Tag: reserve bank of india

RBI approves appointment of Baldev Prakash as J&K Bank MD & CEO, BFSI News, ET BFSI

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New Delhi, Jammu & Kashmir Bank on Wednesday said the Reserve Bank has approved the appointment of Baldev Prakash as its next Managing Director and CEO from the next year. The Reserve Bank of India has vide letter dated October 26, 2021 accorded approval to the candidature of Prakash as MD & CEO of the Bank for a period of three years from the date of taking charge or April 10, 2022, whichever is earlier, J&K Bank said in a regulatory filing.

The state-owned lender will separately inform about the appointment of Baldev Prakash as MD & CEO by its board and the actual date of assuming charge by him.

Prakash has over 30 years of experience in banking in various roles at small and large size branches at SBI. He had joined SBI as a probationary officer in 1991 and he is currently the Chief General Manager (Digital and Transaction Banking Marketing Department) at SBI, Mumbai.

Presently, RK Chhibber is the Chairman and Managing Director of J&K Bank, who assumed charge of the bank in June 2019.

Jammu & Kashmir Bank stock traded at Rs 43.20 apiece on BSE, up 5.62 per cent from the previous close.



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RBI imposes Rs 90 lakh penalty on Vasai Vikas Sahakari Bank, BFSI News, ET BFSI

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The RBI on Tuesday said it has imposed a Rs 90 lakh penalty on Vasai Vikas Sahakari Bank, Maharashtra, for non-compliance with certain directions, including on classification of loans as NPAs, and other directions. In a statement, the Reserve Bank said the bank had not complied with its directions on ensuring end-use of funds in borrowal accounts and classification of loans/ advances as non-performing assets, specific direction of RBI for ensuring that the bank’s balance sheet and profit and loss account are signed by at least three of its directors.

This was revealed following the statutory inspection of the bank with reference to the bank’s financial position as of March 31, 2019, the Inspection Report pertaining thereto and examination of all related correspondence, the central bank said.

The penalty was imposed after considering the bank’s replies to a show-cause notice and oral submissions made during the personal hearing, the RBI said.

In another statement, the RBI said it has imposed a monetary penalty of Rs 7 lakh on The Citizens Urban Co-operative Bank, Jalandhar, Punjab for “non-adherence with/violation” of certain directions related to non-identification of NPAs, wrong classification of assets and inadequate provisions made due to the wrong classification of assets.

In both cases, the RBI said, penalities were based on the deficiency in regulatory compliance and not intended to pronounce upon the validity of any transaction or agreement entered into by them with their customers.



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Is tokenisation the way forward? Here’s what the industry thinks, BFSI News, ET BFSI

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Tokenisation will help bring huge value to the digital payments space, and is likely to gain momentum in the coming months, said Ravi Varma Datla, Mastercard‘s vice president – digital products, South Asia.

Last month, the Reserve Bank of India issued guidelines, allowing card-on-file tokenisation. Tokenisation helps consumers to enter and save a 16-digit token on e-commerce or merchant platforms, instead of storing their card details.

“Card-on-File tokenisation enhances the safety and security of the entire transaction value chain in e-commerce payments. It builds trust and can significantly increase convenience for consumers and create efficiencies for merchants. It means there is no need for a consumer to enter his card number every time he transacts, or to login to an online shopping account to update their details due to redundant card credentials,” Datla said.

Last week, National Payments Corporation of India (NPCI) announced the tokenisation system for RuPay cards. The NPCI Tokenisation system will support tokenisation of cards as an alternative to storing card details with merchants.

“We are confident that the NPCI Tokenisation System (NTS) for the tokenisation of RuPay cards will instill further trust in the millions of RuPay cardholders to carry out their day-to-day transactions securely,” said Kunal Kalawatia, chief of products at NPCI.

Also read: What is tokenisation, and how can it ensure safe transactions?

When buying a product or service online, consumers are usually forced to store their credit or debit card details. This is where tokenisation plays a significant role in ensuring consumers’ safety.

“What makes this type of token unique is that it can be used just like your normal card for online payments but only by the merchant that requested it. This means that if a bad-guy or hacker gets their hands on a token – it simply cannot be used. For the sake of identification and reconciliation, RBI has permitted merchants to display the last 4 digits of the original card number to the consumers,” Datla said.

Datla added that as of today, customers have no single view of all the merchants where they have saved their card number. With tokenisation, customers can reach out to their respective banks and view the list of all the tokens saved at merchants and also request to delete or update them.

Recently, Visa launched its card-on-file tokenisation service in India. The company has enabled its tokenisation services across 130 countries. As a large number of shoppers make the shift to online payments, Sujai Raina, Visa’s India business development head, believes it will ensure a frictionless checkout experience for consumers, and drive higher payment success rates for merchants and issuers.

“We believe the RBI’s directive to roll out card-on-file tokenisation in addition to the earlier device-based tokenisation protocols, will help build a safe, secure and seamless environment for digital payments, thus enhancing consumer trust across digital platforms,” he said.

When asked Mastercard about its plan to launch its tokenisation services in India, Datla said the company is working with its partner banks, merchants, payment aggregators, and other stakeholders towards a smooth rollout.

So far, Mastercard has rolled out tokenisation for consumers in over 2,500 banks across the globe. The company has found that the tokenisation has enabled a safer payment ecosystem, and has also increased transaction volume across the digital channel to return greater revenue for merchants, Datla said.

Datla also believes that tokenisation will help make digital payments seamless. “By replacing sensitive payment data with digital tokens, a superior ecommerce experience is created which provides increased security, approval rates and a frictionless consumer experience,” Datla said.



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Will profitable PSUs need capital support from govt this year?, BFSI News, ET BFSI

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The government is likely to pump capital in public sector banks during the last quarter of the current financial year to meet regulatory requirements.

The government in Budget 2021-22 made an allocation of Rs 20,000 crore for capital infusion in the state-owned banks.The capital position of banks would be reviewed in the next quarter, and depending on the requirement, infusion will be made to meet the regulatory needs.

In the current fiscal so far, all 12 public sector banks have posted a profit, which is being ploughed back to bolster the balance sheet of the banks.

Going forward, the rise in stressed assets would determine capital requirement. If numbers are anything to go by, the financial health of public sector banks are showing gradual signs of improvement across the spectrum.

What Icra says

As per Icra’s estimates, public sector banks (PSBs) may not need the capital budgeted by the government for FY22, even with enhanced capital requirements.

However, banks are advised to keep provisions for any unforeseen events as it would provide confidence to banks, investors and credit growth. Icra said that large private sector banks (PVBs) also remain well-capitalised though few mid-sized ones could need to raise capital.

“We continue to maintain our credit growth estimate of 7.3-8.3 per cent for banks for FY2022 compared to 5.5 per cent for FY2021,” Icra said.

Despite expectations of moderation in gains on bond portfolios because of expectations of rising bond yields in FY22, the return on equity for banks is likely to remain steady at 4.4-7.6 per cent for PSBs (5.1 per cent in FY21) and 9.5-9.9 per cent for PVBs (10.5 per cent in FY2021), the report said.

PCA framework

Will profitable PSUs need capital support from govt this year?

Last month, the Reserve Bank of India removed UCO Bank and Indian Overseas Bank from its prompt corrective action framework, following improvement in various parameters and written commitment from them that would comply with the minimum capital norms.

The only public sector lender left under the PCA framework is Central Bank of India.

PCA is triggered when banks breach certain regulatory requirements such as return on asset, minimum capital, and quantum of the non-performing asset. These restrictions disable the bank in several ways to lend freely and force it to operate under a restrictive environment that turns out to be a hurdle to growth.

Last financial year, the government infused Rs 20,000 crore in the five public sector banks. Out of this, Rs 11,500 crore had gone to three banks under PCA — UCO Bank, Indian Overseas Bank, and Central Bank of India.

The government infused Rs 4,800 crore in Central Bank of India, Rs 4,100 crore in Indian Overseas Bank and Kolkata-based UCO Bank got Rs 2,600 crore. The government has infused over Rs 3.15 lakh crore into public sector banks (PSBs) in the 11 years through 2018-19.

In 2019-20, the government infused a capital of Rs 70,000 crore into PSBs to boost credit for a strong impetus to the economy.



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Sovereign bond yields continue to harden on rising crude price, treasury yields

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There seems to be no respite for G-sec yields even as crude prices and the US treasury yields continue to rise. The benchmark yield closed at 6.36 per cent, after having nudged the 6.4 per cent levels where a lot of buying support emerged.

After having closed below the $85-dollar mark, Brent crude has continued to persist above this level this week, even touching the $86-dollar level. On the other hand, the 10-year US treasury yield hovered very close to the 1.7 per cent mark compared to last week’s 1.57 per cent level.

On the domestic front, the Reserve Bank of India (RBI) released the monetary policy minutes. Market participants say, the minutes were fairly balanced and did not present any element of surprise.

However, with the benchmark yield hovering close to the 6.4 per cent mark, expectations were building up in the market that the Central bank would spring into action and announce some sort of bond buying that would help calm the yields.

The yields even saw some softening on Thursday on this account, having cooled three basis points to 6.33 per cent. However, since there was no announcement, the benchmark yield edged higher and closed at 6.36 per cent on Friday.

Crucial support

Dealers say that the 6.4 per cent level is crucial and despite the buying support seen in recent times, things could go south if oil prices continue to bother the market.

Siddharth Shah, Head of Treasury at STCI Primary Dealer opines that high crude prices and US treasury yields are still putting pressure on yields and these two variables are the cause for the bearishness in the domestic bond market.

“Many investors have been keenly waiting for the benchmark yield to hit the 6.4 per cent and we saw buying support coming in at these levels this week. When the yield was hovering close to this level, there was strong anticipation in the market that there would be some sort of action from the RBI in the form of bond buying, either through OMOs or through twist. Since nothing materialised, we saw the yields harden on Friday.

As far as the MPC minutes are concerned, there was no surprise. I expect the benchmark yield to find support at around 6.4 per cent but if oil prices continue their upward momentum, we could possibly see 6.5 per cent levels around which there would be expectation of Central bank support coming in by way of announcement of OT etc,” he said.

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‘Reserve managers should look beyond the traditional approaches to maintain and enhance returns’

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Reserve managers can deal with the low yield environment by increasing the duration of their portfolios, investing in new asset classes, new markets and more active management of their gold stocks, as per the recommendations in an article in the Reserve Bank of India’s latest monthly bulletin.

In light of the likely persistence of various structural reasons for low yields, it is imperative that reserve managers look beyond the traditional approaches for the management of reserves to maintain and enhance returns, emphasised RBI officials Ashish Saurabh and Nitin Madan in the article.

The authors observed that the first and foremost way to tackle the low yielding environment to increase return would be to increase duration of the portfolio.

“The countries with adequate reserves have sufficient cushion to take on more duration risk. Increasing duration of the portfolio is the easiest and immediate step that can be taken to enhance return by some basis points,” they said, adding, this should be combined with increasing investments in longer maturities.

Investment in new products/asset classes

The officials suggested investment in new asset classes entailing investing in products beyond the traditional investment avenues. They noted that certain products may be novel in nature as surveys and anecdotal evidence do not suggest usage of these products by the reserve managers.

In this regard, the authors referred to the usage of investment products/ asset classes such as foreign exchange (FX) swaps; Repo transactions; dual currency deposits; equity index funds; and increase credit risk of the portfolio.

Active management of gold

The authors opined that active management of gold can yield a decent return to the Central banks beyond capital gains. Some of the avenues for active management of gold include gold deposits, gold swaps and gold Exchange Traded Funds (ETFs).

Central banks own almost 35,000 tonnes of gold (World Gold Council estimate) which is around 17 per cent of worldwide available above-ground stocks.

Investment in new markets

The RBI officials underscored that there are some countries which are relatively stable financially, are highly rated and offer better yields than some of the G7 countries. While these countries do not have very deep sovereign bond markets, they felt that a reserve manager could invest a small portion of their reserves in these markets and generate that extra yield.

Another way to generate higher return is lowering the credit rating requirement and investing in emerging markets which provide higher yield.

“This, however, entails a higher exposure to currency risk as their currencies can be volatile. To mitigate that, the reserve managers could explore investing in US/Euro denominated debt of these countries,” said Saurabh and Madan.

The various options through which a reserve manager could invest in these markets are direct investment; passive funds; ETFs; Separately Managed funds/Customised funds/ETFs; and Total Return Swaps.

The authors observed that the choice of investment strategy, however, would require to be tailored to suit the risk appetite, investment priorities, skill sets and operational capabilities of individual institutions.

The Reserve Bank of India Act, 1934 provides the overarching legal framework for deployment of reserves in different foreign currency assets and gold within the broad parameters of currencies, instruments, issuers and counterparties.

Currently, the law broadly permits deployment of reserves in investment categories such as deposits with other Central banks and the BIS; deposits with commercial banks overseas; debt instruments representing sovereign/sovereign-guaranteed liability with residual maturity for the debt papers not exceeding 10 years; other instruments / institutions as approved by the Central Board of RBI; and dealing in certain types of derivatives.

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Indian banks face rise in bad loans to 8-9% of lending -CRISIL, BFSI News, ET BFSI

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MUMBAI – Indian banks are likely to see a rise in gross non-performing assets (NPA) to 8-9% of total lending at the end of this fiscal year from 7.5% last year, rating agency CRISIL said in a report on Tuesday.

The rises will be led by retail clients and the micro, small and medium (MSME) segments, said Krishnan Sitaraman, senior director and deputy chief ratings officer, noting they represent 40% of total bank credit.

“Stressed assets in these segments are seen rising to 4-5% and 17-18%, respectively, by this fiscal year-end (March 2022). The numbers would have trended even higher but for write-offs, primarily in the unsecured segment,” Sitaraman said.

Last year the Reserve Bank of India (RBI) allowed banks to offer a six-month moratorium to all small borrowers.

It later permitted lenders to offer a one-time loan-restructuring facility to help avert mounting bad loans and to allow borrowers more time to repay their debt.

Despite these measures, stressed assets in the retail segment will rise, with home loans which is the largest segment being the least impacted and unsecured loans being the worst, CRISIL said.

The corporate segment is expected to be more resilient as a large part of the stress in the corporate portfolio was already recognised during an asset quality review initiated by the RBI in 2015, CRISIL said.

The agency said the performance of the restructured portfolio will need close monitoring but slippages from the restructured book are expected to be lower this time around.

“Recent trends indicate that a reasonable proportion of borrowers, primarily on the retail side, have started making additional payments as their cash flows improve, said Subha Sri Narayanan, director at CRISIL Ratings.

“MSMEs, however, may take longer to stabilise and we remain watchful.”

Reserve Bank of India (RBI)



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Banks shut on Id-E-Milad in these states, closed for up to 5 days this week

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Even as banks will remain shut on specific days, customers can avail net banking and other online services

Bank holidays: Banks in India will remain closed for up to five days this week, and seven days in the remaining month of October 2021. This will also include second and fourth Saturdays, and Sundays. It may be noted that apart from weekly holidays, all the public and private sector banks across India will not be closed for all seven days for all states as these are state-specific holidays for different occasions. Even as banks will remain shut on specific days, customers can avail net banking and other online services, as mobile and internet banking will also remain operational.

Festive Holidays in October 2021

19 October 2021 – Id-E-Milad/Eid-e-Miladunnabi/Milad-i-Sherif (Prophet Mohammad’s Birthday)/Barawafat
20 October 2021 – Maharishi Valmiki’s Birthday/Lakshmi Puja/Id-E-Milad
22 October 2021 – Friday following Eid-i-Milad-ul-Nabi
26 October 2021 – Accession Day

On 19 October, banks in Ahmedabad, Belapur, Bhopal, Chennai, Dehradun, Hyderabad, Imphal, Jammu, Kanpur, Kochi, Lucknow, Mumbai, Nagpur, New Delhi, Raipur, Ranchi, Srinagar, Thiruvananthapuram will remain shut for Id-E-Milad/Eid-e-Miladunnabi/Milad-i-Sherif. Banks in Agartala, Bengaluru, Chandigarh, Kolkata, Shimla, will be closed on 20 October for Maharishi Valmiki’s Birthday. On 22 and 26 October, banks in Jammu and Srinagar will remain closed for Eid-i-Milad-ul-Nabi, and Accession Day, respectively.

Also read: Early Q2 results boost hopes of firm recovery; retailers, banks signal nascent pick-up in consumption

Weekend Bank Holidays in October 2021

17 October 2021 – Sunday
23 October 2021 – 4th Saturday
24 October 2021 – Sunday
31 October 2021 – Sunday

The Reserve Bank of India (RBI) has categorised holidays under three categories — Holiday under Negotiable Instruments Act; Holiday under Negotiable Instruments Act and Real-Time Gross Settlement Holiday; and Banks’ Closing of Accounts. The list of holidays given below has been notified by RBI.

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RBI remains net purchaser of US dollar in August, BFSI News, ET BFSI

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Mumbai, Reserve Bank of India (RBI) remained a net buyer of the US currency in August after it net purchased USD 3.747 billion from the spot market. In the reporting month, RBI had purchased USD 10.887 billion and sold USD 7.14 billion in the spot market, according to the monthly RBI bulletin for October 2021 released on Monday.

In July, RBI net purchased USD 7.205 billion. It had bought USD 16.16 billion and sold USD 8.955 billion during the month. In August 2020, the central bank had net bought USD 5.307 billion from the spot market, the data showed.

During FY 2020-21, RBI had net purchased USD 68.315 billion from the spot market. It had bought USD 162.479 billion from the spot market and sold USD 94.164 billion during 2020-21, the data showed.

In the forward dollar market, the outstanding net purchase at the end of August was USD 49.606 billion compared with a net purchase of USD 49.01 billion in July. PTI HV RAM

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As India’s bad bank knocks, ARCs seek relaxations from RBI, BFSI News, ET BFSI

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With the bad bank on the anvil, asset reconstruction companies have sought relaxation of the pricing structure for the purchase of bad loans, funding from banks, and clarity on participating in insolvency cases as a resolution applicant. These are among the suggestions made by ARCs to the committee formed by the Reserve Bank of India in April.

Usually, sales take place either on a full-cash basis or under the 15:85 structure, where 15% is paid as upfront cash and the remaining in the form of security receipts.

ARCs have sought a reduction in the minimum investment requirement to 2.5% from 15% in cases where cash is fully paid upfront.

The cash proportion of 15% has pushed the ARCs to raise their returns through securitisation and asset reconstruction.

Unless the ARC recovers 130% of the acquisition value, it will not make its return. Even at 100%, an ARC will make a loss because the management fee of 1-2% doesn’t make any ARR for ARC. Recovery should be over 130% so that 100% of security rights will be redeemed.

Also read: What are NARCL and IDRCL? How do they work and what is the plan?

Also, in September 2016, the Reserve Bank of India introduced new regulatory guidelines regarding provisioning. From April 2018 banks have to sell at 90% cash and 10% SRs. If a bank holds more than 10% SR, it had to continue provisioning for the loan which is not even on their books. So there is no incentive for them to transfer to ARCs. Now no banks transfer on 15:85 and all deals are in cash.

Bank funding

Asset reconstruction companies have asked RBI to allow bank funding for them on the lines of provided to non-banking finance companies. They have also sought doing away with dual-provisioning norms, a move which will benefit banks the most.

ARCs have suggested that bank provisioning needs to be solely based on the rating agency-determined net asset value of the security receipts.

From April 2018, banks have had to make provisions for stressed assets that are sold, assuming they remain on the books. This is applicable in cases where security receipts make up for more than 10% in the sale of non-performing assets.

Banks also have to make mark-to-market provisions in cases where the rating of security receipts is downgraded. Security receipts are valued on net asset values, linked to recovery ratings, which is an assessment of probable recovery from an underlying non-performing asset by rating agencies.

With banks not having to go for dual provisioning, they sell NPAs on a 15:85 structure, making more NPAs available for ARCs.

Currently, outstanding security receipts are estimated to be around Rs 1.1 lakh crore.

The RBI committee

In April this year, the RBI has formed a six-member panel under the chairmanship of Sudarshan Sen, former RBI executive director, to examine the role of asset reconstruction companies (ARCs) in stressed debt resolution, including under the Insolvency & Bankruptcy Code (IBC), 2016 and review their business model.

The committee is reviewing the legal and regulatory framework of ARCs and recommend measures to improve their efficacy. It will submit its report within three months from the date of its first meeting. As of January, the number of ARCs registered with the RBI stood at 28.



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