SEBI issues new framework to deepen corporate bond market

Regulator SEBI on Friday put in place a new framework for consolidation in debt securities as part of its efforts to deepen the corporate bond market.

Liquidity in the secondary market for corporate bonds will be increased by way of minimal number of ISINs (International Securities Identification Numbers).

ISINs code, which has 12 characters, is used for uniquely identifying securities like stocks, bonds warrants and commercial papers.

Generally, investors trade in corporate bonds that are freshly issued by a particular issuer. As a result, the outstanding securities of the same issuer become mostly illiquid.

In order to increase liquidity as well as ensure that an issuer’s ability to raise funds through debt securities is not curtailed, Sebi has focused on minimising the number of ISINs.

Under the new framework, an issuer will be permitted a maximum of 17 ISINs maturing per financial year, the Securities and Exchange Board of India (SEBI) said in a circular.

A maximum of 12 ISINs maturing per financial year will be allowed only for plain vanilla debt securities. Within the limit of 12, an entity can issue both secured and unsecured non-convertible debentures while no separate category of ISINs will be provided to them.

Furthermore, an entity can issue up to five ISINs every fiscal “for structured debt instruments of a particular category“.

SEBI said these restrictions will not be applicable to debt instruments that are used for raising regulatory capital and affordable housing as well as capital gains tax bonds.

To address the issue of bunching of liabilities, the regulator said the issuer can as a one-time exercise make a choice of having bullet maturity payment or make staggered payment of the maturity proceeds within a particular financial year.

The watchdog also said issuer would have a time period of six months to make an enabling provision in its Articles of Association to carry out consolidation and re-issuance of debt securities.

Also, an issuer would have to submit a statement to the stock exchange where its debt securities are listed, as well as to the depository containing data about ISIN number, issuance as well as maturity date and coupon rate among others within 15 working days.

Besides, stock exchange would have to upload the same on its website as well as the Integrated trade Repository for corporate bonds.

Trading of corporate bonds in the secondary market has gone up in recent years and stood at Rs. 14.7 lakh crore in the last financial year. The amount was just Rs. 1.48 lakh crore in 2008-09.

However, liquidity in the secondary market for these bonds has not picked up much, especially in comparison to primary market issuances.

With more entities tapping the route for mopping up funds, private placement of corporate bonds rose to Rs. 6.4 lakh crore in 2016-17 whereas the same was at Rs. 1.18 lakh crore in 2007-08.


Source : TheHinduBusinessline

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Karnataka Bank’s Image Debit Card

Karnataka Bank has launched the ‘KBL-Image Debit Card’ to enable its cardholders to personalise the card with the image of his/her choice. A press release by the bank said here on Friday that the customers will have the option of selecting an image either from the bank’s gallery of images or any image of his/her choice to be printed on the debit card. Customers can apply through the bank’s website for this card, the release said.


Source : TheHinduBusinessline

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Banking staff threatens strike on August 22 over mergers, NPAs

Employees of public sector banks have threatened to go on a day long nation-wide strike on August 22 against the government proposal to merge state-owned lenders. Besides, they want the government and the Reserve Bank to declare wilful default as a criminal offence and desist from writing off of corporate non-performing assets (NPAs) or bad loans, United Forum of Bank Unions (UFBU) said. An umbrella body of 9 unions, UFBU has also asked the government not to increase service charges in the name of GST.

Goods and Service Tax (GST), which will be effective tomorrow, has raised tax from 15 per cent to 18 per cent for all services offered by banks. Government has recently merged five associates with SBI and there are talks of the second round of consolidation among state-owned banks which may materialise by the end of the current fiscal. The government wants to create five large banks of global size using the inorganic route. There are 21 state-owned banks in the country at present.

India’s banking sector is saddled with NPAs or bad loans amounting to Rs 8 lakh crore, of which around Rs 6 lakh crore is accounted for by the state-owned banks alone. “Instead of taking urgent remedial measures to recover the alarmingly increasing bad loans which are threatening to drive the banks into a serious crisis, the government is taking steps like MOU, PCA, NPA Ordinance and IBC that are only aimed to cleaning the balance sheets at the cost of the lenders who represent hard earned savings of the people,” AIBEA General Secretary C H Vekatachalam told PTI.

All India Bank Employees Association (AIBEA), an affiliate of UFBU, said very tough measures are required including criminal action on wilful defaulters to recover the huge bad loans given to the corporate houses, big business and top industrialists. It was also observed that the burden of the corporate NPAs are put on the shoulders of the common public and banking clientele in the form of hike in fees, charges and penalties, for every type of normal banking services, he said.

Vice President of National Organisation of Bank Workers (NOBW), an affiliate of Bharatiya Mazdoor Sangh, Ashwani Rana said: “Merger is not panacea for all pains in the bank and merger doesn’t provide guarantee that NPA will be eradicated.” Rather government should talk to all the stakeholders including unions and shareholders to find out solutions, Rana said. The unions unanimously pitched for ensuring accountability of top management for bad loans and put in place stringent measures to recover bad loans and abolishing Banks Board Bureau.


Source : Financial Express

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RBI gets one application for on-tap licensing of private universal banks

The Reserve Bank of India (RBI) on Friday said that it has received just one application for ‘on tap’ licensing of universal banks in the private sector — from UAE Exchange and Financial Services. “In order to ensure transparency, the names of the applicants for bank licenses will be placed on the RBI website periodically,” the central bank said, adding that going forward, it will publish the names of the applicants on a quarterly basis. In August last year, the RBI had released guidelines for on tap licensing of universal banks in the private sector and allowed large industrial houses to invest up to 10% in them.

The limit of 10%, the Reserve Bank had said, would apply to individuals and all inter-connected companies belonging to the concerned large industrial houses on an aggregate basis. A group with assets of Rs 5,000 crore or more with the non-financial business of the group accounting for 40% or more in terms of total assets / in terms of gross income will be treated as a large industrial house, the RBI had said at that time. The RBI had allowed resident individuals and professionals with 10 years of experience in banking and finance at a senior level to promote universal banks.


Source : Financial Express

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Bank of Baroda rate cut by 10 bps to 9.5 pct; to benefit borrowers who took loans before April 2016

State-owned lender Bank of Baroda (BoB) on Friday trimmed its base rate by 10 basis points (bps) to 9.5%, according to a stock-exchange notification. The rate cut will benefit borrowers who had taken loans before April 1, 2016 and who have not switched to the marginal cost of funds-based lending rate (MCLR) regime as yet. The differential between BoB’s one-year MCLR — which stands at 8.35% — and the base rate still remains at a high of 115 bps.

The last round of base rate cuts by major banks came in April, when State Bank of India (SBI) had trimmed its base rate by 15 bps to 9.1%, HDFC Bank by 25 bps to 9% and Axis Bank by 10 bps to 9.15%. Despite the series of cuts, the lowest base rate in the system – HDFC Bank’s 9% — is higher than the one-year MCLR of most banks, except that of IndusInd Bank and Dhanlaxmi Bank, both small lenders.

Base-rate cuts are typically viewed as efforts by lenders to restrict borrowers from switching to the MCLR. While fresh loans sanctioned after April 1, 2016 are supposed to be MCLR-linked, a majority of loans in the system remain tied to base rates. As on March 31, SBI had 50% of its loan book linked to MCLR, up from 40% at the end of December. The corresponding figures for March for other large borrowers was not immediately available.

Of late, a large number of older borrowers, especially retail borrowers have put in requests to make the switch from base rate to MCLR. Speaking to analysts after SBI’s financial results for FY17, chief financial officer Anshula Kant had said, “Typically, in the fourth quarter, a lot of review/renewals happen, at which time, many loans have moved from base rate to MCLR. So, it has jumped by 10% in one quarter,” adding that the first half of FY18 will be slow in terms of migration to MCLR. Most accounts that had not migrated would be retail loans and some fixed-income loans, she had said.


Source : Financial Express

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Banks in India set to face further pressure on earnings; here is why

Indian banks are likely to face pressure on their earnings with financial disintermediation getting broad-based due to growth in market-based financing of the real sector, the Reserve Bank of India said in its six-monthly Financial Stability Report on Friday.

The banks’ share in the flow of credit, which was around 50% in 2015-16, declined sharply to 38% in 2016-17, the RBI said.

Indian banks are likely to face pressure on their earnings with financial disintermediation getting broad-based due to growth in market-based financing of the real sector, the Reserve Bank of India said in its six-monthly Financial Stability Report on Friday. The banks’ share in the flow of credit, which was around 50% in 2015-16, declined sharply to 38% in 2016-17, the RBI said. However, the aggregate flow of resources to the commercial sector was not affected due to a sharp increase in private placements of debt by non-financial entities and net issuance of commercial papers (CPs). The aggregate share of these two in the total credit flow to the commercial sector increased to 24.3% in 2016- 17.

According to data from the report, primary issuances in the corporate bond market have increased to Rs 6.7 lakh crore in 2016-17 from Rs 1.74 lakh crore in 2008-08. The secondary market activities, both in the terms of number of trades and volumes are also on the rise, with 2016-17 witnessing growth of 26% in terms of number of trades and 44% in terms of volume as compared to the previous year, the central bank said.

“These developments, although envisaged under regulatory frameworks, will have inevitable side-effects like increased competition and downward pressure on traditional earning modes of commercial banks,” the RBI said. “The need of the hour is to take this as opportunity for their business models.” Various initiatives taken by Sebi and the RBI to develop the market for corporate bonds over the last few years seem to be bearing fruit now, the RBI said.

Source : Financial Express

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SBI urges government to ease provisioning

The country’s largest bank, the State Bank of India, has written a letter to the finance ministry raising concerns over the stringent provisioning norms for companies under the Bankruptcy Code, which will eat into its profit margins. The lender is reluctant to meet these norms and has sought the ministry’s intervention on the matter.

A senior executive with the lender confirmed the development and said that the government is expected to hold discussions with the Reserve Bank of India, state-run lenders and the Bankruptcy Board. An email sent to both SBI and RBI did not elicit any response till the time of going to press.

RBI, in a circular issued to banks on June 15, had stated that for accounts identified for resolution under the Insolvency and Bankruptcy Code, 2016 (IBC), lenders will need to make a minimum provision of 50% for the secured portion of the outstanding amount, plus an additional 100% on the unsecured portion.

Last month, RBI identified 12 stressed accounts, each having more than Rs 5,000 crore of outstanding loans and accounting for 25% of total NPAs of banks for immediate referral for resolution under the bankruptcy law.

“Under IBC, banks can initiate proceedings at the first instance of default to preserve the value, but if they are referred to National Company Law Tribunal (NCLT) then, under the recently issued guidelines by the regulator, we will have to make at least 50% provision, while the account is standard in our books,” the above quoted SBI official said. Under RBI rules, a loan becomes nonperforming if the interest or installment of principal remains overdue for more than 90 days.

“So, if a bank is making the existing standard asset provision of 1%, it will be reluctant to refer the account to NCLT early because of the high provisioning requirement,” this executive said.

The bank has also said that post any resolution under the IBC framework, banks should be permitted to upgrade the sustainable portion of debt to standard and should not need to make any further provisions. “Banks should rather be allowed to reverse any such provisions made earlier as this will free up more capital and take on more such cases for resolution,” said another executive with SBI aware of the correspondence between the bank and the finance ministry.

The bank has also demanded that if any other creditor takes the NCLT route, no additional provisioning should be mandated on that particular account. Experts, however, disagree with the banks and say that the provisioning requirement of Rs 50,000 crore as being projected is on the higher side.

“The concerns raised by the bank are short term and perhaps narrow,” said Sumant Batra, managing director – insolvency at Kesar Dass B & Associates.

Banks should not tie themselves on the provisioning issue but rather look to maximise the value that they may get by moving quickly under IBC, he added. “Also, these 12 cases will not form the benchmark given the fact that going forward we will have other kind of cases, which may not be under joint lenders forum, and the dynamics of these cases will be different from the existing ones,” he said.



Source : Economic Times

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12 large NPAs: Banks may see provisions doubling this year

Even as some banks assert about being resilient in the face of insolvency resolutions in 12 largest default accounts, foreign brokerage Morgan Stanley today said it sees banks' provisioning for those accounts doubling up from the current level.

The brokerage also warned that merging small and weaker PSBs with larger ones to help tide over their capital issues will be counterproductive for the acquiring banks.

"We think provisioning on these loans is 30-40 per cent currently and could increase to around 60 per cent. This could imply 0.40-0.90 per cent increase in credit cost for the system," Morgan Stanley said in a note.

On merger plans, it warned that "government may look at merging small, weak banks with larger and relatively stronger banks. This is clearly a negative for the large state-run banks."

The note said based on media reports, these 12 accounts constitute for Rs 2-2.5 trillion or 2.5-3 per cent of system loans.

The brokerage particularly warned that the state-run banks, which hold 70 per cent market share, do not have the ability to take higher provisions and given government's tightness on funds, only the large ones could be able to access capital from the markets.

The note comes a day after country's third largest private sector lender Axis Bank came out with data specifying that it had adequately provisioned for these 12 accounts, and three days after the largest lender SBI asserted that its profitability will not be hit by the additional provisioning.

Axis said it has exposure to seven of these 12 accounts which include Essar Steel, Bhushan Steel, Bhushan Power, Lanco Infra, Amtek among others and seven of these 12 have already been sent to NCLT (National Company Law Tribunal) for possible liquidation.

According to reports, the RBI has asked banks to set aside as much as 50 per cent for these 12 accounts, which has raised concerns over bank profits.

The note said apart from the 12 identified accounts, some media reports are pointing out to a list of another 55 stressed accounts given by the RBI to the lenders for resolution.

"We expect provisioning to increase significantly during FY18 and unlikely that it moves lower in FY19 given the long tail of stressed assets (some of which are still standard with just less than 1 per cent provisioning). We continue to see pressure on earnings at corporate banks, despite being significantly below consensus already," Morgan Stanley said.

The brokerage, however, welcomed the RBI action on provisioning, saying it will help clean up the books and also prepare better for migration to Ind-AS accounting which has to be adopted from next April.


Source : Economic Times

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Frauds going up in number, banks need to tighten cyber security norms: RBI

The Reserve Bank of India flagged the rapid proliferation of frauds in the banking space over the last five years marking out a 19% increase in the number of fraudulent incidents and 72% increase in the value of the amount lost in the attacks. Around 86% of the frauds reported in 2016-17 was in the space of various credit accounts, said RBI.

The number of frauds went up to 5064 from 4235 and the value shot up to Rs 16770 crore from Rs 9750 crore over the last five years, said the central bank in the Financial Stability Report of 2017, released on Friday.

Holding the banks squarely responsible for such frauds, the regulator said that unlike macro economic risks on lending business of banks, frauds happen due to gaps in credit underwriting standards of banks.

“Some of the gaps are liberal cash flow projection at the proposal stage, lack of monitoring of cash flows, overvaluation, diversion of funds…,” said the RBI.

While highlighting the fact that digital payments have shown promising growth post demonetisation, the two biggest risks that the RBI found to the digitisation process emanates from a lot of people using digital payments without being aware of the risks involved and the risk banks face from third party technology vendors.

RBI has highlighted three major effects of a cyber attack, disruption of operations of a financial firm, fall of confidence in markets and damage the integrity of key data.


On the finance minister’s statement around creation of a CERT-Fin (Computer Emergency Response Team for financial services), the RBI said in the report that the working group that was created in March of this year has submitted its report and the regulator is considering it.



Source : Economic Times

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12 large NPAs: SBI chief rules out big hit on bottomlines

The nation's largest lender State Bank today ruled out the additional provisioning towards the 12 largest NPA accounts which have been referred to insolvency proceedings denting the bottomlines very hard as most of the provisioning has already been done.

"The increased provisioning requirements, more or less, in all of these accounts we have pretty large provisions. But yes, we have to make a little more but it should not very badly impact our earnings going forward," chairman Arundhati Bhattacharya told reporters after the AGM here this late evening.

She was responding to questions from the media about the possibility of increased provisioning towards the 12 RBI- referred accounts impacting the bank's bottomlines.

It can be noted that domestic ratings agency Crisil had yesterday estimated that led by public sector banks, lenders will have to take a huge haircut towards these NPAs.

It has pegged an additional burden of Rs 40,000 crore or 25 per cent more towards provisioning for these 12 accounts which have been sent for insolvency by RBI.

These 12 large accounts had become NPAs by end-March 2016 and Crisil estimates show the banks had already provisioned 40 per cent for these NPAs worth Rs 2 trillion or about Rs 80,000 crore.

"We estimate a 60 per cent haircut would be needed on these loan assets. That would mean banks will have to increase provisioning by another 25 per cent or Rs 40,000 core more this fiscal, compared with 9 per cent in the last," Crisil said in a note.

The total NPA provisioning of banks stood at Rs 2.2 trillion as of FY17, up from Rs 2 trillion in FY16.

Parrying a question on whether RBI has been very stringent or overcautious on with these accounts, she said "the regulator has done what it felt was right. Now whether it is overcautious or whether it is in order, we will come to know with time."

"The only thing is that they have given us three quarters to do it which I think is adequate. Also, provisioning doesn't mean write-offs. It merely means that you keep the provisions if things are better, and then we can write it back," the chairman of SBI which is the lead banker to six of these 12 accounts said.

But she was quick to point out that the problem with higher provisioning is that "if a buyer comes to take over that account will immediately take that as the lowest level of write-off or haircut. So, to that extent, we may have realised better value if we haven't exactly quantified the amount of provisioning that we made."

Bhattacharya said the remaining six accounts from the RBI list will be taken up within the stipulated time of 15 days itself or even earlier.

"All the preparation that were required to be done most of them is already done. To that extent we are doing things as per book. And we expect that this will enable quick resolution," Bhattacharya said.

The largest 12 accounts named by RBI are Bhushan Steel (Rs 44,478 cr), Lanco Infra (Rs 44,365 cr), Essar Steel (Rs 37,284 cr), Bhushan Power (Rs 37248 cr), Alok Industries (Rs 22,075 cr), Amtek Auto (Rs 14,075 cr), Monnet Ispat (Rs 12,115 cr) Electrosteel Steels (Rs 10,274 cr), Era Infra (Rs 10,065 cr) Jypaee Infratech (Rs 9,635 cr), ABG Shipyard (Rs 6,953 cr), and Jyoti Structures (Rs 5,165 cr).

Of these six accounts have already been sent to NCLT by banks -- Bhushan Steel, Essar Steel and Electrosteel Steels by SBI; Bhushan Power by PNB; Lanco Infratech by IDBI; and Amtek Auto by Corporation Bank- for possible liquidation.



Source : Economic Times

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