered the Covid shock better than expected and, according to early trends, their bad loans and capital position has improved in September 2021 from their levels in June 2021. He said that the profitability metrics of banks were highest in several years. However, the improved parameters partly reflect regulatory relief provided to banks during Covid as well as fiscal guarantees and financial support given by the government, he said.

“Certain concerns have re-emerged from the crisis which warrant our attention. Most importantly, we are faced with the question of capital and provisioning buffers of banks, their adequacy and resultant usability during a crisis,” said Das. He urged banks to focus and further improve their capital management processes to envisage the capacity for loss absorption as an ongoing responsibility of the lending institutions.

In his speech, the governor also cautioned banks on the “technological invasion” that they face. “A word of caution is in order: Globally, the ‘phygital’ revolution has played out into several collaborative models between banks, NBFCs and fintech players such as incubation, capital investment, co-creation, distribution and integration… it must be recognised that the risks ultimately lie in the books of banks and NBFCs and hence the collaboration should be appropriately strategised,” Das said.



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PMC Bank: Proposed scheme of amalgamation could be a test case for RBI

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The proposed amalgamation of the scam-hit Punjab and Maharashtra Co-operative (PMC) Bank with the newly floated Unity Small Finance Bank could be a test case for the Reserve Bank of India (RBI) regarding its approach towards how individual depositors with deposits up to ₹2 crore and those with deposits of ₹2 crore and above can be dealt with when it comes to withdrawal of money.

The Scheme being put together by the central bank is expected to be placed in public domain in a week or so for suggestions and objections from members, depositors and other creditors of transferor bank (PMC Bank) and transferee bank (Unity SFB).

As per Reserve Bank of India (Interest Rate on Deposits) Directions, 2016, a “Bulk Deposit” means a single Rupee term deposit of ₹2 crore and above for Scheduled Commercial Banks (excluding Regional Rural banks) and Small Finance Banks.

So, a deposit of up to ₹2 crore is considered as a “Retail Deposit”.

The question uppermost on individual depositors’ (under the bulk deposit category) mind is whether the central bank will treat retail deposit and individual bulk deposit on an equal footing vis-a-vis withdrawal.

Phased withdrawal

Chander Purswani, President, PMC Depositors’ Forum, said the Scheme should clearly specify the threshold up to which individual deposits can be freely withdrawn and how deposits beyond this threshold can be withdrawn in a phased manner over, say, 3-5 years.

City Co-op Bank wants to emulate PMC Bank for reconstruction

Further, interest accrued on individual depositors’ deposits, be it retail or bulk, should be allowed to be withdrawn in toto.

He underscored that PMC Bank depositors have suffered over the last 26 months amid the Covid-19 pandemic as deposit withdrawal has been capped at ₹1 lakh of the total balance in their account(s) during the entire period that their Bank is under RBI’s Directions.

What this means is that depositors, especially senior citizens (who usually depend on interest earnings to meet monthly expenses), had to make do with only ₹3,846 a month over the last 26 months.

PMC Bank’s resolution could become a template for rescuing other weak UCBs

Purswani assessed that after taking into account deposit withdrawals of up to ₹1 lakh, PMC Bank has about 1.42 lakh depositors with deposits of over ₹1 lakh. Of this, there are about 43,000 depositors, including individuals, trusts, cooperative societies, etc, with deposits of over ₹5 lakh.

DICGC, a wholly-owned subsidiary of RBI, had upped the limit of insurance cover for depositors in the insured banks fivefold to ₹5 lakh per depositor with effect from February 4, 2020.

Individual depositors, including those with large deposits, need an assurance that they can systematically withdraw their money from Unity SFB, the Forum’s chief said.

Limited period incentive

He opined that the Scheme could also incorporate a limited period incentive, whereby PMC Bank depositors can earn higher interest rate over the card rate so that they are encouraged to keep the deposits with Unity SFB.

PMC Bank came to grief as its high exposure to real estate company HDIL turned non-performing.

The central bank red-flagged the fraud/financial irregularities in the bank and manipulation of its books of accounts.

Last month, RBI granted banking licence to Unity SFB, which has been established jointly by the Centrum Financial Services Ltd (CFSL) and Resilient Innovations Private Limited (BharatPe), to carry on SFB business in India.

RBI had accorded “in-principle” approval to CFSL, which is a wholly-owned subsidiary of Centrum Capital Ltd, on June 18, 2021, to set up an SFB.

The “in-principle” approval was in specific pursuance to CFSL’s February 2021 offer in response to PMC Bank’s November 2020 Expression of Interest (EoI) notification.

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How does RBI’s staff accountability framework on NPAs work?, BFSI News, ET BFSI

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Ahead of a big credit push, the government has moved to remove the bankers’ fears of vigilance in extending small loans with a staff accountability framework.

Bankers fear investigation, hurt to career prospects and retirement if a loan sanctioned by them turns sour. This has made them averse to giving loans, which has led to obstacles in the flow of credit to deserving individuals and firms. The banking system is flush with liquidity but one of the reasons for credit not percolating is the risk-averseness which the new staff accountability norms seek to remove.

Loans up to Rs 10 lakh

Staff accountability need not be examined in NPA accounts with outstanding up to Rs 10 lakh. Most loans up to Rs 10 lakh are “template-based” and do not constitute a major percentage of the NPA portfolio by amount. Such accounts can turn into NPA even due to a slight change in circumstances including a family health crisis or a shutdown, leading to disruption in cash flows.

The credit risk assessment in these kinds of loans is driven by digital algorithms/templates and pre-designed schemes with low human intervention. The borrower community under this tier neither has financial literacy nor credit history.

Loans between Rs 10 lakh and Rs 1 crore

For examining staff accountability, banks may decide on a threshold of Rs 10 lakh or Rs 20 lakh, depending on their business size. These loans are processed at centralised back offices and not specifically at branches. They use lending automation templates, built-in digital algorithms and information drawn from aggregators with low use of discretion.

They have support of empanelled advocates and valuers. The staff accountability is to be examined by a committee formed at regional/controlling offices. For preliminary examination, the controller will submit to the committee a brief report, covering details of the loan and observations in inspection/audit reports for the previous four years.

If the committee finds a case of staff accountability exists, this will be examined by a fact-finding officer. But inspection and audit department staff will not be involved in conducting staff accountability. While conducting staff accountability examination, they should follow RBI guidance/norms. Standard operating procedure is to be followed in carrying out the task. This process will reduce the number of NPAs needing staff accountability examination to a large extent.

Loans between Rs 1 crore and Rs 50 crore

Accounts in this range are mostly credit facilities sanctioned to business units warranting examination by a specialised unit within the banks. NPA accounts in this range should undergo a preliminary examination by a committee constituted at one level higher than the sanction level — an account sanctioned at the regional office will be taken up at the zonal level, those at the zonal level by the circle office or head office, and so on.

The committee should be headed by an official senior to the sanctioning authority. For preliminary examination by the committee, a detailed report should be submitted through the controller. If the committee finds material lapses in any of the processes, the account may be referred at the discretion of the committee to the controlling audit office for a detailed examination of staff accountability.

A detailed report on the account will be submitted to the committee covering the borrower profile with reasons leading to the account turning into NPA. The comments of the internal and external auditors of the last four years and compliance thereof will also be submitted to the committee. Preliminary examination by the committee will be based on all monitoring, follow up, compliance of observations of the auditors.

If the committee finds material lapses in the stages of sanction, disbursement, monitoring and follow up, the committee may at its discretion refer the NPA account to the controlling audit office/audit vertical for detailed staff accountability examination. The audit vertical will rely upon the observations/remarks of the external/internal auditors of the last four years and after the conclusion of analysis shall submit a report to the committee for taking a final view.

For loans above Rs 50 crore

In the large accounts, after examining staff accountability, the vigilance and non-vigilance angle is to be identified by the Internal Advisory Committee (IAC).

Recommendations of IAC, where staff accountability is established, will be referred to the chief vigilance officer (CVO) for vetting. For banks with business of up to Rs 10 lakh crore, the cases of Rs 10 crore and above are to be sent to CVO. Banks with business of between Rs 10 lakh crore and Rs 25 lakh crore can refer cases of Rs 30 crore and above. Banks with business of over Rs 25 lakh crore may refer cases of Rs 50 crore and above.

Banks will have to complete an accountability exercise within six months from the date an account is classified as NPA. Depending on the banks’ business size, the guidelines suggest threshold limits for scrutiny of the accountability by the chief vigilance officer. If NPA is caused by external factors — such as change in government policy, natural calamities, non-release of government subsidy/grant — it should not attract a staff accountability examination, according to the framework.



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RBI imposes severe restrictions on this bank, imposes Rs 1,000 cap on withdrawals — check details

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It further said the issue of the directions by the RBI should not per se be construed as cancellation of the banking licence.

The Reserve Bank of India (RBI) on Friday imposed several restrictions on Laxmi Cooperative Bank Ltd, Solapur, including Rs 1,000 cap on withdrawals for customers, due to deteroriation in its financial position.

The restrictions imposed under the Banking Regulation Act, 1949, shall remain in force for six months from the close of business on November 12, 2021, and are subject to review, the RBI said in a statement.

As per the directions, the bank shall not, without the prior approval of the RBI, grant or renew any loans and advances, make any investment, incur any liability, and disburse or agree to disburse any payment.

“In particular, a sum not exceeding Rs 1,000 of the total balance across all savings bank or current accounts or any other account of a depositor, may be allowed to be withdrawn,” the RBI said.

It further said the issue of the directions by the RBI should not per se be construed as cancellation of the banking licence.

“The bank will continue to undertake banking business with restrictions till its financial position improves,” the Reserve Bank of India said.

On Monday also, the RBI had imposed similar restrictions on Babaji Date Mahila Sahakari Bank, Yavatmal, Maharashtra.

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RBI data, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank of India’s ‘One Nation, One Ombudsman’ scheme is part of its strategy to address customer complaints, which have doubled in the wake of a surge in banking transactions due to increased digital adoption. According to RBI data, with increased awareness, digital penetration and financial inclusion, the number of complaints against various regulated entities more than doubled from 1.6 lakh in FY18 to 3.3 lakh FY20.

The integrated ombudsman scheme will be launched by the Prime Minister on Friday along with the scheme for retail participation in the primary auction of government securities. Under the retail G-Secs scheme, individual investors can access the online portal to open a securities account with the RBI, bid in primary auctions and buy & sell securities in the market. No fee will be charged for any of the services provided under the scheme.

The integrated scheme allows customers to file their complaints from anywhere at any time through portal/ email, or through physical mode at one point of receipt, without the need to identify any specific ombudsman or scheme. It will do away with the jurisdictional limitations as well as limited grounds for complaints. The RBI will provide a single reference point for the customers to submit documents, track the status of complaints filed and provide feedback. The complaints that are not covered under the ombudsman scheme will continue to be attended to by the regional offices of the RBI.

The integrated ombudsman scheme is based on a review of internal grievance redressal of banks and other regulated entities.



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UCO Bank enters co-lending agreement with Aadhar Housing Finance, BFSI News, ET BFSI

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KOLKATA: Kolkata-based UCO Bank on Wednesday entered into a co-lending agreement with Aadhar Housing Finance to offer home loans at competitive rates, a bank spokesman said.

The partnership aims at providing easy and convenient home finance solutions to customers from the economically weaker sections of society, he said.

The co-lending framework of the Reserve Bank of India provides a tool for banks and non-banks to collaborate, leverage on their respective strengths to give an affordable solution to the unserved and underserved sections.

Speaking on the occasion, UCO Bank MD and CEO Atul Kumar Goel said, “Home loan penetration in India at around 10 per cent is one of the lowest globally.”

Pandemic induced demographic changes, initiatives taken by central and state governments such as Pradhan Mantri Awas Yojana, reduction in GST on affordable housing and stamp duty cuts are expected to give a fillip to the affordable housing sector especially in Tier-2 and smaller centres, he said.



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RBI to directly access banks’ system to prevent PMC Bank, DHFL type scams, BFSI News, ET BFSI

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The Reserve Bank of India has set up a big data centre that can access data from banks’ systems, according to a report. The data centre will help prevent scams like PMC Bank, where data was masked by using dummy accounts. DHFL too had used a similar method to hide borrower accounts and stress.

The RBI is currently working with commercial banks and plans to extend it to urban cooperative banks.

The RBI plans to deploy more analytical functionalities on data from supervised entities to improve the overall functioning of the sector and improve data sanctity, the report said.

The expanded RBI data centre with new functionalities was to be completed in 2020 but was delayed due to Covid, which has now been completed and testing of system-to-system integration has been done with some banks.

PMC Bank scam

A total of 44 ‘borrowal accounts in the Punjab and Maharashtra Co-operative Bank, belonging to HDIL and its affiliates, had been ‘masked,’ with a view to hide these from the core banking system of the bank, the EOW has learnt.

Due to this, the loan default scam perpetrated in the bank over the years went unnoticed during successive audits.

Though access to the other accounts (saving, current or loan) was available to the employees of the bank as well as auditors, access to the aforesaid 44 accounts was masked by using special encrypted passwords.

The masking was done to hide the huge non-refunded personal loans allotted to HDIL promoters, Rakesh and Sarang Wadhwan. The outstanding borrowals in two personal accounts belonging to Rakesh and Sarang Wadhwan amounted to Rs 2008.62 crore and Rs 137.16 crore, respectively.



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Submitted two names for MD and CEO to RBI: Ujjivan SFB

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Ujjivan Small Finance Bank has submitted the names of two candidates to the Reserve Bank of India for the post of Managing Director and CEO. It also expects the amalgamation with Ujjivan Financial Services to be completed in the next 12 months.

Exuding confidence that the worst is over for the lender, Carol Furtado, Chief Operating Officer, Ujjivan SFB said the bank will focus on four key areas.

“We will be focusing on improving our portfolio quality and rebuilding our business volumes. We still want to work a lot more on retaining our talent. And digital will also be a focus area,” she told BusinessLine in an interaction.

Problems aplenty

The lender has seen a lot of attrition, including the exit of its MD and CEO Nitin Chugh earlier this year, and has been facing problems of mounting bad loans.

It reported a net loss of ₹273.79 crore for the second quarter of the fiscal due to higher provisions and lower income. Gross non-performing assets surged to ₹1,712.65 crore or 11.8 per cent of gross advances as on September 30, 2021.

“We have submitted two names as per the RBI requirement within the given timeline. We are expecting a revert from their side,” Furtado said, adding that the bank has also shortlisted people for multiple positions who are expected to join shortly.

“We have a very strong internal leadership team in place who are very well capable of taking the strategy of the bank,” she further said.

Ujjivan SFB is also expecting a much better second half of the fiscal year. “The economy is turning positive and the business seems to be getting better. We have been able to strengthen our collections, we have made adequate provision and our GNPAs have also peaked,” she said.

Disbursements in the third quarter have improved and credit demand has increased.

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RBI restricts withdrawals from Yavatmal’s Bapuji Datey Mahila Coop Bank, BFSI News, ET BFSI

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Yavatmal: The Reserve Bank of India (RBI) has imposed various restrictions on Yavatmal-based Babuji Datey Mahila Cooperative Bank Ltd under section 35A read with section 56 of the Banking Regulations Act, 1949. The restrictions came into force from Tuesday, November 9.

The RBI restrictions state that the bank is allowed to let its savings account holders withdraw only Rs5,000 in the next six months. Besides, the bank is restricted from accepting any fresh deposits without the prior permission of RBI.

The directions add that considering the bank’s liquidity position o account holder can withdraw a sum exceeding Rs5,000 of the total balance across all savings bank or current accounts for the next six months. The bank has been in heavy losses and reported NPAs to the extent of over Rs200 crore.

There was heavy rush of concerned depositors at the bank on Tuesday itself. No senior officials or directors were present at the bank, which added to confusion among depositors.

Chief officer Sujata Mahajan later confirmed the RBI action and said there was failure in recovery of loans, which led to the RBI action. “We have expedited recovery proceedings and in next two months we shall recover the defaulted amount, and recoup the current situation,” she said, appealing to depositors not to panic as their money is safe.

Deputy registrar of cooperatives Ramesh Katke said he has limited control over cooperative banks as they are governed by RBI. “Today, I summoned a meeting of the Board of Directors and instructed them to act strictly by the rules, which they agreed to comply with hereafter,” Katke said and urged the public not to panic. Their deposits are safe and the current situation will be overcome within two months, he added.

Bank account holder Akhtar Firdos Mohd Razak had launched an indefinite hunger strike in front of the main branch of the bank from October 25 with his family. He claims to have incurred heavy losses due to faulty service of the bank, which made him a defaulter. He accused bank directors of giving loans to their favourites recklessly, which caused heavy loss to the bank.

The bank said Razak is angry because of recovery proceedings by the bank after he defaulted on his loan.



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