Banks Board Bureau eases eligibility criteria for NaBFID MD, reveals pay package

The Banks Board Bureau (BBB) has relaxed the eligibility criteria for the post of managing director of the National Bank for Financing Infrastructure and Development (NaBFID). In its latest notice, the appointment agency has also revealed that the role will have a compensation package – total of fixed pay and performance bonus – of Rs 3.36 crore per annum. The final date for sending in applications has been extended to March 25 from March 7.

An applicant must be a graduate or equivalent or have a professional qualification of CA/MBA or its equivalent. The original eligibility criteria, released on February 2, required applicants to be postgraduates or equivalent or have a professional qualification of CA/MBA or its equivalent.

Applicants will now be required to have at least two years of current or prior experience at a board level position or MD/CEO level as of January 31, 2022, including part or whole of this experience in an institution with a balance sheet of more than Rs 3 lakh crore as of March 31, 2021. The original eligibility criteria required applicants to have at least three years of experience in such a role.

In a separate development, the Reserve Bank of India (RBI) on Wednesday said it will regulate and supervise NaBFID as an all India financial institution (AIFI) under Sections 45L and 45N of the RBI Act, 1934. It will be the fifth AIFI after EXIM Bank, Nabard, NHB and SIDBI.

Veteran banker KV Kamath is the chairman of NaBFID, a development finance institution (DFI) which was set up as per the proposals of the FY22 Budget. The DFI was set up to support the development of long-term infrastructure financing. The BBB is also conducting the process for appointing three deputy managing directors at NaBFID.

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IndusInd Bank to probe staff role in ‘tech glitch’ at micro credit arm

Disbursement of micro loans without obtaining the client consent at IndusInd Bank arm Bharat Financial Inclusion (BFIL) had happened due to a technical glitch, the bank said on Wednesday, citing the findings of an review by Deloitte Touche Tohmatsu. The bank’s board has now constituted a committee to assess staff accountability, if any, arising out of the findings of the report.

BFIL’s MD and CEO Shalabh Saxena and executive director and CFO Ashish Damani had tendered their resignations on November 25, 2021. The board decided to defer the decision to relieve the executives until the completion review which was going on at that point of time.

IndusInd said in November 2021 BFIL had disbursed nearly 84,000 loans in May 2021 without the customer consent getting recorded at the time of disbursement. The problem was highlighted by the field staff within two days and the technical glitch was rectified, according to the bank’s communication to the stock exchanges.

The potential implications of the review findings in terms of income recognition and provisioning requirement is Rs 13.5 crore. The portfolio, net of provisions, where consent recording was an issue amounted to Rs 8.87 crore as of December 31, 2021, or 0.03% of the microfinance portfolio, the bank said on Wednesday.

gThe technical glitch leading to disbursement of loans without recording of client consent was as a result of IT change management and process gap,” the bank said. As regards the product design, the probe report made no adverse findings in respect of compliance with the extant regulatory guidelines, IndusInd said.

The review by Deloitte focused on transactions for microfinance loans managed by BFIL between March 1, 2020 and October 31, 2021.

The bank’s microfinance products require full collection of arrears or repayment of overdue loan outstanding prior to fresh disbursement. The board took note of certain operational issues that were highlighted by the report with respect to product rollout. In one of the products, introduced to provide liquidity support to customers during the pandemic, sequencing of collections and disbursements could not be established as both happened on the same day. “This product was discontinued in September 2021 and the bank has on a prudent basis fully provided for the exposure from this product as of December 31, 2021,” IndusInd said.

The Deloitte report pointed out some areas for improvement in process and oversight of the banking correspondent activities of BFIL.

IndusInd Bank carried contingent provisions of Rs 3,328 crore outside of its provision coverage ratio, including Rs 368 crore towards its standard microfinance portfolio, as of December 31, 2021. It will make an additional provision of Rs 13.5 crore in Q4FY22 based on the findings of the review.

While the financial hit from the process failure is marginal, analysts will be closely watching IndusInd’s response to the governance aspect. Jefferies wrote in a note dated March 9, “While the financial impact is manageable, tightening of controls and smoother succession in MFI business (erstwhile CEO, CFO and some other team members had resigned to join competitor) will be key.”

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IBA begins fresh search for bad bank chief with HR firm Aon’s help

The Indian Banks’ Association (IBA) has begun a formal search process to identify a chief executive for the National Asset Reconstruction Company (NARCL), months after a State Bank of India (SBI) executive was appointed to lead the bad bank.

SBI chief general manager Padmakumar Nair is currently on secondment as MD & CEO at NARCL. Bankers in the know told FE that as a public-sector entity, NARCL must run an open selection process and Nair is also running for the role. Human resources consulting firm Aon is assisting IBA in the process.

Swaminathan J, managing director – risk, compliance and stressed assets resolution group, SBI, said, “The incumbent is also eligible to apply and will be part of the basket for consideration. The board will complete the selection process and appoint the MD-CEO on a regular basis, after obtaining RBI (Reserve Bank of India) approval.”

On Tuesday, the IBA invited applications from executives with over 25 years of experience in the financial services industry with over 10 years in stressed asset resolution, restructuring or corporate finance.

Applicants must be at least 45 years of age. In February, the IBA also began the process for recruiting second-rung and middle management positions.

NARCL has been set up by banks to aggregate and consolidate stressed assets of over Rs 500 crore for resolution. It intends to acquire stressed assets of about 2 lakh crore in phases. In January, SBI chairman Dinesh Khara had said the banking sector would transfer 15 large assets worth 50,000 crore to NARCL in FY22.

The other arm of the bad bank, the India Debt Resolution Company (IDRCL), will handle the debt resolution process for NARCL under an exclusive arrangement.

The arrangement will be on a principal-agent basis and the prerogative of issuing final approval for the resolution will lie with the NARCL as the principal.

As of January 28, a total of 38 accounts aggregating to Rs 82,845 crore had been identified for transfer to the NARCL. The institution will identify and acquire assets on a 15:85 cash-cum-security receipts (SR) structure, with government-backed SRs being issued in favour of the transferring lenders. Public sector banks have taken a majority stake in NARCL, while IDRCL will be majorly owned by private banks.

Banks believe that this public-private partnership will ensure that the bad bank gets the best of available talent to handle the large exposures while also offering the benefit of aggregation for stressed assets.

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RBI launches UPI payments for 40 crore feature phone users

The Reserve Bank of India (RBI) on Tuesday announced the opening up of Unified Payments Interface (UPI) payments for 40 crore feature phone users in India. Christened UPI123pay, the new facility will be accessible through IVR numbers, an app-based functionality, a sound-based format and even through missed calls.

Speaking at the launch event, RBI governor Shaktikanta Das said India’s digital economy has flourished over the past few years. UPI has played a major role in the process, recording about 453 crore transactions worth `8.26 lakh crore in February 2022, almost double compared to a year ago. “The launch of UPI123pay makes the facilities under UPI now accessible to that section of society which was so far excluded from the digital payments landscape. In that way it is promoting a great amount of financial inclusion in our economy,” he said.

RBI deputy governor T Rabi Sankar said since a significant portion of the five-fold increase in digital transactions has come from UPI, it is important to make the payment channel available in the offline mode and for feature phone users to move to the next phase of development. Over the last two-three years, the RBI has held competitions in its sandboxes and some of the solutions that start-ups came up with are getting introduced through UPI123pay.

Sankar said while UPI can be used in feature phones even today, the process is USSD-based, which means that a user has to dial *99# and use a menu to carry out a limited set of transactions. “But the process is cumbersome, going through multiple messages which are chargeable and not all mobile providers have the USSD facility. This is one reason we are hopeful that the products introduced today will fill in this gap and take UPI to the next level,” he added.

UPI123 Pay involves four different technologies.

The first uses IVR numbers, under which the user can initiate a secured call from their feature phone and after registering themselves, can start making financial transactions without internet connectivity. The second module is the app functionality in feature phones.

“A majority of UPI functions will be available on apps that are available on feature phones and one can do almost all kinds of UPI transactions except scan and pay, which is still a work in progress,” Sankar said.

The third module is through proximity sound-based payments. This technology will use sound waves to enable networking and carry out contactless offline and proximity data communication on any device. The fourth module will be the typically Indian approach of using missed calls, under which users will get a callback from a standard number to authenticate and carry out transactions. Going forward, the RBI will add to these options, Sankar said.The RBI on Tuesday also launched a dedicated and purely interactive helpline for digital payments, called DigiSaathi. Under this facility, there will be toll-free numbers for users to seek redressal of their queries on digital payments, including for cards. To start with, the helpline will be available in English and Hindi and it will later be extended to cover all major regional languages.

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RBI accepts bids worth $5.135 billion in rupee-dollar swap

In a move aimed at soaking up liquidity from the system, the Reserve Bank of India (RBI) on Tuesday accepted bids worth $5.135 billion in a dollar-rupee swap. The auction saw overwhelming response with bids of $13.565 billion coming in against $5 billion on offer.  The cut-off premium of 656 paise, and the weighted average premium of the accepted bids of 649.71 paise translate into an annual premium of a little over 4%.

The excess liquidity in the system is running at close to Rs 8 lakh crore and the central bank had been looking to mop up some of this ahead of the Initial Public Offering (IPO) of Life Insurance Corporation (LIC).

Market watchers observed that the swap gave companies an opportunity to purchase dollars at at affordable cost to be able to service their foreign currency loans. They can also repatriate the dollars for any overseas projects.  Madan Sabnavis, chief economist, Bank of Baroda, pointed out that the dollar-rupee swap transaction comes at a time when the rupee is volatile and some stability is needed. The rupee has weakened by about 3% over the past month or so — thanks to the surge in crude oil prices following the Russia-Ukraine crisis.

The central bank accepted 86 of the 246 bids that came in. The swap auction comes against the backdrop of three USD/INR buy/sell swap auctions conducted by the central bank on March 26, 2019, which will mature on March 28, 2022.

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Getting future-ready: HDFC Bank readies plan for digital entity

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, sources told FE.

The country’s largest private bank by assets wants the digital bank to allow people to open accounts directly without visiting a branch. “The bank has that facility within the traditional bank, but it is working on this as a new business line. It will wait for the Reserve Bank of India (RBI) to clear and review it before going ahead,” one of the sources said, requesting anonymity.

While HDFC Bank is not imminently ready to launch the bank, it is preparing for it from a strategic point of view.

An emailed request for comments sent to HDFC Bank did not elicit a response till the time of going to press.

The regulatory embargo on fresh digital launches that the RBI had imposed on HDFC Bank in December 2020 as a penal measure still remains. The bank will have to wait to launch its challenger entity until the ban is lifted. A report by PwC India defines challenger banks as tech-led neobank start-ups as well as digital-only offerings by incumbent banks.

While there is no regime for licensing of digital banks in India at present, a November 2021 discussion paper by NITI Aayog floated the idea of such a regime. There are entities operating in India which market themselves as neo-banks, but the nature of their business is akin to that of sourcing agents for established banks.

As an incumbent, HDFC Bank wants to have a business line, which is a digital-only bank, as opposed to a brick-and-mortar-supported relationship-managed bank. The bank believes, sources said, this would protect it against a future where some entity gets a licence to set up a digital bank.

The new entity will not look to offer anything new in terms of products. It will do the same things that the parent does, such as opening a savings account, giving a personal loan or issuing a credit card. Rather, it will reduce the operational cost for the bank and offer the kind of customer experience that some segments, especially millennials or Gen Z, would like.

The focus will be on the younger set of customers, who may not want relationship management to start with but as they grow in their life and career, would want wealth management, a multiplicity of products and relationship management to handhold them. “Before the bank gets there, there will be a large number of customers who need basic plain-vanilla products. There, they want to keep the cost of acquisition low, so they will use digital channels to bring them in,” a source said.

State Bank of India (SBI) and Kotak Mahindra Bank have their own pure-play digital platforms, but HDFC Bank intends to differentiate its platform from them with a focus on segmentation and customer progression along with product delivery.

HDFC Bank has added partnerships with digital direct selling agents (DSAs) to its models of customer engagement. In a post-results call with investors, HDFC Bank said that during the quarter ended December 2021, it acquired 2.4 million new liability relationships and 6.4 million such relationships during the first nine months of FY22, exhibiting a growth of 29% over the same period last year. The management said that digitisation has helped the bank broad-base its customer engagement and the focus on it will continue in the quarters ahead.

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Nitin Chugh appointed head of SBI digital banking

State Bank of India (SBI) on Tuesday said it has appointed Nitin Chugh as deputy managing director (DMD) & head of digital banking. Chugh has earlier served as MD & CEO at Ujjivan Small Finance Bank and at HDFC Bank as head of digital banking.

At SBI, Chugh would be responsible for driving growth of customer acquisition through digital channels, along with defining and implementing digital strategies.

Apart from a postgraduate degree in management, Chugh holds a B.Tech degree in electrical and computer science from NIT, Kurukshetra.

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Ukraine-Russia war: Govt, bankers mull ways to avert payments crisis

Top bankers huddled with senior finance ministry officials on Saturday, a day after some lenders met central bank officials, a top source told FE, amid concerns about the an emerging payments crisis being faced by Indian exporters consequent to the western nations’ sanctions on seven Russian banks. “The RBI has been gathering inputs from domestic banks on the crisis and will accordingly issue directions, if required, after consulting the government,” a senior banker told FE after Saturday’s meeting.

Financial services secretary Sanjay Malhotra chaired the meeting, convened by the Indian Banks’ Association (IBA). While the Ukraine crisis wasn’t part of the formal IBA agenda for the meeting, bankers were learnt to have briefed the secretary on potential fallout of the conflict.

The government is learnt to be weighing a proposal by exporters to allow the rupee-rouble trade to avoid any delay or default in payments. But any such mechanism in the aftermath of western sanctions on Moscow has strategic ramifications for New Delhi. So, the finance ministry will factor in the inputs from the ministry of external affairs, apart from the commerce ministry and the central bank, before allowing it to happen, as per official sources.

The IBA had also called a meeting of its members on February 28 to deliberate on the Russia-Ukraine conflict. Also, RBI governor Shaktikanta Das met finance minister Nirmala Sitharaman on Friday.

Banks have put on hold fresh transactions with the sanctioned Russian banks and are awaiting direction from the Reserve Bank of India on the way forward. Some Indian exporters have claimed that $400-600 million in payment is stuck, although there is no official word on it.

The US and its European allies have blocked VTB, Russia’s second-largest bank, VEB, another big player, and five smaller ones from the SWIFT financial messaging platform. This will cripple cross-border payment systems of these banks and impact trade financing. However, it still leaves scope for trade transactions to be routed through those Russian banks that have not been sanctioned yet. Nevertheless, it will add to hassles of the international banks as well as traders that currently have transactional relations with these seven lenders.

A senior banker had told FE last week that the impact could be limited if the sanctions remained limited to only the select banks. But if all Russian banks are cut off from the SWIFT network going forward, it will create some issues for Indian traders. Moreover, there will be only a very few global banks that would still be willing to keep ties with such Russian banks after the sanctions.

On top of this, if global banks start exiting Moscow or curtail their exposure to the Russian market substantially, India, too, may witness some spill-over effect, said one of the sources. Already, British bank HSBC is reportedly beginning to wind down relations with a host of Russian banks including VTB.

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India Post may team up with a bank to start lending

Government-run India Post may tie up with a commercial bank to offer various loan products to people and businesses, with a focus on the rural economy. The planned roll-out of 100% core banking solutions (CBS) at all the 1.5 lakh post offices in the country would facilitate the loss-making entity’s transition to the new role as provider of multiple fnancial services, an official source said.

The plan will not only fast-track the process of financial inclusion, but also will make it possible at lower cost to the exchequer. It will be a win-win situation for all stakeholders as it could help India Post have a self-sustainable model over a few years.

In the Budget for FY23, finance minister Nirmala Sitharaman announced that CBS will be implemented in all post offices to provide online transfer of funds between post office accounts and bank accounts.

Apart from providing postal services, India Post runs popular savings schemes. However, it has over the years turned out to be an enormous fiscal burden. The perennial gap in the state-run entity’s revenues and expenditures has widened in recent years and touched a staggering Rs 18,800 crore in FY21.

“There are more post offices than bank branches (1.2 lakh) in the country. So, the objective is to turn around loss-making infrastructure to a universal bank over a period of time,” the official said. With most of the rural bank branches also making losses (20% of PSB branches are in rural areas), there is no point in investing in public sector banks to expand branches in rural areas, he added.

The post offices can act as an extension counter of a commercial bank and extend loans appraised by the bank as India Post doesn’t have underwriting capability, the official said.

Currently, India Post has a subsidiary — India Post Payments Bank (IPPB). Payment banks can accept deposits up to Rs 2 lakh but they can’t lend.

Like other loss-making public sector enterprises, India Post’s finances are weighed down by high pay-and-allowance costs for its 4.16 lakh staff. While losses will be there for a universal service like postal, efforts to improve India Post’s performance and boost its revenue flows haven’t fructified due to a huge mismatch between product costs and pricing as well as the availability of cheaper and faster substitution to traditional mail services.

On the revenue front, India Post is largely dependent on National Savings Schemes and Saving Certificates, which contributed over 70% of its Rs 11,385-crore revenues in FY21. Postal services generated only 23% of revenues.

Earlier, the finance ministry had told the postal department that it has to be self-sufficient by levying adequate user charges as the Centre’s Budget could not absorb such recurring annual losses.

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Lending rates on fresh loans rise 10 bps month-on-month in January

The weighted average lending rate (WALR) on fresh loans rose by 10 basis points (bps) for the banking system to 7.82% in January from the previous month, as per data released by the Reserve Bank of India (RBI). This marks the steepest increase in fresh loan rates since April 2021, resulting from a rise in money market rates and an improvement in credit offtake.

As banks roll back their special festive season pricing offers and the recovery in credit growth becomes more entrenched, analysts and sector experts are taking the view that lending rates may be bottoming out. At 12 bps, the WALR hike was most pronounced at private banks, while public sector banks’ (PSBs) WALR on fresh loans rose 8 bps.

Bankers said that the RBI’s variable rate reverse repo (VRRR) operations have taken the operative rate in the market much closer to the repo rate of 4% than the reverse repo rate of 3.35%. A senior executive with a mid-sized private bank said that since banks are able to place their surplus liquidity with the RBI at a higher rate, the rate of deployment of money is on the rise. “Rates on existing loans cannot increase suddenly because they are linked to the repo, unless the credit ratings change. So higher rates are being seen on new loans where there is more room for better pricing,” he said.

RBI norms mandate that banks must link the pricing of loans to individuals and small businesses to an external benchmark. Since most banks have adopted the repo rate as the external benchmark, rates cannot rise in a big way unless there is a hike in the repo. Changes in spread are allowed only in case of a change in the borrower’s credit rating. These constraints are holding back larger rate hikes, according to bankers.

Loan growth has picked up momentum, clocking rates of around 8% through January and February. This, too, is allowing banks to hike rates. “Once the growth cycle picks up, the pricing takes into account the risk aspect and the expected loss aspect. So there will be some increase, too, in the rates, but there won’t be any meaningful shift until policy rates start going up,” said a senior executive with a large private bank.

Analysts are seeing the emerging trend as a sign of a turn in the rate cycle. Motilal Oswal Financial Services (MOFSL) said in a note on Wednesday, “With the ongoing tightness in rate environment along with potential policy rate hikes by the RBI, MOFSL expects banks to gradually see an increase in their lending yields…Banks with a higher mix of floating rate book stand to benefit from the turn in rate cycle.”

Care Ratings expects loan demand from corporates to return, which should increase banks’ pricing power. “Further with G-sec yields rising, bond yields would also witness an increase, pushing some corporates to the banking system for their borrowing requirements,” analysts at Care said.

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Safer avenues of credit growth: Banks turn big players in gold loan

Banks have turned significant players in the gold loan market over the last two years as the pandemic made them look for safer avenues of credit growth. The rate of growth in fresh gold loans at banks has been stronger than at non-bank lenders over the same period, industry experts said.

RBI data showed that the value of outstanding gold loans by banks jumped 65% year-on-year between January 2020 and January 2021 and another 33% between January 2021 and January 2022 to Rs 69,521 crore. In contrast, a recent report by India Ratings and Research showed that the top seven NBFCs engaged in the gold loan business grew their books at just over 20% between March 2020 and March 2021, before slowing down over the nine-month period to December 2021.

Prakash Agarwal, director and head – financial institutions, India Ratings, said, “Within the organised segment, growth in the banking sector has been higher vis-a-vis non-banks. Banks have been fairly aggressive in this space over the last two years,” Agarwal said.

Apart from the safety of capital traditionally associated with gold loans, banks have been able to cash in on the increased acceptability of gold loans as a product. “Of course, we took advantage of the market opening up in the early months of Covid, but people are now more open to mortgaging jewellery, especially in states like Maharashtra,” said a top executive with a mid-sized private bank.

On their part, large NBFCs in the gold loan space have started taking measures to fend off competition from banks. VP Nandakumar, MD & CEO, Manappuram Finance, told investors in November that some of the company’s high-value customers were especially targeted by banks. “We have analysed and found where we lost high-ticket customers. There we have introduced attractive schemes just to attack high-ticket loans,” he said.

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Ashneer Grover quits BharatPe ahead of board meet; firm to discuss PwC report on financial irregularities

By Salman SH

BharatPe co-founder and managing director Ashneer Grover resigned minutes after receiving an upcoming board meeting agenda, which included consideration of action against him based on an investigation report into allegations of financial irregularities submitted by advisory firm PwC.

The development brings to an end a series of controversies that started emanating in the public domain around two months back when an audio clip surfaced where he was allegedly heard hurling abuses at an employee of Kotak Wealth Management over the bank’s inability to secure financing for the IPO of Nykaa.

In his letter to the board, Grover said that he is quitting as MD “effective immediately” due to “baseless and targetted attacks” against him and his family. He also took a dig at BharatPe investors, accusing them of using the board investigation as a “charade” to defame him.

“It is sad that you have even lost touch with the founder…For you, the founder of this company has been reduced to a button to be pressed when needed. I cease to be a human for you. Today, you have chosen to believe gossip and rumours about me instead of having a frank conversation,” he added.

BharatPe confirmed Grover’s departure from the company in an official statement. “Ashneer Grover resigned as managing director and board director of BharatPe minutes after receiving the agenda for upcoming board meeting that included submission of the PWC report regarding his conduct and considering actions based on it. The board reserves the right to take action based on the report’s findings,” the statement said.

The letter to the board came just a day after Grover’s emergency arbitration plea before the Singapore International Arbitration (SIAC) was dismissed. In his plea, Grover had sought quashing of the BharatPe board’s investigation into the alleged financial fraud and mishandling of company funds.

The SIAC plea was largely seen as Grover’s attempt to seek indemnity for many future liabilities while selling his stake back to the company.

The emergency arbitrator (EA) of the special arbitration court, however, rejected all five grounds of his appeal and declined to provide any relief. Grover is now expected to move the Delhi High Court bench.

Grover was represented by Karanjawala & Co, while BharatPe was represented by senior counsel Abhishek Singhvi.

In his pleas before the SIAC, Grover had said the “review committee” formed by the BharatPe board earlier this month to look into the allegations of financial fraud was violative of the terms approved under the shareholder’s agreement (SHA).

The plea also quoted various clauses under the SHA and the articles of association (AoA) between Grover and the company as the primary basis to strike down the independent committee appointed by the board. In addition, it sought an order directing the BharatPe board “not to rely on the reports delivered by the Review Committee in its current form and constitution…”.

Grover had also sought SIAC’s intervention to keep in abeyance the appointment of Suhail Sameer as director of the company, pending the arbitration.

A preliminary report of the investigation, prepared by Alvarez and Marsal and PwC, has reportedly indicted Grover and his wife Madhuri Jain (controller of finance) of committing financial fraud.

The report has outlined two instances of financial transactions approved by Jain using invoices that were made to “non-existent” vendors.

Prior to the investigation, Grover had gone on a voluntary leave of absence from BharatPe till March end.

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Centre to provide capital support mostly to weak public sector banks

Weak public sector lenders like Central Bank of India and Punjab & Sind Bank will get the lion’s share of the Rs 15,000 crore earmarked for capital infusion in state-owned banks for the current fiscal. 

This will help these public sector banks (PSBs) meet regulatory requirements. 

The capital infusion of Rs 15,000 crore would go mostly to banks which had got money through non-interest-bearing bonds in the previous year as the RBI had raised some concerns on the fair valuation of these instruments, sources said.

As per the RBI, the net present value of infusion made last year through zero-coupon bonds is much lower than face value as they were issued at discount, the sources added.

These special securities with tenure of 10-15 years are non-interest bearing and valued at par. Such bonds usually are non-interest bearing and issued at a deep discount to the face value. So, the effective Tier 1 capital levels for the banks could be lower than the regulatory requirement.

According to India Ratings and Research, fair valuing of the equity infused by the Government of India (GoI) in five PSBs last year through zero-coupon bonds could lower the banks’ effective Tier 1 capital levels in the range of 50-175 basis points than reported. 

Earlier this month, Punjab & Sind Bank got board approval to raise equity capital worth Rs 4,600 crore by issuing preference shares to the government. 

This would help the bank augment capital to the required level and save it from coming under the prompt corrective action (PCA) framework.

Similarly, sources said, the decision for the quantum for other banks would be taken in March and subsequently funds would be infused.  

The net worth of zero-coupon bonds could be lower by almost 50 per cent at end-FY’22 at the outset than similar maturity government papers in the market, given they do not carry any interest, India Ratings said, adding the illiquid, non-trading nature of these securities could add to the discount. 

These banks have moderate competitiveness (albeit better than last year) to raise equity and would need to offer materially higher yields to raise Additional Tier 1 (AT1) capital from the markets. Valuing these zero-interest bonds at a fair level could coerce these banks to raise either equity or AT1 in the near term solely on account of this factor, it said.

In the Budget 2022-23, the government trimmed the capital infusion target to Rs 15,000 crore from Rs 20,000 crore estimated earlier for 2021-22.

The first capital infusion through non-interest-bearing bonds was in Punjab & Sind Bank in the third quarter of 2020-21. It was followed by Rs 14,500 crore into four lenders — Bank of India, Indian Overseas Bank, Central Bank of India and UCO Bank in March 2021.

Central Bank of India received Rs 4,800 crore, UCO Bank Rs 2,600 crore, Bank of India Rs 3,000 crore and Indian Overseas Bank Rs 4,100 crore.

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Dhanlaxmi Bank aiming at healthy balance sheet

Dhanlaxmi Bank believes it has turned the corner and is poised for a healthy balance sheet in coming quarters, as it reported growth in the operating profit for the first three quarters of the current fiscal despite a decline in treasury yields. The lender recently was in the news for governance issues and a fallout between large shareholders and the board.

JK Shivan, managing director & CEO, said interest income grew 2.45% in Q3 on a sequential basis while interest expenses remained more-or-less at the same level.

The bank expects net interest income and net interest margin to further improve in coming quarters as it starts accruing interest on the increased loan book. Shivan said the bank is taking cautious steps to ensure healthy growth and there are no large-value accounts showing stress in its book.

Dhanlaxmi reported an 83% year-on-year decline in its third quarter net profit to Rs 2.03 crore.

The decline in the net profit is due to statutory provisions and provisions on the restructured book. Major slippages happened during Q1 of this financial year and were as part of stress witnessed in the economy due to Covid-19 restrictions and a major corporate account. The scenario improved in the subsequent two quarters. Strengthening the credit monitoring and administration department could reduce SMA-2 book considerably, from Rs 254 crore in Q1 to Rs 161 crore in Q2 and to Rs 99 crore in Q3,” he said.

Shivan said the lender could recover Rs 108 crore and upgrade Rs 197 crore during the nine-month period, against slippages of Rs 355 crore during the same period last year. In Q3, slippages were at Rs 25 crore and recovery and upgrades stood at Rs 60 crore.

The asset quality improved, with gross NPA as a percentage of gross advances being at 7.55% for the quarter under review, compared with 8.67 % in the second quarter and 5.78% in the year-ago period. The net NPA ratio was at 3.83%, compared to 4.92% in Q2 and 1.11%  in the third quarter of the last fiscal.

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RBI extends term of its nominee on Dhanlaxmi Bank board

Dhanlaxmi Bank said in a regulatory filing on Friday that the Reserve Bank of India has extended the term of Dr G Jagan Mohan, additional director, for a further period of two years from February 27, 2022, to February 26, 2024, or till further orders whichever is earlier.

Mohan, an RBI nominee, was appointed as additional director by the RBI for a period of two years on February 27, 2020.

Currently, the Thrissur-based lender has just 6 directors, including two RBI nominees as against the maximum strength of 11.

The Reserve Bank of India (RBI) had advised Dhanlaxmi Bank in June 2021 to ensure transparency in the nomination process of directors and follow best corporate governance practices.

The regulator, while pointing out that the bank has had a chequered history on the governance issues, directed the bank to expedite and complete the process of appointment of directors in accordance with the best governance standards.

A case filed by a shareholder and two others against the Bank Board’s decision of rejecting their candidature for the office of director to be placed before the members during the Annual General Meeting on September 29, 2021, is pending.

Five individuals, which include two former directors and prominent NRI Ravi Pillai, moved their candidature under Section 160 of the Companies Act and it was rejected by the board and not placed for consideration of the last annual general meeting.

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NBFCs likely to report 14% loan growth in FY23: Ind-Ra

Non-banking finance companies (NBFCs) are likely to report a 14% year-on-year loan growth in the next financial year because of higher demand in the secured asset class segment, India Ratings & Research said in its FY23 outlook for non-bank lenders. The rating agency expects NBFCs to report a 7%-8% loan growth in FY22.

Products such as loans against property (LAP) and housing and vehicle loans could witness a higher demand than personal and unsecured business loans which saw a higher demand during the pandemic, it said, adding that growth in the vehicle finance segment could revive depending on the availability of vehicles which are facing shortage of components. The gold loan segment could see a moderate growth in tandem with gold prices along with opening up of other financing avenues for borrowers.

NBFCs would begin the year with sufficient capital buffers, stable margins and sizeable on-balance sheet provisioning, while adequate system liquidity would aid funding. Nevertheless, an expected increase in systemic interest rates and asset quality issues in some segments due to the lagged impact of pandemic would be a drag on the operating performance,” India Ratings said.

The agency expects NBFCs’ stage 3 assets to increase to 6% by FY23 from 5.6% as on December-end, primarily due to slippages from the restructured and Emergency Credit Line Guarantee Scheme (ECLGS)-supported book. However, the credit cost impact is likely to be moderate as NBFCs have created adequate provisioning buffers. Further, rising interest rates will likely impact the incremental borrowing cost of all lenders, it added.

Housing finance companies are likely to grow 13% YoY in FY23 on the back of increasing geographic penetration and a possible rise in the loan ticket size, partly due to asset inflation. “India Ratings believes the sector could grow at 13% YoY in FY23 (FY22: 11%) with gross stage 3 numbers increasing to 3.3% from 2.8% in 3QFY22 (FY22: 2.9%), largely due to slippages from the restructured book (FY23: 1.7%; FY22: 2.1%). Additionally, 2% of AUM is supported by lending under the ECLGS which could also see slippages. The broad stage 3 number could rise by 70 bps as it was seen in 3QFY22 due to the change in NPA recognition norm,” Ind-Ra said, maintaining its ‘neutral’ sector outlook and a ‘stable’ rating outlook for NBFCs and HFCs.

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DBS Bank India migrates to new IFSC and MICR codes of erstwhile Lakshmi Vilas Bank

Following the amalgamation with DBS Bank India Ltd (DBIL), the IFSC & MICR codes of all branches of erstwhile Lakshmi Vilas Bank (LVB) have now been changed. While the new codes have been active since October 25, 2021, the older IFSC codes will remain valid until February 28, 2022 to ensure customers’ convenience and ease of transition. Customers will be required to use the new DBS IFSC code from March 1, 2022 onwards to receive funds through NEFT/RTGS/IMPS, said a release by DBIL.

The change was communicated to customers through physical letters, emails, and SMS as well as at the branches. They were requested to share the new IFSC code with business partners, associates and vendors to update their records, recurring payments and receivables well in time. All existing cheques issued to the third party will have to be replaced with new cheques before February 28, 2022. Any cheque with old MICR codes presented after the aforementioned date will not be honoured, it further said.

New cheque books (with new MICR code) have been available since November 1, 2021. Customers can apply for a new cheque book by visiting their branch, calling customer care at 1860 267 4567 or through the internet/mobile banking channels.

A complete list of new IFSC codes / MICR codes can be viewed at
https://www.lvbank.com/view-new-ifsc-details.aspx

LVB was amalgamated with DBS Bank India Limited, the wholly-owned subsidiary of DBS Group Holdings Ltd, as part of a scheme of amalgamation under the special powers of the Government of India and Reserve Bank of India under Section 45 of the Banking Regulation Act, 1949, India.

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Central bank cancels Cashbean parent PC Financial’s registration

The Reserve Bank of India (RBI) on Thursday said it has cancelled the certificate of registration issued to PC Financial, which carries out lending operations through an app called Cashbean. This is the first instance of regulatory action against an entity in the wake of a surge in complaints against usurious and unfair recovery practices being followed by several digital lenders.
“In exercise of the powers conferred under Section 45-IA (6) (iv) of the Reserve Bank of India Act, 1934, the Reserve Bank has cancelled the Certificate of Registration (CoR) issued to M/s P C Financial Services Private Limited, New Delhi. As such, M/s P C Financial Services Private Limited shall not transact the business of a Non-Banking Financial Institution (NBFI), as defined in clause (a) of Section 45-I of the RBI Act, 1934,” the central bank said in a statement.

The CoR of the company has been cancelled on account of supervisory concerns such as gross violations of RBI directions on outsourcing and Know Your Customer (KYC) norms, the RBI said. The company was also found to be charging usurious rates of interest and other charges to its borrowers in an opaque manner, apart from indulging in unauthorised use of logos of the RBI and the Central Bureau of Investigation (CBI) for recovery from the borrowers in gross violation of the Fair Practices Code.

According to a recent report by the Hindu Business Line, the Directorate of Enforcement (ED) had seized bank/payment gateway funds worth Rs 288 crore belonging to PC Financial Services vide three seizure orders issued under the provisions of the Foreign Exchange Management Act, 1999 (FEMA).

After a furore over the excesses committed by digital lending apps in 2020, the RBI had set up a working group to present a report on the regulation of such apps. The recommendations of the group, released in November 2021, range from subjecting digital lending apps (DLAs) to a verification process by a nodal agency to a separate legislation to prevent illegal digital lending activities.

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Sarfaesi overrides all laws: Banks’ dues priority over state taxes, says Supreme Court

In a judgment that will cheer lenders, the Supreme Court on Thursday held that the dues to secured creditors (banks) will have priority over the central or state dues like excise and tax dues. While settling the law, a Bench comprising Justices L Nageshwara Rao and Vineet Saran accepted the stand of the consortium of banks led by Punjab National Bank that Section 35 of the Sarfaesi Act, 2002, provides that its provisions will have overriding effect on all other laws.

While noting that even the provisions in Section 11E of the Central Excise Act, 1944, are subject to the provisions contained in the 2002 Act, the apex court said that the dues of the secured creditor, i.e. the banks, will have priority over the dues of the central excise department, as even after insertion of Section 11E in the Central Excise Act, the provisions contained in the Sarfaesi Act will have an overriding effect on the provisions of the excise law.

“Evidently, prior to insertion of Section 11E in the 1944 Act w.e.f. April 8, 2011, there was no provision providing for first charge on the property of the assessee or any person under the Act of 1944. Therefore,… where the land, building, plant machinery, etc. have been mortgaged/hypothecated to a secured creditor, having regard to the provisions contained in section 2(zc) to (zf) of Sarfaesi Act, 2002, read with provisions contained in Section 13 of the 2002 Act, the secured creditor will have a first charge on the secured assets,” the apex court said.

Setting aside the Allahabad High Court judgment in favour of the department, the SC said that the contention of the department that a confiscation order cannot be quashed merely because a security interest is created in respect of the very same property is “not worthy of acceptance”.

In this case, the commissioner, Customs and Central Excise, Ghaziabad, had confirmed an excise duty demand of around Rs 15 crore, including interest and penalty, against Rathi Ispat and also confiscated its land, building, plant and machinery for evasion of excise duty. As Rathi Ispat had defaulted in clearing its 2005 loan dues, the consortium of banks led by PNB had issued notice to the company under section 13(2) of the Sarfaesi Act as to why its all mortgaged/hypothecated movable and immovable properties should not to attached and auctioned for recovery of their dues. However, the excise department had asked the asseee not to deal with the confiscated properties, this was challenged by the bank in the HC.

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Sordid saga: BharatPe sacks Madhuri Jain for swindling funds; Ashneer Grover slams Rajnish Kumar

By Salman SH

The already sordid BharatPe saga took a turn for the worse on Wednesday, as the company’s board sacked Madhuri Jain, controller, for allegedly swindling company funds for personal use. Jain was quick to retaliate by charging co-founder Bhavik Koladia and chief executive officer Suhail Sameer with misbehaviour and “treating women like objects” in a series of tweets.

Her husband, and BhartatPe co-founder Ashneer Grover, meanwhile, accused Rajnish Kumar, chairman of BharatPe, of bias – a charge the latter dismissed. Grover also accused Koladia of being abusive on a telephone call and said the latter had asked to meet him at a certain location. He claimed that Kumar was also with Koladia when he received the call.

In the letter, Grover stated that the involvement of Kumar in the ‘episode’ has confirmed his apprehensions that “the entire façade of the alleged governance review is riddled with premeditation, bias and prejudice”.

Later, Jain tweeted what she said was an audio recording of the conversation between the two. “What was he doing at Rajnish’s house? What strategy/ conspiracy were they discussing? Why did he threaten Ashneer on being asked agenda and abuse?”

In her tweets, Jain also charged Sameer and Koladiya with indulging in “drunken orgies”.

In his response, Kumar said Grover should have shown more maturity and alleged the latter’s strategy is to make a case that the governance review is biased against him. “I agree that Ashneer should have shown maturity…The whole strategy of Ashneer is to make out a case that the governance review is biased against him. He is creating documentation for that, nothing else,” Kumar told Moneycontrol.

A spokesperson for BharatPe confirmed that Jain was terminated from the company on Wednesday. She is alleged to have used company funds for personal beauty treatments, buying electronic items and family trips to the US and Dubai, sources with direct knowledge of the matter said.

“As per your query, we can confirm that the services of Madhuri Jain Grover have been terminated in accordance with the terms of her employment agreement,” the spokesperson said.

Sources close to the company said Madhuri’s entire ESOP holding has been held back by the board. She did not own any other class of equity shares.

The sacking comes just a few weeks after an initial investigation completed by Alvarez and Marsal and PwC, which indicted Grover and his wife Madhuri Jain of committing financial fraud.

The BharatPe board had appointed Alvarez and PwC in late January to conduct a management review and inspect the company books to examine allegations of governance lapses under Grover. A preliminary report prepared after the review said that there were two instances of financial transactions made using invoices that were made to “non-existent vendors”.

The report by Alvarez and PwC, published on January 24, stated that BharatPe usually pays “recruitment fees” to consultants for employees hired through them. However, there were irregularities in three recruits made by BharatPe where invoices were made to “non-existent” consultants. Though the three employees confirmed their date of joining, they denied going through a consultant route for hiring. Hence, the three invoices made at that time seemed fraudulent in nature since they didn’t name any vendors as well, the review committee report added. It also mentioned that Jain, who was the controls head at the time, had allegedly pocketed the three receipts herself. The invoices were allegedly created by Shwetank Jain, Jain’s brother, the report added.

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