New RBI guidelines on urban cooperative banks explained

By Trisha Shreyashi

Primary Cooperative Banks, popularly known as Urban Cooperative Banks (UCBs) are cooperative societies registered under provisions of the respective State Cooperative Societies Act or Multi-state Cooperative Societies Act, 2002. UCBs are supervised under the Registrar of Cooperative Societies. However, the power to issue banking licenses and regulate, supervise and develop banking functions of UCBs are vested with the RBI by virtue of the Banking Regulation (BR) Act, 1949. 

In light of the BR Amendment Act of 2020, the new fundraising norm was proposed and public comments on the draft were invited by RBI last year in 2021. The 2020 amendment substituted Section 12 to provide for the issue and regulation of securities by cooperative banks. 

The 2022 notification specifies that UCBs can raise capital through three broad methods, viz:- issuance of equity shares, preference shares, and debt instruments. 

First, UCBs can raise funds by issue of equity to enrolled members within the area of operation or through additional equity shares to existing members. 

Second, UCBs can augment Tier – I & Tier – II capital by issuing Perpetual Cumulative & Non-Cumulative Preference Shares, and, Redeemable Cumulative & Non-Cumulative Preference Shares. 

Third, UCBs can issue Perpetual Debt Instruments (PDIs) for Tier – I Capital and Long Term Subordinated Bonds as Tier – II Capital. It can be issued to institutional investors also, with the consent of the depositors. 

It may be pertinent to understand that Tier – I Capital is the primary funding source of the bank. It entails shareholder equity and retained earnings disclosed in their financial statements. On the other hand, Tier – II Capital or supplementary capital includes undisclosed funds, revaluation reserves, hybrid capital instruments, junior debt securities, general loan-loss, uncollected reserves, etc. 

The notification specifies that such fundraising capital instruments can be issued by the UCBs with the prior approval of RBI. UCBs must seek permission via application to the regional office of RBI. The application shall be accompanied by an offer document, prospectus, information memorandum, a compliance certificate from a Chartered Accountant, and relevant disclosures. 

The notification also lays down the terms of issue specifying the eligibility, limits, amount, maturity, options, dividend/ coupons, classification on the balance sheet, payment of dividend/ coupons, seniority of claim, voting right, discount, disclosures, due diligence, rate of interest, investment, advances for purchase of certain instruments and lock-in clause. 

Further, UCBs that issue the aforementioned regulatory capital instruments shall adhere to certain conditions. Accordingly, banks ought not to use their fixed deposit rate as a benchmark for debt instruments with a variable interest rate, or floating rate instruments. Secondly, the investors shall undertake in the common application form for the proposed issue that they have understood the features and risks thus associated. Third, UCBs must provide a disclaimer that these capital instruments are different from a fixed deposit and not covered by deposit insurance. Further, it is mandatory to specify the procedure for the transfer to legal heirs in the event of the death of a subscriber. 

Investors may note that the UCB shall not withdraw or reduce its share capital except if approved by RBI. In such a scenario, the UCB shall refund the share capital to their members, nominees, or heirs on demand. Finally, the borrowings from UCBs shall be linked to shareholdings of borrowing members on the basis of security. These aforementioned conditions are to be fulfilled for the purpose of enhancing investor education on the risk characteristics of regulatory capital requirements. 

It is imperative to mention the two significant issues that were ruled out from the draft notification 2021: (i) Reasonability of threshold criteria on share linking to borrowing norms (ii) Whether or not the issuance of PDIs be restricted to institutional investors. One may observe from the aforementioned explainer that these issues have been addressed in the final notification of 2022. 

(The author is a lawyer and columnist. Views are personal and not necessarily that of FinancialExpress.com) 

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H2FY22 lending boost: Loan growth rises to over 6% in February

The rate of growth in non-food credit on a year-to-date (YTD) basis rose to 6.14% in February as banks benefited from better loan offtake during the second half of the year, typically a busy season for lenders. Through much of FY22, YTD loan growth has been muted, remaining in the negative territory through the first six months, with a blip seen in December, when it jumped to 6.5%.

As on February 25, the value of outstanding bank loans stood at Rs 115.59 trillion, up 8.03% year-on-year (y-o-y), according to data released by the Reserve Bank of India (RBI). Retail credit demand, coupled with support extended under the emergency credit line guarantee scheme (ECLGS), have offered the most support to bank loan growth through the year, as per sector analysts and sectoral data from the RBI.

Analysts viewed the sustained improving trend in credit growth as a positive. Jefferies said in a report dated March 15 that even though the growth rate of 8% in February seems slower than the 9% print in December 2021, that reading was boosted by seasonal factors. “The growth improvement is encouraging vs 6-7% growth in early CY21. Retail credit continued to be good while corporate credit growth has also picked up. Bond issuances doubled sequentially in February 2022,” the report said.

To be sure, credit offtake has also received a hand from an improvement in overall business activity. Broader macroeconomic indicators suggest a brighter year-end outlook for banks. The Nomura India Business Resumption Index rose to a record high of 122.8 for the week ended March 13 from an upwardly revised 121.0 in the previous week, at 23 percentage points above pre-pandemic levels. Business resumption has settled at 22-23 percentage points above pre-pandemic levels since end-February, Nomura said.

However, Russia’s war in Ukraine could pose fresh challenges for growth, especially in the auto loans segment. The issue of shortage of semiconductor chips, which impacted vehicle availability through much of 2021, could resurface, say some experts. Emkay Global Financial Services said in a recent note, “As per bankers, vehicle availability was improving, but the recent Russia-Ukraine conflict has once again raised concerns around supplies of semiconductors. As a result, few financiers have ventured into used-car financing to garner volume and better yields.”

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H2FY22 lending boost: Loan growth rises to over 6% in February

The rate of growth in non-food credit on a year-to-date (YTD) basis rose to 6.14% in February as banks benefited from better loan offtake during the second half of the year, typically a busy season for lenders. Through much of FY22, YTD loan growth has been muted, remaining in the negative territory through the first six months, with a blip seen in December, when it jumped to 6.5%.

As on February 25, the value of outstanding bank loans stood at Rs 115.59 trillion, up 8.03% year-on-year (y-o-y), according to data released by the Reserve Bank of India (RBI). Retail credit demand, coupled with support extended under the emergency credit line guarantee scheme (ECLGS), have offered the most support to bank loan growth through the year, as per sector analysts and sectoral data from the RBI.

Analysts viewed the sustained improving trend in credit growth as a positive. Jefferies said in a report dated March 15 that even though the growth rate of 8% in February seems slower than the 9% print in December 2021, that reading was boosted by seasonal factors. “The growth improvement is encouraging vs 6-7% growth in early CY21. Retail credit continued to be good while corporate credit growth has also picked up. Bond issuances doubled sequentially in February 2022,” the report said.

To be sure, credit offtake has also received a hand from an improvement in overall business activity. Broader macroeconomic indicators suggest a brighter year-end outlook for banks. The Nomura India Business Resumption Index rose to a record high of 122.8 for the week ended March 13 from an upwardly revised 121.0 in the previous week, at 23 percentage points above pre-pandemic levels. Business resumption has settled at 22-23 percentage points above pre-pandemic levels since end-February, Nomura said.

However, Russia’s war in Ukraine could pose fresh challenges for growth, especially in the auto loans segment. The issue of shortage of semiconductor chips, which impacted vehicle availability through much of 2021, could resurface, say some experts. Emkay Global Financial Services said in a recent note, “As per bankers, vehicle availability was improving, but the recent Russia-Ukraine conflict has once again raised concerns around supplies of semiconductors. As a result, few financiers have ventured into used-car financing to garner volume and better yields.”

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Digital credit card will be a precursor to other DIY products: Parag Rao, head – payments business and IT, HDFC Bank

HDFC Bank is going to spread out its fresh digital launches over the next few quarters, now that the regulatory embargo on them has been lifted, Parag Rao, head – payments business and IT, at the bank, told Shritama Bose. Some parts of the payments ecosystem are not yet ready to go live with Aadhaar OTP-based on-boarding for UPI. A launch will be ideal only when 90-95% of the system is prepared, Rao added. Edited excerpts:

When will you launch the fully digital challenger bank?
Right now we are working on an on-the-fly mobile-only credit card, which will also be serviced completely on the phone and will involve no physical touch. This should be a precursor to many such zero-touch mobile-ready completely DIY products we are launching in the marketplace, but we’ll start with credit cards as the priority. We are still studying the marketplace to see in what shape and form a digital bank can be introduced to customers in the Indian marketplace. Individual products will be launched. As and when we believe the marketplace is ready for the right kind of product, we’ll have to wrap all these together under the envelope and wrapper of a bank. We want to go to the market at the right time.

Anything for your merchant customers?
We have already done a soft launch for our digital merchant app called SmartHub Vyapar. This is targeted at medium and small merchants. For the larger merchants, we’ll also use the SmartHub Vyapar app clubbed with a POS machine because that’s the kind of requirement a larger merchant would have. We are working with global leader Adobe to create a very intrinsic and fungible customer experience layer to onboard a lot of our products which are instant and digital. We’ve rolled it out for select products for our existing customers. We are expanding the range to ensure we cover all our products for our internal customers and when we go to the market we’ll go with the enhancement layer for new-to-bank customers.We are also focusing on refurbishing and revamping our platform for SMEs. The one we have today involves the conventional way of the physical RM approaching the customer and taking care of his various banking needs. The web interface and the app interaction will be a completely digital platform where a bulk of the things an SME would want from his service provider are digital and DIY. This will help us to reach out to many more SMEs.

We are already a market leader in the SME space and this will help us service our existing customers better and expand to many more territories.

You recouped some of your credit card market share after the lifting of the issuance ban, but since December the trend has been reversed.
There is a phenomenon we constantly keep on doing on our portfolio, which is weeding out inactive cards every quarter. Unlike many other players, we don’t keep bloating our numbers. The number that is published is a net figure, not a gross figure. Our acquisition plans continue to go up. We’ve exceeded the pre-embargo run rates and going forward, we plan to run that up even further.

The deadline for launching Aadhaar OTP-based UPI onboarding is set to be extended. What is the level of preparedness in the system?
Well, the fact that it’s being extended itself says that the ecosystem is not ready yet completely. UPI is a very interoperable, deeply interlinked ecosystem between payment service providers (PSPs), remitter banks and the issuing bank. Even if one leg of it is not ready, then the entire customer experience of a transaction is extremely poor. So while it is a strength of the ecosystem, when you make changes or new additions, it requires the entire ecosystem to be at least 90-95% ready for transactions to go through smoothly. There are parts of the system that will take some more time. Taking cognizance of that, some of these deadlines have been pushed back a little.

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PayPal enables customers to send money to Ukrainians

Fintech company says it will waive fees on transfers of funds to and from Ukrainian accounts until June 30

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Bank privatisation to be kickstarted soon

Inter-ministerial consultations have been completed on a draft cabinet note on the proposed amendments. "We have incorporated the relevant suggestions and a final proposal will soon be put for final consideration and approval of the cabinet," the official said.

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RBI March bulletin: Transition to green energy may affect banks’ NPAs

The transition to a net-zero carbon emission target could have implications for incomes of industries that indirectly use fossil fuels, and consequently their interest coverage ratio (ICR). This, in turn, could affect gross non-performing asset (NPA) ratios of banks with exposure to such industries, the Reserve Bank of India (RBI) said in a report contained in its March 2022 bulletin. “Therefore, the gross non-performing assets (GNPA) ratio of such industries may be sensitive to green energy transition, and their impact on the overall banking system needs to be monitored closely,” the report said.

Almost all the sectors in the economy are indirectly exposed to fossil fuel by virtue of using electricity, petrol, diesel or coal in their production processes. In India, 62.2% of the total electricity generated is sourced from fossil fuel, with the rest coming from renewable or non-fossil sources, according to the report, titled ‘Green Transition Risks to Indian Banks’.

The sectors which have high input intensities of fossil fuel through indirect exposure are cement, basic metals, paper products and textiles. “We assume that because of a transition to green energy and shifts in input mix, there could be some pressure on input costs in these sectors in the short-term,” the RBI said in the report.

Depending on the market structures and pricing power, this increase in cost could be transferred to end-users or could be borne by the firms. In the second scenario, the earnings before interest, taxes and amortisation (EBITA) of the representative firms could take a hit, leading to worsening of loan serviceability. This, in turn, could lead to an increase in GNPA ratio of such sectors, the RBI said.

gOn the whole, there is a need to closely monitor all such industries that have low ICR, high GNPA ratio and high energy input intensity to prevent spillover to the broader banking sector,” the report said.

Three sectors with direct exposure to fossil fuels – electricity, chemicals and automobiles – account for around 24% of credit to the overall industrial sector. At the same time, they constitute only 10% of total outstanding non-retail bank credit, which implies a limited spillover to the banking system.

Sectors like electricity and basic metals absorb a significant proportion of total credit disbursed by the banking sector but have moderate exposures to fossil fuel. Sectors like cement production in turn have large exposure to fossil fuel, but their credit shares are small. “So, large vulnerabilities are not expected to emerge in the banking sector from disruptions, if any, in the sectors that are highly exposed to fossil fuel,” the central bank said.

As of March 2020, the share of electricity generation in outstanding bank credit stood at 7.5% and 4% for public sector banks and private sector banks, respectively. On the other hand, the share of bank credit to automobile industries was at 0.8% and 2% for PSBs and private banks, respectively, for the same period.

The exposure of the banking sector has so far been very limited to alternative sources of energy. At the all-India level, only about 8% of the bank credit deployed in the electricity industry is towards non-conventional energy production. The share of non-conventional energy in utility sector credit is higher for private banks at 14.8% and 5.2% for PSBs, the report said.

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NPCI nearing pilot launch of wallet-based UPI payments

The National Payments Corporation of India (NPCI) is nearly ready for a pilot launch of wallet-based Unified Payments Interface (UPI) payments. Named UPI Lite, the on-device wallet service will be in line with the Reserve Bank of India’s (RBI) framework for offline digital payments. It will enable transactions of up to Rs 200 at a time with wallet balances capped at Rs 2,000.

In a circular dated March 16, NPCI told UPI member banks that UPI Lite shall be launched as a pilot with multiple banks and app providers. After a due level of comfort, a full-scale commercial launch with compliance timelines for on-boarding for the issuers and app providers shall be declared. FE has seen a copy of the circular.

In its first phase, UPI Lite will process transactions in near-offline mode, which means that while debit transactions from the wallet will happen in the offline mode, credits will be processed online. At a later stage, UPI Lite will process transactions entirely in the offline mode.

According to the circular, once UPI Lite goes live, UPI users will have the option to enable the on-device wallet on their app. The user can then allocate funds from their bank account to UPI Lite. The funds will sit in the user’s bank in an escrow or designated account.

Replenishment of the wallet shall only be allowed in the online mode with additional factor authentication (AFA) or using UPI AutoPay, which in turn would have been registered by the user in online mode with AFA. Industry executives say the RBI has capped the per-transaction value in the offline digital payments framework at Rs 200 so that the risk of loss of funds can be minimised in the absence of AFA.

The NPCI circular cited studies to say that about 75% of the total volume of retail transactions in India, including cash, are of a value lower than Rs 100. Half of all UPI transactions have a transaction value of up to Rs 200.

NPCI believes UPI Lite will offer the advantage of a superior user experience and an uncluttered bank statement for users. It will also reduce the load on the core banking systems.

The launch of UPI Lite is among a series of measures aimed at making the UPI platform accessible to a larger set of users. Earlier this month, the RBI launched a UPI enablement for feature phone users. The payments ecosystem is also working to enable Aadhaar OTP-based UPI onboarding, which will not require users to have a debit card. Banks and other payment system players are expected to prepare their systems for launch by June 30.

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CSB Bank advances likely to grow by 20-25% next fiscal

CSB Bank estimates its advances to grow by 20-25% in the next fiscal, with demand seen to be good from the SME and retail sectors. In the current fiscal, the Thrissur-based lender said it will grow only in single digits because of premature closures and takeover of loans by competitors.

CVR Rajendran, managing director & chief executive officer of CSB Bank, told FE growth was elusive in FY22 because of the prevailing circumstances and cautious approach.

“Not much growth has happened in the current year as SME and wholesale banking were stagnant. Retail loans have not shown growth. Because of excess liquidity in the market, there is cheaper competition. In wholesale banking, there were a lot of premature closures and in SME, takeovers by bigger banks at lower rates,” he said.

Rajendran said lending picked up and gold loans started growing from August. The gold loan portfolio is 36-38% of the total advances and will continue to grow and remain a focus.

“Retail is now doing well and SME, particularly from the manufacturing sector, is also showing growth. Advances are likely to grow by 20-25%. Only the two-wheeler loan portfolio looks muted,” he said.

CSB reported a 180% year-on-year increase in its third-quarter net profit to 148.25 crore over 53.05 crore in Q3 of FY21. Net profit was Rs 118.57 crore in the preceding quarter of the current fiscal.

Asset quality of the lender improved from the preceding quarter, with gross non-performing assets (NPA) as a percentage of gross advances reported at 2.62% for Q3 of FY22, from 4.11% in the preceding quarter and 1.77% in the year-ago period. Net NPA as a percentage of gross advances stood at 1.36%, against 2.63% in the preceding quarter and 0.68% in the third quarter of FY21.

Provisions were written back for the quarter in review, with recoveries and upgrades seen higher than slippages.

“Slippages are way below our recoveries, even in gold loan NPAs. Because of our accelerated provisioning, we were able to have lot of recoveries in written-off accounts and provided accounts. This was deducted from the provisions as per the new policy. Our credit cost will be negative for the current year and will continue to be negative for the next two years,” Rajendran said.

Giving gold loan customers breathing space to repay loans during the pandemic was beneficial to both, customers and the bank, he said. “Once the Covid-19 situation improved, the customers’ earnings also improved, enabling them to repay the loan and get back the jewellery which had a sentimental value attached to it,” he said.

Speaking about his tenure, Rajendran, who is retiring from service on March 31, said the bank had been classified as a distressed bank when he took over, and in less than five years, CSB won the best bank award in the small bank category.

“In the last five years, we have completely cleaned the balance sheet. Our NPA ratios are among the best in the industry. Our provision coverage ratio is more than 90% and the capital adequacy ratio is also high. Our return on equity and return on assets are also higher than the industry average. We don’t need capital for the next two years and if the entire profit is ploughed back we may not require capital for many more years to come. The bank can stand on its own without raising further capital,” he said.

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India to study sanctions impact on trade settlement with Russia

Russia invaded Ukraine on February 24 in the biggest attack on a European state since World War II, prompting a barrage of sanctions that have limited Russia's ability to do business in major currencies and hit several of its banks and state-owned enterprises.

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Yes Bank Scam: HC directs special CBI court to defer framing of charges until April 1

In March 2020, the CBI had registered an FIR against Kapoor, the former Managing Director of Yes Bank Limited, and twelve others including Kapil Wadhawan and Dheeraj Wadhawan of DHFL on the allegation that Kapoor and his family had obtained undue benefit to the tune of Rs. 600 crores through their companies for an investment of Rs. 3700 crores made by Yes Bank in DHFL’s non-convertible debentures.

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Fewer EMI bounces point to drop in loan defaults

Debit bounce rates on bank accounts hit their lowest level since May 2019, indicating an improvement in the asset quality of banks.

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Banks Board Bureau recommends Alok Choudhary for SBI MD post

The Banks Board Bureau (BBB) on Wednesday recommended State Bank of India (SBI) deputy managing director Alok Kumar Choudhary for the position of managing director at the bank. The bureau has also proposed names of candidates for the position of chief executive at three other public sector banks (PSBs).

“After interfacing with 21 candidates on March 5-6; March 11-12 & March 15-16, 2022, the Bureau recommends Shri Alok Kumar Choudhary for the position of MD in SBI and Shri Vinay M. Tonse as candidate on reserve list,” BBB said in a tweet. Tonse is MD & CEO of SBI Mutual Fund.

The BBB recommended Canara Bank executive director A Manimekhalai for the post of MD & CEO at Union Bank of India, Indian Overseas Bank (IOB) executive director Ajay Kumar Srivastava for the top job at his own bank and Punjab National Bank (PNB) executive director Swaroop Kumar Saha for the role of MD & CEO at Punjab & Sind Bank.

K Satyanarayana Raju, Nitesh Ranjan and Debadatta Chand, executive directors at Canara Bank, Union Bank and Bank of Baroda, respectively, have been named on the reserve list for the same roles.

Union Bank is currently headed by Rajkiran Rai G, IOB by Partha Pratim Sengupta and Punjab & Sind Bank by S Krishnan. Rai’s term is set to end in May 2022 and Sengupta’s in December 2022.

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Bank CEOs now think they are running technology companies: Bill Winters, CEO, Standard Chartered

"We know what customers want is convenience. And they want it in the platform they are already using very actively - media platform, messaging platform, payment platform, to the extent that they want to acquire some additional financial services. Somebody is going to make it easy for them to do that," said Bill Winters, CEO, Standard Chartered.

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Reliance Capital CEO Dhananjay Tiwari resigns

The debt-laden company promoted by Anil Ambani is undergoing a corporate insolvency resolution process (CIRP) at the Mumbai Bench of the National Company Law Tribunal (NCLT). The Reserve Bank had on November 29, 2021 superseded the board of Reliance Capital Ltd in view of payment defaults and serious governance issues.

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HDFC Bank’s post-embargo plans: All-in-one payments app, digital credit cards, DIY solution for merchants

A refurbished payments app, digital credit cards and a fully interoperable merchant solution will be among HDFC Bank’s priority launches over the next two-three quarters, Parag Rao, head – payments business and IT, at the bank, told FE. The Reserve Bank of India (RBI) lifted its penal embargo on digital launches by the bank on Saturday.

“Over the next two-three quarters we would be talking about five-six areas where we’d be going to the market with either an upgraded digital offering or a completely new offering. We’ll space them out to give time for us to get everything right and also for customers to absorb them,” Rao said.

HDFC Bank will refurbish its PayZapp app and launch it as a complete payments app called PayZapp 2.0 on the latest available digital technology platform. The bank believes this app will leverage its existing strengths, such as its 60-million-strong debit and credit card franchise. Unlike its earlier version, PayZapp 2.0 will have Unified Payments Interface payments enabled. It will include a range of payment options, including modes like tap and pay to transact at all merchant establishments with the required enablement.

PayZapp 2.0 will also have offers across merchant categories through the SmartBuy platform. “Over the next three years, we want this to be among the top three payment apps in the country by way of transactions and volumes,” Rao said, adding that the app will be targeted at new-to-bank as well existing customers.

The bank plans to use the app as a funnel for acquisition of new customers. There will be a section on it for the bank to sell credit cards and other banking products.

The bank’s second priority area is the launch of a mobile-only credit card, which will also be serviced purely through digital channels. This product line will be a precursor to other mobile-only, do-it-yourself (DIY) products that the bank plans to launch, including its challenger bank. HDFC Bank had 16.04 million credit cards outstanding in January.

For its merchant customers, HDFC Bank will expand its SmartHub Vyapar app-based solution, which has already had a soft launch. Targeted at medium and small merchants, the app provides a DIY experience and assisted journeys to avail of all payments solutions, loans and other value-added services on a single platform. The app will be interoperable with other payment platforms for acceptance transactions. For larger merchants, the bank will club the app with a point of sale machine to address their requirements.

The approach to small and medium enterprise (SME) relationship management will also be digitised further. HDFC Bank hopes to be able to reach out to a broader set of SME customers with this shift.

Analysts at Jefferies said in a report dated March 12 that HDFC Bank will now be able to launch platforms that integrate its offerings in the areas of auto, healthcare and rural financing in partnership with non-financial players. More importantly, the bank will be able to operate more smoothly, the report said. “The lifting of the ban would also allow the bank to smoothen business-as-usual initiatives, instead of having to seek clarity from RBI in case of doubts.”

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Securitised pool collection remains stable on limited impact of Covid curbs

The monthly collection ratio of securitised pool remained stable due to the limited impact of restrictions imposed by local administration and digitalisation of payment collections by companies, according to rating agency Crisil.

Collection efficiency in securitisation transactions rated by Crisil ratings showed the collections by mortgage-backed securities pools, vehicle pools, two-wheeler pools, and SME pools remained above 96% in February.

“The restrictions imposed to combat the pandemic’s spread in the third wave have been comparatively less intense than those in earlier waves. Additionally, many efforts have been made by several financing entities to digitalise their collection processes. Both these factors have quarantined securitised pool collections from any material impact arising out of pandemic related disruptions during the third wave,” Krishnan Sitaraman, senior director and deputy chief ratings officer, Crisil Ratings said in a release.

During the first wave of covid, collections of loan instalments had substantially reduced due to stringent lockdown and extension of the moratorium on loan repayment. Collections have started improving for the non-banking finance companies (NBFC) after the opening of the economy amid the unlocking process.

NBFCs had taken a lot of efforts such as rejigging of operations, retraining of staff, and re-orientation of expenditures. Despite the bout of tremendous stress on underlying borrowers in pools, there was very few downward ratings action. During the times when collection ratios were dented severely, credit enhancements came to the fore to iron out the collection shortfalls.

Rohit Inamdar, senior director, Crisil Ratings, said NBFCs solid performance in the past two years is an indicator to investors that securitisation remains a reliable, time-tested route to gain exposure to quality loan assets.

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PNB classifies Rs 2,060 crore to IL&FS Tamil Nadu Power as fraud

Punjab National Bank (PNB) on Tuesday said that it has classified its Rs 2,060.14 crore exposure to IL&FS Tamil Nadu Power as a fraud account. The lender has made provisions worth Rs 824.06 crore against its exposure to the company.

“A fraud of Rs 2,060.14 crore is being reported by bank to RBI (Reserve Bank of India) in the accounts of the company. Bank has already made provisions amounting to `824.06 crore, as per prescribed prudential norms,” PNB said in a notification to the exchanges.

Last month, Punjab & Sind Bank had also classified the same account as fraud. Its exposure to IL&FS Tamil Nadu Power is Rs 148 crore.

IL&FS Tamil Nadu Power is a special purpose vehicle (SPV) promoted by IL&FS Energy Development Company, which in turn, is a subsidiary of Infrastructure Leasing & Financial Services (IL&FS). The company had set up a 1,200 megawatt (MW) integrated imported coal-based subcritical thermal power plant in Cuddalore, Tamil Nadu.

According to a rating report by Care Ratings, dated June 29, 2021, IL&FS Tamil Nadu Power owes banks Rs 5,584.93 crore.

RBI norms state that in addition to reporting cases of fraud to the regulator, banks must also submit a flash report (FR) for frauds involving amounts of Rs 5 crore and above within a week of such frauds coming to the notice of the bank’s head office. The FR should include the amount involved, nature of fraud, modus operandi in brief, name of the branch or office, names of parties involved, their constitution, names of proprietors, partners and directors, names of officials involved and lodging of complaint with police or agencies.

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Govt to cut bank recap outlay for FY22 by 70%

The government may not need to capitalise any state-run lender this fiscal, other than Punjab & Sind Bank, and will likely save 10,400 crore from the 15,000 crore that was earmarked for this purpose in the revised estimate (RE) for FY22, a top source told FE. This could be the government’s lowest capital infusion into banks in 12 years.

Last month, Punjab & Sind Bank obtained its board approval to raise equity capital worth 4,600 crore by issuing preference shares to the government, which will enable it to shore up its capital adequacy. The government hasn’t budgeted any amount for recapitalisation for the next fiscal. “Public-sector banks (PSBs) recorded profits in FY21 despite the pandemic. Plus, many of them have raised significant capital from the market in the past two years,” said the source, explaining why they may not need further government support this fiscal.

Since all large PSBs and most others are well capitalised, any absence of official support won’t impair their ability to boost lending and help spur economic growth, said a senior banker. Some analysts were expecting further capitalisation of Central Bank of India, the only state-run bank which is still under the Reserve Bank’s prompt corrective action (PCA) framework for stressed lenders. However, with its finances improving (the bank’s net profit stood at 279 crore in the December quarter and capital adequacy rose to as much as 15.87%), it may not require more capital from the government this fiscal. In fact, it’s likely to exit the PCA soon.

The potential savings come at a time when the government is gauging the impact of a spurt in global crude oil prices on its budgetary math for this fiscal and the next. It apprehends the fertiliser subsidy bill will likely exceed the revised estimate for this fiscal by over 10,000 crore and skyrocket in FY23 as well. Similarly, fuel taxes are expected to be cut soon to soften the blow to consumer, which, too, will weigh on the Centre’s revenue mop-up. While infusion through bonds, as has been the practice in recent years, doesn’t immediately inflate the government’s fiscal deficit, it adds to the overall stock of public debt. As such, general government debt has remained elevated at about 90% of GDP in the wake of the pandemic. State-run banks turned the corner, with profits of31,820 crore in FY21, the highest in five years.

Their improved financials enabled them to raise a record 58,697 crore from the markets last fiscal, which included an equity capital of 10,543 crore. This was way above 29,573 crore raised by them in FY20. In the first eight months of this fiscal, PSBs raised as much as 32,567 crore.

The asset quality of PSBs, too, has shown steady improvement. The net bad loans dropped to 2.8% as of September 2021 from as high as 7.97% in March 2018. Similarly, their capital adequacy (CRAR) was about 14% as of March 2021, against the requirement of 10.875%.

Pressure on state-run banks’ capitalisation has eased amid improving internal accruals, fresh capital injections and receding asset-quality risks, albeit their average common equity Tier-1 ratio was about 525 basis-point lower than that of private banks in the first three quarters of this fiscal, Fitch Ratings said last week.

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Lenders lend a helping hand to firms battling disruptions

While these discussions are at a very nascent stage, banks are seeking to pre-empt working capital disruptions for companies in the export and commodity businesses and those exposed to the oil and gas segment to prevent defaults.

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Govt to cut bank recap outlay for FY22 by 70%

The government may not need to capitalise any state-run lender this fiscal, other than Punjab & Sind Bank, and will likely save 10,400 crore from the 15,000 crore that was earmarked for this purpose in the revised estimate (RE) for FY22, a top source told FE. This could be the government’s lowest capital infusion into banks in 12 years.

Last month, Punjab & Sind Bank obtained its board approval to raise equity capital worth 4,600 crore by issuing preference shares to the government, which will enable it to shore up its capital adequacy. The government hasn’t budgeted any amount for recapitalisation for the next fiscal. “Public-sector banks (PSBs) recorded profits in FY21 despite the pandemic. Plus, many of them have raised significant capital from the market in the past two years,” said the source, explaining why they may not need further government support this fiscal.

Since all large PSBs and most others are well capitalised, any absence of official support won’t impair their ability to boost lending and help spur economic growth, said a senior banker. Some analysts were expecting further capitalisation of Central Bank of India, the only state-run bank which is still under the Reserve Bank’s prompt corrective action (PCA) framework for stressed lenders. However, with its finances improving (the bank’s net profit stood at 279 crore in the December quarter and capital adequacy rose to as much as 15.87%), it may not require more capital from the government this fiscal. In fact, it’s likely to exit the PCA soon.

The potential savings come at a time when the government is gauging the impact of a spurt in global crude oil prices on its budgetary math for this fiscal and the next. It apprehends the fertiliser subsidy bill will likely exceed the revised estimate for this fiscal by over 10,000 crore and skyrocket in FY23 as well. Similarly, fuel taxes are expected to be cut soon to soften the blow to consumer, which, too, will weigh on the Centre’s revenue mop-up. While infusion through bonds, as has been the practice in recent years, doesn’t immediately inflate the government’s fiscal deficit, it adds to the overall stock of public debt. As such, general government debt has remained elevated at about 90% of GDP in the wake of the pandemic. State-run banks turned the corner, with profits of31,820 crore in FY21, the highest in five years.

Their improved financials enabled them to raise a record 58,697 crore from the markets last fiscal, which included an equity capital of 10,543 crore. This was way above 29,573 crore raised by them in FY20. In the first eight months of this fiscal, PSBs raised as much as 32,567 crore.

The asset quality of PSBs, too, has shown steady improvement. The net bad loans dropped to 2.8% as of September 2021 from as high as 7.97% in March 2018. Similarly, their capital adequacy (CRAR) was about 14% as of March 2021, against the requirement of 10.875%.

Pressure on state-run banks’ capitalisation has eased amid improving internal accruals, fresh capital injections and receding asset-quality risks, albeit their average common equity Tier-1 ratio was about 525 basis-point lower than that of private banks in the first three quarters of this fiscal, Fitch Ratings said last week.

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RBI drops pricing caps on micro loans: Change in definition of microfinance

The Reserve Bank of India (RBI) on Monday released a revised framework for microfinance loans, putting an end to regulated interest rates in the segment and harmonising micro-lending norms across banks and non-bank lenders.

The regulator also standardised the definition of microfinance loans, stating that all collateral-free loans, irrespective of end use and mode of application, processing and disbursal, provided to households with an annual income up to Rs 3 lakh shall be considered as microfinance loans. The latest framework is based on a consultation paper released by the RBI in June 2021.

Microfinance lenders shall now have to put in place a board-approved policy regarding pricing of loans which shall cover, among other things, a well-documented interest rate model or approach for arriving at the all-inclusive interest rate. The new framework states that the monthly loan obligations of a household shall not exceed 50% of their monthly household income. Each lender will now be required to have a board-approved policy regarding the limit on the outflows towards debt repayment as a share of monthly household income.

Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank, said the new norms will help deepen the penetration of micro credit in India by encouraging competition. “The latest guidelines are a strong reflection of the maturity that the microcredit industry has reached in India; and it will help harmonise the regulatory framework for different types of lenders, encourage healthy competition and enable customers to make an informed choice regarding their credit needs,” he said.

Manoj Kumar Nambiar, MD, Arohan Financial Services, said that the decision to apply the rule of a 50% fixed obligation to income ratio uniformly to all categories of borrowers will reduce the pressure on them, and lead to lower delinquencies and provisions for the industry. NBFC-MFIs account for about 31% of the outstanding microfinance portfolio in the country. Many of them have for long held banks responsible for lending excessively to bottom-of-the-pyramid borrowers and thereby, reducing their ability to repay all their lenders.

NBFC-MFIs will now be allowed to have non-microfinance loans account for 25% of their portfolios, against 15% earlier. This will enable them to diversify their loan portfolios, industry executives said. Udaya Kumar Hebbar, MD & CEO, CreditAccess Grameen, said, “Increasing the qualifying asset limit to a maximum of 25% will allow institutions to achieve a more balanced lending portfolio, reduce the cyclicity and volatility impact on the balance sheet, and strengthen the ability of institutions to weather any external risks.”

Alok Misra, CEO & director at industry association MFIN, said that besides creating a level-playing field, the framework will address issues of over-indebtedness and multiple lending which were major concerns for the sector. “Revision of household income is a very progressive move with far reaching implications as more needy, low-income households will now come into the purview of accessible credit, taking us closer to our financial inclusion goal,” he said.

Lenders will be barred from charging pre-payment penalties on microfinance loans. Penalty, if any, for delayed payment shall be applied on the overdue amount and not on the entire loan amount, the master directions said.

“The guidelines are pathbreaking and mark a paradigm shift in the way the microfinance business is done,” Nambiar said, adding, “The credit harmonisation guidelines between all micro lenders – banks and NBFCs – is an important step. Being allowed to charge preferential rates will allow us to offer better pricing to our better customers.” Nambiar expects the new measures to help the industry shake off the impact of the pandemic and to treble its `2.45-trillion portfolio over the next four-five years.

The norms lay down specific pointers with regard to recovery of loans and place the onus of complying with them squarely on the lender, even with respect to outsourced activities. Recoveries shall be made at a designated place decided mutually by the borrower and the lender. However, field staff shall be allowed to make recoveries at the place of residence or work of the borrower if the borrower fails to appear at the designated place on two or more successive occasions. The framework specifically prohibits the harsh recovery practice, including the use of threatening or abusive language and calling the borrower before 9:00 a.m. and after 6:00 p.m.

The framework states that ‘not-for-profit’ companies engaged in microfinance activities that have an asset size of Rs 100 crore and above must register as NBFC-MFIs and send in applications for the same within three months from the date of the circular. K Paul Thomas, MD & CEO, ESAF Small Finance Bank said, “Bringing `100 crore-plus not-for-profit companies on par with other players will bridge the regulatory gaps.” With this move, the RBI has taken a holistic approach to regulate the sector irrespective of legal status or mode of operations, he added. According to Kuldip Maity, MD & CEO, Village Financial Services (VFS), the common regulatory framework creates a level-playing field and now both borrowers and lenders will have options. It will also improve lending in the sector as well as safeguard the interests of the borrowers. “Revision in the household income is another important move, which will allow MFIs to cater to more needy borrowers. We also welcome the move to relax the Qualifying Assets Criteria to 75% from 85% earlier. This will allow MFIs to diversify their portfolio,” Maity added.

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ICRA expects NBFCs’ retail AUM to grow 8-10% in FY23

Retail assets under management (AUM) of non-banking finance companies (NBFC) are expected to grow 8-10% in the next financial year and 5-7% in FY22, ratings agency ICRA said on Monday. However, the wholesale AUM of NBFCs is likely to shrink in FY22 and stabilise in FY23. Disruptions caused in the first quarter of the current financial year are weighing on the overall growth, the rating agency said. However, the AUM and disbursement trend is likely to remain stable in Q4FY22 owing to the limited impact of the third wave of the pandemic on the lending business. 

“Within the NBFC-retail segment, personal credit, microfinance and gold loans are likely to be the primary growth drivers as other traditional asset segments – vehicle finance and business credit – are still facing headwinds because of supply constraints and asset quality concerns,” a release quoted Manushree Saggar, vice president, financial sector ratings, ICRA, as saying. 

NBFCs that have aligned with the Reserve Bank of India (RBI)’s November 12 norms on upgradation of bad loans have reported a rise in their gross bad loans. The reported asset quality indicators have also been supported by sizeable write-offs. Last month, the central bank had extended the timeline by six months till September 30 for NBFCs to adhere to the new norms. 

According to ICRA, NBFCs and housing finance companies would require Rs 1.8-2.2 trillion of incremental fresh funding for meeting their growth requirement in the next fiscal. On the borrowing front, bank loans continue to remain the main funding source, especially for non-deposit-taking NBFCs. 

The net earning of these entities is expected to show improvements over the last fiscal and may improve to pre-Covid levels in the next financial year. As these entities maintain higher balance sheet, net margins are supported with favourable cost of funds and increased focus on collections and system augmentation.

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ICRA expects NBFCs’ retail AUM to grow 8-10% in FY23

Retail assets under management (AUM) of non-banking finance companies (NBFC) are expected to grow 8-10% in the next financial year and 5-7% in FY22, ratings agency ICRA said on Monday. However, the wholesale AUM of NBFCs is likely to shrink in FY22 and stabilise in FY23. Disruptions caused in the first quarter of the current financial year are weighing on the overall growth, the rating agency said. However, the AUM and disbursement trend is likely to remain stable in Q4FY22 owing to the limited impact of the third wave of the pandemic on the lending business. 

“Within the NBFC-retail segment, personal credit, microfinance and gold loans are likely to be the primary growth drivers as other traditional asset segments – vehicle finance and business credit – are still facing headwinds because of supply constraints and asset quality concerns,” a release quoted Manushree Saggar, vice president, financial sector ratings, ICRA, as saying. 

NBFCs that have aligned with the Reserve Bank of India (RBI)’s November 12 norms on upgradation of bad loans have reported a rise in their gross bad loans. The reported asset quality indicators have also been supported by sizeable write-offs. Last month, the central bank had extended the timeline by six months till September 30 for NBFCs to adhere to the new norms. 

According to ICRA, NBFCs and housing finance companies would require Rs 1.8-2.2 trillion of incremental fresh funding for meeting their growth requirement in the next fiscal. On the borrowing front, bank loans continue to remain the main funding source, especially for non-deposit-taking NBFCs. 

The net earning of these entities is expected to show improvements over the last fiscal and may improve to pre-Covid levels in the next financial year. As these entities maintain higher balance sheet, net margins are supported with favourable cost of funds and increased focus on collections and system augmentation.

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Deloitte approaches 43 entities to seek bids for Reliance Capital

The list also includes other asset reconstruction companies, banks, insurers, non-bank finance companies as well as financial technology firms, the people said. The insolvency proceedings were initiated after the Reserve Bank of India superseded the company's board on November 30 last year, citing governance concerns.

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'RBI letter to Paytm Bank does not talk about data access'

The Reserve Bank of India (RBI) in its letter to Paytm Payments Bank has not mentioned anything about data access but has asked the company to carry out an audit from a third party, a top official of the company said on Monday.

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RBI letter to Paytm Bank does not talk about data access, says Vijay Shekhar Sharma

Vijay Shekhar Sharma, the chairman of digital financial services firm One97 Communications and the promoter of Paytm Payments Bank (PPBL), told PTI that the bank is a completely Indian owned controlled entity and has built its own system based on technology "made in India".

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Can India really overthrow Visa and Mastercard?

The decision by global card firms to boycott Russia over its invasion of Ukraine may amplify nationalist sentiments. But will RuPay ever become a serious alternative? It may take more than patriotism to take on the entrenched payment institutions.

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'Foreign' pvt banks need govt nod to back debt recast firm

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Govt has time till May 12 to launch LIC IPO without seeking fresh Sebi approval

On February 13, the government filed the DRHP for the LIC IPO with Sebi, which granted its approval last week.

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RattanIndia Enterprises looks to tie up with all banks by March 2023 for fintech platform

RattanIndia Enterprises, which recently made a foray into the fintech business, looks to have tie-ups with all the banks by the end of the next financial year. The fintech platform of the company, BankSe, has an arrangement with 21 banks and financial firms to offer loan products, at present.

“Plan is to cover all the banks by the end of next financial year. So we will have all the banks offering their products on the platform,” RattanIndia Enterprises chairperson Rajiv Rattan told PTI.

The two-wheeler and personal loans get approved in about two minutes, he said, more products would be onboarded going forward because the idea is to make it a full market place for all financial products. Besides, he said, the platform provides an opportunity to compare the best offer to customers.

“This is something where our capital is not at risk and credit score check and lending to be done by the financial institution. Lending is done by banks or financial institutions as per the RBI guidelines,” he said.

Customers can have the convenience of logging onto the app or website and uploading requisite documentation digitally to experience outcomes in real, quick time. As an additional feature any customer using BankSe will be able to get a personalized credit score, entirely free of cost. BankSe, an all-digital, financial aggregator platform can be accessed through android mobile web portal.

It has developed a platform which connects with the defined processes of the lenders, thereby offering them instant visibility of customer’s background and their historical financial records. He also said that bundled insurance with the loan product would be made available.

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RattanIndia Enterprises looks to tie up with all banks by March 2023 for fintech platform

BankSe is an all-digital financial aggregator platform.

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RattanIndia Enterprises looks to tie up with all banks by March 2023 for fintech platform

"Plan is to cover all the banks by the end of next financial year. So we will have all the banks offering their products on the platform," RattanIndia Enterprises chairperson Rajiv Rattan told PTI.

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Taking immediate steps to comply with RBI directives: Paytm

Paytm Payments Bank to appoint “reputed external auditor” to conduct comprehensive systems audit of its IT systems

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Srei Group Companies receive EoIs from as many as 17 entities

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ICICI Bank, Punjab & Sind to pick up stakes in bad bank NARCL

ICICI Bank and Punjab & Sind Bank have signed agreements to pick up stakes in National Asset Reconstruction Company (NARCL). While ICICI Bank will be investing Rs 137.5 crore to acquire a 5% stake, Punjab & Sind Bank will put in Rs 55 crore for a 2% stake.

ICICI Bank plans to complete the first tranche of equity investment worth Rs 70.45 crore by March 31. Similarly, Punjab & Sind Bank will invest Rs 28.18 crore in the first tranche, which it expects to complete by March 31.

Incorporated on July 7, 2021, NARCL has a total authorised share capital of Rs 2,750 crore.

NARCL has been set up by banks to aggregate and consolidate stressed assets with an exposure of over Rs 500 crore for resolution. It intends to acquire stressed assets of Rs 2 trillion in phases. In January, State Bank of India (SBI) chairman Dinesh Khara had said that the banking sector would transfer 15 large assets worth Rs 50,000 crore to NARCL in FY22.

The Indian Banks’ Association (IBA) has begun a formal search process to identify a chief executive for NARCL. SBI chief general manager Padmakumar Nair is currently on secondment as MD & CEO at NARCL.

Being a public-sector entity, NARCL is running an open selection process and Nair is also in the running for the role. Human resources consulting firm Aon is assisting IBA in the process.

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Ban lifted on digital launches of HDFC Bank

HDFC Bank on Saturday said the Reserve Bank of India (RBI) has lifted its embargo on new digital launches by the lender. In August 2021, the regulator had revoked a ban on fresh issuance of credit cards by HDFC Bank. The two measures were regulatory penalties imposed in December 2020 for repeated instances of outages on the bank’s digital channels.

“We would like to inform one and all that the Reserve Bank of India has lifted the restriction on the business generating activities planned under the Bank’s Digital 2.0 programme, vide its letter dated March 11, 2022,” HDFC Bank said on Saturday.

FE had reported earlier this week that HDFC Bank is working on a plan to build a challenger digital bank in order to prepare for a future where licences for digital banks are issued. The challenger will be a purely digital bank focused on targeting a younger set of customers over their lives and careers.

While HDFC Bank remains the market leader in terms of credit card spends, its nine-month-long absence from the market has hurt its competitive position. For instance, the bank’s cards in force (CIF) grew just 5% year-on-year (y-o-y) in January 2022, even as rivals ICICI Bank and SBI Card grew their outstanding card portfolio by 24% and 14%, respectively, during the month.

In January 2022, HDFC Bank’s share in cards outstanding was 22.8%, down from 25% in January 2021. Its market share in spends fell to 24.8% from 31% a year ago.

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