RBI slaps Rs 1-crore penalty each on KMB, IndusInd

The Reserve Bank of India (RBI) on Monday said it has imposed monetary penalties on Kotak Mahindra Bank and IndusInd Bank for failing to comply with various regulations.

Kotak Mahindra Bank was fined Rs 1.05 crore for non-compliance with directions on limiting liability of customers in unauthorised electronic banking transactions, and statutory and other restrictions governing loans and advances.

The RBI imposed the fine on the bank after conducting statutory inspection with reference to its financial positions as on March 31, 2018 and March 31, 2019. The examination revealed that in certain instances of unauthorised transactions, the bank had failed to credit the eligible amount to the depositor education and awareness fund within the period prescribed and to credit the amount involved in the transactions to the customers’ account within 10 working days from the date of notification by the customer. Kotak Mahindra Bank was also found to have not maintained or applied margin on advances to stock brokers.

IndusInd Bank was fined Rs 1 crore for not following KYC directions. A statutory inspection of the bank with reference to its financial position as on March 31, 2020 revealed that the bank had failed to adhere to the customer due diligence procedure in the accounts opened using one time password (OTP)-based e-KYC, in the non-face-to-face mode. In some accounts, the aggregate of all credits in a financial year, in all the deposits taken together, exceeded Rs 2 lakh, and some fixed deposit accounts were opened for amounts exceeding Rs 1 lakh, of which some deposits were for more than Rs 2 lakh.

Both banks were issued notices asking them to show cause as to why penalties should not be imposed on them. After considering the banks’ replies, oral submissions made during personal hearings and examination of additional submissions made by them, the RBI came to the conclusion that the charges of non-compliance were substantiated and warranted imposition of fines.

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RBI move on lending rate to spur NBFC-MFIs profitability: Crisil

Enhanced flexibility to set lending rates for microfinance borrowers will be one of the drivers of revival in profitability for non-banking financial company-microfinance institutions (NBFC-MFIs) this fiscal, rating agency Crisil Ratings said on Monday.

This emanates from the Reserve Bank of India’s removal of the interest margin cap on lending rate under its new regulatory framework for microfinanciers. The other factors that will support an improvement in profitability include reduction in credit cost and increase in permissible household income limit according to the new framework, the agency said in a release.

“These, in turn, will help enlarge the market in terms of target borrowers and geographies, especially in the hinterland. Additionally, the current rising interest rate environment is not expected to impair the profitability of NBFC-MFIs as higher borrowing costs would be offset by steeper lending rates, cushioning net interest margins,” Crisil said.

Krishnan Sitaraman, senior director and deputy chief ratings officer at Crisil, said, “A number of NBFC-MFIs have increased their lending rates by 150-250 basis points in recent months. This provides reasonable headroom to absorb higher borrowing costs. Lenders can also dip into their contingency provision buffer created over the past two fiscals to manage asset-quality challenges, if any, in specific states due to natural calamities or socio-political issues — without material impact on profitability.”

Over the past two fiscals, the annual credit cost of NBFC-MFIs had shot up to around 4-5% because of pandemic-related provisioning. Credit costs were around 1.5-2.0% prior to Covid. With asset quality pressures gradually easing and sizeable provision buffers being created, credit cost is expected to decline to around 2.5-2.8% this fiscal.

In this context, the new RBI framework augurs well for the next phase of growth for NBFC-MFIs. The higher income eligibility threshold and enhanced flexibility to price loans will spur deeper penetration into existing markets and entry into new geographies. That, together with rising demand for loans in rural India, should drive NBFC-MFIs’ credit growth, which is expected at 25-30% this year, the release said.

Poonam Upadhyay, director, Crisil Ratings, said: “One issue that this segment has been facing for some time now is potential over-indebtedness of borrowers. The introduction of a cap on total monthly repayment obligations of borrowers will persuade lenders to tighten the processes to assess borrower indebtedness. That will induce sustainable growth over the long run.”

The new regulatory guidelines also focus on the assessment of household income of the borrower, besides credit assessment. The robustness of the income assessment framework and related policies that NBFC-MFIs will implement in the revised dispensation will remain monitorable, the rating agency said.

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RBI gives green signal to HDFC, HDFC Bank merger proposal

HDFC Bank on Monday said it has got banking sector regulator RBI's nod for the merger proposal of its parent HDFC Ltd with itself. Touted as the biggest transaction in India's corporate history, HDFC Bank on April 4 agreed to take over the biggest domestic mortgage lender in a deal valued at about $40 billion, creating a financial services titan.

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RBI approves merger of HDFC Bank with parent HDFC Corp

“HDFC Bank has received a letter dated July 04, 2022 from the Reserve Bank of India whereby the RBI has accorded it’s ‘no objection’ for the Scheme, subject to certain conditions as mentioned therein,” the bank said in an exchange filing. Earlier HDFC Bank had stated that it has applied to the RBI seeking leeway to meet certain regulatory conditions.

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RBI's deposit insurance arm to pay depositors of two co-operative banks in August

Eligible depositors of Shankarrao Pujari Nutan Sahakari Bank will get the payment on August 10, and those of Harihareshwar Sahakari Bank on August 28, according to a DICGC circular.The Reserve Bank of India (RBI) had imposed several restrictions, including on withdrawals by depositors, on these two banks in May in the wake of their deteriorating financial positions.

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