Bankers shocked over ‘high-handed’ move, BFSI News, ET BFSI

Banking & Finance

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Former State Bank of India (SBI) chairman Pratip Chaudhuri was arrested by the Rajasthan police on Monday on complaints from a loan defaulter sending shock waves in the banking industry that was just limping back to normalcy after years of fear of being implicated criminally on trumped up charges.

There was reportedly no notice or formal summons in a decade-old soured-loan case which has shaken the banking sector, stoking concerns the incident could delay decision making in multi-billion-dollar recovery initiatives of several lenders.

Former SBI chairman Rajnish Kumar termed his predecessor’s arrest as extremely unfortunate and a case of high handedness. “Prima facie, it seems to be a case of misrepresentation of facts and singling out of an individual, who held a high position, to seek publicity,” Kumar told ET. “In the process, the dignity of an individual has not been given any consideration. It needs to be looked into whether due process of law has been followed.”

Account Acquired by an NBFC in 2017
Chaudhuri was arrested from his Delhi residence by the Rajasthan police and taken to Jaisalmer on Monday. His subsequent bail application was rejected by the local magistrate. The case refers to the ‘Garh Rajwada’ hotel project in Jaisalmer, financed by SBI in 2007.

  • Chaudhuri was arrested from his Delhi residence by Rajasthan police, taken to Jaisalmer on Monday
  • Local magistrate rejected his bail plea
  • Case refers to a Jaisalmer hotel project, financed by SBI in 2007 Account became an NPA in 2010
  • Chaudhuri retired in 2013 NPA was sold to an ARC in 2014
  • Bank not summoned or asked for its views in case

Since the project was not completed for three years and a key promoter passed away in April 2010, the account slipped into the non-performing asset (NPA) category in June 2010.

As the country’s biggest mass lender didn’t succeed in reviving the project, SBI sold the loans to the Alchemist Asset Reconstruction Co (ARC) in March 2014.

To be sure, it is unclear whether Chadhuri was arrested because of his role as SBI chairman or because he was later chairman of Alchemist ARC, which bought the assets from the bank. Police authorities in Rajasthan couldn’t immediately be reached for their comments.

Ironically, bankers said Chaudhuri retired from the bank six months before the sale of loans, in September 2013.

In a statement, SBI said the sale to Alchemist ARC was done through a laid-down process. Further, the account was taken to the bankruptcy court and was acquired by an NBFC in December 2017.

‘No Legal Basis’

The arrest, without any due notice or summons neither to the bank nor Chaudhuri, has not gone down well with current and former SBI executives. Former SBI deputy managing director Sunil Srivastava took to Twitter to express his displeasure. “Frankly, without notice and without summons, how can police from another state arrest someone in Delhi? Where is the due process of law? Absolutely pathetic. Is the system being gamed again by defaulters despite all efforts by Modi govt; time for overhaul of judicial processes to improve transparency and introduce accountability,” Srivastava wrote on the social media platform.

Interestingly, Alchemist ARC promoter Alok Dhir was not arrested and his mobile phone was switched off when ET tried to reach him. “Whatever it is, it does not have a logical or legal basis,” the chief of a large public sector bank said, on the condition of anonymity. “There have been numerous court orders, including from the Supreme Court, that directors are not liable for the faults or crimes of a company management. Some lower level judicial and police officers who have no clue of how banking works take these high-handed decisions to please higher-ups. This must stop.”

‘SBI not Party to Case’

SBI said despite the case involving its loan account, it was neither summoned nor asked for its side of the story.

“It transpires now that the borrower had initially filed an FIR with the state police against the sale of the asset to the ARC. Aggrieved against the negative closure report filed by police authorities, the borrower had filed a ‘protest petition’ before the CJM court,” SBI said in a statement. “Incidentally, SBI was not made a party to this case. All the directors of that ARC, including Mr Chaudhuri who joined their board in Oct 2014, have been named in the said case. Incidentally, Mr Chaudhuri retired from the bank’s service in Sep 2013.”

The bank said it has now accessed copies of the proceedings that show the court was not briefed correctly on the sequence of events.

Bank Offers Cooperation
“In as much as SBI was not a party to this case, there was no occasion for the views of SBI being heard as part of these proceedings,” the bank said. “SBI would like to reiterate that all due processes were followed while making the said sale to ARC. The bank has already offered its cooperation to the law enforcement and judicial authorities and will provide further information, if any, that may be called for from their side.”

Bankers said lessons have not been learnt despite recent judicial and police overreaches. They were referring to the dramatic June 2018 arrest of the Bank of Maharashtra CEO Ravindra Prabhakar Marathe, and executive director Rajendra Kumar Gupta. The police subsequently filed a closure report due to lack of evidence and Marathe and Gupta were reinstated.

“The point is that the police were not punished. There is no punishment for wrongful cases and judgements that can destroy careers. Law enforcement agencies are not acting with responsibility and this will have economic repercussions,” said the bank CEO cited above.



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Fino Payments Bank IPO fully subscribed on last day, BFSI News, ET BFSI

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The initial public offer of Fino Payments Bank was subscribed 2.03 times on the last day of subscription on Tuesday. The Rs 1,200.3-crore IPO received bids for 2,32,46,150 shares against 1,14,64,664 shares on offer, according to data available with the NSE.

The category for Qualified Institutional Buyers (QIBs) was subscribed 1.65 times, while that for non-institutional investors was subscribed 21 per cent and Retail Individual Investors (RIIs) 5.92 times.

The initial public offer (IPO) had a fresh issue of up to Rs 300 crore and an offer for sale of up to 1,56,02,999 equity shares.

The price range for the offer was at Rs 560-577 per share.

Fino Payments Bank had on Thursday said it has garnered Rs 539 crore from anchor investors.

Proceeds from the fresh issue would be used towards augmenting the bank’s tier-1 capital base to meet its future capital requirements.

Fino Payments Bank or FPBL is a scheduled commercial bank serving the emerging Indian market with its digital-based financial services.

The company is a fully-owned subsidiary of Fino Paytech, a pioneer in technology-enabled financial inclusion solutions.

Fino Paytech is backed by investors like Blackstone, ICICI Group, Bharat Petroleum and International Finance Corporation (IFC).

Axis Capital, CLSA India, ICICI Securities and Nomura Financial Advisory and Securities were the managers of the offer. PTI SUM ANU ANU



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Report, BFSI News, ET BFSI

Banking & Finance

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-By Ishwari Chavan

The Indian banking sector is likely to witness a fresh phase of consolidation over the medium term, between FY22 and FY24, primarily driven by large private sector banks, according to a report by Acuite Ratings and Research.

Given the current buoyancy in equity markets, there is now a significant opportunity for large Indian private banks for inorganic growth through acquisition of smaller private banks that continue to face headwinds or even public sector banks where the government is considering a disinvestment, the report said.

The banking sector saw its first phase of consolidation involving public sector banks over the period 2017-20, with an intent to enhance their competitiveness, capital position and operational efficiency. Post this, there are twelve PSBs, including seven large ones and five smaller ones against 27 in 2017.

Market share

While PSBs have been enjoying a dominant market share since nationalisation of banks in 1969, they have witnessed a steady drop in both credit and deposit market share over the last one decade, the report said.

This was further accelerated over the last five years, with the impact of the Asset Quality Review (AQR) and the subsequent spike in NPAs in the banking sector.


Share of Public Vs Private Sector Banks in Outstanding Credit
Source: Acuite Ratings and Research

Over the last five years, the market share of state-owned banks has dropped by around 10% in both deposits and advances due to asset quality, resultant profitability and capital challenges.

This market share has been largely taken over by private banks, who have cemented their market position through easier access to capital, along with technological initiatives.


Share of Public Vs Private Sector Banks in Outstanding Deposits
Source: Acuite Ratings and Research

Domination of large private banks

Given investors’ confidence, large as well as some select mid-sized private banks have been able to raise funds through capital markets.

Despite repercussions from COVID, larger and few mid-sized private banks have been able to raise capital through equity (QIP) snd Tier I/II bonds in FY21 and H1FY22.

Large banks have been reporting double-digit growth rates on an average over the last five years due to a comfortable capital cushion, which can shield them from any asset quality stress.

Despite some improvement in profitability during FY21, small-size private banks continue to have low return on assets, reflecting their vulnerability in a challenging environment. These banks have also been facing difficulties in raising capital.

Furthermore, their ability to bring about a structural improvement in their lending and deposit profile is uncertain due to limitations in their geographical franchise, the report said.


Size Wise ROAA Trend of PVBs
Source: Acuite Ratings and Research



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Crypto coin riding Squid Game high craters after dizzying rally, BFSI News, ET BFSI

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– A cryptocurrency named after the wildly popular Netflix drama “Squid Game” crashed to almost zero value on Tuesday after a dizzying rally pushed it to almost $2,800 last week.

The so-called squid token‘s market value jumped to $2.4 billion at the peak of Monday’s trading with a trading volume of $14 million over the last 24 hours, according to CoinMarketCap. The reason for squid’s slump was unclear. However, several reports including one by Gizmodo said holders of the coin were not allowed to sell the digital coin. Reuters could not independently verify the information.

Specialist crypto news outlet Coindesk reported that a digital address dumped squid tokens and cashed out millions of dollars worth of tokens in what it termed a “rug pull”- a situation where crypto developers abandon a project and run away with investors’ money.

Squid’s website appeared to be offline on Tuesday, while its Twitter account was “temporarily restricted” due to unusual activity.

Squid has only traded for a week, according to CoinMarketCap.

“Like many internet scams, cryptocurrency scams align themselves closely to popular trends and after the hype of Squid Game, this is no different,” said Jake Moore, cybersecurity specialist at cybersecurity firm ESET.

Cryptocurrencies based on memes or linked to internet culture have recorded rapid booms and busts this year, echoing soaring popularity of mainstream cryptocurrencies such as bitcoin.

Last week, for instance, shiba inu cryptocurrency – a meme-inspired cryptocurrency and a spinoff of dogecoin – muscled into the top-10 largest digital tokens by market capitalization. It has, however, barely any practical use.

South Korean series Squid Game, which became a global sensation and the No.1 program on Netflix, shows hundreds of cash-strapped players competing in hyperviolent games.

Squid is traded on exchanges PancakeSwap and DODO.

Pancakeswap did not respond to a request for comment. (Reporting by Medha Singh and Shreyashi Sanyal in Bengaluru and Tom Wilson in London; Editing by Bernard Orr and Shinjini Ganguli)



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RBI spells out rules for a bank to exit prompt corrective action framework, BFSI News, ET BFSI

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The Reserve Bank of India has modified the prompt corrective action plans for weaker banks with it laying down criteria for a bank to exit the framework once its financial metrics improve. It has also removed the profitability parameter for invoking the regulatory action.

The revised framework will be effective from January next year. The existing one has been in vogue since April 1, 2017. Under the existing rules, as many as 12 banks were placed under restrictions after they crossed the tolerance threshold. Barring one, all banks have exited the framework over the last two years but no uniform policy was applied for their exit. For example, RBI removed PCA from Bank of India and Bank of Maharashtra in January 2019 after their net non-performing assets ratio fell below the risk threshold of 6%.

But they were not profitable when the restrictions were lifted. In contrast, the erstwhile Oriental Bank of Commerce was profitable but its NPA was higher than 6% at the time PCA was removed from it. With the introduction of the structured exit policy, RBI has tried to address this anomaly. Under the existing framework, RBI invokes PCA if a bank makes net loss for consecutive financial years.

This clause has been removed in the revised guidelines. Once a bank is placed under PCA, taking the bank out of PCA framework and /or withdrawal of restrictions imposed under it will be considered if no breaches in risk thresholds in any of the parameters are observed as per four continuous quarterly financial statements, one of which should be audited annual financial statement, RBI said Tuesday.

However, any exit from the framework would depend on RBI’s supervisory comfort of the RBI and assessment on sustainability of profitability of the bank. The regulator has also tweaked the capital norm and leverage rules. The objective of the PCA framework is to enable supervisory intervention at appropriate time and require the supervised entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health, RBI said.

“The PCA framework is also intended to act as a tool for effective market discipline,” it said. These rules however do not preclude the regulator from taking any other action as it deems fit at any time, in addition to the corrective actions prescribed in the framework, which is applicable to all banks operating in India including foreign banks operating through branches or subsidiaries.

A bank is generally placed under the framework based on the audited annual financial results. However this does not bar RBI from imposing restrictions on any bank during the course of a year in extreme cases.



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RBI governor asks banks not to let down their guard, BFSI News, ET BFSI

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RBI governor Shaktikanta Das on Tuesday met with bank chiefs and asked them to remain vigilant to any emerging signs of vulnerabilities and take timely remedial measures to mitigate the risks. Even as Das acknowledged the resilience of the banking sector, the central bank sought to beef up pre-emptive action against weak banks by reworking its prompt corrective action (PCA) norms to enable supervisory intervention at the right time and use of lending restrictions as a tool for market discipline.

The note of caution comes at a time when there is increased optimism in respect of the economy even as pandemic-related stress continues to be felt in some sectors. Bankers have started talking of recovery even as several countries in the world are going through a third phase of lockdowns.

Das on Monday held separate meetings with the MDs and CEOs of public sector banks and some private banks through videoconferencing. He advised banks to take timely remedial measures to mitigate the risks and maintain the stability of not only the institutions themselves but also of the overall financial system. Several other matters, including credit flows, especially to micro and small enterprises, were also discussed during the meetings.

Das sought feedback from bank chiefs on the outlook for stressed assets and measures for mitigation, pricing of risks and the collection efficiencies experienced by banks. He also asked banks about their engagement with fintech entities. This was the first meeting with banks after Das was granted a fresh three-year term by the government last week. The meeting was attended by RBI’s deputy governors M K Jain, M Rajeshwar Rao and T Rabi Sankar.

The new norms for PCA come after most weak banks have exited the lending restrictions imposed by the central bank under its earlier framework for early corrective action. A record number of 11 banks were placed under PCA after banks saw a surge in bad loans following RBI’s asset quality review in 2016.

“The PCA framework does not preclude the RBI from taking any other action as it deems fit at any time, in addition to the corrective actions prescribed in the framework,” RBI said. Bankers said that in the past banks were placed under PCA based on their audited financial results and now the indications are that the RBI might impose the restrictions if it feels that they are required based on its supervision.

On Tuesday, RBI deputy governor Jain said that the central bank was also focusing on governance reforms. He said that banks need to put in place governance standards to be worthy of public trust.

“Being highly leveraged entities and with the interconnectedness, there must be a separation between ownership and management, so that they operate on professional lines,” he said.



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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 tweaks norms for initiating prompt corrective action against banks

Banking & Finance

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Chennai-based Indian Overseas Bank was the last to exit the PCA framework in September. The only lender still facing restrictions under the framework is Central Bank of India.

The Reserve Bank of India (RBI) on Tuesday modified its prompt corrective action (PCA) framework to exclude the parameter of return on assets (ROA) from the list of triggers.

Earlier, a bank was liable to be identified for initiation of PCA under risk threshold 1, if it had a negative ROA for two consecutive years, under risk threshold 2 if its ROA was negative for three consecutive years, and under risk threshold 3 if the ROA was negative for four consecutive years.

According to a revised circular on the central bank’s website, capital, asset quality and leverage will be the parameters used for identifying lenders weak enough to enter PCA. The RBI also tweaked the stipulation under the total capital adequacy ratio (CRAR) parameter for risk threshold 3.

Banks which see their CRAR dropping more than 400 basis points (bps) below the minimum regulatory prescription for CRAR, and the applicable capital conservation buffer will now be liable to be brought into PCA under risk threshold 3.

“The PCA Framework would apply to all banks operating in India, including foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators,” the regulator said.

Chennai-based Indian Overseas Bank was the last to exit the PCA framework in September. The only lender still facing restrictions under the framework is Central Bank of India.

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Bank of India Q2 PAT rises 99.9% on lower provisions, higher other income

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On liabilities side, Bank of India’s domestic deposits grew 2.5% on year to Rs 5,45,734 crore.

Bank of India (BoI) on Tuesday reported a nearly 100% year-on-year rise in net profit in the September quarter to Rs.1,051 crore on the back of lower provisions and higher other income.

The lender’s total provisions before tax fell 56.3% year on year (YoY) to Rs 894 crore in the July-September period.

Lower provisions were on account of improving asset quality. As on September 30, the lender’s gross non-performing assets (NPAs) stood at Rs 50,270 crore, lower than Rs 56,232 crore a year ago. The bank saw fresh slippages of Rs 1,307 crore in the reporting quarter — lower than Rs 3,942 crore in the previous quarter.

In a post earnings conference on Tuesday, the bank’s management said it had created 50% provision for its Rs 1,024-crore direct exposure to SREI group companies, whose boards were recently superseded by the Reserve Bank of India.

In percentage terms, BoI’s gross and net bad loan ratios improved to 12% and 2.79%, respectively, as on September-end from 13.51% and 3.35% as on June 30, respectively.

Going forward, the bank aims to lower the gross NPA ratio below 10% and the net NPA ratio by around 2%, said MD and CEO Atanu Kumar Das.

The bank’s net interest income (NII) stood at Rs 3,523 crore in the reporting quarter, lower by 14.3% on year. The domestic net interest margin (NIM) in July-September was 2.65%, lower than 2.88% a year ago. The capital adequacy ratio (CAR), as on September 30, stood at 17.05%, of which Tier I ratio was 13.88% and Tier II ratio stood at 3.17%.

As on September 30, Bank of India’s provision coverage ratio stood at 87.81%, while credit cost was 0.26%. Other income, that includes fees from third-party, rose 37% on a yearly basis to Rs 2136.28 crore.

The lender’s global advances increased 2.7% YoY to Rs 4,18,895 crore. Of these, domestic loans stood at Rs 3,68,573 crore, higher by 1.6% on year. Retail, agriculture and micro, small and medium enterprises loans formed 54% of the lender’s domestic loan book.

“There will be acceleration in advances going forward through a series of outreach campaigns, which we have conducted for the last two months and which we will continue in the coming months. We expect our overall advances to grow by 6-7% during the year,” Das said.

On liabilities side, Bank of India’s domestic deposits grew 2.5% on year to Rs 5,45,734 crore.

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Reserve Bank of India – Speeches

Speeches

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April 14, 2015




Dear All




Welcome to the refurbished site of the Reserve Bank of India.





The two most important features of the site are: One, in addition to the default site, the refurbished site also has all the information bifurcated functionwise; two, a much improved search – well, at least we think so but you be the judge.




With this makeover, we also take a small step into social media. We will now use Twitter (albeit one way) to send out alerts on the announcements we make and YouTube to place in public domain our press conferences, interviews of our top management, events, such as, town halls and of course, some films aimed at consumer literacy.




The site can be accessed through most browsers and devices; it also meets accessibility standards.



Please save the url of the refurbished site in your favourites as we will give up the existing site shortly and register or re-register yourselves for receiving RSS feeds for uninterrupted alerts from the Reserve Bank.



Do feel free to give us your feedback by clicking on the feedback button on the right hand corner of the refurbished site.



Thank you for your continued support.




Department of Communication

Reserve Bank of India


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