Banking & Financial News DT 23, 24&25th Sep

Govt will help strengthen the banking system, says Jaitley (BL 23.09.17)

Flagging increasing stressed assets as a core area of concern, Finance Minister Arun Jaitley  said the government will expeditiously work with the banking system to strengthen it. Speaking at the Indian Banks’ Association’s 70^th Annual General Meeting, the minister assured top bankers that when it comes to finding resources to support the banking system, which provides a lifeline to the Indian economy, the government will always be there with them. This statement comes in the context of public sector banks needing capital to provide for the rising bad loans as well as to comply with Basel-III norms, which are aimed at improving the banking sector’s ability to absorb shocks arising from financial and economic stress. “With regard to the increasing stressed assets, I think it is this which is really the core area of concern today…During the boom period in the global economy, people wanted to expand and therefore for some reasons based on the assessment at that time a large number of projects were taken up. “Some sectors have been adversely affected. We have tried to address some of those sectors. There is a process of global revival on as far as the economy is concerned and some of the sectors have been reviving,” said Jaitley. According to the minister, there are two major challenges facing the economy — encouraging private sector investment and improving the capacity of the banking system to support growth. “And now as a dynamic and progressive society we have to look for the best possible solutions and make sure that we are able to resolve these issues much faster. “….We have changed various laws in order to support you (banks) — whether it is Sarfaesi (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act),…whether it is DRT (Debt Recovery Tribunal,” Jaitley said.

'None of 21 PSBs has any officer/employee representative on board anymore' (BL 23.09.17)

None of the 21 public sector banks in the country can claim to feature a representative of officers or employees on its board any more. This is because the last of the latter’s tribe have ended their terms and stepped out of the boards on September 18, RTI enquiries reveal. As per Banking Companies (Acquisition and Transfer of Undertakings) Act 1970, Sec 9 (e), ‘one director from among the employees of the corresponding new bank who are workmen under clause (6) of Sec 2 of Industrial Disputes Act, 1947 to be nominated by the Central Government in such manner as may be specified in the scheme made under this section.’ Sec 9(f) says that ‘one director from among employees of the corresponding new bank who are not workmen under clause (s) of section 2 of Industrial Disputes Act 1947 to be nominated by the Central Government after consultation with the Reserve Bank.’ A similar provision has been made in the SBI Act under Section 19 (ca) and (cb), says DT Franco, general secretary, All India Bank Officers’ Confederation (AIBOC). According to him, the practice of appointments seem to have been stopped though recommendations have been sent by banks to the government as per the procedure laid down in the scheme. By September 18, 2017 the term of the last employee directors on the boards of Bank of Baroda and Dena Bank had ended. This has been one of the contentious issues highlighted in the strikes and agitations conducted by the United Forum of Bank Unions. It is unfortunate that the government which talks about transparency should have rendered opaque the bank boards which take crucial decisions, Franco said.

SBI well placed on capital adequacy front, says Arundhati Bhattacharya (BL 23.09.17)

SBI’s capital adequacy is quite good and well above what is mandated, Chairman Arundhati Bhattacharya said. “We do not have any issues having sufficient growth capital as of now. If the Indian economy grows at a very fast clip of 16-18 % only then we see an immediate requirement for further growth capital,” Bhattacharya said. On the issue of non-performing assets, she said that the Indian banking sector was likely past its hump. “We didn’t really have any transparent or open manner of resolving stress tests…today with the bankruptcy law that gap has been filled. “…the law is still in its infancy and our hope going forward is that it will continue to perform the way it was meant to perform….if it performs...definitely going forward in India non-performing assets will take a different shape.” Stating that there is a lot of potential in the country, she said “we should not be diverted by this one issue of non-performing assets as is it under the process of resolution.” SBI is in the process of de-merging its UK business — currently comprising one main branch focussed on wholesale business and 11 branches focussed on the retail sector. The main branch in London will remain a branch of SBI while the retail branches will form a subsidiary that will be incorporated in the UK. The de-merger is set to complete by the end of this year or early next. “There will be much greater focus on the retail business because it will be on its own — it will have to prove itself on its own…it will be totally a local operation,” Bhattacharya said. The bank, she said, would try to bring the “very best of IT” and processes being used in India to the UK subsidiary that would work with the Indian diaspora and beyond, with plans to introduce services already in place in India such as the account opening machine and debit card printing machine.

‘The telecom industry is under stress and SBI has provisioned for it’ (BL, BS 25.09.17)

The telecom sector continues to be under stress and the State Bank of India is making extra provisions for this, according to the bank’s Chairperson Arundhati Bhattacharya. “Telecom has already been earmarked as a sector going through stress and provisioning has been done,” Bhattacharya said while responding to queries on whether the Telecom Regulatory Authority of India’s (TRAI) decision to reduce interconnect usage charges (IUC) will impact the finances of operators such as Idea, Vodafone and Airtel. TRAI has reduced IUC — paid by telecom companies for calls originating from their network and terminating in other networks — to 6 paise per minute from 14 paise, effective October 1. India Ratings and Research, in a recent report, said the reduction in IUC will have a 4-5% impact on the EBITDA levels of incumbents such as Bharti Airtel, Idea and Vodafone India. However, this could help newcomer Reliance Jio to save Rs. 35-40 billion in IUC annually. “We do not know how their (incumbent telcos’) finances will be impacted,” said Bhattacharya. Calling GST a deep-rooted structural reform, Bhattacharya said its positive impacts will be felt over the long term.

SBI launches Indian bond index series in London (BL 23.09.17)

SBI has launched the FTSE SBI Bond Index series in partnership with global index provider FTSE 100, which it is hoped will give tools to investors from India, the UK and globally to analyse India’s government bond market, and drive growth in this market. “With the launch of this index along with FTSE Russell, our intention is to give people a benchmark on which they can make investment calls,” said Arundhati Bhattacharya, SBI Chairman, at the launch at the London Stock Exchange on Friday. “With respect to the Indian government bond market, we didn’t have any international indices on which investors could take a call as to whether they would like to come in and invest,” she said. “There is a lot of capital wanting to come into India. But there was not enough depth in terms of the various types of products and what we lacked was a transparent benchmark on which people could rely… This index, launched in collaboration with the London Stock Exchange, will ensure that international investors have an international benchmark that is transparent, that is well governed and that is something they can easily rely on,” she said. She said that there were no products as yet linked to the index and SBI would be working with the LSE to get some products in… “We have already approached the capital markets regulator in India to allow us to use this index in order to launch an ETF,” she said of SBI’s asset management division.

PNB board to consider ₹5,000-Cr capital mop-up proposal next week (BL 23.09.17)

Punjab National Bank’s board of directors will meet on September 27 to consider capital-raising of up to ₹5,000 Cr. Board approval will be sought for raising Common Equity Tier (CET) capital up to ₹5,000 Cr as per Basel-III requirements, sources in the bank said. It may be recalled that the public sector bank’s shareholders had recently given their nod at an extraordinary general meeting (EGM) on September 12 to raise equity capital of up to ₹3,000 Cr to fund business growth. “We are taking board approval to go up to ₹5,000 Cr. The EGM nod is to go up to ₹3,000 Cr. The idea is in case there is a possibility to raise beyond ₹3,000 Cr, one need not go back again to the board,” sources in the bank said. The Centre currently holds 65.01% stake in PNB. On September 27, the bank board is also expected to take a decision on the route for CET raising. The September 12 EGM resolution empowering the board to decide on the appropriate route came with the condition that the Centre’s shareholding in the bank should not fall below 52%. Sunil Mehta, MD and CEO, PNB, had in August said that the bank intended to raise ₹6,000-Cr capital this fiscal. While ₹3,000 Cr will be pure equity capital, the remaining ₹3,000 Cr is expected to be raised in the form of additional tier-I bonds, which also qualify as capital, Mehta had then said. PNB’s board had on August 2 given its approval for raising equity capital of ₹3,000 Cr through follow-on public offer, rights issue, qualified institutional placement, ESPS or ESOP routes. Of the planned ₹3,000 Cr of additional tier-1 capital, PNB has already raised ₹1,500 Cr through issue of bonds at a low rate of about 9%. Besides the capital mop-up of ₹6,000 Cr, the bank will also look to raise ₹1,000 Cr from the sale of non-core assets, including stakes in some subsidiaries, this fiscal. Currently, the bank is capitalised at ₹425.59 Cr and its capital adequacy, as on March 31, 2017, stood at 11.66%. PNB had reported a 12% increase in net profit for the first quarter ended June 30, at ₹343.40 Cr (₹306.36 Cr). This bottomline performance was higher than the March 2017 quarter net profit of ₹261.90 Cr.

AP Mahesh Bank MD elected to IBA management committee (BL 23.09.17)

Umesh Chand Asawa, MD & CEO, A.P.Mahesh Co-operative Urban Bank Ltd, has been elected Member of the managing committee of the Indian Banks Association (IBA), Mumbai. "This is the first time that a banker from South India has been elected on the managing committee of IBA to represent all the cooperative banks of the country. Mahesh Bank said in a release. Asawa has been working with the Mahesh Bank for more than three decades and had served in various capacities. IBA, an apex body of all the banks in the country has been set up in 1946 to work proactively for the growth of a healthy, professional and forward looking banking.

Subsidy on home loans under PMAY till March 2019 (BL 23.09.17)

To meet affordable housing targets, the Centre extended the benefits of the interest subsidy scheme on home loans under the Pradhan Mantri Awas Yojana or PMAY (Urban) by 15 months beyond December this year. Now, the subsidy of up to ₹2.60 lakh on home loans for the middle-income group (MIG) will be available till March 2019. The announcement was made by Housing and Urban Affairs Secretary Durga Shanker Mishra at the Real Estate and Infrastructure Investors Summit organised by NAREDCO in Mumbai, according to an official release. “The government decided to give more time for MIG beneficiaries to avail interest subsidy under PMAY (Urban)”, Mishra said in his address. Prime Minister Narendra Modi in December 2016 had announced that the Credit Linked Subsidy Scheme (CLSS) under PMAY (Urban) for MIG would continue till the end of December 2017. Under CLSS, MIG beneficiaries with annual income of above ₹6 lakh and up to ₹12 lakh get an interest subsidy of 4% on a 20-year loan component of ₹9 lakh. Those with annual income exceeding ₹12 lakh and up to ₹18 lakh would get interest subsidy of 3%.

Prefer merger among stronger banks: Arun Jaitley (BS 23.09.17)

Giving preference to consolidation for robust banks, Finance Minister Arun Jaitley said he would rather have a merger of strong banks rather than weaker ones. “The object of consolidation is to create bigger and stronger banks,” Jaitley said. Bank consolidation has to move in tandem with the process of strengthening the banks, which are struggling with asset quality issues, Jaitley said. So far, the focus was on merging weak banks with relatively stronger counterparts in the public sector space. Bankers have expressed reservations over this approach as it hardly addressed issues of asset quality problems and capital. Addressing bankers earlier in the day, the finance minister said the government was facing two major challenges — encouraging private sector investment and improving the capacity of the banking system to support growth. “We have done adequate amount of analysis on the causes for challenges. Now we have to look for solutions for them,” he said in his address at the Indian Bank Association’s annual general meeting.

Banking sector’s credit demand to get boost from government projects, says SBI chief Arundhati Bhattacharya (FE 24.09.17)

The banking industry is poised for a recovery in the credit demand as it stands to gain from the slew of projects like the bullet train announced by the government, SBI chairperson Arundhati Bhattacharya said. She said the government was playing its role in giving a boost to the credit and investment cycle by announcing the projects. “The government has to do a little bit of heavy lifting and this is already happening. “We just saw the declaration of bullet trains and various other corridors which were expected to come up, those plans are now getting off the table and detailed out,” Bhattacharya said. “There are signs of increase in amount of tenders on roads and railways. Sectors like petroleum, fertiliser and power transmission also have new projects,” she said. The chief of the country’s largest lender said the banks stood to gain as these projects would need debt for their implementation. She said procedural issues including preparation of the detailed project reports take time and so the benefits from the projects would be reflected in the books of the bank in due course. Bhattacharya said though incidents of fresh credit slippages have marked a downtrend, some areas like telecom were displaying signs of stress.

How SBI Project Vivek has given SMEs a leg-up in drive to clear loans (FE 23.09.17)

SBI has automated the process of carrying out due diligence for loans to small and medium enterprises (SMEs) under what the bank calls Project Vivek, sources said. “We have moved to a system of lending based on cash flows rather than the balance sheets,” a senior banker said, adding that SBI now collects the statements of all bank accounts of an applicant in order to assess their cash-flow situation. The statements are then put through a software which analyses the documents. The lender also launched a one-time settlement scheme (OTS) on August 8 for loans under Rs 20 lakh which had turned bad as on March 31, 2016. Around 27 lakh borrowers would qualify for the scheme, the banker said. SBI expects to contain retail non-performing assets (NPAs) at their June levels in the September quarter and reduce them to their March 2017 levels by December. As on June 30, the bank’s retail NPA ratio stood at 1.56%, while the agri NPA ratio was 9.51%. On March 31 – prior to the bank’s associates being merged with it – retail and agri NPAs constituted 0.55% and 5.53% of the loan book, respectively. A majority of the bank’s slippages in the quarter ended June – Rs 17,886 Cr – originated from the national banking group (NBG), which houses its retail and agri loans. Chairman Arundhati Bhattacharya had attributed the slippages to an inability to effectively follow up retail loans in the wake of the bank’s merger with its associates. “While we had rationalised our accounts of up to Rs 50 Cr with the subsidiaries, this had not been done for accounts below Rs 50 Cr and for the personal book,” she had said after announcing results for the June quarter. “This is the book we have now aligned with ourselves and that has caused the retail slippage.”

 

’Change in fiscal consolidation roadmap to hurt investor sentiment’ (BL 24.09.17)

The Government has been under pressure to support the economy but any change in the fiscal consolidation roadmap can hurt global investor sentiment, says an UBS report. According to the global financial services major, global investors view India favourably not just for its growth outlook, but also because of its robust/stable macro story reflected in falling inflation and stable currency. “A 0.2% GDP boost is not that material for growth per se. A change in the fiscal consolidation roadmap has potential to hurt sentiment among global investors,” it said. While the Government can use the fiscal push to revive growth, the quality of government spending (investment vs consumption) matters more, UBS said. The Central Government is already walking a “tight-rope” to meet the 2017-18 fiscal deficit target of 3.2% of the GDP. Moreover, it has to make up for the shortfall of 0.2% of GDP on a lower RBI dividend transfer and there is also uncertainty regarding tax collections under GST in the near term. India’s economic growth slipped to a three-year low of 5.7% in April-June as disruptions caused by demonetisation spilled over to the third straight quarter amid slowdown in manufacturing activities. The report noted that part of the slowdown in economic growth comes from a temporary disruption due to the goods and services tax (GST) implementation and demonetisation, and growth is likely to normalise over upcoming quarters. However, underlying demand momentum remains weak, as growth has been mostly supported by consumption, while investment lags.

Chief Economic Advisor Arvind Subramanian gets a year's extension (BS 24.09.17)

Chief Economic Advisor (CEA) Arvind Subramanian will continue in his current role for at least a year beyond his tenure, which ends on October 16, Finance Minister Arun Jaitley said. This ended weeks of speculation on Subramanian’s future in the government; there were reports that he would quit before his tenure was over. A senior official said the discussions regarding Subramanian’s tenure had been going on for some time now, and he had briefly considered not continuing for a second term because of personal commitments.  A senior fellow at the Peterson Institute for International Economics, Subramanian was appointed CEA in October 2014. After his extension was confirmed on Saturday, he said, “India is a country where there is never a shortage of issues... It is true that growth slowdown poses an extra challenge. I think that this is a good opportunity for me personally, to try and contribute to the debate and the solutions.'' He also said the economy was facing multiple headwinds and there was a need to attack them on various fronts. “We have seen growth slowing down and investment not picking up. We have to attack this problem on many fronts — exchange rate, public investments — while maintaining macroeconomic stability.”

India's forex reserves up by $1,782.5 million (BS 23.09.17)

India's foreign exchange (forex) reserves increased by $1,782.5 million as on September 15, according to data released by the Reserve Bank of India. Total reserves were $402.5 billion, against $400.7 billion for the week ended September 8. Foreign currency assets rose by $1,800.8 million to $378.01 billion. Gold reserves were flat at $20.69 billion. India’s reserve position with the International Monetary Fund fell by $11 million to $2.2 billion. 

    

Markets see worst plunge in 10 months (BS 23.09.17)

The stock markets suffered their worst setback in 10 months on concern that the government’s stimulus plan for the economy could disturb the fiscal math, and hurt the rupee and interest rates. Market players said the sell-off was triggered by pessimism that the government may not be able to balance growth with macro-stability. Meanwhile, the strengthening of the dollar on the US Federal Reserve’s plan to trim its balance sheet, North Korea’s new hydrogen bomb threat and S&P’s downgrade of China also hurt investor sentiment towards emerging markets (EMs).  On the BSE, the benchmark Sensex ended at 31,922.44, down 447.6 points, or 1.4%. The Nifty 50 index on the National Stock Exchange lost 157.5 points, or 1.6%, to 9,964.4. Both posted their worst single-day fall since November 21, 2016. Investor wealth witnessed an erosion of Rs 2.7 lakh Cr.  The rupee fell to 65.16 against the dollar, its lowest since March, before recovering over its previous day’s close of 64.79. The yield on the benchmark 10-year government bond in intra-day trade rose to 6.69%, the highest since May, before closing at 6.67%. A day earlier, the rupee and bond prices had seen sharp falls.

Lending rate cuts key to economic recovery: BofAML report (FE 23.09.17)

Lending rate cuts are the only viable way to economic recovery as they would perk up demand and push investments, a report has said. The report said that structural reforms take long time of 5-10 years to reflect in growth rate or reviving the stranded projects. In a research note, BofAML said, “Lending rate cuts hold the key to recovery. They would push up demand, put idle factories to work, and spark off investment when capacity is exhausted, in our view.” The report further said that with 2017-18 likely to see sufficient USD 35 billion of reserve money, lending rates should come off 25 bps (0.25 percentage point) before the October-March busy season sets in (and 50 bps by September 2018). Lending rate cuts are the only viable route to recovery rather than structural reforms, which can take a long time of around 5-10 years to reflect in growth numbers, it adds. “We never shared the market enthusiasm for reforms (as it can take 5-10 years to show up in growth) or clearing ‘stalled’ projects (given idle capacity),” the report said. According to BofAML, growth is stuck at an “anaemic 5% (in old GDP series), well below our estimated 7% potential”, as high real lending rates are constricting domestic demand in a long global recession. Regarding the Reserve Bank’s monetary policy stance, the report said that the central bank is expected to key policy rates by 25 bps December 6 policy review meet as inflation is expected to normalise and stay well within the RBI’s 2-6% range. The next policy review meet is scheduled on October 3-4. RBI reduced the repo rate by 0.25% to 6% in August, citing reduction in inflation risks. The rate cut was the first in 10 months and brought policy rates to a near 7-year low.

There is Little Room for a Stimulus This Year: Experts (ET 25.09.17)

Higher spending so far this year coupled with lower revenues due to the implementation of the GST will limit the room for an economic stimulus by the government, making it difficult to boost growth in a meaningful manner, economists and bond traders have said. Stimulus is difficult to implement in such a short time as it will only hurt the government's credibility at the current juncture as it will lead to a compromise in the 3.2% fiscal deficit target in the year ending March 2018. Up till July, the government has spent heavily, touching 92% of its fiscal deficit target which means that even without a stimulus; it will not be able to stay within the self-set border of 3.2% of GDP. “The fiscal deficit target of 3.2% is unlikely to be met this year because of the impact of GST and depressed revenues due to lower RBI dividend, fall in telecom receipts and higher allowance payout. We think fiscal deficit will be at least 3.5%,“ said A Prasanna, economist at ICICI Securities Primary Dealership. Government revenues are likely to be slow this year because of teething problems linked to the new tax regime and also the fact that some receipts will move to the states from the Centre. Variable receipts such as dividend from RBI are also likely to be lower than budgeted. This means that the government is already under huge pressure to achieve its target even without a stimulus, making a big-bang spending plan very difficult. Economists are predicting the stimulus to be just 0.2% to 0.4% of GDP which could be about 35,000 Cr to 50,000 Cr, which is too little to make a serious impact. “A 0.2% GDP boost is not that material for growth per se. (But) a change in the fiscal consolidation roadmap has potential to hurt sentiment among global investors. Our discussions with global equities investors suggest many have looked at India favourably not just for its growth outlook, but also as a robust stable macro story...we think bond investors care more for macro stability parameters than near-term growth,“ Gautam Chhaochharia, head of research, and Tanvee Gupta Jain, economist, UBS Securities India, said in a note.

 

Finmin hopes for more monetary easing to boost demand (BL 23.09.17)

Ahead of the monetary policy review early next month, the Finance Ministry is hoping for a further cut in key rates to boost domestic demand. "Inflation has picked up in the last one month but all the analysis we had done was based factoring in a rise in inflation. The medium term inflation target is kept at 4%,” Finance Ministry sources said. The comments come ahead of the bi-monthly monetary policy review on October 3 and 4. To spur growth, the Monetary Policy Committee in its last review in August had reduced the repo rate by 0.25% to 6%. But since then, official data has pointed to a pickup in prices with retail inflation at a five-month high of 3.36% in August while wholesale inflation was at a four-month peak of 3.24%. The government is hoping that with growth slowing down, monetary policy easing along with more measures will boost the economy. “The response has to be across the board with interest rates, exchange rate and creating more demand,” said the source. An internal review has shown that the manufacturing sector continues to lag behind from the impact of demonetisation, roll out of the goods and services tax and appreciation of the Indian currency. "A number of manufacturing sectors have been affected over the last two to three quarters. This is also corroborated by the substantial increase in manufacturing imports,” said the source.

FinMin plans Mudra promotion camps from Sept 27 (BL 24.09.17)

In a bid to accelerate self-employment opportunities, the Finance Ministry has decided to organise Mudra promotion camps across the country beginning September 27 from the Prime Minister’s constituency Varanasi. As part of the special drive, 50 camps, including one each in state capitals, will be organised between September 27 and October 17, official sources said. Besides, the camps will facilitate various modes of digital payment enabling users to transact from anywhere and create awareness on various financial inclusion instruments, the sources said. The campaign will help promote not only Mudra loans but also spread awareness about digital payment method, financial inclusion and social security schemes, the sources added. It is to be noted that banks have sanctioned Rs. 74,601 Cr to 1.59 Cr beneficiaries across the country since April this year. Since the launch of Mudra Yojana by Prime Minister Narendra Modi in April 2015, banks have disbursed Rs. 3.66 lakh Cr to 8.77 Cr beneficiaries. These camps will see participation from all the banks, SIDBI and Common Service Centres. Insurance companies will also set up stalls at the camp to motivate citizens to enrol in social security insurance schemes — Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), and Atal Pension Yojana (APY). The big draw of these camps are going to be Aadhaar seeding and authentication, assisting visitors to download and use the BHIM app on individual mobiles and distribution and activation of RuPay cards, the sources said.

Masala bonds to be treated as ECBs from Oct 3 (BL 23.09.17)

The RBI relaxed norms for issuance of rupee-denominated overseas bonds, popularly known as masala bonds, saying they will be treated as external commercial borrowings from October 3, thereby freeing up more investments by FPIs. Currently, the limit for investment by foreign portfolio investors (FPIs) in corporate bonds is Rs. 2,44,323 Cr. This covers issuance of masala bonds by resident entities of Rs. 44,001 Cr, including the ones in pipeline. After a review, the RBI said that from October 3, masala bonds will no longer form part of the limit for FPI investments in corporate bonds. “They will form part of the ECBs and will be monitored accordingly,” the central bank said in a notification. As a result, Rs. 44,001 Cr arising out of shifting of masala bonds will be released for foreign portfolio investor (FPI) investment in corporate bonds over the next two quarters. Now, FPI investment limit for corporate bonds will increase to Rs. 2,44,323 Cr from January 1. Further, an amount of Rs. 9,500 Cr in each quarter will be available only for investment in the infrastructure sector by long-term FPIs — sovereign wealth funds, multilateral agencies, endowment, insurance and pension funds and foreign central banks — the notification added.

Note ban was a shake-up, achieved its main objectives: Arun Jaitley (BS 23.09.17)

Finance Minister Arun Jaitley said demonetisation was a shake-up that achieved its "principal objectives" of decreasing cash transactions, expanding the tax base and increasing digitisation. "Confiscating" the money was not the aim, he pointed out. "Demonetisation was certainly a shake-up," Jaitley said. "I think the demonetisation debate in India actually is being held at two different levels. The first level was 'there's an inconvenience caused, there are queues which have come up'. "(The second argument being) 'Oh, the money has come back into the system'. But that was the whole idea. The idea is not to confiscate money," the finance minister said. "The idea is to make sure that this anonymous cash operating in the system itself becomes a part of the system," he said. "There were three principal objectives besides the big picture that we wanted to shake and break the Indian normal. We wanted to create a new Indian normal," he said.

 

P2P lending: Direct selling agents may come under RBI regulatory ambit as NBFCs (BL 25.09.17)

The RBI’s recent move to regulate peer-to-peer (P2P) lending platforms as non-banking financial companies (NBFCs) has created a grey area of sorts, spelling trouble for thousands of direct selling agents (DSA) or direct marketing agents (DMAs). The Finance Industry Development Council (FIDC) says it is “very much possible” that DSAs/DMAs who have been providing loan facilitation (offline) services to retail and corporate borrowers, from banks and NBFCs (with whom they have signed a written contract) for the past many years, may also fall under the ambit of RBI’s P2P regulatory framework as NBFCs. This is going by the way RBI has worded the notification, FIDC Chairman Raman Aggarwal said. FIDC is a self-regulatory body representing asset-financing NBFCs. “The apprehension is that DSAs/DMAs (only if they are corporates) may also be defined as NBFCs and subjected to regulation by RBI. This would require such DSAs/DMAs to have a minimum capital of Rs. 2 Cr, adhere to KYC norms, anti-money laundering norms etc. This needs clarification,” he said. It may be recalled that the RBI recently announced that a non-banking institution that carries on ‘the business of a P2P lending platform’ will be treated as an NBFC.

Singapore’s FinMomenta to lend to low-income employees (BL 25.09.17)

Singapore-based fin-tech start-up FinMomenta, which entered the Indian online P2P (peer to peer) lending market early this year with its product called Tachyloans, will soon be lending to salaried professionals working in small and mid-size firms. FinMomenta claims that it is the first such company or start-up to introduce such a product. Called Corporate HR loans, FinMomenta aims to make lending easier for the working class. The loan size ranges from Rs. 50,000 to Rs. 5 lakh. Brahma Mahesh Khaderbad, CEO and Co-founder of FinMomenta said that getting a loan is a big challenge for employees working in small companies. While large companies can afford to have a reserve to provide loans to employees, most small- and mid-sized companies don’t have such a facility and hence the employees need to approach banks, which is time-consuming. Besides, many banks don’t provide small-ticket loans. “Most of the bank loans are long-term with a minimum tenure of one year and above and the employees have to pay penalty for pre-closure when they want to close these loans. “Corporate HR loans will hence allow a corporate employee to apply for a loan online from his workstation and the funds will get credited to his/her bank account. The employee will also have flexibility to pre-close the loan when he/she has funds available,” he said, adding that while the interest rates could start from 11.5% and go to as high as 25%, the aim is to make the loans available to the employees in the time of need.

Ujjivan SFB commences operations in Ahmedabad (BL 23.09.17)

Ujjivan Small Finance Bank Ltd, a wholly-owned subsidiary of Ujjivan Financial Services Ltd, commenced banking operations in Gujarat from Ahmedabad with the launch of two branches. The bank branches, located at CTM and Nava Vadaj areas of Ahmedabad, were inaugurated by Ela Bhatt, Founder, Self-Employed Women's Association of India (SEWA) at Nava Vadaj on Thursday. Ujjivan SFB commenced its banking operations in February 2017 with pilot branches in Bengaluru. The SFB has 73 branches spread across Gujarat, Maharashtra, New Delhi, West Bengal, Himachal Pradesh, Uttar Pradesh, Uttarakhand, Haryana, Tamil Nadu, Karnataka and Pondicherry. In Gujarat, Ujjivan is present across 14 districts with 30 branches, catering to over 1.8 lakh micro-finance customers. In Ahmedabad, Ujjivan, an MFI, has been operating since June 2014 with three active branches. These branches cater to over 21,400 customers in Ahmedabad city. The existing microfinance customers would soon be on-boarded as bank customers.

Non-life insurance sees robust growth (BS 24.09.17)

Backed by a healthy growth in motor and health insurance, investments of non-life insurance companies rose by around 128% in the past five years. A majority of the investments got channelised into government securities.   According to the data from the Insurance Regulatory and Development Authority of India (Irdai), total investments of non-life insurance companies as of March 31, 2016, stood at around Rs 188,126 Cr, against Rs 82,520 Cr as of March 31, 2011, a growth of 128%.  In 2017, the premium collected on account of crop insurance scheme is likely to significantly add to the investable pool of non-life insurers. Informal estimates suggest, total premium collected from the first year of operation of Prime Minister Fasal Bima Yojana (PMFBY), launched in February 2016, is expected to be around Rs 22,000 Cr. According to Sanjay Datta, chief underwriting and claims, ICICI Lombard General Insurance, much of the growth of non-life insurance has been driven by retail participation, particularly motor and health insurance. At present, at ICICI Lombard, retail accounts for about 65% of the total premium collection, which was around 50% about two to three years ago.

Utkarsh Close to Raising Rs 150 cr to Fuel Growth (ET 23.09.17)



International Finance Corporation-backed Utkarsh Micro Finance, the holding firm of Utkarsh Small Finance Bank, is in the final stage of raising Rs 125-150 Cr fresh equity from existing investors to fuel the bank's growth plans. The other overseas investors in Utkarsh, including UK-based Commonwealth Development Corporation and Norwegian Microfinance Initiative (NMI), may invest in proportion to their shareholding in the company, Utkarsh Small Finance Bank MD Govind Singh said. Local investors will chip in as well. “It should happen in a month's time. The shareholding pattern will broadly remain the same after the equity infusion,“ Singh said, adding that the holding firm will use the fresh equity to capitalise the bank, which has diversified into lending to small and medium entrepreneurs and is planning to foray into retail and personal loan segment. The bank has also started lending to small corporates with a cap of 25 Cr. The World Bank's invest arm, IFC, had sold a part of its holding in Utkarsh (4.9%) to Switzerland-based Responsibility Investments AG in August.

 

Bhushan Steel snubbed by bankers, all fresh loans stopped; firm saddled by Rs 44,500 cr debt(FE 25.09.17)

The committee of creditors to Bhushan Steel is reluctant to sanction fresh interim funding of around Rs 500 Cr as part of the corporate insolvency process, senior bankers said. The company already owes banks a whopping Rs 44,500 Cr. Bankers said that they conveyed their decision to the resolution professional (RP) Vijaykumar V Iyer, after he presented the plan at a recent meeting. “We have pointed out we already have a large exposure to Bhushan Steel and any additional loans will be difficult to recover,” the bankers mentioned above said. They added that the RP may look at other institutions such as asset reconstruction companies which are keen to offer loans at higher interest rates. Bhushan Steel, which owes banks a whopping Rs 44,447 Cr, had initially objected to the insolvency proceedings alleging SBI had inflated the dues by around Rs 100 Cr.  The company’s counsel had said that SBI classified both term loans and working capital as default debt but the company had not received a recall notice for the entire amount. The counsel claimed 65% of the debt referred to as default was in the form of working capital. However, the NCLT had admitted insolvency proceedings against the company in July. Lenders, sources said, have explained to the RP that Bhushan Steel would not be able to increase its production substantially even with fresh loans. “Therefore, the company can easily manage without the interim finance,” lenders explained.

CBI, ED Find Mallya Diverted Most of Rs 6k cr Loan to Shell Cos (ET 25.09.17)

Vijay Mallya diverted most of the 6,000 Cr he borrowed from a SBI-led consortium of lenders, according to investigations by the Central Bureau of Investigation and the Enforcement Directorate. They will soon file a fresh charge sheet based on these findings against the businessman, who's been in the UK since March 2016. The funds were allegedly diverted to shell companies in half a dozen countries, according to the agencies. While the first charge sheet for loan fraud was filed by both agencies earlier this year for IDBI Bank's 900-Cr loan, this new and significantly bigger case will, they hope, help expedite Mallya's extradition, which is currently being heard in the Westminster Magistrates Court, in London. “We are in the process of filing a second prosecution complaint. Our investigation in the matter has revealed that loans disbursed by banks to Kingfisher Airlines was diverted by Mallya and his associates to shell companies. We have sent letters and are expecting replies from the US, UK, France and Ireland soon,“ said a senior official aware of the development. Mallya has stayed away from India despite being asked to return for questioning over the alleged diversion of funds that haven't been repaid following the collapse of his airline. Mallya has consistently denied any wrongdoing and has declined to return to India fearing that he'll be made a scapegoat for corporate debt defaults and won't get justice.