Tag: retail payments

RBI vs. Covid-19: The Reserve Bank of India came out with a slew of measures to safeguard the financial services sector and the overall economy against the virus triggered pandemic and the lockdowns.

Since March, the RBI cut the repo rate by 115 basis points to 4%. It also purchased Rs 1.9 lakh crore of G-secs until September. These measures helped in reducing the interest rates in money and debt markets, and even got transmitted to bank lending rates. RBI also maintained an accommodative monetary policy stance, suggesting it could cut rates to inject money into the financial system whenever needed.

Moreover, the regulator provided instant relief to borrowers by wavering off EMIs on term loans for six months — March to August.

Bidding farewell: State Bank of India’s chairman Rajnish Kumar hung up his boots in 2020, after serving the bank in various capacities for almost 40 years, and the last three as its chairman. Kumar is credited with launching SBI’s digital platform YONO, whose valuation he’d estimated to be around $40 billion. Kumar’s vision for the bank was to transform it into a strong bank and at the top of the digital game. And he definitely succeeded at that. In October he was replaced by Dinesh Kumar Khara, previously a Managing Director at SBI.

Aditya Puri, who was at the helm of HDFC Bank for 26 years, also retired in October to give way to Sashidhar Jagdishan. Puri was at Citi Bank when Deepak Parekh first offered him the job to pilot the newly formed HDFC Bank. Puri, a Chartered Accountant, became the first CEO of HDFC Bank in 1994. And in the past quarter century, he transformed the bank and made it the largest private sector lender of India. Puri is now a Senior Advisor at The Carlyle Group.

Failed banks: In March, RBI placed YES Bank under moratorium and restricted withdrawals to a maximum of Rs 50,000, sending its customers to a frenzy. Shares of the bank tanked to Rs 5.65 a piece, its lowest till date.

The bank ran into trouble following the RBI’s asset quality reviews in 2017 and 2018, which led to a sharp increase in its NPA ratio and significant governance lapses that led to a complete change of management. The bank subsequently struggled to address its capitalisation issues and get investors. Later, the bank was rescued by State Bank of India (SBI), six private sector banks, and a mortgage lender, who invested a total of Rs 10,000 crore the bank, helping it shore up its capital buffers after they dropped below the regulatory requirements. SBI’s then CFO Prashant Kumar was chosen to head the struggling lender.

Another bank that made headlines is Lakshmi Vilas Bank. In September, in an unprecedented move, shareholders voted against the seven out of a total of 11 members from the senior management including the interim MD & CEO, S, Sundar. According to reports the shareholders were unhappy with the rise in bad loans, value erosion and the future of the bank. The RBI then appointed three members to look after the daily affairs of the bank along with the remaining four senior officials of the bank.

The capital starved LVB was looking for potential mergers and began talks with IndiaBulls Housing Finance, but couldn’t get a nod from the RBI. Later this year, LVB announced merger talks with Clix Capital. But before anything could materialise, RBI put it under moratorium and later announced its merger with DBS Bank India.

Coronavirus health insurance policies : On the basis of guidelines issued by the Insurance Regulatory and Development Authority of India (IRDAI), most insurance companies rolled out their Corona Kavach and Corona Rakshak policies. These short-term policies will cover the treatment cost of the coronavirus disease and remain valid until March 31, 2021. The Corona Kavach policy will cover both individuals and families. The Corona Rakshak policy will only cover individuals.

Above all, the industry accelerated digital adoption, leaving behind the face-to-face service, a dominant mode of distribution and business acquisition. Agents and distributors now interact with customers on video calls for selling products and customer engagement.

The awareness for insurance has gone up significantly towards the concept of protection, the primary reason why insurance exist. Industry experts believe this momentum is here to stay. Further, the industry is moving towards rolling out standardised insurance products like Aarogya Sanjeevani for health insurance, the regulator has also pushed for standardised term cover and travel insurance.

NBFC vs liquidity: NBFCs continued to struggle with liquidity and credit flow. They faced a dual challenge of growth and profitability. The percentage of customers availing the moratorium was relatively lower for NBFCs, while loans outstanding under moratorium were higher than those extended by banks, indicative of incipient stress, said a latest report by RBI. Moreover, the asset quality deteriorated as slippages rose in FY20. However, efforts were made by NBFCs to clean up their balance sheets, as reflected in their written-off and recovery ratios.

Meanwhile, amidst pervasive risk aversion, bank borrowings by NBFCs continued to grow at a robust pace as compared to market borrowings. As the RBI required NBFCs to adopt a Liquidity Risk Management Framework from December 2020, NBFCs gradually swapped their short-term borrowings for long-term borrowings with the aim of maintaining adequate liquidity.

RBI’s NUE: RBI took a leap towards establishing a new umbrella entity (NUE) for retail payments. This entity will set up, manage, and operate new payment systems in the retail space. It is tasked with operating payment systems such as ATMs, white-label PoS, Aadhaar-based payments, and remittance services. All NUEs will have to be interoperable with the National Payments Corporation of India (NPCI)— the umbrella entity that currently manages retail payments in India. However, they will be allowed to set themselves up as for-profit or not-for profit entities. Some big names are already in fray for licence.