RBI lifts biz sanctions imposed on Diners Club, BFSI News, ET BFSI

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The Reserve Bank of India on Tuesday lifted the ban imposed on Diners Club International in April from onboarding new customers for flouting data storage norms. The banking regulator noted that the ban was being lifted after Diners was found to have complied with the stipulated rules.

“In view of the satisfactory compliance demonstrated by Diners Club International Ltd. with the Reserve Bank of India (RBI) circular dated April 6, 2018 on Storage of Payment System Data, the restrictions imposed, vide order dated April 23, 2021, on on-boarding of fresh domestic customers have been lifted with immediate effect,” the regulator said in a statement.

In FY22, India’s banking regulator had barred three US-based card networks namely MasterCard, American Express and Diners Club International from doing new card business in India as these companies have been flagged as non-compliant with local data storage rules by RBI.

While New York-headquartered American Express and Illinois-based Diners Club were prohibited by the central bank on April 23 from issuing new cards on their respective networks. On July 14, Mastercard – one of the world’s leading card operators – was also barred from doing new card business in India owing to similar non-compliance.

As per RBI’s data localisation rules introduced first in April of 2018, payment operators in India must store data in a server physically present in India. Additionally, these entities are required to submit System Audit Report (SAR) conducted by a CERT-In empanelled auditor.

The Indian central bank had tightened data storage norms for PSOs in India through a notice issued to chief executives of all such licensed companies in India.

As per the rules introduced in March, all PSOs from FY22 were mandated to submit detailed “compliance certificates” to the central bank twice a year signed by the respective chief executives or managing director, confirming adherence to all RBI regulations around security and storage of payment data.

These requirements are over and above the ones mandated by the central bank in April of 2018 where it asked all PSOs to submit board-approved annual System Audit Report (SAR) by CERT-empaneled auditors.

These companies were also asked to submit a one-time compliance report with data localization norms which mandate the data relating to payments in India will be stored in a server physically present in the country, by December of 2018.

RBI had asked these certificates to be submitted on April 30th and October 31st of every year.



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IndusInd Bank’s ‘technical glitch’: RBI examining portfolio as part of an ongoing audit

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The Reserve Bank of India (RBI) is already examining issues around the technical glitch at IndusInd Bank’s subsidiary that led to 84,000 loans being disbursed without the customers’ consent. The lender will also undertake an external audit of the issue if required.

This was informed by IndusInd Bank’s Managing Director and CEO, Sumant Kathpalia, at an analyst call on November 6. He also denied allegations of evergreening of loans and stressed that there is strong risk management and a control framework in place – both within the bank and its microfinance subsidiary Bharat Financial Inclusion Ltd (BFIL).

“Yes, it is part of the annual review process which happens and it is already going on and they (RBI) are reviewing this portfolio,” Kathpalia said in response to a query on whether this issue would be a part of the risk-based supervision audit that is conducted by the RBI. “The whistleblower complaint was marked to the RBI also and the bank has kept the regulator abreast on its internal review process,” he further said.

Internal review

Meanwhile, responding to another query, Kathpalia said the bank will appoint an external auditor to validate the results of the internal review.

Also read: IndusInd Bank shares slump 11 per cent following loan evergreening issue

“We will have the review process completed. We will have a committee which will include external participants and an external auditor validating the results, and will have an independent process to give comfort to the investors that everything is right in BFIL. We will not be happy only with the internal audit,” he said.

In the call, Kathpalia also said the bank has a strong succession plan for BFIL in place in case its top management leaves. Non-executive Vice Chairman of BFIL, MR Rao, had stepped down in September but Kathpalia said he continues to work as an advisor with IndusInd Bank.

‘Unlisted company’

While analysts expressed surprise that this was not informed to the stock exchanges, Kathpalia maintained that BFIL is an unlisted company. “There was an agreement that he will retire in March 2021 and we had honoured that… he was also very upset on the 84,000 loans. We have taken action against certain persons,” he said.

Also read: Under fire, IndusInd Bank begins review of microfinance subsidiary

Trying to assuage concerns, he also said that the bank has been following a conservative provisioning approach.

“IndusInd Bank could have done better in terms of communicating about the management changes in BFIL and a technical glitch in the microfinance book, which led to allegations of evergreening in the MFI book (which otherwise has always been an area of suspicion). We believe that the bank’s turnaround story remains intact but it needs to work more on strengthening credit underwriting/risk management, and communication with the stakeholders to sustain the long-term rerating,” said Emkay Global Financial Services in a note on Monday.

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IndusInd Bank shares tank after report of loan evergreening allegation at unit, BFSI News, ET BFSI

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BENGALURU – Shares of IndusInd Bank slid as much as 11.45% on Monday after a report said whistleblowers had alleged loan evergreening at the private sector lender’s micro finance arm.

On Friday, the Economic Times reported that whistleblowers had alerted the Reserve Bank of India (RBI) and the IndusInd board that Bharat Financial Inclusion (BFIL) had evergreened some loans – a practice where new loans are given to stressed borrowers to enable them to repay existing loans.

IndusInd denied the allegation in an exchange filing on Nov. 6 and said the report was “grossly inaccurate and baseless”.

However, it said nearly 84,000 loans were disbursed in May without customer consent due to a technical glitch and that the issue was rectified expeditiously.

IndusInd did not immediately respond to a Reuters request for comment.

On Monday, shares of the private sector lender were the top percentage losers on the Nifty private bank index and on track for their worst session since April 2020.

Due to pandemic-related restrictions, some loans had to be disbursed via cash at BFIL, and as of September-end, only 26,073 clients out of 84,000 were active with loan outstanding at 340 million rupees ($4.58 million), IndusInd said.

In multiple emails to the RBI and the IndusInd board in October, a whistleblower group that included BFIL officials alleged that the unit had evergreened loans, inflated revenues and under-reported non-performing assets, the report said.

The report also cited two people familiar with the developments saying there was a separate whistleblower complaint from an outsider on Oct. 14 that suggestions to set up risk management and audit committees for BFIL were ignored.

In its exchange filing, IndusInd said an independent review had been initiated by the bank to see if there was any process lapse or accounting failure at BFIL.

($1 = 74.1900 Indian rupees)

(Reporting by Chandini Monnappa in Bengaluru; Editing by Subhranshu Sahu)



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IndusInd Bank, BFSI News, ET BFSI

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IndusInd Bank on Saturday admitted that its micro-finance arm gave nearly 84,000 loans “without customer consent” due to a “technical glitch” in May 21, but denied whistleblowers’ allegations of “ever greening” — a ploy to mask defaults with new loans. An independent review has been initiated by IndusInds “to see if there is any process lapse or accounting failure at Bharat Financial Inclusion (BFIL), the bank’s wholly-owned micro-lending subsidiary, said an IndusInd release. “The Bank wishes to reiterate that there is a strong risk management and control framework in place, both within the Bank and at BFIL,” said the bank.

In multiple emails to the Reserve Bank of India (RBI) and the IndusInd board in October, a whistleblower group comprising officials of the BFIL had alleged that the bank had ever-greened loans, inflated revenues and under-reported nonperforming assets. The emails followed a month after similar allegations by former BFIL vice-chairman MR Rao who, in his resignation letter, had said that the loans disbursed without customer consent did not appear as “process lapse” but a “deliberate attempt to shore up repayments.” The letters from the whistleblower group and Rao’s parting observations were reported by ET on Friday.

Reacting to the whistleblowers’ allegations, a statement issued by the bank on Saturday, said, “…the technical glitch was rectified expeditiously. Out of the above, only 26,073 clients were active with the loan outstanding at Rs 34 crore, which is 0.12% of the September end portfolio. The bank carries necessary provision against this portfolio. The standard operating procedure (SOP) has since been revised to make biometric authorisation compulsory.”

While strongly denying allegations of ‘ever greening’, the IndusInd statement said, “All the loans originated and managed by BFIL, including during the Covid period which saw the first and second waves ravaging the countryside, are fully-compliant with the regulatory guidelines… During the pandemic, the customers faced operational difficulties and some have turned intermittent payers, though a large part of them demonstrated a strong intent to repay on many occasions. Basis the requirements, the Bank adopted a multi-pronged approach depending upon the need of the client. (sic)”

The whistleblower group has blamed BFIL CEO Salabh Saxena and CFO Asish Damani for the alleged under-provisioning of loans running into thousands of crores. Neither of them responded to ET’s query on the whistleblower emails. According to a media report, both Saxena and Damani may soon quit BFIL and join Spandana Sphoorty, a micro-finance institution.

However, this could not be independently confirmed. According to the IndusInd release, the loans follow a weekly repayment model and the customers are required to make payments week on week. “.. if there is any default, the same gets recorded as missed instalments. In view of the weekly repayment model, the concept of ever greening is infeasible,” said the statement. “The level of non-performing assets reported by BHIL is significantly lower than other MFIs. So, we would like to know more, given that many lenders have seen a drop in collection efficiency during the pandemic.. If a loan is given by mistake without taking the borrower’s consent, it should be reversed,” said an analyst who did not wish to be named.



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Bank credit picks pace as economy revives, BFSI News, ET BFSI

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Lenders are seeing a pick-up in loan demand with demand from medium sized firms and retail borrowers as the economy is slowly coming back on track as COVID restrictions ease.

Bank credit rose 6.8 per cent in October compared to 5.1 per cent in the same period a year ago, according to the latest figures released by the Reserve Bank of India on Wednesday. Outstanding credit amounted to Rs 110.5 lakh crore as of October 22, up Rs 7 lakh crore over a year.

The pick up in loan demand is largely due to the push from government schemes even as large corporates and top rated borrowers continue to rely on capital markets and the overseas markets where they manage to raise funds at much cheaper rates. India’s Weighted Average Lending rates were at 7.20% in September, according to the RBI data. At the same time, the average rates for triple-A rated five-year corporate bonds were at 6% and at 5.29% for three-year maturity, show Bloomberg data compiled by ETIG

The latest data on sectoral flow of credit offtake that lending to Medium sized firms rose 49 per cent year-on-year to Rs 1.75 Lakh crore as of end September compared to the same period a year ago. Much of the lending is reckoned to be under the government’s Emergency Credit Line Guarantee Scheme (ECLGS) MSME sector, under which the government provides 100% Guarantee to banks in respect of eligible credit facility extended by it to its borrowers.

In addition consumer durable loans have risen by 40 per cent compared to 14.9 per cent in the same period a year ago, with borrowers taking advantage of the reduced interest rates. With the government’s renewed thrust on the social sector, lending to infrastructure more than doubled to Rs 1323 crore in September from Rs 1081 crore a year ago.

On the liability side, the pace of deposit pick-up has slowed down to 9.9 per cent compared to 10.1 per cent in the same period a year ago. But deposit growth still continues to outpace the credit growth. In absolute terms banks raised almost double the amount of deposits at Rs 14 lakh crore than the amount they lent during the period.



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RBI panel spells out norms to streamline functioning of ARCs

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The performance of asset reconstruction companies (ARCs) in management of stressed assets of banks/financial institutions (FIs) since inception in 2003 is still uneven on several parameters, according to a Reserve Bank of India’s Committee to Review the Working of Asset Reconstruction Companies.

Overall recovery made by the ARC sector during FY04-FY13 was 68.6 per cent when measured in terms of redemption of Security Receipts (SRs), which are issued by ARCs as part of securitisation of assets acquired, as a percentage of total SRs issued, the report said.

However, the same comes down to 14.29 per cent when the redemption is measured in terms of the book value of the assets acquired.

RBI panel favours sale of stressed assets by lenders at early stage

“This implies that banks and other investors could recover only about 14 per cent of the amount owed by their borrowers,” the committee headed by Sudarshan Sen, former Executive Director, RBI, said.

The total SRs issued reflects the cost of acquisition for the ARCs vis-à-vis the book value of such financial assets. Redemption of SRs is a proxy for the amount recovered from these accounts.

ARCs are required to resolve the assets within a maximum of eight years of acquisition of financial assets and redeem the SRs representing the assets. Therefore, the period after FY13 has SRs for which resolution is still underway.

Winds of change in the stressed assets market

Business revival

The committee observed that ARCs’ performance in ensuring revival of businesses has also been poor. The data indicate that approximately 80 per cent of the recovery for the sector, so far, has come through deployment of methods of reconstruction that do not necessarily lead to revival of business.

“ARCs have rarely used methods such as change in or takeover of the management of the business of the borrower or conversion of debt into equity in a borrower’s company,” the panel said.

Rescheduling of payment of debts was also involved only in 19.9 per cent of the recovery made by ARCs.

The committee underscored “The overall performance of ARC Sector has left much to be desired. However, it would be incorrect to assume that the problems of ARC sector are entirely of its own making. In fact, the ageing of NPAs before their sale may be contributing to poor recovery. This gets further aggravated by lack of debt aggregation.”

Revival of stressed business typically requires additional funding which is difficult to come by for old NPAs.

“Inadequate capital at ARC level and the regulatory prescription limiting the extent of funds that could be raised, from external investors through securitisation, seems to have made ARCs’ attempt at revival of businesses even more difficult. ARCs’ lack of skill sets in turning around borrowers cannot be ignored,” the committee said.

The panel emphasised that despite the reshaping of the ecosystem available for lenders for handling of stressed assets and the ARC sector’s sub-optimal performance and its challenges, the ARC model remains relevant as a private sector led permanent institutional framework for out-of-court resolution of stressed assets of the financial sector.

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RBI Committee, BFSI News, ET BFSI

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Multiple factors have led to sub-optimal performance of the asset reconstruction companies (ARCs) in the country, said the Reserve Bank Of India (RBI) Committee.

The ARC framework was designed to allow originators to focus on their core function of lending, by removing sticky stressed financial assets from their books.

It was also designed to help borrowers revive their businesses, which protects the viable and productive assets of the economy and often ensures a better return to banks and financial institutions (FIs).

Accordingly, the Committee constituted to “Review the working of ARCs said multiple factors behind the sub-optimal performance of the sector such as vintage NPAs being passed on to ARCs, lack of debt aggregation, non-availability of additional funding for stressed borrowers, difficulty in raising of funds by the ARCs on their balance sheet, among others.”

“Also, ARCs have lacked focus on both recovery and acquiring necessary skill sets for holistic resolution of distressed borrowers.”

The RBI Committee cited data which showed that the performance of the ARCs has been lacklustre, both in terms of ensuring recovery and revival of businesses.

“Banks and other investors could recover only about 14.29 per cent of the amount owed by borrowers in respect of stressed assets sold to ARCs during the FY 2004-2013 period.”

“Similarly, data shows that approximately 80 per cent of the recovery made by ARCs has come through deployment of measures of reconstruction that do not necessarily lead to revival of businesses.”

Considering the challenges impacting the performance of the ARC sector, the Committee recommended sale of stressed assets by lenders at an earlier stage to allow for optimal recovery by ARCs.

“In this respect, the Committee highlights the need for regulatory clarification on sale of all categories of special mention accounts (SMAs) to ARCs.”

“Further, as a measure to incentivise lenders to sell their financial assets to ARCs at an early stage of stress, the committee recommends a dispensation to lenders, on an ongoing basis, to amortise the loss on sale, if any, over a period of two years.”

Besides, it called for a higher threshold of investment in SRs by lenders below which provisioning on SRs held by them may be done on the basis of Net Asset Value (NAV) declared by the ARC instead of the IRACP norms.

In addition, the Committee among other measures, recommended the creation of an online platform for sale of stressed assets.

“Infrastructure created by the Secondary Loan Market Association (SLMA) may be utilised for this purpose.”

–IANS

rv/khz/



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RBI, BFSI News, ET BFSI

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Unity Small Finance Bank Limited, a joint venture between Centrum Group and Bharatpe, has commenced operations as a small finance bank with effect from Monday, according to an RBI release.

On October 12, the Reserve Bank gave the final licence to Unity Small Finance Bank, a consortium floated by Centrum Financial Services and Resilient Innovations, an arm of the digital lending platform Bharatpe, four months after giving it an in-principle nod to establish a small finance bank and then takeover the scam-ridden Punjab and Maharashtra Cooperative (PMC) Bank, which was under direct RBI control since mid 2019.

In June, the Reserve Bank had given the in-principle approval for the 12th small finance bank licence to the consortium provided its takes over PMC, the city-based cooperative lender under restrictions for more than two years after a massive over Rs 7,000-crore fraud.

The Centrum group owns 51 per cent in Unity Small Finance Bank and the remaining equity is held by the Gurugram-based Bharatpe.

While giving the in-principle, the RBI said it has been accorded in specific pursuance to the Centrum Financial Services Limited’s offer in February in response to the Expression of Interest published by the Punjab & Maharashtra Co-operative Bank Ltd, Mumbai. PTI NKD MR MR



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RBI approves Bandhan Bank as ‘agency bank’ to conduct govt biz

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The Reserve Bank of India (RBI) has authorised Bandhan Bank as an agency bank for undertaking government business. With this, the bank joins ranks with a few other scheduled private sector banks to be empanelled as agency banks of the RBI.

The announcement comes close on the heels of a RBI guideline earlier in May this year that authorises scheduled private sector banks as agency banks of the regulator for the conduct of government business.

The guidelines were revised by the Central bank following the lifting of embargo put in place by Department of Financial Services, Ministry of Finance in 2012 on further allocation of government business to private sector banks through a communication dated February 24, 2021.

Handle transactions

As an agency bank of the RBI, Bandhan Bank will be able to handle transactions related to collection of State taxes and revenue receipts such as GST and VAT, collection of stamp duty and pension payments on behalf of the Central and the State governments.

The bank’s extensive branch network, especially in rural and semi-urban areas, and its digital banking capabilities would help bring governments and citizens closer to each other, the bank said in a press statement.

“The RBI’s decision will further help us contribute to nation-building and we thank the RBI for this approval. Bandhan Bank enjoys the trust of over 2.4 crore customers. We now have the opportunity to serve the government with our banking services,” Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank said in the statement.

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