T H E M A G A Z I N E B Y B A N K I N G C O M M I T T E E 1 5 T H M A Y 2 0 2 1 BLAST V O L U M E - I

EMERGING YOUNG WRITERS

E X C L U S I V E A R T I C L E ! SMALL FINANCE GOING PUBLIC C O N T E N T S

P A G E 1 MESSAGE FROM DR. R. K. SINHA

P A G E 2 MESSAGE FROM HEAD OF ESIC - BANKING COMMITTEE P A G E 3 COMMITTEE MEMBERS P A G E 4 RBI POLICY RATES AND RESERVE RATIOS P A G E 5 - 7 RBI'S PLAN TO TACKLE THE 2ND WAVE OF COVID - 19 P A G E 8 - 9 SMALL FINANCE BANKS GOING PUBLIC P A G E 1 0 - 1 2 E-VIDEO KYC PROGRESSION OF BANKS IN INDIA M E S S A G E . . .

Students of Effective Solutions Through Institutional Committee (ESIC) - Banking have carved out specific developmental and strategic goals besides routine activities. These all will be ultimately leading to the enrichment of knowledge in banking areas for the students of JAGSOM, IFIM Institutions, and even beyond to the larger fraternity of students. I am sure that the high spirit and commitment of the students of the Banking Committee, will distinguish them a class apart and in this process enhance their learnings for planning, executing, and maintaining high standards of deliverables. Dr. Rajendra Kumar Sinha Professor & Chairperson, Centre of My compliments on the 1st issue of "BANK BLAST" and best wishes for Excellence in Banking excellence in future endeavours. Jagdish Sheth School of Management

P A G E 1 | E S I C - B A N K I N G M E S S A G E . . .

The objective of the ESIC - Banking Committee is to create banking awareness among the students of IFIM Institutions. Through this "Bank Blast" magazine, we are going to share the latest developments by placing important updates, Bank reforms, articles on various BFSI trending news, opportunities for students like Webinar details, Job roles in the BFSI sector, etc.

All efforts have been made to cover all aspects of the BFSI sector and make the students aware of all developmental activities that are happening around them. We are sure that the magazine will be Tara Prasad Mund found useful and will meet the Head of ESIC - Banking Committee expectation of all the students to explore more about the BFSI job Jagdish Sheth School of Management roles and the skillset required to apply for a job in the BFSI sector.

We welcome your suggestions for the improvement of the magazine.

P A G E 2 | E S I C - B A N K I N G FACULTY MENTOR COMMITTEE HEAD

Dr. Rajendra Kumar Tara Prasad Mund Sinha COMMITTEE MEMBERS

Kumar Mayank

Divya Rao Sonam Jaiswal

Darshana Ghosh

Janardhan Reddy Veluru Naveen

Kotti Venkata Srikrishna

P A G E 3 | E S I C - B A N K I N G P o l i c y R a t e s :

P o l i c y R e p o R a t e : 4 . 0 0 %

R e v e r s e R e p o R a t e : 3 . 3 5 %

M a r g i n a l S t a n d i n g F a c i l i t y R a t e : 4 . 2 5 %

B a n k R a t e : 4 . 2 5 %

R e s e r v e R a t i o s :

C a s h R e s e r v e R a t i o : 3 . 5 0 %

S t a t u t o r y L i q u i d i t y R a t i o : 1 8 . 0 0 %

P A G E 4 | E S I C - B A N K I N G RBI'S PLAN TO TACKLE THE 2ND WAVE OF COVID - 19

The Reserve (RBI) on May 5 announced several measures to protect small and medium businesses, individual borrowers from the adverse impact of the intense second wave of COVID-19 across the country. The RBI announced a Resolution Framework 2.0 for COVID-related stressed assets of individuals, small businesses, and MSMEs and also expressed its resolve to do everything at its command to ‘save human lives and restore livelihoods through all means possible'.

Measures Taken: In the fight against the second wave, alleviating any constraint from the financing side for all stakeholders. Small businesses and financial entities at the grass-root level are bearing the biggest brunt of the second wave of infections. Term Liquidity Facility of ₹50,000 crores to Ease Access to Emergency Health Services To boost the provision of immediate liquidity for ramping up COVID-related healthcare infrastructure and services in the country, and on-tap liquidity window of ₹50,000 crores with tenors of up to three years at the repo rate is being opened till March 31, 2022. Banks are being incentivized for quick delivery of credit under the scheme through the extension of priority sector classification to such lending up to March 31, 2022. These loans will continue to be classified under the priority sector till repayment or maturity, whichever is earlier. Special Long-Term Repo Operations (SLTRO) for Small Finance Banks (SFBs) SFBs have been playing a prominent role by acting as a conduit for the last-mile supply of credit to individuals and small businesses. To provide further support to small business units, micro, and small industries, and other unorganized sectors

P A G E 5 | E S I C - B A N K I N G entities adversely affected during the current wave of the pandemic, it has been decided to conduct special three-year long-term repo operations (SLTRO) of ₹10,000 crores at a repo rate for the SFBs, to be deployed for fresh lending of up to ₹10 lakh per borrower. Lending by Small Finance Banks (SFB) to Micro-Finance Institutions MFIs for on-lending to be classified as Priority Sector Lending (PSL) At present, lending by SFBs to MFIs for on-lending is not reckoned for PSL classification. SFBs are now being permitted to reckon fresh lending to smaller MFIs (with asset size of up to ₹500 crores) for on-lending to individual borrowers as priority sector lending. This facility will be available up to March 31, 2022. Credit to MSME Entrepreneurs To incentivize credit flow to the MSME borrowers, in February 2021 Scheduled Commercial Banks could deduct credit disbursed to new MSME borrowers from their net demand and time liabilities (NDTL) for calculation of the cash reserve ratio. Resolution Framework 2.0 for COVID Related Stressed Assets of Individuals, Small Businesses, and MSMEs. The resurgence of the COVID-19 pandemic in India in recent weeks and the associated containment measures adopted at local/regional levels have created new uncertainties and impacted the nascent economic revival that was taking shape. (a) Borrowers i.e. individuals and small businesses and MSMEs having aggregate exposure of up to ₹25 crores and who has not availed restructuring under any of the earlier restructuring frameworks (including under the Resolution Framework 1.0 dated August 6, 2020), and who were classified as ‘Standard’ as on March 31, 2021, shall be eligible to be considered under Resolution Framework 2.0. Restructuring under the proposed framework may be invoked up to September 30, 2021, and shall have to be implemented within 90 days after invocation. (b) In respect of individual borrowers and small businesses who have availed restructuring of their loans under Resolution Framework 1.0, where the resolution plan permitted moratorium of less than two years, lending institutions are being permitted to use this window to modify such plans to the extent of increasing the period of the moratorium and/or extending the residual tenor up to a total of 2 years. Other conditions will remain the same. (c) In respect of small businesses and MSMEs restructured earlier, lending institutions are also being permitted as a one-time measure, to review the working capital sanctioned limits, based on a reassessment of the working capital cycle, margins, etc. Rationalization of Compliance to KYC Requirements Taking forward the initiatives of the Reserve Bank for enhancing customer convenience, it has been decided to rationalize certain components of the extant KYC norms.

P A G E 6 | E S I C - B A N K I N G Which includes: (a) Extending the scope of video KYC known as V-CIP (video-based customer identification process) for new categories of customers such as proprietorship firms, authorized signatories, and beneficial owners of Legal Entities and for periodic updation of KYC; (b) Conversion of limited KYC accounts opened on the basis of e-KYC authentication in non-face-to-face mode to fully KYC-compliant accounts; (c) Enabling the use of KYC Identifier of Centralised KYC Registry (CKYCR) for V- CIP and submission of electronic documents (including identity documents issued through DigiLocker) as identify proof; (d) Introduction of more customer-friendly options, including the use of digital channels for the purpose of periodic updation of KYC details of customers.

Further, keeping in view the COVID related restrictions in various parts of the country, Regulated Entities are being advised that for the customer accounts where periodic KYC updating is due/pending, no punitive restriction shall be imposed till December 31, 2021, unless warranted due to any other reason or under instructions of any regulator/enforcement agency/court of law, etc. The utilization of Floating Provisions and Countercyclical Provisioning Buffer To mitigate the pandemic related stress on banks and as a measure to enable capital conservation, banks are being allowed to utilize 100 percent of floating provisions/counter-cyclical provisioning buffer held by them as of December 31, 2020, for making specific provisions for non-performing assets with prior approval of their Boards. Such utilization is permitted with immediate effect and up to March 31, 2022. Relaxation in Overdraft (OD) facility for States Governments To enable the State Governments to better manage their fiscal situation in terms of their cash-flows and market borrowings, certain relaxations are being permitted with regard to availing of Overdraft (OD) facilities. The Ways and Means Advance (WMA) limits of states have already been enhanced on April 23, 2021.

P A G E 7 | E S I C - B A N K I N G SMALL FINANCE BANKS GOING PUBLIC By Dr. Rajendra Kumar Sinha and Tara Prasad Mund The RBI objectives of setting up Small Finance Banks (SFBs) has been for furthering financial inclusion for working as savings vehicles primarily to unserved and underserved sections of the population and act as a financial intermediary for the supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganized sector entities, through the high technology-low-cost operation. While giving license in 2015, RBI had the directive that these SFBs will go for initial public offerings (IPOs) in time-bound i.e., within three years from the date of start of operations.

Few SFBs have already completed their IPOs, while the others are preparing to launch their IPOs. In a challenging time of COVID, when the economic activities have been affected and GDP declined, the capital markets performance somehow has been encouraging. These SFBs will be using the amount raised for augmenting their Tier-I capital to fulfill future capital requirements arising out of growth in its assets.

Small Finance Banks which already gone public: Ujjivan Ujjivan Small Finance Bank started the initial public offering on Dec 2, 2019 – Dec 4, 2019, with an Issue Size of 208,333,333 Equity Shares of ₹10 (aggregating up to ₹750.00 Cr). The Face Value Equity Share was ₹10 per share. IPO Price of the shares was ₹36 to ₹37 Per Equity Share with a Market Lot of 400 Shares. IPO Shares Listed on Dec 12, 2019.

AU Small Finance Bank AU Small Finance Bank entered the primary market on 28 June 2017 with an offer for sale (OFS) of 5.34 crore equity shares of Rs. 10 each by 4 PE investors (, International Finance Corp, Chrys Cap, Kedaara), and promoters, in the price band of Rs. 355 to Rs. 358 per share (closed on Friday 30 June 2017). AU Small Finance Bank was listed on 10th July 2017.

Equitas Small Finance Bank Equitas Small Finance Bank entered the primary market on October 20, 2020, with an IPO size of 517.60 Crores. The face value of each share was Rs.10, and the cash price of the IPO was Rs. 32-33. Equitas Small Finance Bank started the Bid/Offer closed on October 22, 2020. IPO Shares Listed on November 2, 2020.

Suryoday Small Finance Bank Suryoday Small Finance Bank started the initial public offering on March 17–19, 2021 with an Issue Size of 19,093,070 Equity Shares of ₹10 (aggregating up to ₹582.34 Cr). IPO Price of the shares were ₹303 to ₹305 Per Equity Share with a Market Lot of 49 Shares that is Min Order Quantity 49 Shares. IPO Shares Listed on Mar 26, 2021.

P A G E 8 | E S I C - B A N K I N G Small Finance Banks which are planning to go public: Jana Small Finance Bank has filed the draft red herring prospectus with the Securities & Exchange Board of India for an initial public offer. The bank had applied to the RBI for an extension till March 28, 2022, but RBI denied the same. So, Jana Small Finance Bank will issue the IPO in near future to avoid the penalties.

ESAF Small Finance Bank ESAF Small Finance Bank announced to issue Rs 976-crore initial public offering in near future. As per the RBI guidelines for going public by listing its shares, ESAF Small Finance Bank had filed a draft red herring prospectus in January 2020 and hence got approval from the market regulator SEBI in the last week of March 2020. However, ESAF Small Finance Bank could not go public due to the lockdown imposed due to the COVID-19 outbreak.

Capital Small Finance Bank Capital Small Finance Bank Limited is India’s 1st Small Finance Bank, which started operations on April 24, 2016. It was called “Capital Local Area Bank”, the biggest Local Area Bank within the country, before conversion to ‘Small Finance Bank’. It has yet to come up with a plan for going public.

Fincare Small Finance Bank As per the Small Finance Bank licensing and operating guidelines, Fincare Small Finance Bank has to be listed before September 2021. Since COVID 19 pandemic disturbed the market in 2020, Fincare Small Finance Bank is planning to go public in 2021.

Utkarsh Small Finance Bank Utkarsh Small Finance Bank filed draft papers with market regulator SEBI for a Rs 1,350 crore initial public offer. Utkarsh Small Finance Bank is planning to issue fresh shares amounting to Rs 750 crore and an offer for sale of up to Rs 600 crore.

North East Small Finance Bank North East Small Finance Bank Ltd has its presence in unbanked areas of India's eight North-eastern states, along with West Bengal North. East Small Finance Bank has yet decided to go public.

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P A G E 9 | E S I C - B A N K I N G E-VIDEO KYC PROGRESSION OF BANKS IN INDIA

By Dr. Rajendra Kumar Sinha and Veluru Naveen

The on the 9th of January 2020 amended the KYC norms allowing banks and other lending institutions regulated by it to use Video-based Customer Identification Process (V-CIP), a move which will help them, onboard customers, remotely.

The V-CIP, which will be consent-based, will make it easier for banks and other regulated entities to adhere to the RBI's Know Your Customer (KYC) norms by leveraging digital technology. The RBI further said that the regulated entities will have to ensure that the video recording is stored in a safe and secure manner and bears the date and time stamp.

Also, "Regulated Entities (REs) are encouraged to take the assistance of the latest available technology", including artificial intelligence (AI) and face matching technologies, to ensure the integrity of the process as well as the information furnished by the customer. "However, the responsibility of customer identification shall rest with the RE," the circular on master directions said. Last year, the government had notified amendment to the Prevention of Money-laundering (Maintenance of Records) Rules, 2005.

The Reserve Bank said it decided to permit video-based Customer Identification Process (V- CIP) as a consent-based alternate method of establishing the customer's identity, for customer onboarding with a view to leveraging the digital channels for Customer Identification Process (CIP) by REs. As per the circular, the reporting entity should capture a clear image of the PAN card to be displayed by the customer during the process, except in cases where e- PAN is provided by the customer. The PAN details should be verified from the database of the issuing authority.

The live location of the customer (Geotagging) shall be captured to ensure that customer is physically present in India. Further, the official of the reporting entity should ensure that the photograph of the customer in the Aadhaar/PAN details matches with the customer undertaking the V-CIP and the identification details in Aadhaar/PAN should match with the details provided by the customer.

e- video KYC adopted by private sector banks A number of Indian Banks are now offering potential customers the option of filling in mandatory Know Your Customer (KYC) formalities through Video, amidst the COVID-19 pandemic. Private sector lenders—, IndusInd Bank, RBL Bank and IDFC First Bank, ICICI Bank, HDFC Bank, – started using video for KYC, or know-your-customer procedures, in line with the Reserve Bank of India regulations, to ramp up their savings account base amid the coronavirus lockdown.

P A G E 1 0 | E S I C - B A N K I N G Before the RBI allowed video-KYC, the lenders had sourced some accounts digitally but were required to complete the KYC within 12 months. The KYC was physical, and until it was completed, a customer could not hold more than ₹1 lakh balance. It is imperative that both banks and customers need to adapt to a new normal in the aftermath of covid-19.

Experts said post-covid-19, traditional banking, which heavily relied on branches to get deposits, is adapting to the reality that customers will not visit branches that often. It is believed that both regulatory framework and technology solutions are evolving in tandem to allow the industry to seamlessly onboard and deliver services to their customers.

Banks are drawn by the lure of getting fresh deposits coming at an interest rate of 4% or even less. Banks in India rely extensively on the flow of deposits to manage their cost of funds. Therefore, in a COVID-19 pandemic situation, the digitally sourced deposits have to grow. Especially, private sector banks are taking a leap in this direction. The zero-contact method does away with paperwork and biometric verification, removing physical interaction between the bank and customer from the KYC process.

Video KYC can prove to be a game-changer where customer verification is completed from the comfort of one’s home or office without the need for physical interaction. With Video KYC, verification of KYC documents and recording of the customer’s signature is completed via a video call with the bank, eliminating the need for a visit to a bank branch or in-person interaction, biometric verification, or sharing of physical documents. After the Video KYC is completed, the customer gets a full-fledged bank account with no restrictions on deposits or account balances.

Kotak Mahindra Bank, for instance, started video-KYC for its Kotak 811 digital savings account. This facility, launched on a pilot basis, was expected to be extended to other products as well.

IndusInd Bank announced the rollout of its Video KYC platform for both its saving accounts as well as credit card customers. The bank tied up with BankBazaar to implement the process for its credit card application, which it claims is a first-of-its-kind service in the banking industry.

HDFC Bank launched video KYC for its customers in Sep 2020, after the successful completion of the pilot project, in a safe and secure environment.

The Yes Bank announced the launch of its ‘digital saving account’, which as part of the product has contactless and paperless account opening formalities.

ICICI Bank rolled out a Video KYC facility for retail customers opening savings accounts, including a salary account, or even in the case of them wanting to avail any personal loan with the bank.

P A G E 1 1 | E S I C - B A N K I N G To undertake the Video KYC process, customers will have to initiate the journey by clicking on a link received through SMS/email. They will be directed to the Video KYC webpage. Thereafter, the customers will have to enter their mobile numbers and they will be authenticated through an OTP sent on the same number. Post authentication, the customers will be connected to the Video KYC agents who will interact with users and collect KYC details such as – PAN, photograph, signature, location over a live video session. Once all details are validated by the video banking representative, the customer’s KYC formalities will be completed within a few hours as per the bank’s processes.

The customer just requires keeping handy his/her PAN card, a blank white sheet of paper, and a blue/black pen. The Bank officer records the PAN image along with the customer’s signature and facial image via the video call. The Video KYC system simultaneously uses an artificial intelligence-based facial recognition feature to match the customer with his/her photo available on the Aadhaar site. The bank’s system records and stores all Video KYC.

The pandemic has altered the way customers want to interact with their banks as they increasingly rely on digital and mobile channels to transact. Video-based KYC process for opening of online savings account allows customers to open a full-fledged savings account with no limit on the maximum account balance.

Banks are building digital experiences that make customers feel secure and engaged while keeping the in-branch experience alive. Video KYC makes the online journey for opening Savings Accounts simple and fast as customers do not have to venture outside their homes or meet anyone from the Bank to complete the process.

Banks are now looking to build capabilities that cater to the financial needs of our customers in the form of convenient banking solutions. Video KYC is one such capability that will simplify the operating paradigm through an effective end-to-end solution for onboarding new customers.

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P A G E 1 2 | E S I C - B A N K I N G E S I C - B A N K I N G C O M M I T T E E

J A G D I S H S H E T H S C H O O L O F M A N A G E M E N T # 8 P & 9 P , K I A D B I N D U S T R I A L A R E A , E L E C T R O N I C S C I T Y 1 S T P H A S E , B A N G A L O R E - I N D I A . 5 6 0 1 0 0 .

E M A I L : E S I C - B A N K I N G C O M M I T T E E @ I F I M B S C H O O L . C O M

F O L L O W U S : @ I F I M . B A N K I N G C O M M I T T E E

H T T P S : / / W W W . I N S T A G R A M . C O M / I F I M . B A N K I N G C O M M I T T E E /