Daily News

RBI’s accommodative policy stance augur well for home loan borrowers, the realty market

The RBI maintained the status quo at its monetary policy meeting on Wednesday, continuing with its accommodative policy stance for home loan borrowers. Industry experts and realtors believe it is in line with expectations and will work as a spur for economic growth.

RBI accomodation plicy stance to augur well for home loan borrowers

Despite the fact that the rate has fallen from its highest in June 2021, when it was above 6%. The MPC meeting took place at a time when the country is dealing with high inflation.

However, compared to the same quarter last year, when a statewide lockdown caused by the Covid-19 outbreak had halted nearly all economic operations. The economy increased at a record rate of 20.1 percent in the April-June quarter. The pandemic and lockdown provided a silver lining for the real estate industry; which serves as a safe haven and a tangible asset during times of crisis. In the last two years, this has resulted in increasing investment and property purchases. Low house loan interest rates have played an important role in boosting India’s real estate market; particularly during the festival season. As a result, the real estate sector’s sentiment remains favorable. Which is evident by the S&P BSE realty index’s upward trajectory,” said Ram Raheja, director of S Raheja Realty.

Dr. Ram Raheja

Adequate liquidity in the system and a low-interest rate regime are crucial for further strengthening the home loan market. While the RBI announced additional measures to reduce excess liquidity, it assured that sufficient liquidity will be maintained as needed.

Positive emotions will strengthen by the RBI’s forecast of 9.5 percent GDP growth in FY 22. However, the regulatory agency may consider lowering the repo rate by 25 basis points to help the market’s liquidity. Increased liquidity and expenditure will benefit corporates, companies, and small and medium-sized organizations in India, resulting in increased growth.

Daily News

Your Money – Inflation impact: Once RBI hikes interest rates, returns from debt funds dip

The stock market is on the verge of breaking out to new highs. Fears about the effects of the Covid-19 outbreak have begun to fade. Commodity prices, such as food and fuel, have risen dramatically and continue to do so. However, a majority of people believe that the current period of high inflation is only temporary.

inflation impact once rbi hikes interest rates

To boost the real economy, monetary conditions such as repo rates and systemic liquidity must remain at excessively accommodative levels. But what if the central banks are wrong, and inflation rises rather than falls?

Inflation risks

Theorists frequently compare present economic conditions to those of a prior cycle. While attempting to find solutions for surviving or benefiting in the current situation by applying lessons learned from earlier scenarios. When reality falls short of their expectations, additional theories emerge to explain the new circumstances.

Inflation, or a general rise in prices, was once thought to be a result of too much money chasing too few commodities. Central banks attempted to control inflation by raising interest rates and lowering the amount of money available in the economy. Such measures had the unintended consequence of lowering demand for most things in general, resulting in lower economic activity and employment, a solution that the political masters did not approve of.

inflation risk

Inflation has not been a source of concern for most economies in recent years, either due to productivity increases or changing demographics, despite central bankers maintaining ultra-easy policies. Inflation measurements have only started to rise in the last year

It is likely that the RBI will soon begin to normalize rates and, eventually, raise repo rates. The longer they wait, the greater the risk of inflationary expectations crystallizing, necessitating a lengthier period of rate hikes.

To avoid huge mark-to-market losses, it is advisable for investors to stay invested in the money market, short-term, or PSU funds. Debt funds’ returns will be limited as interest rates climb. Avoid funds with a hazy proposition that can’t be backed up by performance in a worst-case scenario.

Daily News

RBI imposes Rs 1 crore penalty on Paytm Payments Bank

The Reserve Bank of India (RBI) said on October 20 that Paytm Payments Bank Limited (PPBL) has been fined Rs one crore for several offenses.

RBI imposes penalty on paytm payments

The RBI noted in a news release that this is related to an offense of the type described in Section 26 (2) of the Payment and Settlement Systems Act, 2007 (PSS Act).

The central bank examined Paytm Payments Bank’s application for issuance of a final Certificate of Authorisation. The RBI found that PPBL had presented material that did not reflect the factual situation.

RBI sent a notice to PPBL for an infringement of the sort described in Section 26 (2) of the PSS Act. The central bank stated, that after evaluating the written responses and oral submissions made during the personal hearing. The RBI found that the aforementioned charges are legitimate. Hence, it justifies the imposition of a monetary penalty.

Meanwhile, the RBI fined Western Union Financial Services which is a money transfer service; cross-border inbound service (customer to customer only). Western Union will bear a Rs 27.8 lakh fine for not complying with master guidelines on the money transfer service scheme.

paytm payments

Western Union had reported instances of violating the 30 remittances per beneficiary ceiling during the calendar years 2019 and 2020. According to the RBI, the company had filed an application for compounding the violation.

After reviewing the compounded application and oral representations made during the personal hearing. RBI found that the non-compliance warranted the imposition of a monetary penalty.

Furthermore, the RBI said, this action only aims at regulatory compliance discrepancies. It does not intend to rule on the legitimacy of any transaction or arrangement between the businesses and their customers.

Daily News

RBI allows banks to amortize additional liability post family pension revision

The Reserve Bank of India on Monday allowed banks to amortize the additional liability arising from the family pension amendment over a five-year period commencing in 2021-22.

The banks have to provide appropriate disclosures of the accounting policy used in the financial statements Notes to Accounts.

Family pension revision

The modification comes after the Indian Banks’ Association (IBA) expressed concern over tunability to absorb liability. IBA states, some banks would struggle to absorb huge sums of liability, of family pension revisions in a single year.

The 11th Bipartite Settlement and Joint Note of November 11, 2020, has a revision in the family pension of bank employees.

The RBI confirms the assessment of all the issues from a regulatory standpoint. Moreover, as an exceptional circumstance, banks covered by the aforementioned settlement may take the following action in the matter.

In case of partial charge on the expenditure to the Profit and Loss Account during the financial year 2021-22. The expenditure must get amortized over a period not exceeding five years; beginning with the financial year ending March 31, 2022. Moreover, it will be subject to a minimum of 1/5th of the total amount involved in the expansion every year.

RBI also said the liability for family pension enhancement must receive full recognition in accordance with the accounting principles.

Overseas Capital Funds

As per a new circular RBI states that several banks approached RBI to clarify the maximum limit on raised overseas capital funds.

overseas capital funds

RBI confirms the investigation of the problems and clarifies the ‘eligible amount’ for the purpose of issuing Perpetual Debt Instruments (PDI) in foreign currency. It is the higher of 1.5 percent of Risk-Weighted Assets (RWAs) and Total Additional Tier 1 capital as of March 31 of the previous financial year.

The RBI also prohibits the issuance of more than 49% of the “eligible amount” in foreign currency; and/or in rupee-denominated bonds outside of India.

Daily News

RBI removes lending curbs on UCO Bank

The state-owned UCO Bank will no longer be subject to the Reserve Bank of India’s (RBI) harsh lending limitations. UCO Bank was under RBI’s prompt corrective action (PCA) restrictions, which were imposed in May 2017. The central bank announced on Wednesday that the lender is no longer under these restrictions.

rbi removes lending curbs on uco bank

Following the exit of UCO Bank, only two banks remain under PCA: Indian Overseas Bank and Central Bank of India. The PCA framework is used by the central bank to punish banks that have exceeded specific regulatory limits in terms of problematic loans and capital adequacy. Furthermore, PCA comprises limiting high-risk lending, increasing provisioning, and limiting management compensation.

How UCO Bank got out of the PCA restrictions?

According to the RBI, UCO Bank has given a written commitment to follow the minimum regulatory capital, net non-performing asset (NPA), as well as leverage ratio guidelines on an ongoing basis. The RBI also received information about the new structural and systemic adjustments implemented by the Kolkata-based lender; to meet its commitments.

NPA

“The Board for Financial Supervision assessed the performance of the UCO Bank; which is currently under the RBI’s fast corrective action framework. The bank is not in breach of the PCA standards, according to its disclosed results for the year ended 31 March 2021,” RBI said.

UCO Bank’s net nonperforming assets (NPA) ratio was 3.94 percent as of March 31; down 151 basis points (bps) from the same time last year. Under Basel III, its total capital adequacy ratio was 13.74 percent; up 204 basis points from the fourth quarter of FY20.

On August 6, RBI governor Shaktikanta Das stated that banks that pass the assessments are getting off from the restrictive framework.

“We’re still looking into that position. One public sector bank was recently got out from the PCA list. And if and when we receive the requests, we analyze them to see if they meet RBI’s regulatory criteria. And if we are certain that they are, the RBI will take action. As a result, we’ve been removing banks from PCA,” Das explained. For more such updates, keep watching this space!

Daily News

RBI relief for companies that opted for debt recast

Covid-affected corporate borrowers whose debts were restructured under the first recast plan may have to wait another six months to meet the Reserve Bank of India’s (RBI) financial requirements, the central bank said on Friday.

Rbi relief for companies

As per the RBI’s circular of August 6, 2020, borrowers must fulfill sector-specific benchmarks in five financial metrics for resolution plans. Moreover, from the list of five metrics, four are in relation to the borrower’s operational performance.

The central bank announced these measures following the initial wave of covid-19 infections. Which disrupted borrowers’ revenue streams and hampered their capacity to repay loans. According to ICRA Ltd, a rating agency, banks have recast roughly 70,000 crores in corporate debt as part of this plan.

“Recognizing the negative impact of the second wave of covid-19 and the resulting difficulties on business revival and meeting operational parameters. Thus, the target date for meeting the specified thresholds in respect of the above four parameters has been deferred to 1 October 2022,” RBI governor Shaktikanta Das said on Friday.

What are these five financial indicators?

RBI and icici ceo

The RBI convened a five-member group, chaired by former ICICI Bank CEO K.V. Kamath. The committee had to put a recommendation on the eligibility criteria for restructuring stressed loans on August 7, 2020.

In its report, the five-member committee had identified five financial indicators for assessing the health of troubled sectors. The parameters given by the committee are:

  • Total outside liabilities to adjusted tangible net worth
  • Total debt to Ebitda (earnings before interest, taxes, depreciation and amortization)
  • Debt service coverage ratio (DSCR)
  • Current ratio
  • Average debt service coverage ratio (ADSCR).

The central bank mostly agreed with Kamath’s recommendations. The RBI later announced that borrowers from 26 different industries would be eligible for debt recasting.

Daily News

Total debt expected to rise to 61.7% of GDP in FY22: Finance Bhagwat Karad

The government told Parliament on Tuesday that the overall debt as a proportion of GDP will rise to 61.7 percent (provisional) in 2021-22, up from 60.5 percent (provisional) the previous fiscal year. At the same time, the public debt will rise to 54.2 percent in the current fiscal year, from 52 percent in 2020-21.

Ministry of finance - debt

Minister of State for Finance Pankaj Chaudhary said in a written reply to the Rajya Sabha that the government’s amendments of the FRBM Act will aim to put the country on a path of fiscal consolidation; with a fiscal deficit of less than 4.5 percent of GDP by 2025-26.

The government anticipates the fiscal deficit to fall to 6.8% in the current fiscal year, down from 9.3% in 2020-21.
He noted that any changes to the FRBM debt targets will be in line with the overall fiscal deficit trend.

RBI's circular on debt for Payment System Providers

In response to another question, the Minister of State for Finance Dr. Bhagwat Karad said the RBI issued a circular on “Storage of Payment System Data“; issued in 2018. The circular bounds, all system providers to ensure that all data relating to payment systems is stored solely in India. The storage data includes complete end-to-end transaction details collected, carried, and processed as part of the message/payment instruction.

debt expected to rise

System providers are also required to submit a compliance report to RBI. Along with, a board-approved System Audit Report (SAR) conducted by an impaneled auditor of CERT-In (Computer Emergency Response Team India).

In response to requests for clarifications on various issues from Payment System Operators (PSOs) on the above announcement. As well as for prompt compliance by all PSOs. He said the RBI published Frequently Asked Questions (FAQs) on the subject on June 26, 2019.

The RBI has notified that American Express Banking Corp (Amex), Diners Club International Ltd (Diners), and Mastercard Asia/Pacific Pte Ltd (Mastercard) failed to comply with the guidelines of the above circular.

Rbi ban credit card issuers

Accordingly, RBI has barred Amex and Diners from onboarding new domestic consumers onto their card networks. Beginning from 01.05.2021, until full compliance with the circular’s provisions and the submission of satisfactory SAR. Moreover, a similar prohibition was introduced on Mastercard from July 22, 2021.

Domestic banks already operate a sizable credit card business in the country. They have no restrictions on doing so. For more such updates, keep watching this space!

Daily News

Rajya Sabha clears Factoring law to draw 9,000 NBFCs, boost MSME cash flow

The Rajya Sabha gives its approval to the amendments to the factoring law, on Thursday. These amendments will enable as many as 9,000 non-banking financial companies (NBFCs) to participate in the factoring market, instead of just 7 now. The move will give a boost in cash flow to small businesses, said finance minister Nirmala Sitharaman.

Earlier, the Lok Sabha already cleared the Factoring Regulation (Amendment) Bill, 2020, on Monday. Speaking on the Bill in the Rajya Sabha, the finance minister said, “You can imagine the number of MSMEs that will directly benefit because of this.”

What does Factoring mean?

Essentially, factoring is a transaction where an entity (like MSME) sells its receivables (i.e., dues from a customer) to a third party (a ‘factor’ like a bank or NBFC) and collects immediate funds. It helps a firm to fulfill its working capital requirement. Many MSMEs, participate in the factoring business with receivables. It helps MSMEs whose payments against their supplies are stuck.

msme

However, due to certain restrictive provisions in the extant law, necessary amendments were brought in to widen the participation of entities, in the factoring business. These entities, especially NBFCs will help in expanding the avenues of working capital credit to even small businesses. The Bill also empowers the central bank to monitor and create norms for better oversight of the $6-billion factoring market.

According to a report of the parliamentary standing committee on finance, which endorsed the Bill. Despite the growth in recent years, the factoring market accounts for only 0.2% of India’s GDP. The numbers are way behind the comparable developing economies such as Brazil (4.1%) and China (3.2%). Moreover, the factoring market worldwide will see a projection and reach $ 9.2 trillion by 2025.

The report submitted by the House panel in February stressed the need for the RBI to build sufficient regulatory resources to ensure effective supervision of factoring activities. This becomes more important than ever before, with the implementation of the new norms. Because, a large number of players may take part in such businesses now, after the amendments.

For more such updates, keep watching this space!

Daily News

Yes Bank, Indiabulls Housing Finance sign co-lending agreement

Yes Bank and Indiabulls Housing Finance have entered into a co-lending agreement for home loans. The two finance giants, Yes Bank, and Indiabulls Housing Finance have come in a partnership to synergize capabilities and enhance retail experiences for home loan customers.

yes bank and indiabulls

On Wednesday, the two finance giants said in a joint statement; the partnership aims at synergising capabilities to provide an efficient and seamless experience to retail home loan customers. The statement also adds that the Reserve Bank of India’s co-lending framework provides a collaboration tool for both banks and non-bank financiers. Which will provide a low-cost funding model of a bank and the cost-efficient sourcing and servicing capabilities of a non-bank.

In November 2020, the Reserve Bank of India came up with guidelines on co-origination of loans or co-lending of loans. Under this framework, banks and NBFCs (non-banking finance companies) can lend to priority sectors or economically weaker sections. The main idea behind the collaboration framework is to encourage credit flow to this segment.

What is the co-lending model (CLM)?

yes bank and indiabulls co lending

In the co-lending model (CLM), banks have the permission to co-lend with all registered NBFCs (including HFCs). However, the loan will be based on a prior agreement between the banks and NBFCs. Moreover, the co-lending banks will be taking their share of the individual loans on a back-to-back basis in their books.

How do the two financers approach this partnership?

According to Rajan Pental, Global Head, Retail Banking, Yes Bank, The partnership is in line with Yes Bank’s strategy of expanding its retail franchise through a mix of organic and partnership-led origination models. The bank is eyeing forward to further build a profitable and quality home loan portfolio through this partnership.

Gagan Banga, Vice Chairman and CEO, Indiabulls Housing Finance expressed his optimism for the partnership. According to him, they can now leverage Yes Bank’s deposit-led franchise and complement that with the technology-led distribution of Indiabulls. Thus, it will help in providing efficient solutions around home loans to a wide gamut of customers across geographies, ticket sizes and yield spectrum. The collaboration will provide balance-sheet light growth and profitability to the two firms.

How will borrowers benefit?

From the borrower’s point of view, the idea makes a lot of sense as it will make the process faster. NBFCs process loan applications much quicker than banks. Also, NBFCs have a better reach among borrowers than the banks in many geographies. NBFCs can get bigger and top-rated borrowers on their books through this arrangement. Whereas it wouldn’t have been possible otherwise, according to a former SBI senior executive.

For more such updates, keep watching this space!

Daily News

Bankers fear huge disruption from RBI ban on Mastercard

Soon after the Reserve Bank of India (RBI) decision to bar global card network Mastercard from issuing new cards, Bankers fear that similar punitive actions on two other card networks will cause significant disruption in India’s evolving payments system.

Banks that are solely using Mastercard will take at least two months for improving their business to either Visa, the sole global survivor so far, or homegrown RuPay. RBI had on Wednesday applied its restriction on Mastercard from onboarding any new customers from 22 July. The restrictions came after the company’s failure to comply with its data localization norms.

mastercard-rbi-ban

At the centre of these restrictions is a regulation that came in April 2018 and made it mandatory to store all payments data from India, inside the country. This initially did not sit well with many companies, however, most companies eventually complied.

Experts' reaction on Mastercard ban

Institutions such as Visa and Mastercard oversee thousands of transactions and hence are systemically important to the country. According to one banker, a fine would have been more appropriate than a ban. As such sudden moves create a lot of disruption not only for banks but also for customers. Even better if RBI had given a warning six months in advance to stakeholders before any fine or ban.

According to a second banker, the banking regulator is sending out a bolder message. RBI is very clear in its message that everybody has to adhere to the local rules of the country. RBI was earlier more facilitative in its discussions and did not come across publicly as tough.

The central bank’s actions have come as a blessing for Visa and RuPay. Experts are speculating, Visa to be the sole gainer of market share in credit cards. Meanwhile, RuPay will strengthen its foothold in the debit card space.

According to Parijat Garg, a fintech expert, some clear trends are visible in the market. Visa will be the sole gainer in the credit card segment for the next few months. This prediction is quite easy to make, as banks have very little choice. RuPay will not find much benefit in credit cards. Since many global websites do not accept the card network, even today.

Which banks are facing the greater impact?

The restrictions on Mastercard will affect three credit card issuers the most. According to a report by brokerage Nomura, RBL Bank, Yes Bank, and Bajaj Finserv have their entire credit card scheme on Mastercard. RBL Bank expects to start the issuance of credit cards on the Visa payment network after the technology integration. This will take eight to 10 weeks approximately, as per the official statement from the bank.

The Nomura report said HDFC Bank has 60% of its card schemes tied to Mastercard, American Express, and Diners Club. Whereas, for Axis Bank and ICICI Bank, the same is at 35-36 percent. However, HDFC Bank is already under RBI curbs on credit card issuances since December. Thus, the bank may not be incrementally hurt by the ban.

mastercard

Experts also said the ban on Mastercard could impact liability account acquisition as debit card issuances will be hit. “Large banks such as HDFC Bank and Axis Bank added close to 6.5-7 million liability accounts in FY21. While the exact proportion of Mastercard vs Visa vs RuPay debit cards is not available, most banks offer all variants. The ban could temporarily affect liability account acquisitions in our view,” said a Macquarie report.

For more such updates, keep watching this space!