Daily News

Remittances to Nepal: RBI hikes per transaction cap to Rs 2 lakh from Rs 50,000

The Reserve Bank of India raised the limit on remittances from India to Nepal from Rs 50,000 to Rs 2 lakh on Friday. Thus, making it easier for ex-servicemen living in the neighboring nation to receive retirement and pension payments. Furthermore, the central bank has lifted the 12-remittance limit per remitter every year.

reserve bank of india - transaction cap

In a circular, the Reserve Bank of India (RBI) stated, “Banks will continue to accept cash payments must how it was in the past. The bank accepts remittance payments from all walk-in clients and non-customers. However, the Rs 50,000 per remittance limit, will remain in effect for such remittances. The Rs. 5000 payment limit also has a maximum limit of 12 remittances per year”. In addition to raising the ceiling, the RBI has recommended banks implement appropriate velocity checks and risk mitigation procedures.

The modification of the remittance policies aims to facilitate the remittance payment or cash transfer from India to Nepal easier. This policy also focuses on the pension and other payments to our ex-servicemen who have settled/ resettled in Nepal easier. The circular addresses all NEFT (National Electronic Funds Transfer) banks’ Chairman, Managing Director, and Chief Executive Officers.

What is Indo-Nepal Remittance Facility Scheme?

The RBI created the Indo-Nepal Enclosure Facility Scheme in May 2008. The scheme provides an option for cross-border remittances from India to Nepal. It was envisaged with a special focus on the needs of Nepali migrant workers working in India.

indo nepal remittance

The scheme makes use of the country’s NEFT ecosystem to facilitate the origination of such payments. Albeit with a limit of Rs 50,000 per enclosure and a maximum of 12 enclosures per year. The beneficiary receives funds in Nepalese Rupees via credit to her or his bank account with Nepal SBI Bank Limited (a subsidiary of State Bank of India), or through an agency arrangement.

The modifications to the Indo-Nepal transmittal facility scheme are intended to increase trade payments between the two nations. Moreover, it will also boost and make electronic transfers to Nepal easier. 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

Non-food bank credit growth is at 5.9% in May: RBI data

Reserve bank of India releases a flow of financial resources from Scheduled commercial banks to the Commercial sector. Non-food bank credit growth is decreased as per the RBI report. In the month of May 2021, it is 5.9 percent. If we compare to the last year’s non-food bank credit growth it was 6.1 percent in May 2020.

We can see growth data for different items in this list like

  • Non-food bank credit,
  • investment in commercial paper,
  • investments in shares,
  • investment in bonds and debentures,
  • total Non-SLR investment, and
  • Adjusted Non-food bank credit.

Year to year growth releases in percentage. We will further discuss this in the article ahead.

credit growth

Sectoral Deployment of Bank Credit released by RBI

If we see the data released by RBI we will come to know that the agricultural sector is doing better. It has registered a growth of 10.3 percentage in May 2021. The data we have for May 2020 is 5.2 percent. Non-food credit has a large part of bank credit. It consists of credit for various sectors of the economy. These sectors are agriculture, Industry, personal loans, and services in different areas and sectors.

RBI

Meanwhile, If the data of industry is considered, it has declined a little. The credit to the industry for May 2020 was 1.7 percent. But this year in May it is 0.8 percent. Above all, wonderful growth is seen in the medium-scale industry. The credit to medium industries marked a growth of 45.8 percent. In may 2020 it was noted as 5.3 percentage only. Reserve bank of India collects the data on the monthly basis. We use this data further to see the graph of growth in different sectors.

If we see other sectors like Personal loans the credit growth has increase and is 12.4 percent. Last year it was 10.6 percent. However, the credit growth of trade centers is increased and marked 12.4 percent of the growth in May 2021. Previous year it was only 7.7 percent.

What is the credit growth of banks?

In exchange for money, there is a sum of money we deposit in our bank accounts. The pays us the regular interest on that amount. Banks lend the money to people at a higher rate of interest. Consequently, Banks earn from these interests. The rise in demand for loans is known as the Credit growth of banks.

For more such updates, keep watching this space!

Daily News

West Bengal raises Rs. 10,500 crore in Q1 FY22 via state loan auctions

The West Bengal government raises Rs 10,500 crore in quarter one of the current financial year. The Government of earlier suggested Union finance minister raise the States’ borrowing limit. As per the official data, the auctions of state securities and state development loans were the major contributors.

West Bengal chief minister

Earlier, the West Bengal Government was able to reach Rs. 10,000 in the same period last year. Whereas, the amount raised in the current quarter through the auction conducted by the Reserve Bank of India was below the estimate of Rs 14,000 crore provided by the state government.

What are these State Development Loans?

State Development Loans (SDLs) are dated securities. These are issued by the state governments for meeting their market borrowings requirements. In effect, the SDL is similar to the dated securities issued by the central government.

The purpose of issuing State Development Loans is to meet the budgetary needs of State governments. Each state has the power to borrow finances up to a limit which is set by State Development Loans.

The SDL securities issued by states are credible collateral for meeting the Statutory Liquidity Ratio (SLR) requirements of banks. Also, it can be used as collateral for availing liquidity under the RBI’s LAF including the repo.

It is important to note, that the Statutory Liquidity Ratio or SLR is a minimum percentage of deposits. A commercial bank has to maintain SLR in the form of liquid cash, gold, or other securities. It is basically the reserve requirement. It is set by the RBI, for a bank to keep before offering credit to customers.

How SDL functions in the market!

One remarkable feature of SDL is that it is a market-oriented instrument for states to mobilize funds from the open market. Higher the fiscal strength of a state, lower will be the interest rate (yield) it has to pay for the SDL borrowings.

RBI facilitates the issue of State Development Loans securities in the market. We always consider SDL securities as superior to loans, mobilized or bonds issued by state government entities. The RBI as the facilitator to the issue of SDLs has the power to make repayments to SDLs out of the central government allocation to states.

Who buys SDLs?

The investors in SDL are generally commercial banks, mutual funds, and insurance companies.  They generally are attracted by the slightly higher interest rate of SDL than the central government securities. The rate of interest of SDL securities is determined through auction. Still, the interest rate of SDLs is slightly higher than that of Central Government securities (G-secs) of matching tenure.

In 2015, Government allowed Foreign Portfolio Investors (FPIs) to buy SDLs up to 2% of outstanding SDLs in the market.

RBI

The trading in SDLs is done electronically. It is usually done on the RBI-managed NDS-OM and traded in the voice market (NDS). NDS-OM is stated as Negotiated Dealing System-Order Matching.

A CARE Rating analyst reportingly said, “On Tuesday, the West Bengal government raised Rs 2,500 crore through the RBI auction window at a coupon rate of 6.79 percent,”. Also, the borrowings by the state governments in the quarter under review have been 14 percent less than that in Q1 FY21. It is also worth noticing that meanwhile, some other 20 states and a Union Territory raised a total of Rs 1,44,550 crore in Q1 FY22.

For more such updates, keep watching this space!

COVID-19 Daily News Education Finance

Supreme Court denies plea seeking fresh loans moratorium!

Following the outbreak of the COVID-19 pandemic Reserve bank of India and the Supreme court have given many decisions to suppress the economic failures and financial stress. Among these there came a decision on June 11, 2021, ” Supreme court of India to pass an order of fresh loan moratorium and said the issues raised in the petition are in the realm of policy decisions.”

What is the PIL about?

The Supreme court says that it does not come under the expertise of judges and is a matter of the banking system. The moratorium on all loans announced by RBI last year on home, auto, and agricultural loans. The decision is to help the customers overcome the financial difficulties.

The decision bench was headed by Justice Ashok Bhushan. The petitioner has pleaded with the supreme court for a new loans moratorium, Time extension, and temporary cease on the declaration of NPA by banks.

NPA

One-time loan restructuring scheme

The one-time loan restructuring plan is for individuals and small businesses considering the financial conditions. People will be able to recast their loans again. Their NPA also will not downgrade.

Why this decision?

Supreme court judges

Supreme court judge, M R Shah who is a part of the bench tells the media briefly about the decision. He says,” what is an economic policy or what will be the financial package, the center. Rbi will decide this after a discussion in detail.”

“From various steps taken by center and Rbi, we can’t say that center hasn’t taken steps in the backdrop of covid-19. Therefore the petitioners will not be eligible for a waiver of interest, extend moratorium period, or sector-specific relief,” he added.

The Supreme court has dismissed a batch of plea regarding these issues earlier also.

For more such updates, keep watching this space!