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7:11 AM
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By Shashank Didmishe
The Reserve Bank of India (RBI) on Friday extended the deadline for merchants to delete the card storage data of their customers under the card-on-file tokenisation system by three months till September 30. This is the third time the central bank has extended the timeline for mandatory card tokenisation.
The RBI first extended the deadline by six months from June 30, 2021, till December 30, 2021, and then by another six months till June 30.
Noting that considerable progress has been made on card tokenisation and some merchants have already initiated the use of tokens, the central bank observed that the system is yet to gain traction with all categories of merchants. Additionally, merchants are yet to install an alternate system where customers can choose to enter the card details manually, the central bank said.
“It has been decided to extend the timeline for storing of CoF (card-on-file) data by three months, till September 30, after which such data shall be purged,” the RBI said in a notification.
In 2020, the RBI had directed merchants to delete users’ card data stored on their platforms for protection of financial information of the customers. Under the tokenisation system merchants will not be allowed to store the card details such as the 16-digit number, expiry dates and CVV, but will instead generate a token through which the transaction will take place.
Several industry players had voiced concerns on the skewed preparedness of the merchants for implementing tokenisation. While larger e-commerce platforms and companies have already begun the shift to generating tokens, smaller merchants did not have the readiness to migrate to the new system. Additionally, concerns were also raised that tokenised transactions may not be able to match the requisite speed and complexity for card payments.
So far, 195 million tokens have been generated, RBI said in a separate notification. In comparison, the tokenised transaction ecosystem should be able to handle around 2,000 transactions per second in order for smooth processing, according to experts. Despite being in the nascent stage, the RBI has urged cardholders to opt for tokenised transactions as it will provide an additional security layer. Cardholders unwilling to use tokens have the option of entering their card details manually.
“Stolen data in the hands of fraudsters may result in unauthorised transactions and resultant monetary loss to cardholders. Within India as well, social engineering techniques can be employed to perpetrate frauds using such data,” the central bank said.
The industry welcomed the RBI’s decision. Vishwas Patel, executive director, Infibeam Avenues and chairman, Payments Council of India, said that certain issues had emerged ahead of the final roll-out of the system. Solutions required to resolve the issues were being actively worked on but were to be primarily resolved by the networks, issuers and acquirers within the ecosystem, he added.
“The timeline to implement the fixes was very close to June 30, 2022 and hence the industry perceives a risk to the overall readiness for a smooth transition to the tokenisation framework. Hence this extension of three months by RBI will provide breathing space for all parties involved to comply with the tokenisation norms,” Patel said.
Meanwhile, some large merchants have already asked their customers to move to the tokenisation framework. On Friday, Amazon’s Indian arm wrote to its customers seeking their explicit consent to store their card details in a tokenised form. Earlier, the Indian operations of Uber and Zomato had reached out to their customers. Mastercard and Google Pay had tied up to offer tokenisation services and allow the app’s users to pay with their cards without having to share their credentials with a third party.
6:11 AM
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The Reserve Bank of India’s (RBI) is believed to be examining the “buy now pay later” (BNPL) services and pre-paid payment instruments (PPIs) such as wallets.
The central bank is concerned about PPIs being loaded through lines of credit, as it could result in systemic risks. New age financial players have been using lines of credit from banks and non-banking financial companies (NBFCs) to load customers’ wallets. The central bank appears to be apprehensive adequate due diligence may not be taking place while the PPIs are being loaded.
The RBI, they stressed, encourages innovation but it shouldn’t be based on regulatory arbitrage.
Persons, familiar with the matter, point out the RBI is not opposed to PPIs being loaded by debit card, cash, debits from banking accounts, as it believes that to offer a line of credit, the entity needs to have a licence. As Fintechs do not have the licence to lend, the central bank believes, they are not operating within the legal framework. The persons also said that there are some concerns on data security and privacy because the ownership of the customer is not always clear.
Earlier this week, the central bank came out with a circular barring non-bank institutions or fintech companies from loading credit lines onto PPIs, warning them of heavy penalty if they continue to offer such services. The move came after some fintech firms started using credit lines from banks or NBFCs to load the wallets of consumers.
The directive is expected to hit the business models of a growing number of fintech firms, including Slice, PayU’s LazyPay and KreditBee.
Sources said the central bank believes that the financial entities that mimic banks (by undertaking certain core functions of banks like credit disbursement) but are not subject to similar stringent norms and licensing requirement can’t be permitted to do so. This is because if they are allowed to resort to such practices, they will most likely threaten the health of the broader banking system and, at the same time, undermine the customer protection mechanism. Against this backdrop, the RBI is learnt to be examining such products.
Meanwhile, sources said some of the industry players are approaching the RBI to offer them up to a year, through some kind of a sunset clause, to stop these schemes that have become popular, especially after the Covid outbreak.
As reported by FE, the fintech lending industry is likely to request the RBI to apply a one-year grandfathering clause to its new circular barring the loading of wallets with credit lines. The relaxation, if permitted, would allow lenders who have prepaid card-based outstandings to smoothly migrate their existing customers to a different mode of credit issuance. Digital Lenders Association of India and Fintech Association for Consumer Empowerment are holding discussions with their members about the communications to be sent to the RBI.
1:11 AM
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Most of the large merchants have implemented the Reserve Bank of India (RBI’s) card-on-file tokenisation norms, sources familiar with the matter said.
The RBI on Friday extended the deadline for merchants to delete the card storage data of their customers under the card-on-file tokenisation system by three months till September 30.
As many as 195 million tokens have been issued so far and the number is going up fast, they said, adding that the system is already well-prepared to adopt the new mechanism.
Card-on-file typically refers to card information stored by payment gateway and merchants to process future transactions. To curb frauds, the central bank had directed all merchants and payment gateways to remove sensitive details of the credit and debit cards of customers that are saved at their end, and comply with its tokenisation norms by June 30, 2022.
Tokenisation usually refers to the replacement of actual credit and debit card details with an alternate code called the ‘token’. This will be unique to a particular combination of card, token user and device. The ‘token’ can be used in place of an actual card number for online purchases. This is expected to make online transactions a lot safer for customers.
However, the tokenisation of card data will have to be done only with customers’ consent, which requires an additional factor of authentication by them.
In September last year, the central bank had barred merchants from storing customer card details on their servers from January 1, 2022. It had then mandated the adoption of the card-on-file tokenisation as an alternative to card storage. Subsequently, the central bank granted a six-month extension of the deadline to comply with the order.
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8:11 AM
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The Reserve Bank of India (RBI) on Thursday doubled the limit on home loans issued by urban cooperative banks (UCB). With this, tier-I UCBs can issue individual housing loans of up to Rs 60 lakh while tier-II UCBs are allowed to offer loans of up to Rs 1.4 crore, the central bank said in a master circular. The RBI had made the announcement in its June monetary policy. The revision in lending limits for UCBs was last done in 2011.
“Taking into account the increase in housing prices since the limits were last revised and considering the customer needs, it has been decided to increase the existing limits on individual housing loans by cooperative banks,” the RBI had said on June 8.
The central bank has also revised the prudential lending norms for these banks. According to the circular, the RBI has reduced the exposure limits of UCBs to a group of connected borrowers to 25% of its total tier-I capital from 40% earlier. The exposure limit for a single borrower for UCBs remains at 15% of the tier-I capital. The exposure of UCBs to housing, real estate and commercial real estate loans is limited to 10% of their total assets.
UCBs cannot charge foreclosure charges or pre-payment penalties on home loans extended on a floating interest rate basis. Housing loans issued by UCBs should be repayable within a maximum period of 20 years, the circular said.
The central bank on June 8 also allowed rural cooperative banks to issue loans for residential housing projects. The move is aimed at improving credit flows from cooperative banks to the housing sector.
8:11 AM
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Public sector bank Jammu & Kashmir Bank on Tuesday will consider raising tier-I and tier-II capital for the current financial year. The bank’s capital adequacy ratio improved to 13.23% as on March 31 from 12.20% a year ago. The Reserve Bank of India norms require banks to maintain 9% capital adequacy ratio.
The bank had raised over Rs 1,100 crore as capital during the FY22. Of the total funds raised Rs 500 crore was equity infusion by the government, Rs 150 crore was raised via employee stock scheme, Rs 93 crore via QIP and Rs 360 crore via tier 2 bond issue.
“…the board of directors of the bank in their meeting scheduled for June 28 shall inter alia consider the raising of capital (Tier I/Tier II) during the financial year 2022-23,” the lender said in an exchange filing.
The bank’s deposits in Q4FY22 increased by 6% to Rs 1.14 trillion. The bank’s deposits in Jammu & Kashmir increased by 7% on year. While the lender’s net profit for Q4FY22 declined to Rs 113 crore from Rs 316 crore in the year ago period, the bank posted profit of Rs 501 crore for FY22, highest since FY15, according to the bank.
8:11 AM
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A new breed of privately-owned banking startups, catering to both consumers and SMEs, have lately become an epicentre for fintech deal activity, as investors continue to pour in millions into the new-age firms. Termed ‘neobanks’, these startups operate unlike traditional banks, with digitally managed bank accounts and without a brick-and-mortar presence.
According to a recent report by management consulting firm RedSeer, neobanks including the likes of Razorpay, Open, Fi, Freo, Niyo, Flobiz, Zolve and others have raised close to $900 million in funding in CY2021, which is a 7.5x growth compared to 2020. Even in the year 2020, despite uncertainty from Covid-19 disruption, neobanks raised around $120 million in financing.
With an addressable market opportunity of more than 120 million potential users, analysts and consultants such as RedSeer expect neobanks to disrupt the personal banking experience for consumers, as well as the business accounting and banking experience for SMEs.
Currently, the consumer-focused neobanks work on a strict partnership model with private licensed banks, to offer a collection of banking and financial products mostly centred around savings, lending and long-term investments such FDs and mutual funds. The only differentiation is superior user interface (UI) and user experience (UX), along with a faster, paperless onboarding experience.
Sujith Narayanan, CEO and co-founder of consumer-focused neobank Fi, indicated that historically the banking segment’s products such as insurance, lending and investment use-cases have been carved out as separate businesses by several startups. With neobanks, startups like Fi are attempting to offer a new system of a savings bank account with benefits such as lower banking and transaction fees, superior customer service, and consolidated lending products.
“Globally, neobanks have addressed underserved categories especially focused on blue-collared workers and businesses. In India, however, we’re seeing a mix of both categories but with more focused approach on millennials and prime users who are looking out for a vastly superior banking experience,” added Narayanan.
Bengaluru-based neobank Fi, which has raised around $75 million in funding from investors like B Capital, Ribbit Capital, Sequoia Capital and others, was last valued at $350 million in a funding round in November 2021. Fi claims to have crossed 1 million active users currently on the app, with 25 monthly transactions per user, and serves users across 19,000 PIN codes in India.
Fi charges minimal banking and transactions fees compared to traditional banks, and has also forgone fees such as account maintenance charges. This is mostly possible as neobanks do not invest a large amount of capex in brick and mortar branches, and hence spend a lower amount in compliance costs as well; this benefit is transferred directly to consumers through lower banking and transaction fees.
Kunal Varma, CEO and co-founder of consumer-focused neobank Freo, told FE in an interaction that neobanks usually target consumers in the regular middle and upper middle class spending segment, in urban and semi-urban areas.
“Our customers’ age demographic would be anywhere from mid-20s to mid-40s. These are all individuals who are quite comfortable using smartphones, and they already access other online services, whether it is content or hyperlocal deliveries, booking tickets, and so on. So they’re comfortable using apps and are individuals who have regular income. Most of them are salaried,” Varma added.
Freo, which originally began as an app-based credit line product named MoneyTap, recently pivoted into the neobank segment. In the last six years of its existence, Freo disbursed over Rs 4,000 crore in credit to more than 11 million users. Freo launched its savings bank account only this week on June 21 with an attractive interest rate of up to 7% per annum. Varma said that that ever since its savings bank launch this week, it has received more than 100,000 customers and is onboarding more than 100 customers every day organically.
However, startups like Open, which offer banking and accounting services to SMEs and other business, have far larger monetisation options in comparison to consumer-focused neobanks that makes revenue mostly from lending operations. Anish Achuthan, co-founder & CEO of SME-focused neobank Open, said that the startup has multiple revenue streams such as a subscription fee that it charges customer for accounting software products, transactions fee accrued from users, as well as commission and interchange revenue from its banking partners.
“With their customer-focused digital products in commercial and small-to-medium enterprise banking, transfers, bank transactions, bill payments and personal finance, neobanks are now upending the banking sector. High customer adoption levels are the outcome of this, giving the end user a unique experience. Leading neobanks have investors’ attention, as evidenced by their high valuations,” said Ankur Bansal, co-founder and director of alternate investment fund BlackSoil, which has investments in new-age banking firms.
8:11 AM
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The fintech lending industry is likely to request the Reserve Bank of India (RBI) to apply a one-year grandfathering clause to its new circular, barring the loading of wallets with credit lines, three people in the know told FE. The relaxation, if permitted, would allow lenders, who have prepaid card-based outstandings, to smoothly migrate their existing customers to a different mode of credit issuance.
The two industry associations, Digital Lenders Association of India (DLAI) and Fintech Association for Consumer Empowerment (Face), are known to be holding discussions with their respective members about the communications to be sent to the regulator. The industry is also likely to seek a clarification on whether the circular also bars bank-issued prepaid payment instruments (PPIs) from being loaded with credit lines, and what it means for debit card EMIs offered by banks.
According to sources, a group of executives representing PPI issuers met RBI officials on Tuesday to seek clarity on some points of the June 20 circular, barring loading of non-bank PPIs with credit lines. The RBI is understood to have indicated to the industry representatives that the circular applies to bank-issued PPIs as well. An email seeking the RBI’s response on this remained unanswered till the time of going to press.
One of the banks which has been growing its customer base in India using prepaid card-linked credit lines is yet to comply with the circular, sources said.
“The first thing we are looking for is clarity on why banks are allowed and other PPIs are not. The second is the need for grandfathering, because business already done cannot be stopped. We have customers that we have to migrate. So these are the two things we are trying to work on through the association,” said an executive with a fintech lender that had a part of its loan book linked to PPI-based disbursements.
Another industry executive said that the June 20 circular has come as a shock for companies like Uni, Slice and Jupiter. “From what I understand, the RBI will not budge from its stance and it will want these PPI-based products to be completely shut down. If that comes to be the result, the companies will ask for some more time from the regulator to make alternative arrangements,” the person said.
Even as the circular threatens their business models, these companies can fully pivot into traditional lending formats, opening new bank accounts for their customers, depositing money into them and then letting customers withdraw money from their debit cards and use it for whatever they like. “That approach, however, changes the entire value proposition, the risk profile completely changes and it’s another ball game altogether,” said one of the people quoted above.
Emails sent to DLAI, Face, Slice, Uni and Jupiter remained unanswered till the time of going to press.
Sankalp Mathur, co-founder, lending solutions provider Niro, pointed out that while the RBI’s rationale on the PPI loading is undoubtedly required from a regulatory point of view, the approach seems a bit excessive, given that one of the largest credit card issuers in the country is a non-banking financial company (NBFC). SBI Cards and Payments Services, the second-largest issuer of credit cards in India, is registered as an NBFC.
“The PPI cards driven by credit lines (NBFC or bank) have been useful to the end consumer and certainly enabled customer and use cases that were previously not covered under traditional methods. An ideal solution could have been tighter scrutiny, more regulatory reporting, increased capital adequacy, and guardrails for NBFCs enabling such products,” Mathur said.
8:11 AM
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AU Small Finance Bank has issued 225,000 credit cards since it first launched its credit card services in 2021, Mayank Markanday, head of credit card business of the bank, said. Of the total cards issued, about one lakh cards are issued to first time credit card users, he said.
The demand for credit cards in tier-2 and tier-3 cities has increased due to the penetration of e-commerce companies. With increasing traffic on these online platforms, the demand for credit cards has gone up. Since the bank has a stronger presence in smaller towns, it has managed to issue so many cards in such a short span, Markanday said while speaking at the launch of the bank’s customised credit cards.
The bank will provide an option to customers to customise the offers on credit cards and the fee such offers attract. The bank has also allowed customer to set the spending limit within the eligibility band.
Overall, HDFC Bank had the highest number of credit cards at 1.68 crore as of April, according to Reserve Bank of India data.
6:02 AM
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State Bank of India, the country's largest lender, last week increased the retail rate by 20 basis points, or 0.2 percentage point, for fixed deposits of less than two years.
4:11 AM
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The fintech lending industry is likely to request the Reserve Bank of India (RBI) to apply a one-year grandfathering clause to its new circular, barring the loading of wallets with credit lines, three people in the know told FE. The relaxation, if permitted, would allow lenders, who have prepaid card-based outstandings, to smoothly migrate their existing customers to a different mode of credit issuance.
The two industry associations, Digital Lenders Association of India (DLAI) and Fintech Association for Consumer Empowerment (Face), are known to be holding discussions with their respective members about the communications to be sent to the regulator. The industry is also likely to seek a clarification on whether the circular also bars bank-issued prepaid payment instruments (PPIs) from being loaded with credit lines, and what it means for debit card EMIs offered by banks.
According to sources, a group of executives representing PPI issuers met RBI officials on Tuesday to seek clarity on some points of the June 20 circular, barring loading of non-bank PPIs with credit lines. The RBI is understood to have indicated to the industry representatives that the circular applies to bank-issued PPIs as well. An email seeking the RBI’s response on this remained unanswered till the time of going to press.
One of the banks which has been growing its customer base in India using prepaid card-linked credit lines is yet to comply with the circular, sources said.
“The first thing we are looking for is clarity on why banks are allowed and other PPIs are not. The second is the need for grandfathering, because business already done cannot be stopped. We have customers that we have to migrate. So these are the two things we are trying to work on through the association,” said an executive with a fintech lender that had a part of its loan book linked to PPI-based disbursements.
Another industry executive said that the June 20 circular has come as a shock for companies like Uni, Slice and Jupiter. “From what I understand, the RBI will not budge from its stance and it will want these PPI-based products to be completely shut down. If that comes to be the result, the companies will ask for some more time from the regulator to make alternative arrangements,” the person said.
Even as the circular threatens their business models, these companies can fully pivot into traditional lending formats, opening new bank accounts for their customers, depositing money into them and then letting customers withdraw money from their debit cards and use it for whatever they like. “That approach, however, changes the entire value proposition, the risk profile completely changes and it’s another ball game altogether,” said one of the people quoted above.
Emails sent to DLAI, Face, Slice, Uni and Jupiter remained unanswered till the time of going to press.
Sankalp Mathur, co-founder, lending solutions provider Niro, pointed out that while the RBI’s rationale on the PPI loading is undoubtedly required from a regulatory point of view, the approach seems a bit excessive, given that one of the largest credit card issuers in the country is a non-banking financial company (NBFC). SBI Cards and Payments Services, the second-largest issuer of credit cards in India, is registered as an NBFC.
“The PPI cards driven by credit lines (NBFC or bank) have been useful to the end consumer and certainly enabled customer and use cases that were previously not covered under traditional methods. An ideal solution could have been tighter scrutiny, more regulatory reporting, increased capital adequacy, and guardrails for NBFCs enabling such products,” Mathur said.
4:11 AM
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AU Small Finance Bank has issued 225,000 credit cards since it first launched its credit card services in 2021, Mayank Markanday, head of credit card business of the bank, said. Of the total cards issued, about one lakh cards are issued to first time credit card users, he said.
The demand for credit cards in tier-2 and tier-3 cities has increased due to the penetration of e-commerce companies. With increasing traffic on these online platforms, the demand for credit cards has gone up. Since the bank has a stronger presence in smaller towns, it has managed to issue so many cards in such a short span, Markanday said while speaking at the launch of the bank’s customised credit cards.
The bank will provide an option to customers to customise the offers on credit cards and the fee such offers attract. The bank has also allowed customer to set the spending limit within the eligibility band.
Overall, HDFC Bank had the highest number of credit cards at 1.68 crore as of April, according to Reserve Bank of India data.
2:11 AM
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The Reserve Bank of India (RBI) on Thursday said that banks and other financial institutions outsourcing their information technology (IT) services to third parties must take care that such arrangements do not impact their obligations towards customers. The banks will not have to take approval from the central bank for entering into such outsourcing agreements, the RBI clarified with a caveat that such arrangements will be subject to periodic inspection.
The central bank, in its monetary policy in June, highlighted the issue stating that outsourcing of IT services expose financial institutions to certain risks. The RBI has therefore issued the guidelines for financial institutions to deploy risk management systems to cover outsourced IT services.
“Outsourcing of any activity of the RE (regulated entity) shall not diminish its obligations as also of its board and senior management, who shall be ultimately responsible for the outsourced activity,” the RBI said in a master circular.
As per the guidelines, scheduled commercial banks, local area banks, small finance banks, payments banks, certain co-operative banks, non-banking financial companies (NBFC), credit information companies and other state-owned financial entities will have to follow these guidelines.
Financial institutions will have to put in place a risk management framework for outsourcing of IT services dealing with the processes and responsibilities to identify and manage such risks. The banks should give only a selected access to customer information to the service provider. Banks and financial institutions will be responsible for protecting the confidentiality of customer data, the RBI said.
In cases where a single IT service provider is chosen by multiple financial institutions, the service provider cannot combine the customer data. The service provider is obligated to inform financial institutions of breach or loss of data in one hour of detection. Where financial institutions have outsourced IT services to a foreign entity, they will have to monitor and study the financial position and reputation of that entity in its host country. Existing RBI guidelines will continue to apply for such outsourcing, the central bank said.
The RBI has also directed banks and financial institutions to put in place, business continuity and disaster recovery plan in case service provider unexpectedly terminates the contract or there is a major breach. The financial institutions will have to install a management structure to monitor and control the outsourced IT activities, which will include monitoring the performance and incident response mechanism of the service provider. The financial institutions will have to plan for an exit strategy while ensuring business continuity during and after exit.
11:11 AM
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By Shashank Didmishe
RBI has disallowed non-bank pre-paid instruments (PPI) to be loaded through credit lines. The rule appears to be aimed at reining in lending activity by fintechs via NBFCs and probably stems from concerns systemic risk could build up, reports Shashank Didmishe.
Some new generation players have acquired close to 200–300k cards using PPI licences and loading the wallets of consumers using credit lines from NBFCs and banks. The regulator appears to be displeased that PPI licences are being utilised to disburse loans rather than to route payments. Moreover, it seems concerned that NBFC money is being used to load consumer wallets. However, it is comfortable with wallets being loaded by a credit card or a debit card or cash. Given the recent crisis in the NBFC space, with several players having gone belly-up, the concern is justified. The guidelines could impact players like Slice and Unicards.
Banks that have large credit card portfolios stand to gain if the RBI continues to toughen its stand against fintechs and discourages them from accessing NBFC funds.
If RBI is unhappy only about NBFC credit lines being loaded onto wallets but is not averse to bank credit being loaded, NBFCs may need to route funds via banks.
Some customers have possibly been using a line of credit, through their wallets, without actually knowing it. Such surreptitious lending has clearly not gone down with the RBI. Although the amounts loaded on to the wallets may not be significant, the central bank is clearly worried about systemic risk.
Some wallets have been offering their services to NBFCs to ease disbursements of gold loans, personal loans and microfinance loans to reduce the usage of cash, say industry insiders. App-based credit card providers that are using wallets to issue credit lines pay lenders a fee and earn an interchange of 1.5%.
11:02 AM
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Belgium-based SettleMint, US-based Corda Technologies and IBM would provide technology support for the project driven by the Reserve Bank of India’s (RBI) Innovation Hub in Bangalore, three people familiar with the matter told ET. Axis Bank, Bank of Baroda and Union Bank of India are also involved.
9:11 AM
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Private sector bank IndusInd Bank on Wednesday raised marginal cost of funds-based lending rates (MCLR) by 15 basis points (bps) to 25 bps across tenures. With this increase the bank’s one year MCLR stands at 9%, as per information on the lender’s website. The bank made a 25 bps increase in its one-year MCLR for June.
The increase in MCLR in June is steeper compared to the hikes announced by the bank in the previous months. The bank raised MCLR by 5 bps in March and April each while the bank raised lending rates by 20 bps in May following the 40 bps hike by the Reserve Bank of India in repo rate in an off-cycle meeting in the same month. Subsequently, the central bank raised the repo rate by 50 bps in a scheduled meeting in June.
Most banks have raised their MCLR, following the consecutive hikes in the repo rate as more rate hikes are expected in coming months. ICICI Bank, Kotak Mahindra Bank and HDFC Bank have raised their cost-based lending rates for June by 30 to 35 bps. ICICI Bank’s current one-year MCLR stands at 7.55% while that of HDFC Bank is at 7.85% same as Kotak Mahindra Bank. PSBs have also raised their MCLR. SBI has raised one-year MCLR 7.40% while Bank of Baroda and Union Bank have set one-year MCLR for June at 7.5% and 7.45%, respectively.
9:11 AM
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In India’s biggest bank fraud case, the Central Bureau of Investigation (CBI) has registered a fresh case against DHFL, its erstwhile promoters Kapil Wadhawan and Dheeraj Wadhawan, who are already in judicial custody, for defrauding a consortium of 17 banks, led by Union Bank of India (UBI), to the tune of Rs 34,615 crore.
The action came on a complaint from UBI, which had extended credit facilities to the tune of Rs 42,871 crore between 2010 and 2018.
The bank has alleged that Kapil and Dheeraj Wadhawan in criminal conspiracy with others misrepresented and concealed facts, committed criminal breach of trust and abused public funds to cheat the consortium to the tune of Rs 34,614 crore by defaulting on loan repayments from May 2019 onwards.
Following the registration of case on June 20, a team of over 50 officials from the agency on Wednesday carried out coordinated searches on 12 premises in Mumbai belonging to FIR-listed accused which also include Sudhakar Shetty of Amaryllis Realtors and eight other builders.
The audit of DHFL account books showed that the company allegedly committed financial irregularities, diverted funds, fabricated books, round tripped funds to “create assets for Kapil and Dheeraj Wadhawan” using public money.
The DHFL loan accounts were declared non-performing assets at different points of time by lender banks, the officials told PTI.
When DHFL was hit by an investigation in January 2019 after media reports on allegations of siphoning of funds surfaced, the lender banks held a meeting on February 1, 2019, and appointed KPMG to conduct a “special review audit” of DHFL from April 1, 2015, to December 31, 2018.
The banks also issued a look-out cirular against Kapil and Dheeraj Wadhawan on October 18, 2019, to prevent them from leaving the country, they said.
UBI has alleged that KPMG, in its audit, red-flagged diversion of funds in the garb of loans and advances to related and interconnected entities, and individuals of DHFL and its directors.
The scrutiny of account books showed that 66 entities having commonalities with DHFL promoters were disbursed Rs 29,100 crore against which Rs 29,849 crore remained outstanding.
“Most of the transactions of such entities and individuals were in the nature of investments in land and properties,” the bank alleged.
It revealed that DHFL, in a number of instances, disbursed funds within one of month, diverted funds for investment in entities of Shetty, loans were rolled over without NPA classification, repayments worth hundreds of crores was untraceable in bank statements and unjustified moratorium on principal and interest was given.
Another major outstanding in DHFL accounts was Rs 11,909 crore arising out of loans and advances worth Rs 24,595 crore given to 65 entities between April 1, 2015, and December 31, 2018.
DHFL and its promoters also disbursed Rs 14,000 crore as project finance but reflected the same as retail loans in their books.
“This led to creation of inflated retail loans portfolio of 1,81,664 false and non-existent retail loans aggregating Rs 14,095 crore outstanding.
The loans referred to as “Bandra Books” were maintained in a separate database and subsequently merged with other large project loans (OLPL).
“It was revealed that the OLPL category was largely carved out of the aforesaid non-existent retail loans amounting to Rs 14,000 crore, out of which Rs 11,000 crore was transferred to OLPL loans and Rs 3,018 crore was retained as a part of retail portfolio as unsecured retail loans,” it alleged.
DHFL, its directors and executives kept maintaining that they were trying to de-stress the company through various means like securitisation of pool of housing loans, project loans, divestment of promoters’ stake in the company, they said.
Kapil Wadhawan continued to maintain that DHFL has six months of cash liquidity and would remain cash surplus even after considering all repayment obligations, the bank alleged.
After having “falsely assured” lenders, DHFL delayed interest payment obligations to terms loans in May 2019 which continued thereafter with account declared a non-performing asset, they said.
4:11 AM
Blogger
In India’s biggest bank fraud case, the Central Bureau of Investigation (CBI) has registered a fresh case against DHFL, its erstwhile promoters Kapil Wadhawan and Dheeraj Wadhawan, who are already in judicial custody, for defrauding a consortium of 17 banks, led by Union Bank of India (UBI), to the tune of Rs 34,615 crore.
The action came on a complaint from UBI, which had extended credit facilities to the tune of Rs 42,871 crore between 2010 and 2018.
The bank has alleged that Kapil and Dheeraj Wadhawan in criminal conspiracy with others misrepresented and concealed facts, committed criminal breach of trust and abused public funds to cheat the consortium to the tune of Rs 34,614 crore by defaulting on loan repayments from May 2019 onwards.
Following the registration of case on June 20, a team of over 50 officials from the agency on Wednesday carried out coordinated searches on 12 premises in Mumbai belonging to FIR-listed accused which also include Sudhakar Shetty of Amaryllis Realtors and eight other builders.
The audit of DHFL account books showed that the company allegedly committed financial irregularities, diverted funds, fabricated books, round tripped funds to “create assets for Kapil and Dheeraj Wadhawan” using public money.
The DHFL loan accounts were declared non-performing assets at different points of time by lender banks, the officials told PTI.
When DHFL was hit by an investigation in January 2019 after media reports on allegations of siphoning of funds surfaced, the lender banks held a meeting on February 1, 2019, and appointed KPMG to conduct a “special review audit” of DHFL from April 1, 2015, to December 31, 2018.
The banks also issued a look-out cirular against Kapil and Dheeraj Wadhawan on October 18, 2019, to prevent them from leaving the country, they said.
UBI has alleged that KPMG, in its audit, red-flagged diversion of funds in the garb of loans and advances to related and interconnected entities, and individuals of DHFL and its directors.
The scrutiny of account books showed that 66 entities having commonalities with DHFL promoters were disbursed Rs 29,100 crore against which Rs 29,849 crore remained outstanding.
“Most of the transactions of such entities and individuals were in the nature of investments in land and properties,” the bank alleged.
It revealed that DHFL, in a number of instances, disbursed funds within one of month, diverted funds for investment in entities of Shetty, loans were rolled over without NPA classification, repayments worth hundreds of crores was untraceable in bank statements and unjustified moratorium on principal and interest was given.
Another major outstanding in DHFL accounts was Rs 11,909 crore arising out of loans and advances worth Rs 24,595 crore given to 65 entities between April 1, 2015, and December 31, 2018.
DHFL and its promoters also disbursed Rs 14,000 crore as project finance but reflected the same as retail loans in their books.
“This led to creation of inflated retail loans portfolio of 1,81,664 false and non-existent retail loans aggregating Rs 14,095 crore outstanding.
The loans referred to as “Bandra Books” were maintained in a separate database and subsequently merged with other large project loans (OLPL).
“It was revealed that the OLPL category was largely carved out of the aforesaid non-existent retail loans amounting to Rs 14,000 crore, out of which Rs 11,000 crore was transferred to OLPL loans and Rs 3,018 crore was retained as a part of retail portfolio as unsecured retail loans,” it alleged.
DHFL, its directors and executives kept maintaining that they were trying to de-stress the company through various means like securitisation of pool of housing loans, project loans, divestment of promoters’ stake in the company, they said.
Kapil Wadhawan continued to maintain that DHFL has six months of cash liquidity and would remain cash surplus even after considering all repayment obligations, the bank alleged.
After having “falsely assured” lenders, DHFL delayed interest payment obligations to terms loans in May 2019 which continued thereafter with account declared a non-performing asset, they said.
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State Bank of India (SBI) is cognisant of the competitive impact of the merger of Housing Development Finance Corporation (HDFC) into HDFC Bank and is gearing up to meet the challenge, chairman Dinesh Khara said at the bank’s 67th annual general meeting (AGM).
“SBI is the largest home loan provider in the country. Our home loan market share stands at 35.3% and we are very mindful of the HDFC-HDFC Bank merger and are taking necessary steps to counter the emerging competition,” Khara said in response to a question from a shareholder.
The addition of HDFC’s mortgage portfolio to HDFC Bank’s loan book could pose a challenge to SBI’s dominance in the home loan market. The value of SBI’s outstanding home loans stood at Rs 5.62 trillion at end-March 2022. On a pro forma basis, HDFC Bank and HDFC had combined mortgages worth Rs 5.9 trillion, based on end-December 2021 numbers.
SBI and HDFC Bank are the two largest banks in the country, in that order, and they have both underlined the importance of combining their brick-and-mortar presence along with digital capabilities to enhance their customer base. On Wednesday, Khara said SBI will focus on customer outreach through its physical branches as well as digital channels.
According to SBI’s annual report for FY22, it has 467.7 million customers, 22,266 branches and 68,016 business correspondent outlets. The value of SBI’s domestic deposits was Rs 39.2 trillion. In comparison, HDFC Bank had over 70 million customers, 6,300 branches, 21,000 banking outlets and deposits worth Rs 15.6 trillion as on March 31, 2022.
While explaining the rationale behind HDFC Bank’s merger with its parent, MD & CEO Sashidhar Jagdishan has emphasised that only 2% of the bank’s customers source their home loans through it, while 5% get them from other institutions. “Home loan customers typically keep deposits that are five to seven times that of other retail customers, and about 70% of HDFC Ltd’s customers do not bank with us,” Jagdishan said in HDFC Bank’s annual report for FY22.
The challenge before HDFC Bank on the road to the merger is garnering of sufficient deposits to meet reserve requirements. The bank plans to focus on its branch network as a key engine for deposit mobilisation and has a target of nearly doubling its network in the next three-five years by opening 1,500 to 2,000 branches every year.
SBI, on its part, is enhancing the use of digital channels, especially its Yono app, in sourcing new customers. In FY22, the bank opened 96% of eligible savings accounts through the Yono platform, which it now wishes to extend to customers of other banks as well. In a recent interview with FE, Khara said SBI sees Yono as a digital bank within the bank. “We are trying to rope in new-to-bank customers as well, initially through the payment mechanism. Thereafter, we can offer them our large range of services,” he said.
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"We first identified the areas for transformation like Advances, HR, Technology and Customer experience and completed the task successfully. Our entire KBL staff today is repositioned as a sales and marketing team."
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Public sector banks (PSBs) will be assessed for customer service, which will be measured on the basis of customer service ratings. They will also focus on the younger generation's banking needs and draw up plans for meeting all-round customer requirements.
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It's one of the largest non-performing asset (NPA) pools being sold as a single block by any bank in recent times.
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For their part, fintech companies likened the order to giving traditional banks significant control of the sector's innovation stack, potentially affecting their business models.
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Mumbai-based Yes Bank on Tuesday launched a floating repo rate-linked term deposit which will be linked to the existing repo rate. The interest rates offered by the bank on the term deposits will automatically reset as per the applicable repo rate in the previous month.
The bank will offer a mark-up rate in addition to the existing repo rate. For deposits with tenure between a year and 18 months, the bank will offer a mark-up rate of 1.1% in addition to the repo rate, as per information on its website. For deposits maturing between 18 months and 3 years, the mark-up rate will be 1.6%. Currently, the repo rate stands at 4.90%. With this, the shorter term deposits will fetch an interest rate of 6% while the customers will receive 6.5% interest on the longer term deposits.
As of now, the interest rates of regular fixed deposits for similar tenures match interest rates of floating repo-rate linked deposits. Regular term deposits maturing in a year to 18 months receive an interest rate of 6% while regular term deposits maturing in 18 months and 3 years get an interest rate of 6.5%.
“Unlike a traditional Fixed Deposit (FD) where the interest rate stays the same throughout the tenure of the deposit, in this novel product the interest rate is linked to the prevailing repo rate,” the lender said.
The bank will accept a minimum deposit amount of Rs 10,000, with the tenure ranging from a year to less than 3 years. Senior citizens will get an additional 0.5% interest rate for deposits less than Rs 2 crore. The bank will also offer an overdraft facility on up to 90% of the principal value.
The move comes shortly after the Reserve Bank of India (RBI) raised the repo rate by 40 basis points (bps) in May and 50 bps in June on account of rising inflation. With analysts expecting the rising repo rate cycle to continue, the floating repo-rate linked cycle is likely to fetch more deposits for the lender. The bank’s total deposits in Q4FY22 stood at Rs 1.97 trillion, up 21% year-on-year. The bank opened 11.4 lakh current account, savings accounts (CASA) in FY22 compared to 6.6 lakh in the previous year. As of March 31, Yes Bank’s CASA ratio stood at 31.1% as against 26.1% in the last year.
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HDFC Bank proposes to double its network of branches in the next three to five years by adding 1,500 to 2,000 branches annually, which would akin to adding a new HDFC Bank every five years, said its managing director and CEO Sashidhar Jagdishan.
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The finance ministry on Monday advised public sector banks (PSBs) to continue to support economic growth by extending adequate credit to the industry even as it asked the PSBs to accelerate bad loan recovery, sources said.
The meeting with chiefs of public-sector banks (PSBs) remained inconclusive as finance minister Nirmala Sitharaman could not attend the meeting, which was chaired by the minister of state for finance Bhagwat Karad in her absence. Another meeting will take place soon in the presence of Sitharaman.
The meeting, convened by the department of financial services, came at a time when the government wants banks to satiate the growing credit appetite of a fast-recuperating economy that is also facing considerable external headwinds in the wake of the Russia-Ukraine conflict.
Having remained subdued over most of the last two years, credit growth has improved in recent months.
Non-food bank credit grew 11.3% on year in April, compared with 9.7% in the previous month and 4.7% a year before. However, loans to industry grew at a slower pace of 8.1% even on a marginally-contracted base.
With PSBs turning profitable last fiscal and adequately capitalised, they are in a position to further improve lending, sources said.
The nudge assumes importance as the Reserve Bank of India (RBI) may be forced to go for a third round of aggressive rate increase in August to contain elevated inflation. On May 4, the Monetary Policy Committee of RBI resorted to an out-of-cycle repo rate hike by 40 basis points, the sharpest increase in nearly 11 years, to 4.4% and followed it up with another 50-basis point increase in June.
The ministry reviewed large non-performing assets of over Rs 100 crore each and their overall asset quality. The lenders were asked to focus on recovery and resolution of NPA accounts through NCLT and other platforms, sources said.
The RBI had, in December 2021, warned that bad loans of commercial banks could rise to anywhere between 8.1% and 9.5% under varying degrees of stress by September 2022 from 6.9% in September 2021. Of course, the central bank had highlighted that banks were generally well-placed to weather credit-related shocks.
The PSB chiefs also briefed the ministry that their capitalisation level is adequate at the moment and would raise funds from the market when required.
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The companies have written to the National Payments Corp. of India (NPCI), complaining that ₹700 crore of the ₹1,500 crore granted in the budget is being retained by banks.
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The company has decided to henceforth invest in distressed assets through its AIF and will look for a buyer of its more than 90% stake in the ARC, five people familiar with Apollo's plans said.
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The report said headwinds from monetary tightening, seen globally, are a concern. "Depreciation risk to rupee, however, still remains as long as net foreign portfolio investor (FPI) outflows continue in response to the increase in policy rates and quantitative tightening in advanced economies as they wage a prolonged battle to calm inflation," it said
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The finance ministry on Monday held a meeting with heads of public sector banks (PSBs) to review their annual performance and progress made by them on various government schemes.
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The annual performance review of PSBs was chaired by Minister of State for Finance Bhagwat K Karad. Besides the minister, Financial Services Secretary Sanjay Malhotra and other senior officials of the Department of Financial Services (DFS) were present at the meeting.
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Banks would be urged to sanction loans for productive sectors to accelerate the revival of the economy facing headwinds including from the Russia-Ukraine war, sources said.
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Sequoia has been locked in a legal battle with Sandeep Kapoor, after he included the company in a defamation lawsuit against media companies that reported on a leaked Sequoia email of June 2. Kapoor was Sequoia's in-house general counsel for nearly nine years until 2019.
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The Reserve Bank’s ‘Payments Vision 2025’ document, which seeks a three-fold jump in the number of digital payments, is progressive and aims to establish India as a powerhouse of payments globally, opined industry players.
The RBI on Friday came out with its ‘Payments Vision 2025’ document which also talks about ring-fencing of domestic payment systems, including the need to mandate domestic processing of payment transactions, in view of the emerging geopolitical risks.
The core theme of the vision documents is ‘E-Payments for Everyone, Everywhere, Everytime’ (4Es), with an overall objective to provide every user with safe, secure, fast, convenient, accessible, and affordable e-payment options.
Commenting on the document, Rajesh Mirjankar, MD and CEO, Kiya.ai, said the Payments Vision 2025 is progressive and has an outlook to establish India as a powerhouse of payments globally.
“One of the most important forward-looking initiatives is the global outreach of UPI, RTGS, NEFT and RuPay cards with internationalisation, where bilateral treaties with nations especially covering the USD, GBP and Euro will hugely benefit Indian residents and their counterparties overseas with online realisation at lesser costs,” said Mirjankar.
Dilip Modi, founder of Spice Money, said while the pandemic raged across the country, India was on a path to realising its payments vision, and digital payments grew phenomenally in volume and popularity, with a constant thrust from the government and the rise of rural fintechs.
It is heartening to note that the RBI takes measures that will further enhance safety and security for rural citizens, where digital and financial literacy continues to be core challenges, he said.
V Swaminathan, Executive Chairman, Andromeda Loans and Apnapaisa, said the RBI came out with its Payments Vision 2025 document to check the flow of cash in distribution and enhance the overall digital transactions in the country.
“Overall, the RBI seems to be pushing digital transactions and reducing the time taken in various settlements. With the UPI on its side, the momentum is on the rise and the nation looks forward to having multiple options to transact irrespective of the quantum of the amount to be transacted,” he said.
Anand Kumar Bajaj, founder, MD and CEO of PayNearby, was of the opinion that inclusion and innovation are two of the crucial goal-posts of the document put out by the RBI.
“To pursue the collective goal of financial inclusion for all, it is crucial to deepen our engagement with stakeholders and extend our outreach deeper into the real economy.
“Therefore, engaging with private enterprises that are present in the lives of people and driving commerce up to the bottom of the pyramid is important,” Kumar noted.
Avinash Godkhindi, MD and CEO, Zaggle, said India has made phenomenal strides in payments in the last few years, UPI and RuPay being the biggest success stories.
“Now taking them global will clearly establish India as the undisputed global leader in payments. Linking credit cards to UPI is another gamechanger as would globalisation of India’s Central Bank Digital Currencies (CBDCs),” said Godkhindi.
As per the RBI, total digital payments have increased by 216 per cent and 10 per cent in terms of volume and value, respectively, for the month of March 2022 when compared to March 2019.
On the other hand, usage of paper instruments has come down significantly during the same period, with its share in total retail payments registering a decline from 3.83 per cent to 0.88 per cent in terms of volume and from 19.62 per cent to 11.47 per cent in terms of value.
While issuing the document, the central bank had said ‘Payments Vision 2025’ has been prepared after considering the inputs from various stakeholders and guidance from the Board for Regulation and Supervision of Payment and Settlement Systems of the RBI.
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Headed by former Vigilance Commissioner T M Bhasin, ABBFF was set up in August 2019, by CVC in consultation with Reserve Bank of India (RBI) for conducting first-level of examination in the cases of frauds reported by Public Sector Banks (PSBs), Public Sector Financial Institutions (PSFIs) before these cases were reported to the external investigative agencies viz. CBI, etc.
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The Central Vigilance Commission (CVC) constituted panel — Advisory Board for Banking and Financial Frauds (ABBFF) — has given its advice after thorough examination of role of all levels of officials on 84 bank fraud cases involving amount of over Rs 3 crore in the last three years.
Headed by former Vigilance Commissioner T M Bhasin, ABBFF was set up in August 2019, by CVC in consultation with Reserve Bank of India (RBI) for conducting first-level of examination in the cases of frauds reported by Public Sector Banks (PSBs), Public Sector Financial Institutions (PSFIs) before these cases were reported to the external investigative agencies viz. CBI, etc.
Earlier in January this year, the ambit of the panel was expanded to conduct first-level examination of large bank fraud cases involving amount of over Rs 3 crore, as against mandate of Rs 50 crore. Since its formation, ABBFF has received 92 references from different organisations. Out of which, advice has since been tendered for 84 cases and other eight cases are proposed to be discussed later this week, sources said.
Out of the same, 67 cases have been received by the panel since January, 2022, i.e. after revision in the scope of reference.
Additionally, sources said, nine references have been received from the Central Bureau of Investigation (CBI) for seeking advice of the panel and the same has been duly tendered within the scope/purview of the Advisory Board.
While dealing with the cases, sources said, ABBFF scrupulously examines each case critically to undertake threadbare discussions with concerned CVO (Nodal Officer) so as to ascertain whether there is any criminality or malafide intent discernible at all.
The Bhasin panel frequently interacts with the CVOs and MD and CEOs of the concerned public sector organisations to elicit their views with regard to ease of making reference and the operations of the board.
Bhasin, a veteran banker, served as vigilance commissioner in the CVC for four years from June 2015 to June 2019. Prior to vigilance commissioner, he was chairman and managing director of Chennai-based Indian Bank for more than five years. Based on the feedback from various sources it has been gathered that with the setting up of the ABBFF, confidence level of the officials of these financial institutions has gone up considerably resulting into improved sentiments for sanction of loans, credit dispensation and overall credit growth in the economy, sources said.
As per RBI latest data growth in lending by public sector banks (PSBs) has improved significantly to 7.8 per cent in March, 2022 from 3.6 per cent a year ago.
It was observed that a sense of ‘fear of unwarranted hardships’ existed among the officials of PSBs on decisions taken by them in normal course of their working, resulting into reluctance or undue delay in sanctioning of the loans and taking financial decisions, ultimately affecting the growth of the economy as a whole.
The idea to establish ABBFF was to remove the fear of witch hunting and actions based on hindsight, among officials of these financial institutions.
ABBFF is thus serving the purpose to function as a ‘Safety Valve’ for the officials by critically and comprehensively examining the gravity of lapses, accountability, so that a well-considered and justified decision could be taken before the outside agencies haul up the concerned officials, for connivance, complicity or malafide intent.
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