September 2019 Volume-50

Banking e-bulletin

Contents Top RBI Speeches...... 03 Top Banking News...... 07 India’s Foreign Trade...... 103 Merchandise Trade...... 105 Services Trade...... 106 Top Banking Development...... 107 Top Expert Reports...... 110 Top RBI Circulars...... 113

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Top RBI Speeches

Dimensions of India’s External Sector Resilience (Shri Shaktikanta Das, Gov- ernor, Reserve Bank of India - Thursday, September 19, 2019 - Delivered at the Bloomberg India Economic Forum 2019 in Mumbai)

he international environment is clouded (Source: FDI Report, Financial Times, 2018). Net Twith very challenging conditions. Global foreign direct investment at US$ 18.3 billion in growth is slowing down and central banks April-July 2019 was higher than US$ 11.4 billion across the world are bracing up to counter in the corresponding period of 2018-19. it by easing monetary policy; but there is no Significant progress has been made in recession as yet. Trade wars have pushed external debt management since the external world trade into contraction and threaten to payment difficulties encountered in 1990 which morph into tech and currency wars, with no triggered wide-ranging structural adjustments evidence of any significant gains accruing to and reforms. The level of external debt at 19.7 anyone. Meanwhile, global commodity prices per cent of GDP and the debt service ratio have weakened, with collateral benefits to net (principal repayments and interest payments commodity importers and terms of trade losses as a ratio of current earnings) at 6.4 per cent for commodity exporters. The developments of GDP are among the lowest in emerging emanating from drone strikes on Saudi oil market peers. This places India among the least facilities are, however, still playing out. Sporadic externally indebted countries of the world, by flights to safety are driving capital flows out the World Bank’s classification. In terms of a of emerging markets into advanced economy broader measure of external liabilities – the net assets; but the universe of negative yielding international investment position (NIIP) which bonds is growing disconcertingly large, posing a includes both debt and equity liabilities, net of potential threat to financial stability. foreign assets – India’s exposure declined to Strengths and Weaknesses: In this hostile 15.9 per cent of GDP at end-March 2019 from a environment, India’s external sector has peak level of 18.3 per cent at end-March 2015. exhibited resilience and viability. The current Foreign exchange reserves covered 76 per cent account deficit has averaged 1.4 per cent of GDP of external debt and 94.6 per cent of the NIIP over the last 5 years and remains comfortably at end-March 2019, up from 68.2 per cent and financed in spite of global spillovers imparting 89.3 per cent, respectively, at end-March 2014. risk-on-risk-off volatility to portfolio flows. The Short-term debt by residual maturity declined level of foreign exchange reserves was at US$ to 57 per cent of foreign exchange reserves at 429 billion on September 13, 2019, sufficient to end-March 2019 from a peak level of 59 per cent cover close to 10 months of imports or 21 months at end-March 2013. Short-term debt by original of debt of residual maturity up to 1 year. The maturity constitutes barely 20 per cent of total Indian economy remains a preferred habitat for external debt. foreign direct investment (FDI) and is among These healthy developments are the top 10 destinations for greenfield projects underpinned by the innate strength of India’s

3  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 underlying fundamentals. The degree of (UNCTAD, 2019), India’s export growth in US openness of the economy, measured by the ratio dollar terms has weakened – as in a host of of exports and imports of goods and services emerging and advanced economies - to 2.2 per to GDP, has risen from 20 per cent in the first cent over the same period, as falling unit value half of the 1990s to 44 per cent in the latest five- realisations have taken their toll. The slowdown year period from 2014-19. The share of India’s in global demand has affected our exports of merchandise exports in world exports has gone petroleum products as well – they constitute 14 up from 0.5 per cent in 1990 to 1.7 per cent in per cent of total merchandise exports. Second, 2018. the deceleration in domestic demand has pulled imports, especially non-oil non-gold imports, In line with the expanding share of services into contraction and this has reduced the inflow in domestic output, India’s services exports of intermediates, capital goods and technology have grown rapidly over the past two decades. that is vital for modernising our infrastructure In fact, India’s services exports have shown and industry. Third, portfolio flows, which on a higher degree of resilience to global shocks average account for about 23 per cent of external than merchandise exports. At US$ 81.9 billion, financing in a normal year, have turned highly net services exports financed 45 per cent of volatile, with net outflows of US$ 0.6 billion in India’s trade deficit in 2018-19. In the area of 2018-19. During 2019-20 so far (up to September traded services, India remains a world leader 13), portfolio equity outflows were of the order in software exports and information technology of US$ 1.4 billion but lower than US$ 2.9 billion (IT) enabled services, accounting for around in the corresponding period a year ago. Net 12 per cent of world software exports. India’s inflows into the debt market of US$ 4.1 billion IT sector, which earned US$ 78 billion through have, however, provided relief. Moreover, these net exports in 2018-19, is leapfrogging into new portfolio capital movements have turned out technologies including artificial intelligence, to be conduits of global spillovers, impacting machine learning and robotics. The Indian domestic equity, debt and forex markets, diaspora is among the largest in the world and asset prices. Nonetheless, the underlying and reflecting this, India currently receives resilience of India’s external sector, anchored the highest amount inward remittances in the by the positive features I set out earlier, have world from Indians working abroad. Alongside, cushioned these shocks and insulated the accretions to non-resident deposits have domestic economy. provided stable and reliable support to the balance of payments over the years. Financial Managing the External Sector: Against openness, measured by the ratio of gross capital this backdrop, I would like to turn to several inflows and outflows to GDP, has increased recent initiatives undertaken by the Reserve three-fold from 15 per cent in the first half of the Bank of India and the Government of India to 1990s to 45 per cent during 2014-19. fortify India’s external position and improve the capacity of the economy to deal with the Notwithstanding these achievements, there headwinds that confront us in these testing are several areas of concern as well which times. occupy centre-stage in the conduct of external sector management. First, merchandise exports Exports: Exports hold the key to a have lost momentum under the weight of the sustainable balance of payments position. In slump in world trade. In spite of export volume the final analysis, liabilities in the form of debt growth averaging 4.2 per cent during 2013-18 and even equities cannot entirely substitute for

4  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 foreign exchange earnings from exports of goods into play. India’s hierarchical policy approach and services that create import purchasing – preferring equity flows over debt flows, and power and liability servicing capacity. Over the preferring FDI flows over portfolio flows within years, the policy endeavour has been to secure equity flows and long-term debt flows over a wide diversification in India’s export profile short-term flows within total debt flows –has in terms of both products and destinations. In influenced the composition of capital flows. particular, product diversification has enabled Turning to equity flows, FDI policy has India to broaden its export basket relative to been progressively liberalised across various BRICS peers and reduce its vulnerability to sectors in recent years to make India an trade shocks. Apart from diversification, India is attractive investment destination. Sectors now exporting sunrise products like electronics, that have been opened up in recent years chemicals and drugs and pharmaceuticals for include defence, construction development, which demand is expanding at the global level. trading, pharmaceuticals, power exchanges, In the smart phone segment of electronic goods, insurance, pensions, financial services, asset India has transformed itself from being a net reconstruction, broadcasting and civil aviation. importer to an exporter with the impetus from 100 per cent FDI has also been allowed in the phased manufacturing programme. insurance intermediaries. In August 2019, FDI Looking ahead, several initiatives have been norms in single-brand retail trade have been put in place and others are being launched on further liberalised. FDI up to 100 per cent has an ongoing basis to enable export industries been permitted under the automatic route in to regain productivity and cutting edge contract manufacturing and coal mining. competitiveness. They include upgradation of With regard to foreign portfolio investment export facilities, integration of Indian farmers (FPI), several measures have been undertaken and their products with global value chains, to create an investor-friendly regime and to put and trade facilitation measures. More recently, in place a more predictable policy environment. efforts are going into reimbursement of taxes FPI limits are now being revised on a half yearly and duties, including electronic refund of basis under the medium-term framework. FPI input tax credits in GST. An action plan for 12 has been allowed in municipal bonds within ‘champion’ services sectors, including IT, tourism the limits set for State Development Loans and hospitality, and medical services has been (SDLs). Greater operational flexibility has been developed since February 2018. The Reserve granted to FPIs under a Voluntary Retention Bank and the Government are actively engaged Route (VRR) which facilitates investment in in the promotion of e-commerce platforms that G-secs, SDLs, treasury bills and corporate will boost the exports of both merchandise and bonds while allowing investors to dynamically services. All these steps seek to create a more manage their currency and interest rate risks. conducive climate for exports. The initial response to the VRR scheme has Capital Flows: With regard to capital flows, been encouraging. The Union Budget 2019-20 India has adopted an approach marked by proposed to ease KYC norms for FPIs and also progressive liberalisation but calibrated to the merge the NRI portfolio route with the FPI realities of the domestic situation, including the route for seamless investment in stock markets. evolution of financial markets. A diverse range Outward direct and portfolio investment have of instruments for managing exchange rate also been progressively liberalised to give Indian risk for an expanding investor base has come entities a global scan and presence.

5  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 External borrowing norms have also been Fund (IMF) has employed a suite of models to simplified under two tracks: foreign currency assess the alignment of currencies with their denominated ECBs; and rupee denominated fundamentals. For the rupee, the IMF estimates ECBs. The list of eligible borrowers has been the REER gap to be zero, implying that the expanded to include all entities eligible to currency is fairly valued and broadly in line receive FDI, registered entities engaged in with fundamentals. India’s exchange rate microfinance activities, registered societies/ regime is flexible and market-driven, with the trusts/ cooperatives and non-government exchange rate being determined by the forces organizations. A rule-based dynamic limit for of demand and supply. The RBI has no target outstanding stock of ECBs at 6.5 per cent of GDP or band for the level of the exchange rate. is in place. Rupee denominated bonds or Masala Interventions are intended to manage undue bonds under the ECB route offer an opportunity volatility. This is reflected in the two-sided to domestic firms to borrow from international interventions conducted during the past two markets without the need for hedging years – net purchases in 2017-18, followed by exchange rate risk. ECBs up to US$ 750 million net sales in 2018-19. In fact, it is in recognition or equivalent per financial year are permitted of this flexibility that the US Department of the under the automatic route. Recently, end-use Treasury has removed India from its watch list restrictions relating to external commercial relating to currency manipulation. borrowings have also been relaxed for specific Conclusion: Overall, the outlook for India’s eligible borrowers for their working capital external sector is one of cautious optimism, requirements, general corporate purposes albeit with some downside risks accentuated and repayment of rupee loans. The mandatory at this juncture. Among them, deepening of hedging requirement had earlier been reduced the global slowdown and escalation of trade from 100 per cent to 70 per cent for ECBs with and geopolitical tensions appear to be the minimum average maturity period between most significant. Volatile international crude 3 and 5 years in the infrastructure space. Net prices also continue to pose potential risks to disbursement of ECBs rose to US$ 7.7 billion in the viability of the current account balance April-July 2019, as against net repayments of through trade and remittances channels. Yet, US$ 0.8 billion in the corresponding period of there are underlying strengths that can be 2018-19. built upon to buffer the external sector from Exchange Rate: Before concluding, it these risks. The search for new export markets is only fair to say a few words about the and new niches must go on so as to reap the exchange rate of the rupee. Over the last benefits of changing dynamics of global couple of years, the exchange rate has seen value chains. Indian IT companies need to large two-way movements with considerable accelerate market diversification and invest volatility imparted mainly by global spillovers. in new skills and technologies to hone their During 2019-20 so far, the rupee has traded in comparative advantage. Remittances and non- a narrow range, with modest appreciation in resident deposits are likely to remain shock- Q1 giving way to some depreciation in August absorbers over the medium term and need to and the first half of September, accentuated be assiduously cultivated, including by ease of by drone attacks on Saudi oil facilities on remitting/depositing and reducing transaction September 14, 2019. In its External Sector costs. Report of July 2019, the International Monetary

6  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Ultimately, the strength of the external a sixth of global growth in 2020. Trade wars are sector derives from domestic macro- presenting new business relocation avenues that fundamentals. Investors and markets need to seem to be favorable to India from the point of be credibly assured of our ability to maintain view of the economies of scale and scope. Indian macroeconomic and financial stability through entrepreneurship, the rupee and our people are continued focus on these areas. At the same progressively but inexorably internationalizing. time, we need to persevere with structural Since 2018, India’s working age population has reforms in various sectors of the economy to grown larger than the dependent population, unlock productivity and competitiveness gains. and this demographic advantage is expected The overarching objective should be to keep the to last till 2055. In this milieu, prudent external current account deficit within sustainable limits sector management with a close and continuous and financed by a prudent mix of debt and equity vigil on areas of external vulnerability assumes flows. As I stated earlier, the global environment critical importance and will continue to receive is challenging, but it offers opportunities as well. RBI’s close attention. By the IMF’s assessment, India will account for

Top Banking News

• Bank Mergers And Minor Policy Changes little too late. The package may be a short- Won’t Revive Economy: term palliative. But only major structural reforms can tackle the fundamental flaws India’s GDP growth slowed to 5% in the slowing long-term growth, and there is no April-June quarter, the slowest since the sign of these. Several weaker public sector scam-hit days of UPA-2. From 8.2% a year banks have been merged with strong ones. ago, growth has fallen sharply quarter The total number of public sector banks after quarter. This is the combined effect is now down to 12 from 27 two years ago. of a cyclical global downswing and serious Optimists hope the mergers will provide structural flaws that are pulling down scale economies, and improve management long-term growth. Exports, which revived in the worst banks. For years, the worst banks in 2018 after five years, are falling again. had been put under PCA (prompt corrective Manufacturing growth has sunk to just 0.6%. action) by the RBI, meaning they could Investment has slumped. The bad loans collect deposits but do very little commercial of banks are shrinking too slowly, and the lending, so bad was their lending record and current slowdown threatens to expand them so high were their non-performing loans. again. The crisis in non-banking financial To soak up past losses and recreate lending corporations arising from the collapse of ability, the government has pledged to give IL&FS is still not over. Meanwhile, budget Rs 70,000 crore for bank recapitalization, follies have sent foreign portfolio fleeing buttressing the bank mergers. This will be from India, with the Sensex plummeting a short-term reprieve. But only structural 3,000 points. Last week, Finance Minister change will prevent public sector banks Smt. Nirmala Sitharaman announced an from sliding downhill again. Simply freezing economic revival package. Alas, this is too

7  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 lending by the worst banks was never a was the ill-conceived move to criminalise long-term solution. They could have been shortfalls in spending by corporations on closed. Or, the bulk of dud loans of the whole corporate social responsibility. Marginal banking system could have been transferred tax breaks were given for buying autos to a separate “bad bank”, letting the system and trucks. The complex rules for foreign lend freely again. Instead finance minister investment in retail were eased slightly. Sitharaman has merged the worst banks with Additional liquidity was provided for banks the better-managed ones, hoping to improve and NBFCs. While these measures are in the management quality and risk-taking skills. right direction, they are minor short-term Will this really end the culture of giving fixes that ignore the structural reasons for dubious loans because of political pressures India’s economic slowdown. Compared with and lack of lending skills? Sitharaman wants its Asian competitors, India has some of the banks to be professionalised, hiring risk most costly land, capital, labour, electricity, managers at high commercial wages from railway freight, corporate tax and income the private sector. Alas, many efforts at tax. This has made India a highcost country professionalising banks have failed because that cannot compete. Third-rate graduates that is simply not compatible with the political from useless colleges are failing to provide and bureaucratic culture of the public sector. the skills and productivity that firms badly Past mergers of weak banks with strong ones need. The government does not acknowledge have not been encouraging. The merger of the structural problem, let alone tackle it. Punjab National Bank with the troubled Modi found that incremental reforms in his New Bank in 1993 was messy and failed to first term sufficed to produce 7% growth create significant synergies. Early this year, and win re-election. If he thinks the same the strong Bank of Baroda was merged with approach will succeed in his second term, he the weaker Vijaya Bank and Dena Bank, is in for a rude shock. but post-merger performance shows little Source: https://economictimes.indiatimes.com/ obvious improvement, and its share price industry/banking/finance/banking/view-bank-mergers- has slumped from Rs 150 a year ago to Rs and-minor-policy-changes-wont-revive-economy/ 92. The danger of mergers is that instead of articleshow/70930887.cms the strong banks lifting the weak, the weak Dated: Sep 01, 2019 ones may sink the strong. There is an old story about Nobel laureate George Bernard • SBI Card To Soon Issue Rupay Credit Shaw and a beautiful actress who was an Cards, CEO Shri Hardayal Prasad: admirer of his. The actress suggested they SBI Card will soon launch RuPay credit should get married, saying, “How fantastic cards, a development which will give a it will be to have children with your brains boost to the homegrown payment network and my looks!”. Shaw retorted: “And what, in the fast growing segment. Presently, the madam, if they have your brains and my creditcard segment is dominated by the looks?” Other measures supposed to boost US-based payment gateways like Visa and the economy include killing an ill-designed MasterCard. RuPay is the first-of-its-kind “angel tax” that hit investors in start-ups. domestic debit and credit card payment The income tax surcharge on capital gains, network of India developed by National which had caused a flight of foreign portfolio Payments Corporation of India (NPCI), an investors, was withdrawn. Also reversed

8  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 umbrella organization for operating retail cent. According to Prasad, the company has payments and settlement systems. “We will been adding 3 lakh cards per month since be (Launching RuPay based credit card) December 2018. soon. There is a last agreement that is left Source: https://economictimes.indiatimes.com/ out at the end of NPCI level. I think NPCI industry/banking/finance/banking/sbi-card-to-soon- is going to send it any day and we will be issue-rupay-credit-cards-ceo-hardayal-prasad/ launching some products,” SBI Card MD and articleshow/70932930.cms CEO Hardayal Prasad said in an interview to Dated: Sep 01, 2019 PTI. Expressing confidence that RuPay credit card will be launched in this fiscal only, • There Will Not Be Single Job Loss Due To Prasad said, “It’s just a matter of time. The Merger Of Banks: Rupay will become very popular and will be used in India aggressively. I have no doubts Finance Minister Nirmala Sitharaman on on it”. He said that there is a big “nationalistic Sunday allayed fears of job losses following segment” which is insisting on RuPay cards. the proposed merger of public sector About one-third of the cards being issued banks, saying not even one employee shall by India’s largest lender State Bank of India be removed following the amalgamation. are RuPay cards, he said. “There are class “Absolutely, ill informed. I want to assure of customers who want RuPay card. There every union in every one of these banks to are those nationalistic people who say ‘give please recall what I have said last Friday. us only Rupay cards’. So I am very upbeat,” When we spoke about amalgamation of he said. The company may issue both RuPay banks I have very clearly underlined the as well as Visa/Mastercard to its customers, fact that there shall not be one employee specially who travel abroad, Prasad said. removed. Not at all”, she told reporters here. As of now, RuPay cards are accepted only She was replying to a question on the bank in few countries, including Singapore and employees unions opposing the merger plan Bhutan. Prime Minister Narendra Modi on the ground it would lead to loss of jobs. recently launched the card in UAE. RuPay Sitharaman on Friday unveiled a mega plan has also tied-up with international players to merge 10 public sector banks into four as like Discover, Japan Credit Bureau and part of plans to create fewer and stronger China Union Pay to enhance its international global-sized lenders as the government acceptance. Prasad further said that SBI Card looked to boost economic growth from a has rolled out its chat-bot ‘ILA’ (Interactive five-year low. Sitharaman, who was here Live Assistant) on its mobile app to further to address officers of Customs, Goods and enhance consumer experience. ILA has 40 Service Tax and Income Tax department, plus innovative features making SBI Card said there would not be any closure of one of the first in the industry to offer a banks and no bank was being asked to do complete suite of self-service functionalities something new. “More capital is being given increasing convenience for the customers, to banks and they will continue to do more of he said. “Since its release, SBI Card’s chat- what they were doing earlier,” she said. On bot has successfully resolved over 14 million August 23, Sitharaman had announced a raft queries with over 97 per cent accuracy,” of measures to boost the economy, including he added. SBI Card had 90 lakh customers capital infusion of Rs 70,000 crore into public at end-July with a market share of 17.9 per sector banks. She had also unveiled a mega

9  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 plan on Friday to merge 10 public sector responding to the industry requirements. banks into four to create fewer and stronger Across the board there is no one particular global-sized lenders The All India Bank answer that I can give, saying this is the Employees’ Union had alleged that Indian magic wand. Sectorally, what they want, Bank may face closure following its merger we are responding,” she said. Sitharaman with Allahabad Bank. To a question on this, said the government understands that Sitharaman said Indian Bank would be the the contours and tone of issues for each anchor bank after the merger. She said sector varied from one to the other. “The when a bank receives capital, it is for them automobile (sector) has an issue, agriculture to function more of what they were expected has a different issue. So each sector has a to do as core business, which was to attract sectorial requirement which we want to business and lend. “Second, another bank in respond”, she said. this region is Indian Overseas Bank which Source: https://economictimes.indiatimes.com/ continues without any amalgamation added industry/banking/finance/banking/there-will-not- to it. It is also something you should keep in be-single-job-loss-due-to-merger-of-banks-fm/ mind”, she said. Asked whether there was articleshow/70934213.cms any slowdown in the economy, she said the Dated: Sep 01, 2019 government was responding to it sectorally, based on their requirement. “Every sector • Why India’s Mega Bank Mergers Move of the Indian economy, when it approaches May Not Yield The Desired Results: us, we hear them out for solutions that they want and we respond to it. Suggestions (from I am not saying we maintain a Panglossian them) and what would they want and what countenance, that we smile away every they expect from the government of India difficulty. But, in any real economy, the and I respond to them. I have already done mood is very important,’ observed Reserve (it) twice and I will do so more number of Bank of India governor Shaktikanta Das, times. Every industry which has approached speaking at an event in Mumbai late August. me I will respond”, she said. Citing an Sound advice. Sentiment matters. Irrational example, she said the automobile sector was despondency can be as damaging for the in a transition phase to produce engines and economy as ‘irrational exuberance’. But components meeting BS-VI fuel norms (from even the best Pollyannas will find it difficult the earlier BS-IV), which comes into effect to smile in the face of fresh evidence from from April 1,2020. The Minister said it was the Central Statistics Office (CSO) that the not the union government’s decision, but economy is in deeper trouble than GoI has a Supreme Court order two years ago that cared (dared?) to admit so far — GDP grew automobile companies shall not produce by just 5%, a 25-quarter low, during Q1 any BS-IV vehicle after March 31 2020, be 2019-20. The last time growth slipped to a it scooters or any other vehicle. To a query comparable low was in Q1 2013, when the about the automobile industry seeking a UPA government under Manmohan Singh Goods and Service Tax rate cut, she said it was battling charges of ‘policy paralysis’ should be decided by the GST Council. Asked following the Comptroller and Auditor what was her message to people who had General (CAG) report on the coal block lost their jobs and those fearing job losses, scam. Afar from flattering comparison. Sitharaman said, “I can only say we are Who Moved My News? But whether by

10  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 design or fortuitously, GoI was saved the a New NPA Take the merger between blushes. Thanks to finance minister Nirmala Chennai based Indian Bank and Kolkata- Sitharaman’s announcement of a mega based Allahabad Bank. It is a no-brainer merger of public sector banks (PSBs), media that much of management bandwidth in the attention was diverted from dismal growth next few years will be spent trying to make numbers to bank mergers. Despite the fact the merger work. True, bank unions are no that the proposal may have had merit when it longer the force they once were, but even so. was mooted by the Narasimham Committee Caught between outraged cries of ‘Cholbe 27 years ago, it is no longer regarded as the na!’ (Won’t allow this!)in Allahabad Bank final word on the ideal size of banks. Indeed, and ‘Muddiya du’ (Cannot be done) in Indian one of the biggest learnings from the 2007- Bank, senior management of the merged 08 global financial crisis is that large banks entity will have its hands full. Meanwhile, could pose systemic risks that endanger the the more important business of banking will entire economy. On the contrary, small is take a back seat. As with the similarly illtimed beautiful. That may not gel with the image demonetization, recovery will suffer a of a muscular government. But whatever the setback. Unfortunately, GoI seems to be blind reason, after the shotgun weddings brokered to the risks. The need of the hour is higher by the finance ministry, the number of PSBs credit growth. Upfront recapitalization of will shrink dramatically: from 18 as on date PSBs to the tune of Rs 55,000 crore (out of (27 in 2017) to around dozen. But as with Rs 70,000 crore promised in the Budget) all mergers, especially those that are board- would have spurred credit growth with driven only in name, the cost-benefit trade- multiplier benefits for investment and offs are far from obvious. The benefits are growth. But that’s not going to happen if the highly questionable. But the pain and cost bulk of the PSB universe is grappling with are real, and are likely to prove enduring. existential angst. Consequently, even though Ask any Punjab National Bank (PNB) official Sitharaman has largely delivered on her who lived through the trauma of its merger promise to front-load capital infusion into with New Bank of India back in 1993. Despite PSBs to ‘nudge an additional lending of Rs the ‘common’ culture of the two Delhi-based 5 lakh crore’, this is unlikely to happen. At banks, it took years for PNB to recover from a time when Q1 GDP numbers clearly show the ill-effects of being a reluctant suitor. Even we don’t have any time to lose, this is akin if one is willing, for the sake of argument, to to shooting ourselves in the foot. Economists give the benefit of the doubt to the business might argue it is important to first analyze rationale of the mergers, there’s no getting the nature of the slowdown whether it is away from the nagging sense that the cyclical or structural, since that will decide timing is most unfortunate. At a time when the policy response. But it is difficult to PSBs across the board should be focusing disentangle cyclical from structural factors, on revival of bank lending and recovery of and as the slowdown continues and reports bad loans remember the Insolvency and of job losses become a daily phenomenon, Bankruptcy Code (IBC) process is yet to academics must take a back seat. As Deng stabilize PSB managements accounting for Xiaoping, noted for opening up the Chinese close to 82% of PSB business and 56% of economy, had famously said, ‘It doesn’t all bank business will, instead, be engaged matter if the cat is black or white as long as in trying to see mergers through. Tackling it catches mice.’ What is clear is that when

11  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 gross fixed capital formation has been falling in the Middle East and the US,” said Sid quarter on quarter, and the private sector Pai, a tech services consultant who has is shy of investing, there is no alternative closely witnessed such amalgamations but for GoI to invest. Ideally by reorienting globally. Tech companies have deployed expenditure towards capital, rather than a large number of people during such revenue expenditure. But if that is not mergers and it has resulted in long-term possible, by easing up on the fiscal deficit contracts for these companies, Pai said. target. And in a bank-oriented economy, “The backend integration is so huge. The by allowing PSBs to support growth by not closest comparison you could think of is pushing pointless bank mergers. the amalgamation process at State Bank of Source: https://economictimes.indiatimes.com/ India,” he said. Banks may have the same industry/banking/finance/banking/view-why- core banking software, but they will have to indias-mega-bank-mergers-move-could-backfire/ synchronise financial products and integrate articleshow/70939201.cms other backend technology. For example, Punjab National Bank is going to amalgamate Dated: Sep 02, 2019 with Oriental Bank of Commerce and United • Banks May Take 3 Years For Tech Merger: Bank of India, and they run on Infosys’ Banks may take 2-3 years to standardize Finacle core banking system. Indian Bank core technology, products and customer is merging with Allahabad Bank, and they applications after the government proposed use TCS’ BaNCS software. Infosys and TCS, to merge some prominent public sector which both have a significant presence in lenders last week, analysts said. “The the banking software space, did not respond integration process would take 24-36 to detailed queries by ET. “If they use the months. Website, mobile apps, IVR all have same core banking system, the task becomes to get merged into one. While you are doing easier. But, it is not going to be easy, there this, cyber security becomes an important are similarities, but there is uniqueness as matter to look into,” said Sanchit Vir Gogia, well in terms of products,” said Gogia of chief executive, Greyhound Research. Greyhound Research. Apart from integrating During the integration, the lenders will technology, banks have to deal with cultural generate huge amounts of data and analytics differences. “All these banks are part of will play a bigger role to create 360-degree the same jungle, but they are not the same user profiles, taking data from multiple animal,” Gogia said. banks, Gogia said. A senior executive at a Source: https://economictimes.indiatimes.com/ multinational tech services firm said even industry/banking/finance/banking/banks-may-take-3- if the core banking platforms are the same, years-for-tech-merger/articleshow/70943295.cms each would require customization. Beyond Dated: Sep 02, 2019 technology integration, banks will need a • Anchor Banks, Smaller Peers Prepare The better communication strategy. “Though Ground For Mega Mergers: amalgamation of banks and integration of technology is not new, the risk lies with the Following last Friday’s announcement on ‘unknown unknowns’. For example, there merging multiple, anchor banks, including were differences in technology integration Punjab National Bank, Union Bank of India, in the risk profile, asset portfolio for banks Canara Bank and Indian Bank, are preparing

12  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 the ground for the upcoming exercise, job losses and branch closures. Padmaja beginning with board meetings to consider Chunduru, managing director and chief the proposal. Apart from these bank, boards executive, Indian Bank, said in a statement of their smaller counterparts, to be merged on Sunday that the merger of Indian Bank into anchor banks, will soon meet as well, and Allahabad Bank will create a robust according to regulatory filings. In the case of amalgamated entity with a pan-India Baroda’s merger with Dena Bank and Vijaya presence. “Indian Bank currently has a Bank announced in September last year, strong presence in South India, whereas boards of these state-run banks ratified the Allahabad Bank is present in northern and merger in no time. Finally, the share swap eastern India. This will also enable major ratio was announced in January and the scaling up of both the banks’ business due merger became effective since 1 April. Last to complementary networks since currently Friday, finance minister Nirmala Sitharaman both use the same CBS platform (BaNCS), announced the merger of Punjab National thereby enabling quick realisation of gains,” Bank, Oriental Bank of Commerce and Chundru said. However, in public sector United Bank with business worth Rs. 7.95 bank mergers, some employees are given trillion to make India’s second-largest bank. the option of taking voluntary retirement. The other merger will be between Canara Around 260 employees from Dena Bank had Bank and Syndicate Bank, which will make chosen to retire instead of joining Bank of the country’s fourth-largest bank, with Rs. Baroda. In April 2017, State Bank of India 15.2 trillion in business. Also, Union Bank of (SBI) merged five of its subsidiaries with India will be merged with Andhra Bank and itself. This process, which made SBI one of Corporation Bank to build India’s fifth-largest the world’s top 50 large banks in terms of public sector bank with Rs. 14.59 trillion in asset, saw 4,000 employees from SBI and business. Indian Bank will be merged with the associate banks opting for voluntary Allahabad Bank to make India’s seventh- retirement. After the merger announcement, largest PSB with a business of Rs. 8.08 trillion. credit rating agency Moody’s Investors Trade unions representing various sections Service said in a note that while consolidation of bank employees, however, criticised will provide scope for improvement in the move, calling for nationwide protests corporate governance, there will not be any against the mergers. The United Forum of immediate improvement in credit metrics Bank Unions (UFBU), an umbrella body of since all of them have relatively weak nine bank unions, will meet on 11 September solvency profiles. “These measures, though, in New Delhi to decide the course of action, are incremental rather than structural, and including bank strikes and other forms of the quality of their implementation will protests. “Big banks do not necessarily mean determine their effectiveness,” according strong banks,” said C.H. Venkatachalam, to Srikanth Vadlamani, vice-president, general secretary, All India Bank Employees’ financial institutions group, Moody’s Association. Venkatachalam said the board Investors Service. The government will also meetings would just be formalities and the infuse about Rs. 55,250 crore into state- ratified proposal will then go to the Reserve owned banks but Sitharaman said these Bank of India (RBI) and Parliament for were “absolutely approximate numbers”. final approvals. One of the banks tried to In FY19, the government had infused over assuage employee concerns and ruled out Rs. 1 trillion in public sector banks with the

13  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 last round of Rs. 48,239 crore in February. “We retain our call for another 15-25 bps Since FY14, the government and the Life cut at the October meeting on the back of a Insurance Corp of India have infused Rs. 3 weak 2Q GDP outcome. Odds of further rate trillion in PSBs. Interestingly, although the cuts are rising as a preference to preserve government had given a year’s extension to policy space might be overridden by growth Bank of Baroda chief P.S. Jayakumar last year concerns. “We now expect another 15-25 bps owing to the merger, heads of Canara Bank rate cut in December. Challenging global and Punjab National Bank are unlikely to get conditions and a dovish FOMC add to the an extension when their terms end in the case for the RBI to take a growth supportive next few months. The Banks Board Bureau stance,” Rao said. More sector specific (BBB) has already invited applications for supportive measures from the government the post of Managing Director (MD) and are expected. Fiscal costs will be kept to Chief Executive Officer (CEO) for these two a minimum. However, if the slowdown banks. seems entrenched, broader stimulus can be Source: https://www.livemint.com/industry/banking/ expected next year, said the report. For the anchor-banks-smaller-peers-prepare-the-ground-for- markets, worries over fiscal support and new mega-mergers-1567408164239.html 10-year issuance will put pressure on old 10- year prices. Rest of the curve is likely to ease Dated: Sep 02, 2019 as rate cut expectations are set to return, • DBS Revises India’s GDP Growth To 6.2% thereby steepening the yield curve. The For FY20: rupee will continue to watch CNY (Chinese Yuan Renminbi) movements and broader Singapore’s banking group DBS has revised US dollar bias, which at this juncture points India’s real GDP growth forecast downwards towards further rupee weakness owing to a for the current financial year to 6.2 per cent weak global environment, according to the from 6.8 per cent projected earlier. “Factoring report. Real GDP slowed to 5 per cent Year- in a weak start to FY20 (June quarter was on-Year in 2Q (First Quarter of FY20) from the first quarter), a return to favorable base the first quarter’s 5.8 per cent, below DBS’ effects in 2HFY20, and likelihood of growth sub-consensus and market expectations. returning above 6.5 per cent towards end of the year, we revise down our real GDP Source: https://www.livemint.com/companies/news/ growth forecast to 6.2 per cent YoY vs 6.8 dbs-revises-india-s-real-gdp-growth-to-6-2-for- per cent previously,” said the bank in its fy20-1567422875537.html report on Monday. The resultant negative Dated: Sep 02, 2019 output gap will keep inflationary pressures • Finance Ministry Expects Remaining Four in check. Expecting the trajectory to improve PSU Banks To Be Out Of PCA Framework in FY21, the growth is likely to close in on 7 This Fiscal: per cent with a 6.8 per cent growth pace, said DBS in the report titled “India: More policy The finance ministry expects the remaining support likely after weak Q2 growth”. For four public sector lenders to be out of monetary policy, limited fiscal implications the RBI’s Prompt Corrective Action (PCA) from the latest fiscal measures keep the framework with the recent round of capital door open for further easing, said Radhika infusion. Currently, Indian Overseas Bank Rao, economist at DBS Group Research. (IOB), Central Bank of India, UCO Bank

14  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 and United Bank of India are under this the deteriorating bad loan situation with framework which puts several restrictions reduction of NPAs by 1.06 lakh crore and on them, including on lending, management record loan recovery of Rs.1.21 Lakh Crore compensation and directors’ fees. The in the last fiscal. government on Friday announced capital Source: https://www.livemint.com/industry/banking/ infusion of Rs. 10,800 crore into these four finance-ministry-expects-remaining-4-banks-to-be-out- banks, with IOB getting the highest amount of-pca-framework-this-year-1567425047322.html of Rs. 3,800 crore. Central Bank of India will Dated: Sep 02, 2019 get Rs. 3,300 crore, UCO Bank Rs. 2,100 crore and United Bank of India Rs. 1,600 crore. • PNB Board To Consider Rs 18,000Crore “This regulatory capital is so much that it Capital Infusion This Week: will enable four banks to come out of PCA framework this year,” Finance Secretary Rajiv Punjab National Bank (PNB) on Monday Kumar told PTI. “United Bank would come said the board will consider capital infusion out of because of merger, while government of up to Rs 18,000 crore in its meeting later has given enough capital to IOB, Central this week. It comes against the backdrop of Bank of India and UCO Bank which will help the government’s announcement on August them to come out of the PCA framework,” he 30 about merging 10 Public Sector Banks said. Last week, the government announced into four entities, as part of which PNB will consolidation of 10 Public Sector Banks merge Oriental Bank of Commerce (OBC) (PSBs) into four mega state-owned lenders, and United Bank of India (UBI) with itself. including amalgamation of Oriental Bank “The board shall consider capital infusion up of Commerce and United Bank of India with to Rs 18,000 crore in its meeting scheduled Punjab National Bank. Earlier this year, RBI on September 5, 2019,” PNB said in a removed five banks- Bank of India, Bank of regulatory filing. On August 31, PNB said it Maharashtra, Oriental Bank of Commerce, received a communication from the finance Allahabad Bank and Corporation Bank from ministry that the government, after having the PCA framework in two phases after consultation with the Reserve Bank of India, capital support from the government that had decided that PNB, OBC and UBI may resulted in improvement in their financial consider the amalgamation of OBC and UBI parameters. The capital infusion helped these into PNB. “Accordingly, a meeting of the board lenders meet requisite capital thresholds of directors to consider the amalgamation and reduced their net NPA levels to below 6 will be convened by the bank shortly,” PNB per cent. Out of 11 banks put under the PCA had said. The mega merger plan of Public framework last year, Dena Bank ceased to Sector Banks (PSBs) is being seen as the exist as a separate entity after its merger with biggest consolidated exercise in the banking Bank of Baroda in April, while IDBI Bank has space, aimed at making them lenders of been acquired by LIC. Regarding the time- global size and scale. Among others who frame for the remaining banks to come out are part of this exercise include merger of of the PCA framework, the Finance Secretary Syndicate Bank into Canara Bank, Allahabad said the decision has to be taken by the RBI Bank into Indian Bank and consolidation of based on its assessment. Following a host Andhra Bank and Corporation Bank with the of initiatives taken by the finance ministry, Union Bank of India. With this, the number the banking sector witnessed a reversal in of government-owned banks in India will

15  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 come down to 12 from 19 earlier. In April appraising the general manager and above 2017, State Bank of India had merged its six ranks, including the managing director. As associate banks and Bharatiya Mahila Bank part of the reforms, she also said banks will with itself. While that last fiscal witnessed be allowed to hire chief risk operators at amalgamation of Vijaya Bank and Dena market-linked compensation, and were not Bank into Bank of Baroda. bound to the government-allocated salaries. Source: https://economictimes.indiatimes.com/ The government also allowed bank boards industry/banking/finance/banking/pnb-board-to- to decide individual development plans consider-rs-18000-crore-capital-infusion-this-week/ for senior executive positions to ensure a articleshow/70949408.cms smooth transition when the senior executive leaves or retires. The risk management Dated: Sep 02, 2019 committee will be governed as per a Risk • Public Sector Bank Heads Told To Reform Appetite Framework. The framework will Boards: consist of risk limits for the respective banks, policies and procedures for material as well The Department of Financial Services as reputational risks, and clearly defining has asked heads of all state-run banks the committee members’ roles. to initiate the process of reforming their boards in line with governance changes Source: https://economictimes.indiatimes.com/ announced by finance minister Nirmala industry/banking/finance/banking/psb-heads-told-to- Sitharaman on Friday as part of the mega reform-boards/articleshow/70951939.cms banking reform package. “With a view Dated: Sep 03, 2019 to institutionalize accountability for observance of approved risk appetite, the • PNB To Consider Rs 18kCr. Fund Infusion bank may give the risk committee of its This Week: board a mandate to periodically review Punjab National Bank (PNB) on Monday adherence to the risk appetite framework said the board will consider capital infusion of the bank and to fix accountability in the of up to Rs 18,000 crore in its meeting later event of breach of approved risk appetite,” this week. It comes against the backdrop of the Financial Services Department said in the government’s announcement on August a letter sent to state-run banks, seen by ET. 30 about merging 10 public sector banks The letter asked the banks to form a risk into four entities, as part of which PNB will management committee, and to combine the merge Oriental Bank of Commerce (OBC) and nomination and remuneration committees. United Bank of India (UBI) with itself. “The Sitharaman had on Friday announced a board shall consider capital infusion up to slew of measures including consolidation Rs 18,000 crore in its meeting scheduled on of 10 state-owned lenders into four that September 5, 2019,” PNB said in a regulatory seek to change the banking landscape. filing. Consolidation will be accompanied with Source: https://economictimes.indiatimes.com/ significant governance reforms. She said the industry/banking/finance/banking/pnb-to-consider-rs- management will decide on the appraisal of 18k-cr-fund-infusion-this-week/articleshow/70953185. top officials, instead of a single person. The cms management will be accountable towards to the board of the PSBs, by way of the board Dated: Sep 03, 2019

16  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 • India Plans Mega Banks But Analysts Say comes with its own set of challenges in HR, Bet On Rivals Instead: process integration, branch rationalization,” analysts led by Kunal Shah at Edelweiss Equity analysts predict that India’s move Securities Ltd. in Mumbai, wrote in an to merge several of its state banks will investor note on Friday. “Ideally, value lies slow their loan growth, and many brokers in places outside the involved banks and advise buying shares of the lenders’ rivals within this space, we like State Bank of who stand to benefit from the uncertainty. India as it is better positioned to grow,” they While the mergers will reduce the number wrote. “We have observed that historically, of state-owned banks to 12 from 27 and when state-owned banks merge, smaller are aimed at creating bigger and healthier banks’ loan-book growth slows sharply, as lenders, the time needed for integration the primary focus of management shifts and challenges related to staff, branch and to integration,” Vishal Goyal and Ishank process overlaps are expected to be the main Kumar, analysts at UBS Securities India immediate risks. Prime Minister Narendra Pvt., said in a note on Saturday. ICICI Bank Modi’s government late Friday surprised Ltd. and Axis Bank Ltd. remain UBS’s most- analysts by announcing a series of mergers preferred picks. The mergers may not be that will create four new lenders that will favorable for the smaller lenders based on hold business worth 55.8 Trillion Rupees the share-swap ratios decided in past state- ($781 billion) or about 56% of the Indian owned bank combinations, analysts led by banking industry. The announcement came Adarsh Parasrampuria at Nomura Financial minutes before data showed economic Advisory & Securities (India) Pvt., wrote in growth in Asia’s third-biggest economy a note on Saturday. “We continue to prefer slumped to a six-year low of 5%, below the private corporate banks such as ICICI and weakest estimate of 39 economists polled Axis Bank and we see value in State Bank, by Bloomberg. Futures contracts on India’s where merger-related uncertainty will not Nifty 50 Index dropped 1% in Singapore be there.” “Consolidation is a good long-term on Monday, when local markets were shut, move, but could weigh on near-term growth indicating the broader stock market may and potentially worsen the credit crunch,” decline when they open for trade on Tuesday. analysts led by Sumeet Kariwala at Morgan Here is what some of the analysts are saying: Stanleywrote in a note on Monday. The Mergers will keep state-run banks “busy brokerage remains underweight on Punjab in the integration process for a prolonged National Bank and Canara Bank. Mergers period and thus help private banks further are “unlikely to revive credit growth,” Credit consolidate their business market share,” Suisse Group AG’s analysts Ashish Gupta and Emkay Global analysts Anand Dama and Kush Shah wrote in a note on Monday. “Given Rahul Malani wrote in a note dated Sept. 3. the limited flexibility on restructuring and Emkay downgrades Indian Bank to hold from rationalization, meaningful cost synergies buy, and maintains sell on Punjab National from PSU bank mergers are unlikely,“ the Bank, Canara Bank and Union Bank, citing note added. Citigroup Inc. said the mergers merger overhang. The analysts retain buy “are significant and should strengthen the on SBI and a positive bias toward private banking system in the medium to long term.” banks, with ICICI Bank and HDFC Bank as Fewer banks will mean the government’s top picks among large stocks. “Consolidation capital infusion will be concentrated and

17  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 will aid in talent management, analysts the worst is over. Its capital base has been including Manish Shukla wrote in a note, eroded and the capital adequacy ratio was upgrading shares of Bank of Baroda Ltd. estimated at 8.1%. The poor show has meant to buy from neutral. “Near-term impacts that the bank faces restrictions on expansion could potentially be slower growth but and lending under the Reserve Bank of faster NPL resolution, while medium-term India’s Prompt Corrective Action framework impacts could include lower lending spreads with even LIC, which acquired a majority in segments where SOE banks are market stake from the government, is unhappy with leaders,” Goldman Sachs Group Inc. the state of affairs. After all, the insurer has Source: https://economictimes.indiatimes.com/ already pumped in close to Rs 20,000 crore industry/banking/finance/banking/india-plans- to acquire a majority stake. LIC has seen a mega-banks-but-analysts-say-bet-on-rivals-instead/ significant value erosion, with IDBI Bank articleshow/70953741.cms share price plummeting from Rs 56.5 when the stake acquisition was completed in late Dated: Sep 03, 2019 January to Rs 26.7 on Friday. LIC had made an open offer at Rs 61.7 to acquire a 26% • Government Set To Bail Out IDBI As Part stake in the erstwhile development financial Of Rs 9,000 Crore Plan: institution, which has seen many twists IDBI Bank is set to get a fresh lifeline of Rs and turns since the government decided to 9,000 crore, with the government planning convert it into a universal bank at the start to pay its share of the bailout money that Life of the millennium. Over the years, it has lost Insurance Corporation has been seeking for its expertise in offering long-term project the past several months. While LIC, which is finance and has not been able to expand the majority owner of IDBI Bank, will have to its retail footprint at a brisk pace. LIC is, cough up close to Rs 4,500 crore as its share, however, happy with IDBI Bank’s ability to the government is expected to chip in with hawk its insurance products, which has also a matching contribution, sources told TOI. prompted the lender to scout for suitors The money will be released as part of the to acquire its stake in IDBI Federal, a joint Rs 70,000 crore bank recapitalization plan, venture insurance company. of which over Rs 55,000 crore has already Source: https://economictimes.indiatimes.com/ been earmarked for the state-run lenders industry/banking/finance/banking/ government- led by the entity to be created by the merger set-to-bail-out-idbi-as-part-of-rs-9000-crore-plan/ of Punjab National Bank, Oriental Bank of articleshow/70955321.cms Commerce and United Bank of India, which will receive Rs 16,000 crore, according to Dated: Sep 03, 2019 initial estimates released on Friday. Sources • Shri Anil Ambani’s Shipyard Risks said the fresh support to IDBI will help it Insolvency As Banks Spurn Debt Plan: tide over the latest financial crisis, given that it has a massive pile of non-performing The shipyard controlled by embattled Indian assets (NPAs), which on a gross basis was tycoon Anil Ambani is facing the prospect estimated at over 29% of advances on June of bankruptcy after failing to get creditors’ 30. The bank has been in the red for the last approval for restructuring Rs 7,000 crore 11 quarters, despite the management and ($970 million) of debt, people familiar the government repeatedly suggesting that with the matter said. India’s bankruptcy

18  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 tribunal will consider putting Reliance raise about Rs 21,700 crore ($3 Billion) to Naval & Engineering Ltd. in bankruptcy help pare debt that has ballooned to about on Wednesday as no new repayment plan 939 billion rupees at four of its biggest units was submitted after lenders led by IDBI excluding the telecom business Reliance Bank Ltd. rejected an earlier offer in July, Communications Ltd. the people said, asking not to be named as the information is not public. The court can also defer the decision on bankruptcy. Any court ruling favoring the banks would deal another blow to the tycoon’s stressed empire after his wireless carrier slipped into insolvency earlier this year. The revival of the shipyard is crucial for the tycoon, who’s betting on potential cash flows from government defense contracts as Prime Minister Narendra Modi plans billions of dollars in spending on national security. Source: https://economictimes.indiatimes.com/ While IDBI had sought to move Reliance industry/banking/finance/banking/anil-ambanis- Naval into insolvency in September 2018, a shipyard-risks-insolvency-as-banks-spurn-debt-plan/ decision was delayed after industry bodies articleshow/70957356.cms representing power-generating companies, Dated: Sep 03, 2019 shipyards and sugar mills successfully challenged the RBI directive that required • ICICI Bank targets 23% growth in retail delinquent borrowers to be pushed into loan disbursement in UP in FY20: bankruptcy. However, the risk of bankruptcy re-emerged for the submarine maker after it ICICI Bank has set the target for retail loan failed to come up with a repayment plan even disbursement at Rs 4,900 crore in Uttar under RBI’s relaxed norms. Representatives Pradesh for 2019-20, marking a growth rate for Reliance Naval and IDBI Bank didn’t of 23 per cent over the last year, a senior bank respond to emails and phone calls seeking official said on Tuesday. ICICI Bank executive comments. The warship maker’s loan-recast director Anup Bagchisaid that two major plan that was rejected in July proposed segments of retail loans - consumer loan and banks converting part of the debt into mortgages - are set to grow at a rapid pace equity after the RBI eased rules to provide in the state this financial year. The target lenders more discretion in dealing with of Rs 4,900 crore “will mark a 23 per cent soured debt, the people said. The plan didn’t growth year-on-year”, Bagchi told reporters involve any upfront payments and proposed here. Bagchi said that retail consumer loans a transfer of banks’ non-fund exposures have witnessed significant growth in Uttar such as guarantees and letter of credits from Pradesh over the last few years. “We are Reliance Naval to another Ambani company focusing on consumer loans and home loans Reliance Infrastructure Ltd., the people to grow in the state,” he said. He clarified said. Meanwhile, Anil Ambani’s wider that cities like Noida and Ghaziabad are not conglomerate is planning to dispose of assets included in the target as these places come spanning roads to radio stations, aiming to under the bank’s NCR region. “The bank

19  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 aims to achieve this growth by expanding long, but Robert Browning’s melancholy mortgage loan disbursement by 20 per cent poem aptly describes the illustrious banker’s to nearly Rs 2,500 crore in FY20, compared financial reforms agenda: ‘Less is More’. to FY19,” he said. Besides, he said, the bank Narasimham’s minimalism provides will grow consumer loans disbursement, intellectual underpinnings for the latest which comprises largely of personal, car and consolidation drive at state-run banks, a two-wheeler and commercial vehicle loans, course of action the 13th Governor of the by 30 per cent to nearly Rs 1,700 crore. To Reserve Bank of India had prescribed when make the home loan disbursal process quick North Block first began unshackling its and convenient to customers, ICICI Bank has economy. So, when finance minister ramped up its credit processing units from Niramala Sitharaman last Friday announced three to 13 centers in cities like Moradabad, the merger of 10 banks into 4, she was Gorakhpur, Jhansi, Prayagraj, Mathura and translating into action a tiered banking Saharanpur. ICICI Bank is laying emphasis blueprint suggested in 1991 by Narasimham, on cities like Lucknow, Kanpur, Agra, who holds the distinction of being the only Mathura and Aligarh and expanding its RBI cadre official to have headed the home loan proposition to tier II and III cities regulator. As chair of the 1991 Committee on that have a robust housing potential like the Financial System he also led the 1998 Varanasi, Gorakhpur and Bareilly, he said. Committee of Banking Sector Reforms The bank has over 260 branches and nearly Narasimham had argued in favour of three- 1,250 ATMs in the state at present besides four mega banks at the top of the pyramid, 260 self-service kiosks across branches. supported by a wider base of last-mile Bagchi said the bank was giving stress on financiers. “I have always said that India introducing innovative digital solutions for needs bigger banks…many PSBs were subpar entrepreneurs and MSME industries. ICICI in size and this merger will help them,” said group imparts free vocational training to Arundhati Bhattacharya, former chairman, underprivileged youth in the state through State Bank of India (SBI). “The kind of ICICI Academy for Skills, he said. The investments one needs to make in compliance Academy has two centers in UP at Lucknow and technology is enormous and…the return and Gorkahpur and has imparted vocational on investment is not enough (for smaller training to over 3,500 underprivileged banks). The bigger the entity, the stronger youths in the state, he said, adding that by you become.” Technology, therefore, has FY’20 it would train nearly 4,600 youth with been the central decision-making theme in skills for leading a sustainable livelihood. choosing the banks to be merged. But that’s Source: https://economictimes.indiatimes.com/ just the beginning of a complex process. industry/banking/finance/banking/icici-bank-targets- Thrust on better governance, a more liberal 23-growth-in-retail-loan-disbursement-in-up-in-fy20/ approach to the composition of boards, articleshow/70961079.cms succession planning on a par with private sector peers, and competitive executive Dated: Sep 03, 2019 compensation would determine whether the • What The Road Ahead Looks Like After reforms provide independence and ensure India’s Radical Banking Transformation: accountability at these banks first brought Odds that Andrea del Sarto shaped Maidavolu under federal control five decades ago. “For Narasimham’s outlook to banking are rather each senior-level position, a set of two-three

20  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 people will be trained, so that they get government has infused more than Rs 3 lakh expertise in that area and be ready to take crore in them since FY15, but the combined that position, if need be,” Sitharaman said market capitalization of PSBs is just Rs 5 lakh last week. “We want to make sure that board crore. “The benefits of the merger could be committees are strengthened and adequately less bureaucracy and faster decision-making compensated. Many board members were because we will no longer need an okay from paid a pittance; so the boards will be given a three or four lenders for one bad asset flexibility to get the best in the field.” resolution,” said Pratip Chaudhuri, former Initiatives to strengthen bank boards and chairman, SBI. “But to say that these banks professionalize ‘talentship’ come in the 50th will improve profitability will be far-fetched year of bank nationalization, and five years because the government’s aim has and will after the PJ Nayak panel gave its remain social benefits and compliance. recommendations on bank governance. “All Share prices and profits were never part of these banks were thin at the top because the government agenda and that will not they were struggling to get good quality GMs change.” But that must change for the and CGMs, and these mergers will create the mergers to yield the desired results. Similarly, bandwidth for better mid management,” the merged banks shouldn’t be ‘clones’ of said Kuntal Sur, partner at PwC India. “This one another as they individually were. “Even will, in turn, help in better loan monitoring, after the merger, if these banks continue to overseeing the end-use of funds, and better do the same thing, they will generate the recovery.” The very vocal former governor, same non-performing loans,” said PwC’s Sur. Raghuram Rajan, had also said that India “These banks need to focus on rebuilding could be staring at a “national calamity” if strategies; they don’t need to focus on all the enormous national assets with state-run geographies, they can concentrate only on banks start to deteriorate due to loss of talent corporate or SME or trading. So, they have to and capabilities. In its first innings, the Modi find a niche somewhere.” Sitharaman has administration experimented with several tied management accountability to bank reforms. It brought in former Citibanker PS boards, enhancing by implication the board’s Jayakumar to head Bank of Baroda to help status. “The fact that the management of the turn around the sagging bank. Rakesh bank is accountable to the board …is a very Sharma, who now leads IDBI Bank, was also strong factor and there is a lot of flexibility hired in 2015 from the private sector to lead provided, like compensation of non- big state-run banks. “A bigger bank helps in executive directors,” said PS Jayakumar, MD, more independent decision making. SBI is a Bank of Baroda. “So, I think it is a structural case in point,” said Saurabh Tripathi, reform, an element of which is the way these partner, Boston Consulting Group. “Its size banks would be run.” In May 2014, a and scale allow its management the committee headed by PJ Nayak, former bandwidth and stature to deal with chairman and CEO of Axis Bank, laid out a government ministries with confidence and road map for setting PSU banks free from make faster decisions. The smaller banks the government’s ownership, and making still wait for government signaling.” State- them board-run. The panel proposed diluting run banks, because of their disproportionate state ownership to 50% of the banks’ paidup 90% share in industry bad loans, have also capital, revamping their boards, and given dismal returns to North Block. The removing government’s role in appointments

21  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 of bank chiefs recommendations that helped merged with Bank of Baroda. “Given their found the Banks Board Bureau. Four years weak RoAs and interim profitability later, North Block seems to have begun pressure, we do not expect a significant walking the talk. “There is a need to get catch-up unless one sees a sharp people with human resource, technology improvement in risk practices,” said Mona and risk experience as part of the bank Khetan, banking analyst, Reliance Securities. boards. Empowering boards will go a long Between FY16 and FY19, bad loans rose for way because at the moment, there is two- all 11 banks with IDBI Bank reporting the way control and when there is a unity of maximum rise of 16.49%. Except for Bank of control, it will be better managed,” said India, all others have made losses in the past Bhattacharya. Past mergers have shown that three years. “PSBs have lost the edge to integration is rather messy, with different private banks in the last several years just cultures standing in the way. “The first one like MTNL and BSNL lost out, Air India lost to or two years in any merger will have its own private airlines, and government insurers challenges, something we also found while lost huge businesses to private companies,” integrating ING Vysya,” said Dipak Gupta, said Varinder Bansal, managing partner, joint managing director at Kotak Mahindra Pantomath Asset Management Company. Bank. “Crucial in the success of any merger “It’s not the size that gives you the edge but are technology, process alignment and the culture that you imbibe.”That’s the people and culture. The alignment of people culture change these mergers are seeking to and culture is the toughest.” Critics also accomplish making bank managements argue that as the merger process takes more accountable to professional boards instead than a year and occupies leadership of the political leadership. The Modi mindspace, the managements may have administration has so far not interfered with little bandwidth to chase credit growth. “The “calls from Delhi” to spare large corporate amalgamation process takes up to six months defaulters. Indeed, Sitharaman took at the and the management bandwidth of the dig at the UPA regime when she said that this merging banks may get occupied,” said Anil government never indulged in “phone- Gupta, vice president, sector head - financial banking.” That’s a good beginning for sector ratings, ICRA. “The amalgamation will staterun banks that need all the impetus and require harmonization of asset quality and independence they can muster to help nearly provisioning among the merging banks and double India’s economy to $5 trillion in five may increase credit provisions this year, as years. was seen in the recent merger of Bank of Baroda.” Of course, investors anticipating a miracle would fall in the ‘overoptimistic’ camp. It has been three years since Mint Road tightened the noose on 11 PSBs and put curbs on their lending processes. Following RBI’s directive to banks on Asset Quality Review in December 2015, 11 banks were put under operational curbs, with varying sets of restrictions. Of these, five have exited the straitjacket, while Dena Bank has been

22  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Source: https://economictimes.indiatimes. 10-15% lending limit to the NBFC sector com/industry/banking/finance/banking/a-new- (expressed as a percentage of total loans) is voyage-with-bank-mergers-sail-on-rough-seas/ more of an internal decision by banks as part articleshow/70969407.cms of their risk management strategy, said Anil Dated: Sep 04, 2019 Gupta, vice president of rating agency ICRA Ltd. That apart, since banks are wary about • Bank Mergers Won’t Ease NBFCs’ Credit lending to NBFCs, mergers do not solve the Woes: problem of a credit squeeze. “The merger The proposed merger of 10 state-run banks does not erase the problem of lenders’ into four entities is unlikely to ease credit reluctance to fund non-banks and also does flow to non-bank lenders since their post- not change their risk perception for the merger exposure to the sector will continue sector. What could likely improve following to remain above their comfort level, experts the mergers is credit appraisal, monitoring said. Finance minister Nirmala Sitharaman’s and stress resolution of loans to all sectors, 30 August announcement on the merger including the NBFCs,” said Gupta. Except and recapitalization of state-controlled Punjab National Bank, all other anchor banks banks raised hopes of better credit flow designated by the government to lead bank as restrictions on lending imposed by the consolidation had exposures of more than Reserve Bank of India (RBI) on weak banks 10% of their total loan book to non-banks as are likely to be lifted after their merger with of 30 June, according to an analysis by Credit lenders with stronger balance sheets. Five Suisse. Union Bank of India has the highest banks United Bank of India, Indian Overseas exposure at 14.1%, followed by Canara Bank, Central Bank of India, IDBI Bank and Bank and Indian Bank at 12.3% and 10.7%, UCO Bankare still operating under the RBI’s respectively. Following the merger, even PNB prompt corrective action (PCA) framework will reach the 10% mark, while Union Bank of that is aimed at reining in banks that have India and Canara Bank will be at 13.3% each. breached regulatory thresholds in bad loans Indian Bank’s exposure will be at 11.8%. and capital adequacy. Since United Bank of “The merger is also unlikely to meaningfully India will merge with Punjab National Bank, revive flow of credit to the liquidity-pressed it is expected to exit the PCA framework. NBFCs as given the already high share of Central Bank of India, IDBI Bank, UCO Bank NBFC exposure in constituent banks, all four and Indian Overseas Bank, meanwhile, will merged entities will have more than 10% of be recapitalized, which could help them exit their loan exposure towards NBFCs,” said the framework as well. While RBI prescribes a note by Ashish Gupta, managing director exposure limits for a single borrower and a and head of equity research (India), Credit group of connected borrowers, it has left it Suisse. As of July, bank loans to NBFCs stood to banks to decide their aggregate exposure at ₹6.36 trillion, while the total bank credit to all NBFCs. “Banks may also consider fixing stood at Rs. 84.95 trillion, according to RBI internal limits for their aggregate exposure data. Analysts also note a lack of synergies to all NBFCs put together,” according to in this round of mergers compared to the the central bank’s master circular on bank last one, when Dena Bank and Vijaya Bank finance to NBFCs, issued in July 2015. The were merged with Bank of Baroda. “Given current exposure limit for a single NBFC the limited flexibility on restructuring and stands at 20% of a bank’s tier-1 capital. The rationalisation, meaningful cost synergies

23  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 from PSU bank mergers are unlikely. Even MD at SBI before joining Syndicate Bank, as the size and scale of operations increase, was part of the integration team during core profitability for these banks is likely to merger of SBI’s associate banks. He headed remain weak. Hence, they will continue to the IT department, which took centre stage depend on external infusions,” said Gupta. at the time of the merger. In addition to Unlike the previous mergers of state-run this experience from SBI, the banks will get banks where the anchor banks had a strong feedback from Bank of Baroda-Dena-Vijaya capital profile and better asset quality with integration. After balance sheets of the two large scope for branch rationalization, many banks are merged following approvals, the anchor banks under the recent amalgamation teams will work on HR processes and IT. process are themselves not in good health, Earlier, Canara Bank MD & CEO R A Sankara with both gross bad loans and net bad loans Narayanan, told ET Now that there would for PNB and Union Bank of India at over 15% not be any loss of employment after merger. and 7% of assets, respectively, according to a He had also confirmed that both the banks report by Reliance Securities. will stick to business projections. and have Source: https://www.livemint.com/industry/ a dedicated team to focus on integration banking/bank-mergers-won-t-ease-nbfcs-credit- without affecting normal business. One woes-1567531599250.html important aspect of the merger will be mapping products. First, the two banks will Dated: Sep 04, 2019 map products into three categories: unique, • Merger Won’t Slow Down Business, same and similar products. Some like savings Syndicate Bank: and fixed deposits are identical. Products HR integration will be the top priority in like home loans are similar but may have the merger of Syndicate Bank with Canara minor differences. “All these products have Bank and branch rationalisation would be to be mapped and the integration committee looked at only after all aspects of integration has to take a call. The pygmy deposit is are complete. Speaking to TOI, Syndicate something unique to Syndicate bank. There Bank’s MD & CEO Mrutyunjay Mahapatra may be some other relating to SME which said that the merger process will not slow are unique,” said Mahapatra. down business. Syndicate Bank will go Source: https://economictimes.indiatimes.com/ to the board between September 9-15 industry/banking/finance/banking/merger-wont-slow- for approval. “It will not impact lending down-business-syndicate-bank/articleshow/70971677. because we have adequate capital and once cms deals come, we will keep doing them under Dated: Sep 04, 2019 risk-management framework,” he said. • UCO Bank as regional bank causes Syndicate Bank has three-percentage-point heartbreak in United Bank of India: higher capital compared to the minimum requirement and therefore will not be The choice of Uco Bank as the regional bank impacted by government’s decision to infuse for the east has raised many eyebrows as the capital into acquiring the bank. “As of now, United Bank of India (UBI), which is set to there is no change in growth strategy. The be merged with Punjab National Bank and problem is not of approving loans but of Oriental Bank of Commerce, has played a demand,” he said. Mahapatra, who was joint more significant role in banking expansion

24  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 in the east, especially in the north eastern which is still making losses, has very high states. “It has come as a surprise, we don’t NPA ratios with one-fourth of its loan assets really know how to deal with,” said a senior being sticky. Its net NPA was at 8.98% at the executive at United Bank of India. UBI, end of June. “Declaring Uco as a regional popularly known as the Tea Bank for being bank will not solve its fundamental issues. the largest financiers to the tea gardens of The bank is suffering from asset quality Darjeeling and Assam, has 1541 branches problem which has eaten up a large chunk in the eastern and north-eastern markets, of capital,” said Sanjeev Jain, an analyst with with Uco’s 1149. UBI is also the lead bank in Ashika Stock Broking. “Need of the hour for 43 districts in West Bengal, Assam, Manipur Uco Bank is to control its NPA level along and Tripura; and convener of the State with fresh capital mobilization for growth. Level Bankers’ Committees in West Bengal Investors should wait till the sign of bank’s and Tripura. “As far as UBI is concerned, growth visibility for fresh investment on the we have a unique proposition. No other counter,” he said. bank can match our huge presence in Source: https://economictimes.indiatimes.com/ Bengal and other eastern states. Retaining industry/banking/finance/banking/uco-bank-as- UBI’s regional strength may make sense, regional-bank-causes-hurtburn-in-united-bank-of- we should not waste this opportunity,” UBI india/articleshow/70963579.cms chief executive Ashok Kumar Pradhan had Dated: Sep 04, 2019 told ET in an interview on October 17 last year. Uco Bank is, however, a bigger bank • Canara Bank Board To Meet Next Week To with 3088 branches and Rs 3.11 lakh crore Consider Rs 9,000-Cr Capital Infusion: business mix compared with UBI’s 2055 Public sector lender Canara Bank on branches and Rs 2.06 lakh crore business. Wednesday said its board will meet next Allahabad Bank, the biggest of the Kolkata- week to consider capital infusion of up to Rs headquartered lenders with Rs 3.78 lakh 9,000 crore through issuance of preferential crore business, has just about 35% of its 3229 equity shares to the government of India. branches in east and northeast, compared to The board will also consider amalgamation Uco’s 38% and UBI’s 75%. The government of Syndicate Bank with it. “...Meeting of has selected the merger candidates on the board of directors of the bank is scheduled basis technological synergy rather than to be held on September 13, 2019, to consider geographical compatibilities. PNB, OBC and the amalgamation of Syndicate Bank into UBI are in the same core banking solution Canara Bank and to consider capital infusion platform Finacle. Interestingly, Uco Bank, up to Rs 9,000 crore by government of India too uses the same banking software built by by way of preferential issue of equity shares Infosys. UBI, which has reported net profit subject to necessary approvals,” Canara for the past two quarters and has 51% CASA Bank said in a regulatory filing. Last week, (current and savings bank account ratio to the government unveiled a mega plan to total deposits), may have been preferred merge 10 Public Sector Banks into four with for merger for its better financials than a view to creating fewer and stronger global- Uco Bank, a senior banker said, requesting sized lenders with robust balance sheets that anonymity. UBI has managed to reduce gross can be used to boost credit and spur growth. non-performing assets ratio to 15.89% while As per the announcement, Syndicate Bank its net NPA was 8.19% at the end of June. Uco, will merge with Canara Bank, while Andhra

25  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Bank and Corporation Bank would subsume borrowers. It had experimented with many into Union Bank of India, and Allahabad ideas such as Prime Lending Rate, Base Rate Bank will be amalgamated with Indian Bank. and the last one was the MCLR which was Oriental Bank of Commerce and United based on the cost structure of the bank in the Bank will merge with Punjab National Bank latest quarter. Banks can link their interest to create the nation’s second-largest lender rates to the RBI’s benchmark repo rate, the behind State Bank of India. three month or six month treasury yield Source: https://www.moneycontrol.com/news/ published by Financial Benchmarks India business/canara-bank-board-to-meet-next-week-to- Pvt Ltd (FIBIL) or any other benchmark consider-rs-9000-cr-capital-infusion-4402031.html published by FIBIL, RBI said. This would be the second attempt by the regulator Dated: Sep 04, 2019 to make bank loans linked to an external • RBI Makes It Mandatory For Banks To Link benchmark. While it was supposed to turn Lending Rate To External Benchmark: operational last April, Governor Shaktikanta The Reserve Bank of India has made it Das decided to postpone it as the industry mandatory for banks to link their retail highlighted operational difficulties. But and MSME loans to external interest rate with the noise getting louder about high benchmarks in its biggest push to make borrowing costs, even the Finance Minister its interest rate decisions effective and Nirmala Sitharaman chipped in asking state- suggested a bunch of rates that lenders could run banks to link their rates to benchmarks. choose from. Home, car and personal loans Many including the State Bank of India and for travel are expected to fall benefiting Bank of India have done so. In an industry borrowers. This new norm will be effective conference last month governor Shaktikanta October 1 where banks have to migrate from Das said that the transmission of policy the Marginal Cost of Lending Rate regime rates at just 29 basis points (bps) this year to external benchmarking and banks will compared to a combined repo rate cut of have the freedom to choose which one to 75 bps (excluding the 35bps cut in August) follow. It has come up with rules that would did not meet RBI’s expectations. While the also prohibit banks from gaming the system rates move along the lines of the benchmark, although it has left the risk premium charges banks would have the freedom to charge to be decided by the bank depending on the a premium based on the customer’s risk credit profile of the borrower. The interest profile. A poor credit score could lead toa rate under external benchmark shall be high premium over the benchmark and reset at least once in three months. “In order vice versa and it can’t be changed at the to ensure transparency, standardisation, will of the bank. “Credit risk premium may and ease of understanding of loan products undergo change only when borrower’s by borrowers, a bank must adopt uniform credit assessment undergoes a substantial external benchmark within a loan category; change, as agreed upon in the loan contract,” in other words, the adoption of multiple said RBI. “Further, other components of benchmarks by the same bank is not allowed spread including operating cost could be within a loan category,” RBI said. The Reserve altered once in three years.” “This makes Bank of India has been struggling for more it mandatory for banks to link rates which than a decade on how to make its interest we have mostly done. Only thing is we rate decisions get transmitted to the ultimate cannot have two products which we offer

26  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 now in terms of a market linked home loan opening according to market rules. PNB product and one that is not. It could increase Housing executives declined comment on the volatility given that rates short term rates development. Executives at Carlyle Group, will be linked. Also the liability side has not General Atlantic and Varde Holdings did been linked which is still a question in front not comment either. Shares of the mortgage of us,” said PK Gupta, managing director, lender with a face value of Rs 10 closed SBI. Wednesday at 638.40 on BSE. PNB Housing Source: https://economictimes.indiatimes.com/ has hired JM Financial and Kotak Mahindra industry/banking/finance/banking/rbi-makes-it- Capital Co as merchant bankers for the issue. mandatory-for-banks-to-link-lending-rate-to-external- ET was first to report on May 6 about PNB benchmark/articleshow/ 70982119.cms Housing’s equity raising plan. “The company is progressing well on its plan. The exercise Dated: Sep 04, 2019 is likely to be completed by mid-October,” • Carlyle Group, General Atlantic Singapore a source in the know said. It is learnt that To Pump In More Money In PNB Housing the mortgage lender will opt for ‘limited Finance: preference’ route whereby a maximum of The Carlyle Group and General Atlantic five investors can participate. Investors’ Singapore Fund FII Pte Ltd are set to raise interests in the share sale would vindicate their investments in PNB Housing Finance, a the prospect of the Indian mortgage market move that may come as a major confidence on the back of growing urbanization and booster for the non-banking financial the rise in rural housing demand. Mortgage sector that is undergoing a credit squeeze. to GDP ratio in India was just about 10% These marquee global investors are likely compared with China’s 18% and the US’ to subscribe to the Rs 2,000-crore worth of 63%. The government has lowered GST rate fresh issue of equity shares by PNB Housing, on under-construction property to 5% from sources close to the development said. Varde 12% to promote housing for all. Holdings Pte Ltd is also likely to raise its Source: https://economictimes.indiatimes.com/ investment. Two other local investors are industry/banking/finance/banking/carlyle-group- also in the process of subscribing to the general-atlantic-singapore-to-pump-in-more-money- fresh equity. The share sale is the first by in-pnb-housing-finance/articleshow/ 70983337.cms the mortgage lender promoted by Punjab Dated: Sep 04, 2019 National Bank since its listing in 2016, as it needs fresh equity to support growth. • NBFC Credit Falls To Rs 1.79 Lakh Crore At The lender had outstanding loan assets of The End Of June Versus Rs 2.49 Lakh Crore Rs 76,000 crore at the end of June. Carlyle Of March: holds 32.25% in PNB Housing through a Credit disbursals by non-banking finance group company, called Quality Investment companies (NBFCs) continued to slide Holdings. General Atlantic holds 9.87% while despite regulatory measures to boost credit Varde Holdings holds 1.6% in the mortgage to the sector. Loan sanctions plunged lender. Their shareholding may go up if 28% in the quarter to June, almost a year they invest more than their proportionate after the liquidity squeeze that followed shareholding. The Rs 2,000-crore issue will the unexpected default by Infrastructure be inclusive of premium and the final price Leasing & Financial Services (IL&FS). Total will be finalised just ahead of the issue NBFC sanctions fell to Rs 1.79 lakh crore at

27  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 the end of June versus Rs 2.49 lakh crore at ratio requirements. Banks had also stepped the end of March, data compiled by credit up their buyout portfolio and the National bureau CRIF High Mark showed. On a year- Housing Bank refinancing limit was also on-year comparison the fall in sanctions increased by Rs 6000 crore. The central bank was steeper at 30%. Non-bank lenders had had also allowed non-banks with loans of sanctioned loans worth Rs 2.57 lakh crore over five year maturities to sell their loan in June last year, which rose to Rs 2.76 pools or securitise them on easier terms for lakh crore at the end of the September, the the next six months, last year. But, the bulk of same month infrastructure financier IL&FS the announcements have come post the July collapsed. It slid to Rs 2.2 lakh crore at the end 5 budget when the government announced a of December a drop of nearly 20% from the one-time six month partial guarantee scheme September levels. “The decline this quarter of Rs 1 lakh crore. Following which the RBI is more significant because the data sets, also announced liquidity easing measures combined with the not so positive economic and relaxed exposure norms to banks giving indicators, paint a worrying picture,” said credit to NBFCs. In August the RBI classified Parijat Garg, Senior Vice President, CRIF. loans by banks to NBFCs for on-lending “The hope is pinned on the festive season to to agriculture, MSME and housing up to a bring some relief to the sector because the certain extent as priority sector. On August first quarter is a slow credit period. Also, 23, finance minister Nirmala Sitharaman several measures were announced by the announced increase in NHB increasing by government and the RBI in the July-August Rs 10,000 crore and monitoring of the credit period which may have some positive guarantee scheme at the highest level. But impact as well in the coming quarters.” The despite these measures, industry participants data till June showed that housing, property claim that banks continue to be risk averse. and auto loan segments were the worst hit. “NBFCs continued to feel the liquidity crunch Housing loan sanctions declined by 30% to during Q1 of the current fiscal, primarily due Rs 45,000 crore against Rs 64,000 crore in to banks getting risk averse when it came March while loans to developers declined to lending to NBFCs,” said Raman Agarwal, by nearly 40% to Rs 13,730 crore versus Rs Chairman, FIDC - an industry body for non- 23,000 crore QoQ. Auto and two-wheeler bank lenders. “Some remedial measures loans declined by 17% to Rs 26,000 crore have been announced, starting with the in the quarter to June, data shared by CRIF budget announcement of the Partial Credit showed. Without announcing any bailout or guarantee scheme. The key point is that all liquidity window for the struggling non-bank the measures to infuse liquidity are routed lenders, the government and the Reserve through banks and as long as banks are Bank of India have announced several risk averse, the desired impact is not seen.” measures to arrest the collapse of the non- India’s growth slumped to a six-year low of bank lending space that contributes over 5% in the June quarter. Monthly automobile 20% of the total credit. In October last year sales have collapsed, in some cases as much the RBI has increased single borrower limit as 50%, plunging dealerships into losses and of banks to NBFCs to 15%, till December 31st. triggering job cuts. The government has It had also permitted banks to use G-Secs announced stimulus measures and reforms equal to their incremental outstanding to including a merger of state-run banks aimed non-banks to meet their liquidity coverage at strengthening them and bolstering credit

28  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 expansion in order to revive growth. What expectations. To be sure, some banks have has aggravated the liquidity squeeze of non- already begun linking their lending rates bank lenders is the repayment concerns to an external benchmark. Among them about Dewan Housing Finance Corp Ltd are state-run State Bank of India, Union (DHFL) and the Essel Group, pushing Bank of India, Central Bank of India, Punjab funding costs at NBFCs at least 70 bps higher National Bank, Indian Bank and private than September last year. A basis point is sector lender Federal Bank. Since April 0.01 percentage point. Mutual funds, a key 2016, banks have been pricing all new loans lender to them after being flooded with cash using the marginal cost of funds-based from investors, have frozen lending due to lending rate (MCLR). The central bank redemption pressures. said in a statement on Wednesday that the Source: https://economictimes.indiatimes.com/ transmission of policy rate changes to the industry/banking/finance/banking/nbfc-credit-falls-to- lending rate of banks under the current rs-1-79-lakh-crore-at-the-end-of-june-versus-rs-2-49- MCLR framework has not been satisfactory. lakh-crore-of-march/articleshow/70983243.cms Banks have been allowed to choose between the repo rate, the government’s three-month Dated: Sep 04, 2019 and six-month treasury bill yield published • Home, Auto Loans To Get Cheaper From 1 by the Financial Benchmarks India Pvt. Ltd October: (FBIL), or any other benchmark market The Reserve Bank of India on Wednesday interest rate published by FBIL. However, a directed banks to link interest rates on loans bank will have to adopt a uniform external to retail and small business borrowers to an benchmark within a category, meaning external benchmark beginning 1 October to that the adoption of multiple benchmarks aid effective downward transmission of the is not allowed within a category. While central bank’s policy rate cuts. However, lenders can decide on the spread they banks can link loans to other segments of charge over the benchmark to calculate the borrowers as well, RBI said. For borrowers, final interest rate, RBI said the spread can this will mean faster transmission be changed only if the credit assessment during both rise and fall of interest rates. of the borrower undergoes a substantial Lowering the cost of funds for consumers change. The interest rate under external and businesses is crucial for supporting benchmark will have to be reset at least economic growth since GDP expansion has once in three months, RBI said. According to slowed to the slowest pace in six years at 5% RBI’s circular, borrowers under the MCLR or in the June quarter. Consumers and small base rate regime who are eligible to prepay businesses may expect their interest rate their loans without pre-payment charges costs to fall in cases where banks haven’t shall be eligible for a switchover to external already fully passed on RBI’s policy rate benchmark without any charges, except cuts. Banks have been under pressure to reasonable administrative or legal costs. improve monetary policy transmission. Others who do not have the prepayment Governor Shaktikanta Das said on 19 August facility can move to external benchmark that the transmission of policy rates at just on terms acceptable to the bank and the 29 basis points (bps) this year compared to a borrower. In December, RBI said that banks combined repo rate cut of 75bps (excluding must set their interest rates for new loans the 35bps cut in August) did not meet RBI’s against an external benchmark beginning

29  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 1 April. The rule was supposed to apply term deposits are not accepted by the to all new retail loans and small business Indian depositors and have already been loans with floating rates from that date. unsuccessfully experimented by some peer The proposal, however, was opposed by banks in India,” he added. bankers who wrote to the regulator citing Source: https://www.livemint.com/money/personal- their concerns. In April, Das postponed the finance/home-auto-loans-to-get-cheaper-from-1- linking to external benchmarks and said october-1567619767269.html RBI would discuss the proposal with the Dated: Sep 04, 2019 parties concerned before taking a decision on implementing it. The way banks set • Link Loans To Benchmarks, RBI To Banks: interest rates is critical for the smooth The Reserve Bank of India (RBI) has made it transmission of policy rates. To make this mandatory for banks to link loans to retail process transparent, RBI has over the years customers and Micro, Small and Medium directed banks to price their loans against Enterprises (MSMEs) to external interest their benchmark prime lending rate, base rate benchmarks in a big push to make rate, and then MCLR. Last year, though, was transmission of monetary policy more the first time that banks were asked to price effective. Home and car loan rates, along with their loans against an external benchmark. those for personal travel, are expected to fall, While the regulator has been pushing for benefiting borrowers. The RBI also suggested adoption of an external benchmark, banks a series of rates that lenders can choose from argue that linking of lending rates without as the peg. The RBI has already cut the policy linking of the deposit rates will hurt them. rate by 110 basis points this year to revive Soumya Kanti Ghosh, Group Chief Economic flagging growth, which sank to the slowest Adviser, SBI, said in a 20 August report that in six years in the June quarter. A basis point for external benchmarking, it is not possible is one-hundredth of a percentage point. FM for banks to only link the asset side of the Nirmala Sitharaman had called on banks balance sheet to an external benchmark to improve rate transmission last month without creating significant asset-liability to help drive credit expansion, investment mismatches. Ghosh said close to 35% of and consumer demand. When the new bank liabilities are in the form of savings framework goes into effect on October 1, bank deposits and carry fixed interest rates. banks will have to migrate from the Marginal “Further, the banks are also not able to link Cost of Lending Rate (MCLR) regime. The RBI external benchmark to the entire liabilities has left risk premium charges to be decided (especially time deposits), as the floating by the lenders, depending on the borrower’s credit profile. However, the central bank has also drawn up rules to prevent banks from gaming the system by tweaking risk premiums unless there’s a material change in the status of the borrower. The interest rate under the external benchmark shall be reset at least once in three months. “In order to ensure transparency, standardization and ease of understanding of loan products

30  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 by borrowers, a bank must adopt uniform undergoes a substantial change, as agreed external benchmark within a loan category,” upon in the loan contract,” said the RBI. the RBI said in a release. The central bank “Further, other components of spread has been struggling for more than a decade including operating cost could be altered to improve the transmission of rate changes once in three years.” The government has to ultimate borrowers. It tried prime lending announced various stimulus measures and rates and base rates before zeroing in on the relaxations to revive growth. The RBI will also MCLR, which is based on the cost structure transfer a record surplus to the government, of the bank in the latest quarter. The new giving it some room on the fiscal front. FBIL pegs include the RBI’s repo rate, the three- is jointly owned by the Fixed Income Money month or six month treasury yield published Market and Derivatives Association of by Financial Benchmarks India Ltd (FBIL) or India (FIMMDA), Foreign Exchange Dealers’ any other benchmark published by the latter, Association of India (FEDAI) and the Indian the RBI said. While the plan was supposed Banks’ Association (IBA). It was formed in to be implemented in April, Governor December 2014. “Its aim is to develop and Shaktikanta Das decided to postpone the administer benchmarks relating to money move as the industry highlighted operational market, government securities and foreign difficulties. There has been increasing exchange in India,” according to the FBIL clamour for linking to benchmarks because website. “It is responsible for all the aspects of high borrowing costs. Many, including SBI relating to the benchmarks to be issued by it, and Bank of India, have already done so. namely, collection and submission of market “This makes it mandatory for banks to link data and information including polled data, rates, which we have mostly done,” said SBI formulation, adoption and periodic review managing director PK Gupta. “Only thing of benchmark calculation methodologies, is, we cannot have two products which we calculation, publication and administration offer now, in terms of a market-linked home loan product and one that is not. It could increase volatility, given that short-term rates will be linked. Also, the liability side has not been linked, which is still a question in front of us.” At a banking conference last month, Das said the transmission of policy rates at just 29 basis points (bps) this year, compared with a combined repo rate cut of 75 bps (excluding the 35bps cut in August), did not meet RBI’s expectations. While rates were roughly congruent with the movement of the repo rate, banks had the freedom to charge a premium based on the customer’s risk profile. A poor credit score could lead to a high premium over the benchmark and vice versa, which couldn’t be altered at will. “Credit risk premium may undergo change only when borrower’s credit assessment

31  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 of benchmarks confirming to the highest • Banks Start In-Principle Approval Of standards of integrity, transparency and Retail Loans In 59 Mins: precision.” The platform will soon launch in-principle Source: https://economictimes.indiatimes.com/ approval for auto loans. Online loan platform industry/banking/finance/banking/link-loans-to- PSB Loans in 59 Minutes has launched in- benchmarks-rbi-to-banks/articleshow/70986204.cms principle retail loan approval for home Dated: Sep 05, 2019 and personal loan customers. The platform is currently offering loan approvals to • PNB Board Approves Amalgamation With MSME sector. “We are extending home and OBC, United Bank: personal loan for loan aspirants through ‘59 The board of Punjab National Bank minutes portal’. We are glad that the benefits (PNB) has given in-principle approval of this platform which was made available for amalgamation of Oriental Bank of to MSMEs will be available to everyone,” Commerce and United Bank of India with State Bank of India’s Managing Director PK PNB. The board meeting held on Thursday Gupta said in a release. The platform will followed the finance ministry asking the soon launch in-principle approval for auto three banks to consider the proposal of loans. The applicants will get an in-principle amalgamation, PNB said in a regulatory approval for loans within 59 minutes through filing. The Alternative Mechanism headed by 19 public sector banks including names like the finance minister after consultation with SBI, Punjab National Bank, Bank of Baroda Reserve Bank of India has given the go-ahead and Union Bank of India. PSB Loans in for the amalgamation. The government 59 Minutes functions through advanced on Friday unveiled a mega plan to merge algorithms to analyze data points from 10 public sector banks into four as part of several sources such as income tax returns plans to create fewer and stronger global- and bank statements, among others. Once an sized lenders as it looks to boost economic applicant uploads the required information, growth from an over six-year low. Besides, the proprietary algorithms on the website the PNB board cleared a capital infusion of appraise the application, determine the loan up to Rs 18,000 crore by the government amount that can be sanctioned and then for preferential allotment of equity shares connect the applicant to the bank’s branch of the bank at a price determined in terms all in under 59 minutes. of SEBI regulations. The government on Source: https://economictimes.indiatimes.com/ Friday announced infusion of Rs 16,000 industry/banking/finance/banking/banks-start- crore in PNB for a smooth and seamless in-principle-approval-of-retail-loans-in-59-mins/ amalgamation. The Extra General Meeting articleshow/70996397.cms (EGM) in this regard will be held on October Dated: Sep 15, 2019 22 for obtaining approval of shareholders, it said. • Banks Start In-Principle Approval Of Retail Loans In 59 Mins: Source: https://economictimes.indiatimes.com/ industry/banking/finance/banking/pnb-board- Online loan platform PSB Loans in 59 approves-amalgamation-with-obc-united-bank/ Minutes has launched in-principle retail articleshow/70992360.cms loan approval for home and personal loan customers. The platform is currently Dated: Sep 05, 2019 offering loan approvals to MSME sector. “We

32  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 are extending home and personal loan for ditch the current formula for setting rates loan aspirants through ‘59 minutes portal’. and adopt a new one based on market- We are glad that the benefits of this platform linked benchmarks. Some bankers and which was made available to MSMEs will be analysts warned that rates may either rise available to everyone,” State Bank of India’s in the short term or stay where they are, Managing Director PK Gupta said in a release. as banks’ cost of funds is linked to deposit The platform will soon launch in-principle rates that are sticky and not benchmarked. approval for auto loans. The applicants will Banks may begin to charge a higher risk get an in-principle approval for loans within premium to cover the cost of deposits, 59 minutes through 19 public sector banks which do not move in tandem with any including names like SBI, Punjab National of the RBI-suggested external benchmark Bank, Bank of Baroda and Union Bank of interest rates such as repo rate or treasury India. PSB Loans in 59 Minutes functions bills. If banks don’t raise rates, they may be through advanced algorithms to analyze compromising on profitability. “Linking all data points from several sources such as new retail loans (to external benchmarks) income tax returns and bank statements, could lead to wide fluctuations in EMIs among others. Once an applicant uploads (Equated Monthly Installments) for the required information, the proprietary customers because these rates have to be algorithms on the website appraise the reset every three months. The certainty application, determine the loan amount that retail borrowers look for in EMIs will that can be sanctioned and then connect the go. Also, with deposit rates not linked to the applicant to the bank’s branch all in under market, the transmission will not be total,” 59 minutes. said Prashant Kumar, CFO at State Bank Source: https://economictimes.indiatimes.com/ of India. The country’s largest lender has industry/banking/finance/banking/banks-start- already linked cash credit overdraft rate up in-principle-approval-of-retail-loans-in-59-mins/ to Rs 1 lakh and home loan rates to the repo. articleshow/70996397.cms On Wednesday, the RBI asked banks to peg Dated: Sep 05, 2019 loans to retail lenders and Micro, Small and Medium Enterprises (MSMEs) either to the • External Benchmarks May Not Bring central bank’s repo rate, the three month Down Loan Rates: or six-month treasury yield published by Bank deposits in India compete with Financial Benchmarks India Ltd (FBIL) government savings schemes such as or any other benchmark published by the public provident fund and national savings latter. The move is aimed at making banks schemes, which offer higher rates and transmit the RBI’s interest rate actions. It hence create a floor for cuts in deposit has been observed that whenever the RBI rates. Home, auto and personal loan rates raises rates, banks are quick to pass on may not fall sharply as expected after the the increase to borrowers. The reverse, RBI’s directive on Wednesday as bad debt- however, doesn’t happen as promptly. The laden banks strive to protect profitability repo rate stands at 5.4%. If a bank with a with higher spreads over benchmark rates. marginal cost of lending rate of 9% charges Banking experts and analysts cautioned a customer 100 basis points above it or 10% about pressure on banks’ net interest interest rate on a home loan, it will now be margin after the RBI ordered lenders to tempted to widen the spread because the

33  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 new external benchmark rate would mostly survival. Hence, any rate cut also has social be lower than the MCLR. In the current implications. “What happens if a bank links scenario, the spread between repo and the the rates to, say, three-month or six month actual rate is 460 basis points. A basis point treasury bill and there is sudden liquidity is one-hundredth of a percentage point. crisis, which leads to rates shooting up? Takingthe same illustration forward, if the Does that mean a mortgage borrower will RBI cuts rates by, say, 40 basis points to 5% overnight have to pay 200 basis points more percent, the MCLR or the bank’s cost based as interest?” said Suresh Ganapathy, an on deposit and other rates does not fall by an analyst at Macquarie Securities. “The bigger equal amount to 8.6%. The fall may be just issue is that of banks’ ALM (asset-liability 20 bps or 10 bps, depending on the strength management) over the longer term in the of the bank’s deposits franchise. Hence, to absence of floating rate liability market. protect margins, the bank would have to Please note that SBI did launch floating- create a buffer and widen the spread to rate, fixed-tenure term deposits in the past maybe 480 bps or even 500 bps. Eventually, only to fail miserably… No one in India will instead of giving out the home loan at 10%, accept a floating rate on deposits, since what the bank may offer it at 10.2% or 10.3%. “The they need is income certainty,” Ganapathy RBI’s move could have serious implications added. Kotak Institutional Equities said on bank margins because their liabilities the change would cast a shadow on bank are fixed and loans to retail borrowers margins as MCLR rates are currently higher and MSMEs constitute more than 50% of than repo-linked instruments. It will also the loan book in some cases,” said Prakash slow down transmission till all rates are Agarwal, head (financial institutions) at aligned, and could lead to tweaks in bank India Ratings & Research. “Banks will spread or credit risk adjustment. “Many have to keep a buffer to adjust lending banks are seen to be reluctant to link loan rates because deposit rates will not come rates to external benchmarks because of down at the same pace as lending rates.” the severe constraints they face in lowering Banks could also raise administrative fees deposit rates fearing migration of deposits to compensate for the additional risk. And to small savings schemes,” said Ajay Bodke, this could also make payments volatile for CEO (PMS) at Prabhudas Lilladher. individuals. Since May, SBI has linked its Source: https://economictimes.indiatimes.com/ savings bank rate for deposits above Rs 1 industry/banking/finance/banking/external- lakh to the repo rate. However, it did not benchmarks-may-not-bring-down-loan-rates/ change the rate despite the 35 bps cut by the articleshow/71002173.cms RBI earlier this month. SBI’s savings bank Dated: Sep 06, 2019 rate is currently at 3%, higher than the 2.65% it should have offered taking into account the cut by RBI. Bank deposits in India compete with government savings schemes such as public provident fund and national savings schemes, which offer higher rates and hence create a floor for cuts in deposit rates. A large number of households and senior citizens depend on bank rates for

34  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 • Oriental Bank Reveals Loan Exposure To with the PNB, along with United Bank of Shri Nirav Modi, Choksi: India, announced last month by Finance Minister Nirmala Sitharaman. “Besides OBC, For the first time, the public sector Oriental other banks also have exposure to Modi and Bank of Commerce (OBC) has come clean Choksi, and their group companies. What on its loan exposure to the absconding prevents them all from coming together and diamantaires Nirav Modi and his uncle take necessary legal action to recover their Mehul C. Choksi, here on Friday. The dues,” banking expert and Maharashtra development comes ahead of the OBC’s Trade Unions Joint Action Committee upcoming merger with the Punjab National (TUJAC) Convenor Vishwas Utagi told Bank (PNB) which - in February 2018 - had IANS. Utagi said the other bigger questions admitted to a massive fraud perpetrated are: what action has been taken against by Nirav Modi and Choksi running into the departments and officers dealing in over Rs 13,500 crore, sending the entire foreign exchange in Reserve Bank of India banking industry in a spin. The OBC has and other affected banks, how much of the now issued notices declaring the duo and outstandings from (Nirav Modi-Choksi and their companies as ‘Willful Defaulters’ for others) accused have been recovered so varying loan amounts, totaling to around Rs far and whether the details emerging now 289 crore, at their Large Corporate Branch, are aunder pressure’ before the upcoming Cuffe Parade, Mumbai. Nirav Modi’s mergers. Incidentally, in March this year, companies Firestar International Pvt. Ltd. the OBC had got a life-saving dosage of Rs and Fire Star Diamond International Pvt. 1,186 crore capital infusion and more is Ltd. failed to repay the OBC’s loans of Rs expected after the mergers are completed. 60.41 crore and Rs 32.25 crore, respectively. Earlier this year, the State Bank of India Similarly, Choksi’s companies Gitanjali (SBI) had first bared its chest on a Rs 405 Gems Ltd. and Nakashatra World Ltd. have crore outstanding loan from Choksi and defaulted on OBC’s loans worth a total of Rs his family members. The SBI’s disclosure 136.45 crore and Rs 59.53 crore, respectively. came barely two days after it became public Days after the scam erupted in February that Choksi had surrendered his Indian 2018 and it dawned that Nirav Modi and citizenship in favour of the nationality of Choksi, along with other accused family Antigua & Barbuda Islands, in West Indies. members, had sneaked out of the country, In March this year, a relaxed and well- the OBC promptly declared their accounts dressed Nirav Modi was seen sauntering as ‘NPAs’ on March 21, 2018. Furthermore, down a street in London, sparking off a the OBC has warned the masses to desist furore in India after which he was arrested from entering any kind of deals with the by the UK authorities. Currently, India is (aforementioned) and appealed to the making all-out efforts for getting both the people to provide information of assets of uncle-nephew extradited to India and face Nirav Modi-Choksi or their transactions to the laws here. enable the bank recover the ‘public money’ Source: https://economictimes.indiatimes.com/ due from them. Banking circles question industry/banking/finance/banking/oriental-bank- why it took the OBC a long period nearly reveals-loan-exposure-to-nirav-modi-choksi/ 18 months to cough out is exposure in the articleshow/71007465.cms matter, and just before its proposed merger Dated: Sep 06, 2019

35  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 • Insolvency Professional Complains To SBI consider companies were liquidation has About Selection Criteria For RPs: been ordered and is ongoing. RPs handling large bankruptcy cases such as Reliance An insolvency professional has complained Communications, Bhushan Power and to State Bank of India (SBI) about the Steel, Amtek Auto, Jaypee Infratech and selection criteria it is using to appoint Videocon were also copied on the emailed resolution professionals (RPs) for companies correspondence. undergoing bankruptcy. The insolvency professional, Shyam Sundar Kasera, Source: https://economictimes.indiatimes.com/ voiced the grievances in response to an industry/banking/finance/banking/ insolvency- email from SBI executive Hemant Pathak professional-complains-to-sbi-about-selection-criteria- seeking expressions of interest for a new for-rps/articleshow/71007855 .cms assignment from nearly 250 registered RPs Dated: Sep 06, 2019 on 31 August. ET has reviewed the contents • Merging State Banks Won’t Solve of the email. In an emailed response on 2 Governance Issue, Former RBI Governor September, Kasera has complained that Shri YV Reddy: the grading system rewards those RPs who have no active assignments in hand with the Former Reserve Bank of India Governor YV highest scores. Kasera has also argued that Reddy on Friday said that merging state-run the selection process unduly rewards RPs banks will not solve the issue of governance whose assignments resulted in resolution and consolidation should be based on of stressed companies but fails to consider synergies with boards driving the initiative. that in many cases where a company goes Reddy also said that global experience has into liquidation, the banks have decided to so far shown that half of bank mergers have take it into liquidation. RPs are practitioners been ineffective. “I won’t call it a reform, who are registered with the Insolvency it’s a commercial decision based on synergy, and Bankruptcy Board of India (IBBI) and global experience in the banking system are certified to administer companies shows that only half of the bank mergers have undergoing bankruptcy proceedings. been successful,” Reddy said while speaking Kasera confirmed that he had written to at the 6th SBI Banking & Economic conclave. SBI when contacted. “Many of these criteria “If the purpose is governance, it will not be are counter-intuitive because while one solved by merging two banks. However, if it’s is demanding that an RP be experienced for economies of scale namely operational to receive the highest marks, on the other efficiency it could happen. Mergers could hand you are taking away marks if the be done by the respective boards as person is actively handling an assignment”, well by analyzing synergies, it need not Kasera told ET. SBI was yet to respond to necessarily be through government.” The emailed queries. Kasera also complained government recently merged 10 state-run that RPs were being rewarded for a higher banks overnight into 4, along with the much- number of ‘completed assignments’ but the awaited governance reforms that include interpretation of completed assignments making PSB managements accountable only considers those companies where to respective boards, strengthening the resolution plans have been approved or executive succession process and giving liquidation has been completed but fails to longer tenures to top-level directors so that

36  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 structural changes yield the desired results. will intensify rather than reduce in the near The finance ministry’s decision comes close future,” Reddy said. “The US-China trade war to the 50th anniversary of nationalization is only the tip of the iceberg there are more of banks and marks 5 years of the PJ Nayak fundamental issues at stake. Now, the global committee set-up to review governance in currency is the US dollar, China is trying PSU banks. Commenting of the collapse of to contest that. In the real sector China is the infrastructure financier IL&FS, Reddy progressing in the financial sector US is said that the whole episode reflects the dominating, so there is a disconnect.” failure of risk-assessment capabilities of Source: https://economictimes.indiatimes.com/ stakeholders. “In my view the IL&FS problem industry/banking/finance/banking/merging-state- reflects the risk-assessment capabilities banks-wont-solve-governance-issue-former-rbi- of large institutions that had exposure to governor-yv-reddy/articleshow/71013248 .cms that,” Reddy said. “SBI, LIC should examine Dated: Sep 06, 2019 this point how did they miss it? It is not a system wide liquidity problem if you ask • RBI Declines Equitas’ Request To Extend me it may be a contagion. In a way if the Listing Deadline For Small Finance Bank: government had to virtually take over IL&FS and run its affairs, it is an indication that the The Reserve Bank of India (RBI) has turned government has recognized it as some sort down a proposal by Equitas Holdings of a solvency problem.” What IL&FS leaves seeking extension of the listing deadline in the wake of its destruction is weaker for its subsidiary Equitas Small Finance banks, mutual funds, pension funds and an Bank (ESFB) and ordered freezing of the economy which has slowed to a six-year small finance bank’s chief executive’s low. With most debating if India is under- remuneration at the existing level. According going only a cyclical or a more-worrisome to a regulatory filing that cited an RBI structural downturn. “There is a consensus communication to the small finance bank on that current slowdown is a combination of Friday, the central bank told Equitas that its structural and cyclical factors,” Reddy said. “request for extension of timeline for listing “The latest RBI annual report aptly describes of share of ESFB cannot be acceded to”. the situation that there are large number Also, ESFB was not permitted to open new of uncertainties globally and domestically branches and further restrictions may be and they we are in a soft patch. It is said imposed if the bank fails to make satisfactory that beauty lies in the eyes of the beholder, progress towards listing of its shares. “Listing the beauty of the Indian economy is also of Small Finance Banks (SFBs) within three in the eyes of the beholder, it depends who years of reaching net worth of Rs. 500 crore is looking at it half the time.”Reddy also is mandatory as outlined in the guidelines said that the world is facing enormous for licensing of SFBs and as communicated uncertainties and it may have geo-political to the bank at the time of granting of ‘in- repercussions as well. India could affect the principle’ approval and granting of license, outcomes if it teams-up with some other tier- thereafter,” said the RBI letter. Earlier this 2 nations. He also painted a grim picture of year, the company said it would list the the on-going trade wars and said that he sees bank without an initial public offering protectionist policies on the rise. “Tension (IPO) by giving its existing shareholders a between globalization and nationalization direct 47% stake in the small finance bank.

37  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Since the announcement of this scheme, the $5 trillion economy by 2024-25. “Availability stock has lost 8%. In September last year, of quality infrastructure is a pre-requisite the Reserve Bank of India (RBI) had barred to achieve broad-based and inclusive Bandhan Bank from opening new branches growth on a sustainable basis. Investment without its approval and ordered the bank in infrastructure is also necessary for to freeze the salary of its chief executive sustaining the high growth rate of India. Chandra Shekhar Ghosh over its failure To achieve the GDP of $5 trillion by 2024- to meet shareholding norms. According to 25, India needs to spend about $1.4 trillion RBI’s bank licencing guidelines, the bank’s (Rs. 100 lakh crore) over these years on promoter, Bandhan Financial Holdings infrastructure. ,” the finance ministry said Ltd, had to reduce its stake from 82% to in a statement. The task force, headed by 40% within three years of commencing the finance ministry’s economic affairs business. In January, the Kolkata-based bank secretary, along with five other officials from announced the acquisition of Gruh Finance policy think tank NITI Aayog and senior Ltd, the affordable housing finance arm of government officials. The committee will Housing Development Finance Corp. (HDFC), estimate annual infrastructure investment in a share swap deal to lower the promoter costs, guide the government departments holding of Bandhan Financial Holdings in in identifying appropriate sources of the bank. financing, suggest measures to monitor Source: https://www.livemint.com/industry/banking/ the projects so that cost and time overrun rbi-declines-equitas-request-to-extend-listing-deadline- is minimized. “The challenge is to step-up for-small-finance-bank-1567828495688.html annual infrastructure investment so that lack of infrastructure does not become a Dated: Sep 07, 2019 binding constraint on the growth of the • Finance Ministry Sets Up Task Force To Indian economy,” the statement said. The Identify Infrastructure Projects Worth Rs. national infrastructure pipeline will include 100 Trillion: greenfield and brownfield projects with an estimated cost of more than Rs. 100 crore The government has set up a task force each. “Each ministry/department would be to identify technically and economically responsible for monitoring of projects so viable infrastructure projects that can be as to ensure their timely and within-cost kick started in the current financial year implementation. The task force will also and can be included in the ₹100 trillion enable robust marketing of the pipeline plan for the sector in the next five years. of projects requiring private investment The finance ministry on Saturday said through the India Investment Grid (IIG), the task force will draw up plan for the National Investment & Infrastructure Fund ‘national infrastructure pipeline’ from (NIIF), etc,” it said. The task force will submit 2019-20 to 2024-25. The announcement the report on the plan for 2019-20 by October comes at a time when growth has slowed 31 and on the indicative pipeline for 2021- to a six-year low of 5% in April-June, amid 25 by December 31. In his Independence Day sluggish demand, slowdown in automobile speech, Prime Minister Narendra Modi had sector and job losses. The government has said ₹100 lakh crore will be spent towards been taking steps to bring India back on the infrastructure creation in the country. The growth trajectory and achieve the target of last five years have seen massive spending on

38  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 roads, railways, water, irrigation and urban Nitin and Chetan Sandesara are among infrastructure. Connectivity, both physical 58 economic offenders probed by the CBI, and digital, which has a multiplier effect on Enforcement Directorate and other agencies the economy, is a key development goal for who have escaped abroad, it says. Although the Modi administration in its second term top officials of public sector bank were as it seeks to steer the economy away from empowered last year to seek issuance of LoC unfavorable headwinds to become the fifth against individuals, relevant guidelines were largest in the world. framed by the Indian Banks’ Association in Source: https://www.livemint.com/news/india/fin-min- March this year, the Association told Durve. sets-up-task-force-to-identify-infra-projects-worth-rs- The guidelines were considered necessary 100-trillion-1567835434688.html after public sector banks approached the Association seeking legal protection and Dated: Sep 07, 2019 immunity available to police and the CBI while issuing the LoCs, it said. Durve had • SBI Sought Issuance Of 147 Look Out approached the Finance Ministry seeking to Circulars In Last Five Month: know details about the request for issuance Data shows that the bank started seeking LoC of LoC received from various authorities from the Bureau of Immigration from April between 2017 and 2019, action taken on them this year. The Country’s largest public sector among other things. The Finance Ministry bank -- State Bank of India -- sought issuance transferred the application to the Home of 147 Look Out Circulars (LoC) in the last Ministry and Public Sector Banks to furnish five months in connection with bank fraud the information. The Home Ministry then cases, an RTI response from the bank said. transferred the application to the Bureau Data shows that the bank started seeking of Immigration (BOI), which works under LoC from the Bureau of Immigration from the Intelligence Bureau. The BOI sought April this year. Between April and August, refuge from disclosure under the Section it issued request seeking LoC against 147 24 of the RTI Act which exempts it from the individuals to prevent them from leaving ambit of the transparency law. However, the country, the bank said in response to a State Bank of India in its response to Durve Right to Information query filed by Pune- said it has sought issuance of 147 Look Out based activist Vihar Durve said. On October Circulars while Union Bank of India replied 12, 2018, the Home Ministry included the information was not in its domain. UCO Chairman, Chief Executive Officers and Bank said it does not issue Look Out Circulars Managing Directors of public sector banks in while Punjab and Sindh Bank said their MD the list of individuals who can seek issuance and CEO were authorized to issue the LoCs of Look Out Circulars against offenders to but “there is no such data” available. Bank of prevent their escape from the country, it said. Baroda said the information does not pertain According to data provided in Parliament to it and Canara Bank said no requests for in December last year, about 49 economic LoCs were made by it in the period. In FY19, offenders have escaped to different countries the banking sector reported 6,801 frauds and the government is making attempts involving Rs 71,542.93 crore as against 5,916 to bring them back. Fugitive liquor baron cases involving Rs 41,167.04 crore reported Vijay Mallya, diamantaire Mehul Choksi in 2017-18, the Reserve Bank of India has and his nephew Nirav Modi, industrialists said in its latest report. Among bank groups,

39  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 PSBs, which have the largest market share in documents at one place for verification. terms of lending, accounted for the majority The prospective buyers shall be intimated of frauds reported in 2018-19. It was followed separately, depending upon their response. by private sector banks and foreign banks. In The prospective bidders can evince their the reporting year, state-run banks reported interest by September 12. The last date to 3,766 cases of frauds worth Rs 64,509.43 submit bids is September 20, 2019. The bids crore. The report said that the average lag will be opened on September 21. The lender between the date of occurrence of frauds and is set to merge two peer banks -- Oriental its detection by banks was 22 months. The Bank of Commerce and United Bank of average lag for large frauds, i.e. Rs 100 crore India with itself following the government’s and above, amounting to Rs 52,200 crore announcement late last month to consolidate reported during 2018-19, was 55 months,” it 10 public sector banks into four bigger said. Cheating and forgery were the major entities. component, followed by misappropriation Source: https://economictimes.indiatimes.com/ and criminal breach of trust. Fraud cases industry/banking/finance/banking/pnb-puts-up-for- involving an amount of less than Rs 1 lakh sale-11-npa-accounts-to-recover-dues-of-rs-1234- (i.e., small-value frauds) were only 0.1% of crore/articleshow/71035376.cms the total amount involved in 2018-19, the Dated: Sep 08, 2019 report showed. Source: https://economictimes.indiatimes.com/ • RBI’s Diktat May Not Lead To Lower Rates industry/banking/finance/banking/sbi-sought-issuance- Of Lending: of-147-look-out-circulars-in-last-five-month-rti/ Last week, the Reserve Bank of India (RBI) articleshow/71035238.cms issued a circular instructing banks to link Dated: Sep 08, 2019 all new floating rate retail loans, as well as floating rate loans to micro, small and • PNB Puts Up For Sale 11 NPA Accounts To medium enterprises (MSMEs), to an external Recover Dues Of Rs 1,234 Crore: benchmark from 1 October. Banks are State-owned Punjab National Bank (PNB) supposed to link the interest rate on their has put up for sale nearly a dozen non- floating interest retail loans, as well as performing assets (NPA) to recover dues floating rate loans to MSMEs, to an external of more than Rs 1,234 crore. The lender benchmark such as the repo rate of RBI has invited bids from asset reconstruction or returns on treasury bills issued by the companies (ARCs)/ NBFCs/ banks/ financial government. The repo rate is the interest institutions for 11 NPA accounts. The accounts rate at which RBI lends to banks, whereas include Visa Steel, which has irrecoverable treasury bills are short-term financial dues of Rs 441.83 crore, IndBarath Energy securities with a maturity period of less than (Utkal) Rs 414.23 crore, Aster Pvt Ltd Rs a year, issued by the government to finance 113.57 crore and Om Shiv Estates Rs 100.16 its fiscal deficit. The interest rates can be crore. The sale is on 100 per cent cash basis, reset at least once every three months. The PNB said in an advertisement. The bank has idea is to ensure that lending rates of banks asked the prospective bidders to expedite move in line with the repo rate of RBI. The the process of due diligence, saying it will transmission of the monetary policy of the make all possible efforts to bring copies of central bank during this year has been very

40  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 poor. RBI has cut the repo rate by 110 basis Hence, banks will follow RBI’s diktat in letter, points from 6.5% to 5.4% since January. One but not in spirit. They will ensure their mark- basis point is one-hundredth of a percentage up over the external benchmark is high point. The weighted average lending rate enough to not have an impact on the current on outstanding loans of commercial banks spreads they are operating at. Market forces operating in the country was 10.38% as of usually find a way to get around diktats they January. By June, this had gone up by five don’t want to follow. This time will be no basis points to 10.43%. With RBI cutting the different. repo rate, the expectation was that bank Source: https://www.livemint.com/industry/ lending rates will also come down. However, banking/rbi-s-diktat-may-not-lead-to-lower-rates-of- that hasn’t happened. Banks are holding lending-1567958949097.html on to their lending rates. The bad loans of Dated: Sep 08, 2019 banks, in particular public sector banks, remain high. So banks are looking to earn • 18 PSBs Hit By 2,480 Cases Of Fraud Of Rs a higher spread on their loans to cushion 32,000 Cr In Q1: the impact of a large number of bad loans. The spread, the difference between the A total of 2,480 cases of fraud involving weighted average lending rates of banks a huge sum of Rs 31,898.63 crore rattled and the weighted average domestic term 18 public sector banks in the first quarter deposit rate, was around 3.2% between July of this fiscal, an RTI query has revealed. 2014 and July 2015. That was the time RBI The country’s largest lender State Bank of launched the asset quality review and forced India (SBI) remained the biggest prey to banks to recognize their bad loans. Once frauds with 38 per cent share, Neemuch- this happened, banks started raising their based activist Chandrashekhar Gaur told on spreads so that they made a higher profit Sunday quoting an official of the RBI who against which they could provision their bad furnished him replies to his RTI application. loans and even write them off. The margin As many as 1,197 cases of cheating involving has recently fallen, but is still a high 3.59%. Rs 12,012.77 cr were detected in SBI in the Banks may also have to move towards first quarter, according to the RTI reply. After floating rate fixed deposits, something that SBI, Allahabad Bank faced the heat with 381 goes against the very idea of fixed deposits. cheating cases involving Rs 2,855.46 crore. Punjab National Bank stood third in the list with 99 sham cases worth Rs 2,526.55 crore. However, the information provided by the RBI does not give specific details of the nature of banking fraud and the losses suffered by banks or their customers. On losses suffered by PSU banks due to frauds, the RBI said it did not have figures available as to how much amount was lost by theses banks during the period under review. A total of 75 cases of fraud involving Rs 2,297.05 crore were reported in Bank of Baroda in the first quarter, while 45 cases of fraud amounting

41  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 to Rs 2,133.08 crore in Oriental Bank of in the period. Bankers attribute the rise in Commerce, 69 cases worth Rs 2,035.81 crore such loans to increased assess of banking in Canara Bank, 194 cases worth Rs 1,982.27 services to the bottom of the pyramid as crore in Central Bank of India, 31 cases of the government has been pushing financial fraud of Rs 1,196.19 crore in United Bank of inclusion and digitisation of financial India were witnessed. Likewise, Corporation services following the withdrawal of high Bank detected Rs 960.80 crore worth fraud value Rs 500 and Rs 1,000 denomination in 16 cases, Indian Overseas Bank Rs 934.67 notes in November 2016. “The trend clearly crore in 46 cases, Syndicate Bank Rs 795.75 indicates the formalisation of the economy,” crore in 54 cases, Union Bank of India Rs said SK Ghosh, group chief economist at 753.37 crore in 51 cases, Bank of India, Rs State Bank of India. “As many in this lowest 517 crore in 42 cases and UCO Bank detected segment of the economy now have bank Rs 470.74 crore fraud in 34 cases. Other accounts, they are borrowing from the banks, which fell victim to fraud included formal sector.” “Our surveys suggest that the Bank of Maharashtra, Andhra Bank, Indian recent fluctuations in economic activities Bank and Punjab and Sind Bank. have been materially less pronounced in Source: https://economictimes.indiatimes.com/ case of the absolute bottom end of the socio- industry/banking/finance/banking/18-psbs-hit- economic pyramid,” Siddhartha Sanyal, by-2480-cases-of-fraud-of-rs-32000-cr-in-q1-rti/ chief economist and head of research, articleshow/71036346.cms Bandhan Bank. “This might have helped borrowing propensity, especially for income- Dated: Sep 09, 2019 generating loans, to sustain.” Economists • No Slowdown In Lending To The Poor In also do not rule out the possibility of some July 2018-July 2019: kind of ‘down trading’ in terms of lower expenditure and opting for less expensive Loans to corporate world may be hard to goods and services because of the slowdown come by but the weaker sections and poor and loss of income. This could be benefitting are benefitting from increased access to the bottom of the pyramid in a very indirect formal credit and the segment saw one of way, facilitating bank borrowings from this the highest growths in the past year. Lending segment. “Greater fluctuations in economic to weaker sections, which are essentially activities in a large number of sectors have small-ticket priority sector loans of around caused some dent in consumer confidence, Rs 1 lakh, extended to the bottom of the period, rose 26.1% between July 2018 and July 2019 with an aggregate loan portfolio of Rs 6.7 lakh crore. Against that, loans to large industries rose only about 7%, though the portfolio is almost four times bigger in size. Even micro-finance and tiny-sized loans to the poor rose 52% in the year from July 2018 to July 2019. With the exception of certain retail segments like home loans, unsecured lending and credit card receivables, most other segments posted lower growth rates

42  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 which might be influencing consumers to to rules and in the best interest of the bank, opt for less expensive options. That might avoiding any gain to self or associates and have offered some support for the lower end maintaining confidentiality. The code of of the producers in a roundabout fashion,” conduct for directors lists a set of dos and Sanyal said. don’ts. One interesting point in this is that Source: https://economictimes.indiatimes.com/ each non-official director has to ensure that industry/banking/finance/banking/no-slowdown- if there are any related-party transactions, in-lending-to-the-poor-in-july-2018-july-2019/ these have to be adequately discussed in the articleshow/71041408.cms board before being approved. Other points include ensuring that the bank has a proper Dated: Sep 09, 2019 vigil mechanism and that the interests of a • Govt Introduces Code Of Conduct, person who uses such a mechanism are not Performance Rating For Non-Official prejudicially affected on account of such Directors At PSBs: use. The director also must ensure that when they have any concern about the running The finance ministry has come out with a of the bank or any action, such actions are code of conduct for non-official directors addressed by the board. of Public Sector Banks (PSBs) and asked the boards to send an annual performance report Source: https://economictimes.indiatimes.com/ that rates a director based on professional industry/banking/finance/banking/govt-introduces- and ethical conduct, and contribution to the code-of-conduct-performance-rating-for-non-official- board. In a communication to the MDs of all directors-at-psbs/articleshow/ 71043431.cms PSBs, the department of financial services at Dated: Sep 09, 2019 the finance ministry said that the government • RBI Cracks The Whip On Office Account has decided to institute certain measures to Misuse: improve corporate governance in banks. The measures include the introduction of a Amid a rise in frauds, the Reserve Bank of code of conduct, a requirement that the non- India has alerted all lenders of instances official directors undergo a familiarization where ‘intermediary’ or transitory accounts of banking practices, and a peer-reviewed in banks have been misused to hide bad loans performance appraisal of the directors. The or mask money laundering. The banking finance ministry pointed out that while SEBI regulator has directed banks to carry out had a code for independent directors, which internal review of such unauthorized provides for their performance evaluation, transactions and submit their findings by the provisions do not apply to PSBs as October. Funds often lie for a day or two in they do not come under the Companies intermediary or office accounts opened in Act. “While Banking Companies Act does bank branches before the money is credited not define independent directors, non- to the actual beneficiary. A branch manager official directors, including non-executive may dip into such an account to give chairmen, are similar,” the communication unauthorized overdraft facility to enable a said. The performance evaluation by borrower regularize a loan and avoid default peers will measure the director on various before the close of a quarter or the due date parameters including avoidance of direct or for servicing the loan or just before the loan indirect conflict of interest, acting according account is about to be classified as Non-

43  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Performing Asset (NPA). Within a day or so official may be at the level of a general the transaction is reversed as the borrower manager, before opening office account. In arranges fund to repay the Overdraft (OD). many banks, it is not. More than a month “If the borrower cannot organize fund, the ago, RBI told banks it has come across cases branch manager may tap another office where bank branches have indulged in such account to extend a fresh overdraft to close undesirable practices, involving the core the earlier OD. These are unsanctioned banking system. Now, all banks will have to ODs and it all depends on the rapport the do an audit, reconcile accounts, and update borrower shares with the branch head,” the regulator on the control procedures,” said a senior banker. Even if the borrower said the compliance head of a bank. While defaults on the second OD, he has a month the clampdown on cash deals and close vigil before the account is categorized as NPA, he on NPAs may have prompted many bank said. Such temporary office accounts may managers to use office accounts, they are also come handy in depositing unexplained also under pressure to retain clients, said the cash. Instead of directly crediting the cash bank official. deposited into a customer’s account, the amount is parked in the intermediary account of the branch. Later, when the money is moved from the office account to the customer’s account, it is shown as a normal banking transaction with the cash element in the first leg remaining undisclosed. As a result, the branch is not required to report any abnormal ‘cash deposit’ to the Financial Intelligence Unit (FIU) the Source: https://economictimes.indiatimes.com/ government’s nodal agency which processes industry/banking/finance/banking/rbi-cracks-the-whip- and disseminates information on suspicious on-office-account-misuse/articleshow/71057693.cms financial transactions. Office accounts Dated: Sep 10, 2019 receive temporary funds when cheques are presented for clearing. The amount is not • With Stake Sales, Yes Bank Is Now Poised credited to customers’ accounts immediately For A Makeover: but held in an office account. As and when the cheques are cleared, the office account Yes Bank’s shareholding structure may is debited and the customers’ accounts witness a major churn by the year-end credited. The unauthorized transactions, as founder Rana Kapoor has initiated happening within 24 to 48 hours, are talks to sell a part of his holding to One97 typically intended to accommodate favored Communications Ltd, the parent of Paytm customers and help them as well as the and Paytm Payments Bank. Independently, bank escape regulatory scrutiny. Branch a Reuters story on Tuesday cited Yes managers of banks, particularly state-owned Bank CEO Ravneet Gill as saying that the lenders, have the power to open multiple bank is close to selling a minority stake intermediary accounts. “In some banks, the to a global tech company as part of its process is centralized and branch managers capital-raising exercise. Although the bank have to take the authorization of a senior subsequently denied these reports, Mint has

44  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 independently verified that such talks might business/regulatory requirements, subject to have indeed progressed somewhat. The tech compliance with prescribed procedures and firm’s association is expected to help further receipt of statutes/regulatory approvals.” the bank’s digital ambitions. The bank has A One97 Communications spokesperson already been talking to large private equity declined to comment on the story. Kapoor firms for capital infusion. On 30 August, Yes also declined to comment on this story. An Bank’s board proposed to increase the bank’s email sent to Yes Bank also did not elicit a authorized share capital from Rs. 800 crore to response. If true, the deal will require RBI’s Rs. 1,100 crore to enable an expansion in the approval, given that One97 holds the license paid-up capital. If Rana Kapoor does manage for a payments bank. Questions are bound to sell his stake to One97 Communications, or to be raised over whether the license holder any other shareholder, it will not make any of a payments bank should be allowed to difference to the bank’s capital structure. acquire a stake in a universal bank as it might Fresh equity issuance, on the other hand, will be seen as a workaround. In addition, the lead to dilution in promoter shareholding. widening of One97 Communication’s losses, According to senior executives at Yes Bank, as reported in Mint on Tuesday, is bound the promoters are willing to reduce their to weigh on the approval process. Kapoor shareholding following this stake sale and and MCPL also need to obtain consent from also amend the articles of association, letting Reliance Nippon Life Asset Management new shareholders get a board seat. “We are Ltd (RNAM) to sell their stake, given that open to reducing stake if the bank decides to around 7.34% is pledged with RNAM. When sell a minority stake to a global tech firm,” contacted, an RNAM spokesperson said, Shagun Gogia told Mint. Gogia is co-promoter “Reliance Nippon Life Asset Management Madhu Kapur’s daughter and an additional has not given any consent and is not in director on the Yes Bank board. Madhu discussion with anyone about Yes Bank’s Kapur and her offices hold 9.17% stake in pledged shares.” Yes Bank co-promoter Rana the bank, as of 30 June. Rana Kapoor and his Kapoor and his family-owned firm MCPL had family offices hold 10.6% stake in the bank. to pledge their entire 7.34% or 170.25 million A person close to Yes Bank’s co-promoter shares with RNAM. This was done because Rana Kapoor’s family said the stake sale RNAM wanted to convert a previously to One97 would be completed through the unsecured loan (given to MCPL through stake held by Kapoor and his promoter non-convertible debentures) into a secured group entity Morgan Credits Pvt. Ltd (MCPL); loan as the bank’s stock has lost 80% over the the combined holding of these two entities past year. Last year, MCPL raised Rs. 1,160 in Yes Bank is around 7.34%. “There have crore by selling non-convertible debentures been discussions between Kapoor, Yes Bank to RNAM. A prepayment of Rs. 200 crore was and several FINTECH firms including One97 made by MCPL to Reliance MF in November. Communications Ltd since August,” said the The loan pact mandates that the value of person cited earlier. A statement issued by Yes Bank shares (held by Kapoor and MCPL) the bank to stock exchanges said: “The Bank should always be greater than double the in its usual and ordinary course of business loan outstanding. The value of these 170.25 continues to explore various means of raising million shares as on Tuesday is around Rs. capital/funds through issuance of securities 1,182.13 crore. Yes Bank is in desperate to diverse set of investors, in order to meet its need of fresh capital to improve its common

45  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 equity tier-1 (CET-1) ratio adequately above hide bad loans or mask money laundering. the statutory requirement of 7.375% to stay The banking regulator has directed banks afloat. The bank’s CET-1 ratio is marginally to carry out internal review of such above this at around 8.6% after it completed unauthorized transactions and submit its Rs. 1,930 crore stock sale to institutional their findings by October. Funds often investors last month. On 16 August, Mint lie for a day or two in intermediary or reported that the bank is looking to raise office accounts opened in bank branches an additional $600 million after raising before the money is credited to the actual $270 million from large investors through beneficiary. A branch manager may dip a qualified institutional placement. The Yes into such an account to give unauthorized Bank stock has been falling steadily since RBI overdraft facility to enable a borrower indicated in August 2018 that Kapoor’s term regularize a loan and avoid default before as the bank’s CEO would not be renewed after the close of a quarter or the due date for January 2019. Since 20 August last year, Yes servicing the loan or just before the loan Bank shares have lost over 80% to Rs. 63.10 account is about to be classified as non- as of Monday on the BSE. Both MCPL and Yes performing asset (NPA). Within a day or so Capital (India) Pvt. Ltd (which holds 3.26% in the transaction is reversed as the borrower the bank) are fully owned by Kapoor’s three arranges fund to repay the overdraft (OD). daughters. In September 2018, after Yes Bank “If the borrower cannot organize fund, the co-promoter Madhu Kapur sold a part of her branch manager may tap another office holding, Rana Kapoor had tweeted how he account to extend a fresh overdraft to close regarded his shares as “diamonds”. the earlier OD. These are unsanctioned ODs and it all depends on the rapport the borrower shares with the branch head,” said a senior banker. Even if the borrower defaults on the second OD, he has a month before the account is categorized as NPA, he said. Such temporary office accounts may also come handy in Depositing unexplained cash. Instead of directly crediting the cash deposited into a customer’s account, the amount is parked in the intermediary Source: https://www.livemint.com/industry/banking/ account of the branch. Later, when the with-stake-sales-yes-bank-is-now-poised-for-a- money is moved from the office account makeover-1568138845867.html to the customer’s account, it is shown as a normal banking transaction with the Dated: Sep 10, 2019 cash element in the first leg remaining undisclosed. As a result, the branch is not • RBI Cracks The Whip On Office Account required to report any abnormal ‘cash Misuse: deposit’ to the Financial Intelligence Unit Amid a rise in frauds, the Reserve Bank of (FIU) the government’s nodal agency which India has alerted all lenders of instances processes and disseminates information where ‘intermediary’ or transitory on suspicious financial transactions. accounts in banks have been misused to Office accounts receive temporary funds

46  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 when cheques are presented for clearing. • PNB, UBI & OBC Forms Working Groups To The amount is not credited to customers’ Oversee Merger Process: accounts immediately but held in an State-run Punjab National Bank, the anchor office account. As and when the cheques bank for the merger of United Bank of are cleared, the office account is debited India and Oriental Bank of Commerce with and the customers’ accounts credited. The it, on Wednesday, said the three lenders unauthorized transactions, happening together have formed 23 working groups for within 24 to 48 hours, are typically intended overseeing the amalgamation process. Last to accommodate favored customers and week, the board of PNB has given in-principle help them as well as the bank escape approval for amalgamation of Oriental Bank regulatory scrutiny. Branch managers of Commerce (OBC) and the United Bank of banks, particularly state-owned of India (UBI) with it. “The amalgamation lenders, have the power to open multiple has to be in terms of technology, products intermediary accounts. “In some banks, the and services, and common services. We process is centralized and branch managers all are working on this and have created have to take the authorization of a senior 23 working groups in all the three banks,” official, may be at the level of a general PNB’s managing director and CEO, Sunil manager, before opening office account. In Mehta, told reporters here. These groups, many banks, it is not. More than a month which will be working on various banking ago, RBI told banks it has come across cases aspects such as product, processes and where bank branches have indulged in such human resources, will have participants undesirable practices, involving the core from the three banks, Mehta said on the banking system. Now, all banks will have to sidelines of the 72nd annual general meeting do an audit, reconcile accounts, and update of Indian Banks’ Association. He said as of the regulator on the control procedures,” now there are 23 working groups but may said the compliance head of a bank. While increase the number, if needed. He sees a the clampdown on cash deals and close vigil lot of synergies within the three banks. “ on NPAs may have prompted many bank OBC has a good system and processes. They managers to use office accounts, they are have got overlapping presence with PNB, also under pressure to retain clients, said which can be of advantage and we can the bank official. optimise on our resources. We do not have a presence in the eastern and north-eastern part of the country, where United Bank has good presence,” Mehta said. He also said the amalgamation will not lead to any retrenchment of employees and there is no plan to come out with a voluntary retirement scheme (VRS). Oriental Bank of Commerce and United Bank will merge into Punjab Source: https://economictimes.indiatimes.com/ National Bank to create a bank with Rs 17.95 industry/banking/finance/banking/rbi-cracks-the-whip- lakh crore business and 11,437 branches. on-office-account-misuse/articleshow/71057693.cms Last month, the government had unveiled a Dated: Sep 10, 2019 mega plan to merge 10 public sector banks

47  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 into four as part of plans to create fewer the board of directors of the bank is scheduled and stronger global-sized lenders as it looks to be held on Monday, 16th September, 2019, to boost economic growth from an over six- to consider amalgamation of Allahabad year low. Other sets of mergers are -- Canara Bank with Indian Bank,” the Kolkata- Bank and Syndicate Bank will merge; Union headquartered bank said in a regulatory Bank of India will amalgamate with Andhra filing. Finance Minister Nirmala Sitharaman Bank and Corporation Bank; and Indian last week had announced to merge 10 public Bank will merge with Allahabad Bank. sector banks (PSBs) into four lenders aimed Source: https://economictimes.indiatimes.com/ at creating stronger and bigger banks. In industry/banking/finance/banking/pnb-ubi-obc- the biggest consolidation exercise in the forms-working-groups-to-oversee-merger-process/ banking space, the government on August articleshow/71085298.cms 30 had announced four major mergers of PSBs, bringing down their total number to Dated: Sep 11, 2019 12 from 19, a move aimed at making state- • IBA Inducts Karnataka Bank CEO On owned lenders the global-sized banks. Managing Committee: According to the consolidation exercise, United Bank of India and Oriental Bank of The Indian Banks Association (IBA) has Commerce are to be merged with Punjab inducted Karnataka Bank’s MD & CEO National Bank, making the proposed entity Mahabaleshwara MS in its managing the second largest public sector bank (PSB). committee. The IBA announced this at its AGM Syndicate Bank is to be merged with Canara on September 11. He was elected unopposed Bank. The board of Punjab National Bank on from the Private Sector Member Banks’ September 5 gave its in-principle approval category, a press release said. “I feel honored for amalgamation of Oriental Bank of to become a member of the Managing Commerce and United Bank of India into Committee of IBA,” Mahabaleshwara said. itself. PNB also said that, with this approval, The IBA consists of public sector, private it commences the amalgamation process, sector and foreign banks with 253 members. subject to all applicable approvals. India has Source: https://economictimes.indiatimes.com/ seen merger of six associate banks along industry/banking/finance/banking/iba-inducts- with SBI and the Bharatiya Mahila Bank with karnataka-bank-ceo-on-managing-committee/ the country’s largest lender in the financial articleshow/71082038.cms year beginning April 2017. Following next Dated: Sep 11, 2019 year,Bank of Baroda had merged Vijaya Bank and Dena Bank with itself. Earlier this • Boards Of Allahabad Bank, Andhra Bank week on Monday, Union Bank of India had Schedule Meeting For Merger Proposals: said its board of directors has approved Allahabad Bank on Wednesday said its merger of Andhra Bank and Corporation board of directors will meet next week to Bank with itself. Stock of Allahabad Bank consider its amalgamation with Indian Bank. closed 1.21 per cent higher at Rs 33.50 on the Also, Andhra Bank said its board will meet BSE,Andhra Bank ended up 3.17 per cent at on September 13 to consider and approve Rs 19.55 apiece. amalgamation of it along with Corporation Source: https://economictimes.indiatimes.com/ Bankin to Union Bank of India.”A meeting of industry/banking/finance/banking/boards-of-

48  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 allahabad-bank-andhra-bank-schedule-meeting-for- Rs 70,000 crore in these lenders. Thakur said merger-proposals/articleshow/71085315 .cms the banks are being encourage to lend more Dated: Sep 11, 2019 to NBFCs, which will improve the availability of credit in the market and reduce the • Government Ask Banks To Approach liquidity crunch. “I am positive that the NCLT As Last Resort: steps taken by the RBI mandating the banks The government on Wednesday asked banks to link their fresh retail loans issued from to put in all efforts to resolve bad loans October 1 to an external benchmark will themselves and approach National Company lead to cheaper funds for the borrowers,” he Law Tribunal (NCLT) only in the absence of said, adding that it will also reduce the cost any alternative. Minister of State for Finance of working capital loans for the industry. He and Corporate Affairs Anurag Thakur said also requested IBA to look into the transfer NCLT route should not be used by bankers to and human resource policies at banks, resolving stressed accounts on a daily basis. especially for women employees. “If you are “I would request bankers to try and resolve going away thousands of kilometer away stressed assets in the right earnest and refer from your home, and if you are not mentally cases to NCLT only if satisfied resolution there then ultimately it is going to impact outside the NCLT process is not available,” customers,” Thakur said. Thakur said at the 72nd annual general Source: https://economictimes.indiatimes.com/ meeting of Indian Banks’ Association (IBA). industry/banking/finance/banking/ government- He assured bankers to take decision to lend ask-banks-to-approach-nclt-as-last-resort/ to the industry without any fear of ‘witch- articleshow/71087135.cms hunting’ in future by any investigative Dated: Sep 11, 2019 agencies. “I want to assure you (bankers) that the decisions taken by you in course of • But Is Big-Bang Bank Mergers A Solution?: business in good faith with a sound business rationale will not face any witch-hunt,” The scheduled amalgamation of public the junior minister said. Bankers should sector banks (PSBs) at this juncture poses timely report frauds without any fear of a drastic change to India’s socioeconomic repercussions, he said. Thakur said despite condition. It brings with it issues not only of a 110 basis points repo rate reduction by cultural and managerial alterations, but also the Reserve Bank of India over the last few various financial conflicts, such as interse months, banks have not passed on the full disputes between the banks that could affect benefit to the consumers. “Only a fraction lending as well as recovery. Issues could of the rate cuts benefits were passed-on by include something as simple as an internal the banks to borrowers. I appeal to banks to hierarchical muddle to more direct and larger further pass on the benefits of the rate cuts conflicts like priority of charge on securities to companies which will lead to an increase in cases of common stressed assets, and the in the consumption cycle, thereby, leading different recovery process being followed to a revival in their investments,” he said. by each bank. A key reason for the merger In the last five years, the government has is the weight of mounting bad loans over the recapitalised public sector banks (PSBs) years. While various laws have been brought by over Rs 2 trillion, and recently also in force to deal with such stressed assets, announced an immediate capital infusion of are these mergers an effective step to shed

49  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 the weight of such bad loans? The merger scale. The merged entity is also likely to of public sector banks raises a considerable face post-disbursement risks and detection risk to the recovery process, which may of fraudulent accounts or transactions differ from one bank to another. In the case in this transition phase, not to mention of stressed assets, the creditors’ pool could staff accountability issues. These can be be common, which may include several of resolved by issuing specific guidelines for the merged public sector banks while their maintaining proper documentation of each hierarchy in the list of creditors would vary. account, in a uniform manner across the There can be situations where one bank may banks prior to the merger. It is necessary have taken a different stand from the other that resources be dedicated towards bank in relation to the same stressed asset, engaging competent teams to oversee and leading to inconsistent claims where conflict resolve issues arising out of such a transition of interest will be evident. This could lead phase. The merger also raises the threat of to prolonging the recovery process so as differences in prioritisation, in which the to resolve the situation — which, in turn, factors for internal risk assessments based could be perceived as a threat by strategic on the forensics can vary between the investors. Such operational problems arise banks. This is more likely since the merging as the merged entity would be represented banks are almost at the same level, thereby as a joint entity. There may be a scenario increasing the possibility of a rift. While non- in which the pending recovery action by performing assets and their resolution are Bank A will have to be continued by Bank B one of the major factors for the merger, what despite hurdles — or, in a common borrower remains to be seen is whether such an action case, under the insolvency process, if Bank A really provides a solution. Whilst it may have has objected to a resolution plan and Bank B played a crucial role for GoI to infuse funds has supported it. The impact may then have into public sector banks, with the current to be reviewed. But this may be resolved if economic conditions, one needs to wait and the merged entity were to adopt and develop watch for actual benefits accruing. an effective internal mechanism to resolve Source: https://economictimes.indiatimes.com/ such conflicts in the ongoing recovery industry/banking/finance/banking/but-is-big-bang- proceedings. This process could kick off bank-mergers-a-solution/articleshow/71087411.cms by weighing the interests or claims of each Dated: Sep 12, 2019 bank entangled in such conflict and by balancing the pros and cons in the interest of • HDFC Bank Doubles Mid-Corporate Loan the merged entity. Necessary steps to assess Book To Over Rs 90,000 Crore In 3 Years: the risk and outcome of such situations are HDFC Bank has more than doubled its mid- inevitable. The merger will entail movement corporate loan book to over Rs 90,000 crore of staff, bringing about situations where, in the past three years, arguably making it say, a different team, having conducted no the largest player in the segment. If the bank forensics with respect to stressed accounts, maintains its June quarter loan growth rate is deployed leading to ineffective recovery of 21 per cent in the ongoing quarter as well, steps. Forensics on non-performing asset which analysts see quite likely, the second (NPA) accounts often get lost during such largest lender will race past the Rs 1-lakh- a transition phase of amerger, especially crore milestone by the month-end itself. Mid- when the latter happens to be of a large

50  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 corporates are those firms with an annual even in book-keeping, forex advisory and turnover of Rs 200 crore to Rs 1,000 crore. hedging, we offer all these services for free. Out of the Rs 4.07 lakh crore of its wholesale I think this is what has helped us grow faster banking book, over Rs 90,000 crore was than the industry,” Shah, who has spent more from the mid-corporate segment, which the than two decades at the bank, told PTI. To put bank tags as emerging corporate group, as it pithily, he said that customers are looking per its June quarter balance sheet. The mid- for value additions, beyond mere loans today, corporate loan book was just about Rs 45,000 “which we offer helping us become the most crore in June 2016 and doubled to Rs 90,000 penetrated banker in this segment today”. crore in June 2019, a senior bank official, When Shah, who also heads the infra finance who did not wish to be identified, said. At and rural banking groups at the bank, took the system level, around 15 per cent or Rs 9 over the division in 2011, the emerging lakh crore of the Rs 60 lakh crore wholesale corporate book was a paltry Rs 15,000 crore loan book are mid-corporate loans. What is and was part of the wholesale banking group. significant is that it’s not just the bulging loan The average ticket size of these loans are of book where HDFC Bank leads the industry, but Rs 40 crore having a tenor of five to seven also in terms of the geographical coverage of years, Shah said. Industrial credit for the mid-corporate segment. In the latter segment, system has been growing at 6-7 percent for the bank has presence in 49 cities with 180 the past many years, but for HDFC Bank this dedicated relationship managers servicing has been over 20 percent without fail, Shah over 3,500 companies. Three years ago, in said but refused to offer a guidance citing the the mid-corporate segment, the bank was management policy. “All I can tell you is that present in 18 cities and the number of clients we will grow much faster than the industry was around half of over 3,500 now. The bank in every segment of our business, including plans to add at least 10-15 cities more over mid-corporates,” he said. On the asset quality the next couple of years, the official said, front, HDFC Bank is the only lender that has adding this has the bank leading the space not been affected by the NPA (Non-Performing by at least two times its immediate rival in Assets) pain in all these years, Shah said. In terms of both the number of centres as also fact, the NPA ratio is substantially lower in the clients. Of the Rs 90,000 crore emerging the mid-corporate loan segment compared to corporate loan book, the official said around 1.4 at the bank level in the June quarter. “This Rs 7,000 crore are the bank’s exposure to the is in spite of the fact that over 85 percent debt papers (mostly Commercial Papers and of these companies are privately held, and Non-Convertible Debentures) from these more than 90 percent of them are rated AA target companies, while 70 per cent of the and below. I don’t think there is a single AAA- book is working capital loans. Nirav Shah, the rated client we have in this segment at all. But country head for emerging corporate group of course none of these 3,500 plus are B- and at the bank, attributes the faster growth to the below,” Shah said. sharper focus and the holistic approach that Source: https://economictimes.indiatimes.com/ the bank offers. “Banking today is no longer industry/banking/finance/banking/hdfc-bank-doubles- just supplying credit. We don’t believe in that mid-corporate-loan-book-to-over-rs-90000-crore-in-3- either. “We offer tailor-made solutions to each years/articleshow/71087796 .cms of our clients. Be it in helping them better Dated: Sep 12, 2019 manage cash, supply chains and logistics or

51  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 • IBA Empaneled Agencies To Monitor Psb governance failures and the resultant loss of Funds Usage: public money, it is evident there needs to be a significant step-up in governance practices The move to front-load Rs 55,000 crore around corporate’s access to and use of into state-owned banks has a caveat; banks public funds,” said Sai Venkateshwaran, should ensure funds are not squandered. head, CFO advisory, KPMG in India. Most of After a push from the Centre and the Reserve the 12 state-owned banks are in an advance Bank of India (RBI), lenders are roping in stage of roping in external agencies to monitoring agencies to track end-use of monitor large loans. These agencies could funds to stop promoters from siphoning include some consultancies, rating agencies bank loans. In all, 83 agencies empanelled or specialised firms with expertise in by the Indian Banks Association (IBA) would corporate forensic investigations, industry be appointed by lenders on case-to-case trackers said. “Banks are looking to rope in basis depending on size of the corporate and external monitoring agencies to augment the complexity of their business. “The idea their efforts in identifying opportunities is to see how related party transactions are for risk identification and taking timely happening and how loans are being used action covering key accounts,” said Dhruv because the biggest issue is funds are not Phophalia, managing director, Alvarez & being used for the purpose they are meant Marsal India. to be,” said Rajnish Kumar, chairman, State Bank of India. “The idea is on an on-going Source: https://economictimes.indiatimes. basis to study the valuation of receivables, com/industry/banking/finance/banking/iba- track stock valuation so that they are in empanelled-agencies-to-monitor-psb-funds-usage/ line with the market prices and assets are articleshow/71089728.cms not inflated.” Currently, if a consortium Dated: Sep 12, 2019 of banks offers a credit facility of Rs 5,000 • PNB Chief Shri Sunil Mehta Rules Out crore, banks rely on the rating of the firm Voluntary Retirement After Merger: and audited financial statements. Newly appointed monitoring agencies will look Trying to assuage employee concerns on beyond basic financial information and retrenchment as part of the upcoming probe the conduits of money laundering merger, Punjab National Bank’s chief like loans diverted to investment arms, executive ruled out any voluntary related party transactions, fund diversion retirement proposal for the staff and said to shell companies and vendor background employees from United Bank of India and verification. Out of the Rs 3.5 lakh crore Oriental Bank of Commerce could even worth of loans involved in the first 12 get foreign postings. “There is no question accounts referred to bankruptcy courts, of a voluntary retirement scheme (VRS),” the government suspects that promoters said Sunil Mehta, managing director and siphoned off over Rs 1 lakh crore. The state chief executive, Punjab National Bank. has infused over Rs 3 lakh crore in PSU banks Typically, in public sector bank mergers, since 2015 but the market capitalisation some employees are given the option of of these banks excluding SBI is below the taking voluntary retirement. Around 260 fund injected. Clearly the returns have been employees from Dena Bank had chosen to negative.“ As one looks at the many recent retire instead of joining Bank of Baroda.

52  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 In April 2017, State Bank of India (SBI) of these products and make a common one,” merged five of its subsidiaries with itself, he said. While, PNB, United Bank and OBC and 4,000 employees from SBI and its are all on the same core banking platform associate banks had opted for voluntary of Infosys Finacle, the versions are not the retirement. Voluntary retirement schemes same. PNB is on Finacle 10 and the other allow companies to trim their workforce two are on Finacle 7 but Mehta believes that by letting employees choose to leave in since the platforms are the same, integration return for a severance payment. Mehta will be faster. Following the merger, the said finance minister Nirmala Sitharaman bank will look to create new verticals and has already announced that there is not focus on new areas. “Public sector banks do going to be any retrenchment and every not have very robust marketing structures, employee is going to gain from it. He added whereas most of the private sector banks that employees will get the best of the three do. When you merge some of the banks, you banks in the amalgamated entity. “Suppose, can find out a few people for marketing. United Bank is giving better benefits to their Right now, most of the people are available employees, then the same will be available for routine types of operations,” said to all in the amalgamated entity. So that Mehta. The bank, he said, will soon float a way, no employee is going to lose out as request for proposal for valuation of the there is no loss in value of their existing bank under the amalgamation proposal. employment,” said Mehta. According to Sitharaman on 30 August announced the him, another advantage is that the large merger of Punjab National Bank, Oriental size of the amalgamated bank will provide Bank of Commerce and United Bank. The staff a lot of opportunities. “For instance, other merger will be between Canara Bank United Bank or OBC do not have a foreign and Syndicate Bank. Also, Union Bank of presence whereas PNB does. Therefore, India will be merged with Andhra Bank and employees of United Bank and OBC may get Corporation Bank, and Indian Bank will be an opportunity to work overseas and get merged with Allahabad Bank. Mint reported more exposure,” he said. PNB has a presence on 3 September that the proposed merger in Dubai, Hong Kong, United Kingdom of 10 state-run banks into four entities is (UK), Bhutan, Kazakhstan and Nepal. The unlikely to ease credit flow to non-bank timelines for the merger, he said, will be lenders since their post-merger exposure finalized by the board members when the to the sector will continue to remain above detailed merger plan is worked out. These their comfort level. Five banks—United banks have created 23 working groups Bank of India, Indian Overseas Bank, comprising officials from all three banks and Central Bank of India, IDBI Bank and UCO will deliberate on issues including, human Bank—are still operating under the RBI’s resources, products and processes. “This is prompt corrective action (PCA) framework not only a legal merger but has to be in terms that is aimed at reining in banks that have of technology, product and services, and we breached regulatory thresholds in bad loans have already created 23 working groups for and capital adequacy. products, processes and human resources. Source: https://www.livemint.com/industry/banking/ These have participants from three banks pnb-chief-sunil-mehta-rules-out-voluntary-retirement- and each will work on various products of after-merger-1568279943707.html the three banks to merge the best features Dated: Sep 12, 2019

53  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 • BoB Seeks To Sell Dena Bank Headquarters withdrawal, average monthly balance, In Bandra For Over Rs 530 Cr: deposits and withdrawals and will affect scores of customers in many ways. On State-run Bank of Baroda has put on block maintenance of average monthly balance the erstwhile headquarters of Dena Bank in (AMB), starting October 1, SBI has reduced the financial capital at a reserve price of Rs the minimum average monthly balance 530 crore. Dena Bank and Vijaya Bank got requirement for urban centers from Rs amalgamated with Bank of Baroda in April, 5,000 to Rs 3,000. Under the revised rules, this year. The property situated in the tony if someone does not maintain Rs 3,000 as Bandra Kurla Complex central business average monthly balance and falls short by district has a land area of 2,878.36 sqm with 50 per cent (that is Rs 1,500) the individual a built-up area of 9,953.73 sqm. “Bank of will be charged Rs 10 plus GST. If the account Baroda invites bids for sale-cum-auction of holder falls short by more than 75 percent, it Dena Corporate Centre in BKC through an will invite a fine of Rs 15 plus GST. In semi- e-auction,” according to an offer document urban branches, SBI account holder needs published in newspapers Thursday. The to maintain an average monthly balance of auction will be held on October 18. However Rs 2,000. In rural branches, the minimum the banks said the movable furniture and average monthly balance will be Rs 1,000. If other fixtures in the property are not be part the shortfall is less than 50 per cent for semi- of the auction. Bank of Baroda managing urban branches, then the extra charge will director PS Jayakumar had earlier said be Rs 7.50 plus GST. For between 50-75 per the three banks have presence in about cent, the fine is Rs 10 plus GST and for above 1,000 urban centres and that it would be 75 per cent shortfall, the charge will be Rs 12 relocating some of those branches to areas plus GST. In case of AMB of Rs 1,000 at rural where it does not have presence. In rural branches, a shortfall of less than 50 per cent areas, however, the overlaps of branches are , charges are Rs 5 plus GST. For shortfall of extremely thin, he had said earlier. In May, a over 50 per cent up to 75 per cent, the fees senior BoB official had said the bank would will be Rs 7.50 plus GST, while shortfall over be rationalizing 800-900 branches across the 75 percent will attaract fine of Rs 10 + GST. country to improve operational efficiency, National Electronic Funds Transfer (NEFT) following the merger. The merger made BoB and Real Time Gross Settlement (RTGS) the third largest bank after State Bank of charges are also set to change. While NEFT India and HDFC Bank. and RTGS transactions through digital means Source: https://economictimes.indiatimes.com/ are free, fees are imposed at branches. NEFT industry/banking/finance/banking/bob-seeks-to-sell- transaction up to Rs 10,000, will invite Rs 2 dena-bank-headquarters-in-bandra-for-over-rs-530-cr/ plus GST charges. For a transaction above articleshow/71098082.cms Rs 2 lakh via NEFT, the bank will charge Rs Dated: Sep 12, 2019 20 plus GST. For RTGS transfer between Rs 2 • SBI Revises Service Charges For Deposits lakh to Rs 5 lakh, a customer must pay Rs 20 And Withdrawals From October 1: plus GST. RTGS transfer above Rs 5 lakh will be charged Rs 40 plus GST. As per the new The State Bank of India will revise service charges on Deposits and Withdrawals, cash charges for deposits and withdrawal on deposits in savings account will be free for October 1 which will encompass cash up to 3 transactions in a month. After that,

54  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 the account holder will be charged Rs 50 plus to protest merger and amalgamation in the GST for every transaction. The maximum banking sector by the central government limit for deposit of cash at non-home branch and other demands of employees, Sharma is Rs 2 lakh per day. Thereafter, the non-home said. He said that the nationalized banks branch manager gets to decide if the bank will further observe indefinite strike from can accept more cash. Meanwhile, account the second week of November. The bank holders with an average monthly balance of employee unions are demanding expeditious Rs 25,000 can perform free cash withdrawal wage revision, immediate introduction of twice a month. Those with average monthly five day week, halting of undue interference balances between Rs 25,000 to Rs 50,000 can in the existing procedure of vigilance avail 10 free cash withdrawals. Charges for cases by outside agencies, settlement of transactions beyond the free limit are Rs 50 issues pertaining to retirees, adequate plus GST. For above Rs 50,000 up to 1,00,000, recruitment, scrapping of NPS, reduction the charges are Rs 15 plus GST, while of service charges for consumers and those above Rs 1,00,000 have unlimited harassing of officers under specious plea transactions. of non-performance, he said. In the biggest Source: https://economictimes.indiatimes.com/ consolidation exercise in the banking space, industry/banking/finance/banking/sbi-revises-service- the government on August 30 announced charges-for-deposits-and-withdrawals-from-october-1/ four major mergers of PSBs, bringing down articleshow/71096836.cms their total number to 12 from 19 in 2017, a move aimed at making state-owned lenders Dated: Sep 12, 2019 the global-sized banks. According to the consolidation exercise, United Bank of India • Bank Unions Threaten 2-Day Strike Later and Oriental Bank of Commerce are to be This Month: merged with Punjab National Bank, making Four bank employee unions have given a the proposed entity the second largest public call for a two-day strike from the midnight sector bank (PSB). Syndicate Bank is to be of September 25 and an indefinite stir merged with Canara Bank. Allahabad Bank from the second week of November to will be merged with Indian Bank. Andhra protest against the mega-merger of 10 Bank will be amalgamated with Corporation nationalized banks, a union leader said on Bank and Union Bank of India. India has seen Thursday. The unions are also pressing for a merger of six associate banks along with expeditious wage revision, the introduction SBI and the Bharatiya Mahila Bank with the of the five-day week and other demands. country’s largest lender in the financial year The strike call has been given by All India beginning April 2017. Following next year, Bank Officer’s Confederation (AIBOC), All Vijaya Bank and Dena Bank were merged India Bank Officer’s Association (AIBOA), with Bank of Baroda. Indian National Bank Officer’s Congress (INBOC) and National Organization of Bank Source: https://economictimes.indiatimes. Officers (NOBO), the general secretary of com/industry/banking/finance/banking/bank- AIBOC (Chandigarh), Deepal Kumar Sharma, unions-threaten-2-day-strike-later-this-month/ said here. Nationalized banks across the articleshow/71097824.cms country will observe strike from midnight of Dated: Sep 12, 2019 September 25 to midnight of September 27

55  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 • BoB Seeks To Sell Dena Bank Headquarters them to help boost growth, including follow In Bandra For Over Rs 530 Cr: up action after reduction of interest rates by RBI, sources said on Thursday. The meeting State-run Bank of Baroda has put on block comes against the backdrop of Finance the erstwhile headquarters of Dena Bank in Minister Nirmala Sitharaman announcing the financial capital at a reserve price of Rs various measures to push economic growth. 530 crore. Dena Bank and Vijaya Bank got The agenda of the review meeting includes amalgamated with Bank of Baroda in April, follow up action with respect to RBI rate this year. The property situated in the tony cuts, and collaboration between banks Bandra Kurla Complex central business and NBFCs for co-origination of loans to district has a land area of 2,878.36 sqm with boost lending, the sources said. Besides, the a built-up area of 9,953.73 sqm.” Bank of meeting would assess introduction of repo- Baroda invites bids for sale-cum-auction of linked loans for attracting new borrowers Dena Corporate Centre in BKC through an to push consumption and partial credit e-auction,” according to an offer document guarantee scheme for NBFCs, among others. published in newspapers Thursday. The Economic growth has a hit six-year low of 5 auction will be held on October 18.However per cent in the first quarter of the current the banks said the movable furniture and fiscal. The sources said the progress made by other fixtures in the property are not be part banks towards consolidation would also be of the auction. Bank of Baroda managing discussed at the meeting. On August 30, the director PS Jayakumar had earlier said government announced consolidation of 10 the three banks have presence in about large public sector banks into four. As part 1,000 urban centres and that it would be of exercise, Punjab National Bank, Oriental relocating some of those branches to areas Bank of Commerce and United Bank of India where it does not have presence.In rural would combine to form the nation’s second- areas, however, the overlaps of branches are largest lender. Canara Bank and Syndicate extremely thin, he had said earlier. In May, a Bank would be merged while Union Bank of senior BoB official had said the bank would India would be amalgamated with Andhra be rationalising 800-900 branches across the Bank and Corporation Bank. Indian Bank country to improve operational efficiency, would be merged with Allahabad Bank. following the merger. The merger made BoB Earlier this year, Bank of Baroda merged the third largest bank after State Bank of Vijaya Bank and Dena Bank with itself. State India and HDFC Bank. Bank of India had merged five of its associate Source: https://economictimes.indiatimes.com/ banks -- State Bank of Patiala, State Bank of industry/banking/finance/banking/bob-seeks-to-sell- Bikaner and Jaipur, State Bank of Mysore, dena-bank-headquarters-in-bandra-for-over-rs-530-cr/ State Bank of Travancore and State Bank of articleshow/71098082.cms Hyderabad -- and also Bhartiya Mahila Bank, Dated: Sep 12, 2019 effective April 2017. • Finance Secretary To Meet Heads Of PSU Source: https://economictimes.indiatimes.com/ Banks On September 19: industry/banking/finance/banking/finance-secretary-

Finance Secretary Rajiv Kumar is scheduled to-meet-heads-of-psu-banks-on-september-19/ to meet heads of public sector banks on articleshow/71102169.cms September 19 to review progress made by Dated: Sep 12, 2019

56  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 • Bank Credit Growth Slows To 10.24%, amalgamation of the Allahabad Bank with Deposits At 9.73%: the Indian Bank. Prior to the merger, there are several steps like the appointment of a Bank credit and deposits growth slowed consultant, valuation of the bank to arrive to 10.24 percent and 9.73 percent to Rs at the share swap ratio,” Bhattacharya told 96.80 lakh crore and Rs 127.80 lakh crore, reporters on the sidelines of a function to respectively, in the fortnight to August 30, launch its digital customer loyalty reward show the latest RBI data. In the year-ago points scheme. According to a regulatory fortnight, advances were at Rs 87.80 lakh filing by the Allahabad Bank, its Board of crore while deposits stood at Rs 116.46 lakh Directors would be meeting on September crore. In the previous fortnight to August 16 to consider amalgamation with the Indian 16, advances grew 11.64 percent to Rs 96.82 Bank. Earlier launching the ‘Ind Advantage’, lakh crore and deposits by 10.15 percent to the customer loyalty reward points scheme, Rs 126.80 lakh crore. In July, the non-food Bhattacharya said the bank has come out bank credit rose 11.4 percent on year-on- with this scheme to stay competitive in year basis from 10.6 percent in July 2018. the market. He said the scheme will be for Advances to the services sector decelerated customers using its debit cards, mobile and to 15.2 percent in the month from 23 percent net banking facilities. The customers can in the year-ago month. Credit to agriculture redeem the rewards points at various retail & allied activities rose 6.8 percent compared outlets. Queried about the future of the with an increase of 6.6 percent in the same scheme with the merger of the Allahabad month last year. Loans to industry rose Bank being planned, Bhattacharya said 6.1 percent in July from 0.3 percent a year the better of the two reward schemes will ago. Personal loans rose 17 percent in July prevail if the Allahabad Bank has such a compared to an increase of 16.7 percent in scheme for its customers. He said Indian July 2018. Bank has a total of 4.25 crore accounts and Source: https://economictimes.indiatimes.com/ of which 3.50 crore are active. Bhattacharya industry/banking/finance/banking/bank-credit-growth- said initially the scheme will be for its debit slows-to-10-24-deposits-at-9-73/articleshow/71102478. card customers and later, will be extended to cms credit card customers as well. According to Dated: Sep 12, 2019 him, the cost for banks goes down drastically • Indian Bank Board To Meet On September in the case of digital transactions and the cost 18 To Consider Merger: saving is being shared with the customers given the competition also has similar The Board of Directors of the Indian Bank schemes. Bhattacharya said the bank hopes will meet on September 18 to consider the to attract new customers per month with amalgamation of Allahabad Bank with this rewards redemption scheme. Indian itself, Executive Director M.K. Bhattacharya Bank has tied up with Loylty Rewardz Mngt said here on Friday. The Board will also Pvt Ltd for the rewards scheme. Meanwhile, consider additional capital infusion by the the Indian Bank, in a regulatory filing on government by way of preferential issue Friday, said S&P Global Ratings has revised of shares subject to regulatory approvals, its issuer credit rating from BBB-/Stable/A-3 he added. “Our Board of Directors will to BBB-/Negative/A-3. be meeting on September 18 to consider

57  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Source: https://economictimes.indiatimes.com/ minimum capital adequacy ratio of 15 per industry/banking/finance/banking/indian-bank- cent of its risk weighted assets (RWA) on a board-to-meet-on-september-18-to-consider-merger/ continuous basis. The draft further said the articleshow/71116547.cms promoters should hold a minimum of 40 per Dated: Sep 13, 2019 cent of the paid-up voting equity capital of the bank, which would remain locked in for • RBI Proposes Rs 200 Crore Minimum five years from the date of commencement Capital For Small Banks Under ‘On Tap’ of the bank’s business. “Proposals having License Regime: diversified shareholding, subject to the The Reserve Bank of India (RBI) on Friday initial minimum shareholding of promoters, proposed a minimum equity capital of Rs and a time frame for listing of the bank will 200 crore to set up a small finance bank be preferred,” it said. However, after the (SFB) under the ‘on tap’ licence regime to SFB reaches the net worth of Rs 500 crore, expand the banking services through high listing will be mandatory within three years technology-low cost operations. Releasing of reaching that net worth. Also, SFBs having the draft guidelines for ‘on tap’ licensing net worth of below Rs 500 crore could also of SFBs in the private sector, the RBI said get their shares listed voluntarily, subject to existing non-banking financial companies fulfilment of the requirements of the capital (NBFCs), micro finance institutions and markets regulator. The foreign shareholding local area banks in the private sector, in the small finance bank would be as per which are controlled by residents, can opt the extant foreign direct investment (FDI) for conversion into small finance banks. It policy for private sector banks. The RBI had further said proposals from public sector issued the guidelines for licensing of SFBs entities and large industrial house/business in the private sector in November 2014. The groups, and autonomous boards/bodies process of licensing culminated in granting will not be entertained. A small finance in-principle approval to 10 applicants and bank is primarily set up to undertake basic they have since established the banks. It was banking activities of acceptance of deposits notified in these guidelines that after gaining and lending to unserved and underserved experience in dealing with these banks, the sections, including small business units, Reserve Bank will consider ‘on tap’ licensing small and marginal farmers, micro and of these banks. small industries and unorganised sector Source: https://economictimes.indiatimes.com/ entities. The objectives of setting up of industry/banking/finance/banking/rbi-proposes-rs-200- SBFs is to further financial inclusion and crore-minimum-capital-for-small-banks-under-on-tap- supply of credit “through high technology- licence-regime/ articleshow/71116676.cms low cost operations”, the draft said. “The Dated: Sep 14, 2019 minimum paid-up voting equity capital for small finance banks shall be Rs 200 • Andhra Bank Board Okays Merger With crore, except for such small finance banks Union Bank Of India: which are converted from UCBs...,” said the draft on which the central bank has sought The board of directors of Andhra Bank on comments from the stakeholders by October Friday accorded in-principle approval for 12 Further, in view of the inherent risk of the amalgamation of Andhra Bank and an SFB, it shall be required to maintain a Corporation Bank with Union Bank of India

58  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 as the anchor bank. “In continuation to our by segregating, or ‘sidepocketing’, Altico’s letter dated September 11, 2019 regarding securities. “The revision takes into account intimation of meeting of board of directors Altico’s significant exposure to real estate of the bank, we wish to inform you that the sector which is witnessing a slowdown board in its meeting held on September 13, and experiencing heightened refinancing 2019 has considered and accorded its in- risk which is reflected to an extent with principle approval for the amalgamation moderation in asset quality of the company,” of Andhra Bank and Corporation Bank Care said in a statement. Shares of banks and with Union Bank of India as the anchor Non-Banking Finance Companies (NBFCs) bank, subject to statutory and regulatory ended mixed on Friday as some investors approvals,” the public sector bank said in a fretted about a possible repeat of last year’s filing on the BSE. Finance Minister Nirmala scare and subsequent market meltdown Sitharaman recently announced the merger caused by the default and eventual of Oriental Bank of Commerce and United bankruptcy of IL&FS. The default in the Bank with Punjab National Bank, Syndicate last week of September 2018 had triggered Bank with Canara Bank, while Andhra Bank a market crisis and brief credit shutdown and Corporation Bank would merged with to over-leveraged finance firms and their Union Bank of India. Besides, Indian Bank clients. Many NBFCs are yet to recover would be merged with Allahabad Bank, from the 2018 crisis, and investors are still making it the seventh largest state-owned nervous about the poor liquidity condition bank. of many small players. On Friday, mutual Source: https://economictimes.indiatimes.com/ funds were quick to take advantage of ‘side industry/banking/finance/banking/andhra-bank- pocketing’ rules put out by the SEBI after the board-okays-merger-with-union-bank-of-india/ IL&FS crisis, which allow funds to segregate articleshow/71117490.cms illiquid securities from defaulting companies till the fund houses are able to realize some Dated: Sep 13, 2019 value from these papers. The process creates two schemes one that contains the illiquid • Altico Default Sends Mutual Funds, Banks paper and the other holding the good Scurrying For Cover: ones. As and when fund houses are able to Banks and mutual funds scrambled on recover money from Altico Capital, it will Thursday to contain the fallout of the be distributed to investors in proportion to default by Altico Capital, with investor their holdings in the segregated portfolio. attention turning to Non-Banking Finance UTI Credit Risk Fund, with assets of Rs 3,536 Companies’ liquidity problems on the eve of crore, has an exposure of Rs 202.82 crore the first anniversary of IL&FS’ bankruptcy. to Altico papers (5.85% of Assets Under On Friday, ratings agency India Ratings & Management). Reliance Ultra Short Duration Research cut Altico’s creditworthiness to ‘D’, Fund, with assets of Rs 3,258 crore, has an or ‘default’ category, from A+ earlier. Care, exposure of Rs 150 crore (4.61% of Assets another ratings agency, downgraded the Under Management). In a note, UTI Mutual finance company’s debt to below investment Fund said existing investors shall be allotted grade. Meanwhile, mutual funds such as the same number of units in the segregated UTI and Reliance Nippon AMC rushed to portfolio of the scheme as in the main ring fence the value of their debt schemes portfolio. “No subscription and redemption

59  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 will be allowed in the segregated portfolio. incident has heightened risks of contagion The AMC will disclose separate NAV of in the debt-laden NBFC sector. “If a company segregated portfolio and enable transfer of with such marquee investors faces liquidity such units on receipt of transfer requests,” stress, then it raises concerns for others. it said. Reliance Nippon AMC said it will Banks will be reluctant to lend to these suspend all subscriptions in the affected fund companies, which could worsen the liquidity from September 13 till further notice. The squeeze,” said Nitin Aggarwal, an analyst at fund house said it had informed investors Motilal Oswal. about the segregated portfolio in the scheme and given them time till September 24 to redeem units. The AMC said it will create a segregated portfolio on September 25. Top Indian lenders including HDFC Bank, State Bank of India Yes Bank and UAE-based Mashreq Bank had provided a six-year, Rs 340-crore loan to Altico. On Thursday, the finance company failed to pay Rs 20 crore that was due as interest. The NBFC’s total debt amounts to about Rs 4,000 crore. Source: https://economictimes.indiatimes.com/industry/ Mashreq Bank has the highest exposure banking/finance/banking/altico-default-sends-mfs- to Altico with Rs 660 crore of outstanding banks-scurrying-for-cover/articleshow/71120765.cms term loans, including external commercial Dated: Sep 14, 2019 borrowings. Among Indian lenders, HDFC Bank has the maximum exposure at Rs 500 • IT And HR Synergy Are Key Challenges For crore, followed by Yes Bank at Rs 450 crore PNB-OBC-UBI Merger: and SBI at Rs 400 crore, according to a report by India Ratings. Spokespersons from HDFC Integration of technology platform will Bank, Mashreq Bank, Yes Bank and SBI remain the key challenge for the merger did not reply to emails seeking comment. of Punjab National Bank, Oriental Bank of However, officials of these banks said on the Commerce and United Bank of India, senior condition of anonymity that their exposure executives of these banks said, even as the was relatively small and manageable. “Our government has selected the merger partners exposure is peanuts compared to our Rs 12 on the basis of their IT compatibilities rather Lakh Crore loan book. It is half of what has than geographical synergy. Harmonizing been projected in the India Ratings report. I human resource issues will be another do not think this account poses any serious key aspect of these mergers, as was seen risk to us since we have enough securities in the past. “Asymmetrical entities are covering the loan,” said a senior official from coming together, so there is bound to be HDFC Bank. A senior SBI official too said his some challenges” Ashok Kumar Pradhan, bank’s exposure was negligible. “I don’t think chief executive of UBI said Saturday, at we have such an exposure and even if true, it an interactive meeting between the three is too small to impact us. It looks like a case banks and their customers held in Kolkata. of cash flow mismatch that can be resolved,” PNB, OBC and UBI use Infosys’ Financle he added. Some analysts, however, said the software for their core banking solutions,

60  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 while Allahabad Bank and Indian Bank • SBI To Move RBI To Offer Fixed-Floating are on TCS’ BaNCS software, prompting the Rate Home-Loans, Chairman Shri Rajnish government to stitch these alliances for Kumar: a smoother transition. Similarly, Canara The largest lender State Bank of India will be Bank and Syndicate Bank are on the same seeking clarifications from the Reserve Bank iFlex platform. Union Bank of India, Andhra whether it can offer long-term home loans Bank and Corporation Bank are again on with fixed rates in the beginning and convert the Finance platform. UBI and OBC use the same into floating rates later, chairman Finance-7 while PNB uses Financle-10. So, Rajnish Kumar has said. The move comes UBI and OBC need to upgrade their software after the Reserve Bank has mandated banks solutions to have a seamless integration. to shift all retail lending to floating rates that On the HR issues, Pradhan said that best will be determined by external benchmarks available benefits from three banks will be like the repo rate. Kumar said there is a passed on to employees. “There will not be lack of clarity on how it can go ahead with any retrenchment or voluntary retirement the fixed rate products, after the RBI’s new scheme,” he said. These banks have formed regulations on floating rates. Hinting at the as many as 23 committees covering every volatility in the repo rate, he said some home aspect of banking merger such as IT, HR, buyers may want their loan rates to be fixed. product offerings etc…. to make the exercise For such buyers, it can offer a ‘fixed-floating’ less painful. Chief executives of all the 10 product, wherein the rates are locked in for public sector banks, which are selected as an initial period of say five to ten years, and merger candidates, had a meeting at Bank then turns floating. The need for making the of Baroda headquarters in Mumbai on product floating in the latter part arises out September 4 to get a lowdown on merger of the bank’s inability to project the liability experiences. “Bank of Baroda has given us a movements in the future, he said, adding template on merger and the likely challenges typically, home loans are for about 30 years. in this exercise. It was a great learning,” It can be noted that the repo rate at which UBI’s Pradhan said. PNB board has already the central bank lends to the system is at a approved the merger while the UBI and OBC nine-year low of 5.40 per cent. Speaking to will consider it at their respective board reporters here over the weekend, Kumar meetings both scheduled on September 18. said the central bank’s recent guidelines The merger is expected to take shape from on floating rate products for the retail April 1, 2020. Consequent upon this, the segment has necessitated the need for the merged entity will become the convener of clarity. Kumar has clarified that from an state level bankers’ committee in the states asset liability management perspective, it of Haryana, Punjab, Tripura and West is difficult to have a fixed rate product for a Bengal, and union territories of Delhi and long term like 30 years, the maximum tenor Chandigarh. of a home loan now from the bank now. Source: https://economictimes.indiatimes.com/ Some private sector peers offer up to 35 industry/banking/finance/banking/it-and-hr- years of home loans depending on in the age synergy-are-key-challenges-for-pnb-obc-ubi-merger/ of the borrower, though. At present, SBI has articleshow/71127815.cms a floating rate home loan product linked to Dated: Sep 14, 2019 its marginal cost of funds-based lending rate

61  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 and it recently withdrew one linked to the senior executives at these banks said, repo rate. It does not have a fixed rate home even as the government has selected the loan product at present. As of now, under merger partners on the basis of their IT the marginal cost of funds based lending, compatibilities instead of geographic reach. floating rate loans are re-set as when the Harmonising human resource issues will be interest rates fall or rise, but fixed rate loans another key aspect of these mergers, as was are reset in 9-12 months. But when the loans seen in the past. “Asymmetrical entities are are linked to the repo rate, the rates can coming together, so there is bound to be some change sharply, depending on how RBI acts challenges,” Ashok Kumar Pradhan, chief on the rate front. Many mortgage borrowers executive of UBI, said in Kolkata on Saturday normally choose fixed rates, as that helps at an interactive meeting involving the three them better manage their finances because banks and customers. PNB, OBC and UBI of the certainty about the EMI outgoes. use Infosys’ Financle software for their core Kumar said the bank does not have adequate banking solutions, while Allahabad Bank liabilities linked to the floating rate which and Indian Bank are on TCS’ BaNCS software, makes such a floating product difficult. prompting the government to stitch these Speaking on the RBI-mandated systemic alliances for a smoother transition. Similarly, shift to external benchmarked lending rates, Canara Bank and Syndicate Bank are on the he said SBI will have minimal issues with same iFlex platform. Union Bank of India, the same. He said the industry leader was Andhra Bank and Corporation Bank are the first to move on to the repo-linked loans again on the Finance platform. UBI and OBC and deposits since May, and has many of its use Finance-7 while PNB uses Financle-10. products aligned to the external benchmarks So, UBI and OBC need to upgrade their now. However, he said such shifts make asset software solutions to have a seamless liability management “challenging” as there integration. On the HR issues, Pradhan said lack of floating rate liabilities now. About the that the best available benefits from the impact of the mega bank mergers on SBI, he three banks will be passed on to employees. said it will not impact the nation’s largest “There will not be any retrenchment or bank as SBI has specified business model voluntary retirement scheme,” he said. These and target segments, and will continue with banks have formed 23 committees covering the same. every aspect of the merger, such as IT, HR, Source: https://economictimes.indiatimes.com/ and product offerings, to ensure success of industry/banking/finance/banking/sbi-to-move-rbi-to- the exercise. Chief executives of all the 10 offer-fixed-floating-rate-home-loans-chairman-rajnish- public sector banks, which are selected as kumar/articleshow/71136942 .cms merger candidates, had a meeting at the Bank of Baroda headquarters in Mumbai on Dated: Sep 15, 2019 September 4 to get a lowdown on the merger • Tech, HR Integration Remain Key experience. “Bank of Baroda has given us Challenges For PSU Bank Mergers: a template on the merger and the likely Integration of technology platforms will challenges in this exercise. It was a great remain the key challenge for the merger learning,” UBI’s Pradhan said. PNB board of Punjab National Bank, Oriental Bank has already approved the merger while of Commerce and United Bank of India, the UBI and OBC will consider it at their respective board meetings – both scheduled

62  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 for September 18. The merger is expected to mount coordinated efforts which help the take shape from April 1, 2020. The merged entire financial system, he said, pointing out entity will become the convenor of state level that the same is being used for biggest of the bankers’ committee in the states of Haryana, stressed cases. The comments from the SBI Punjab, Tripura and West Bengal, and union chairman come days ahead of a bankers’ territories of Delhi and Chandigarh. meeting to find a solution. Altico owes Rs 660 Source: https://economictimes.indiatimes.com/ crore to the UAE-based Mashreq Bank, Rs industry/banking/finance/banking/tech-hr-integration- 400 crore to SBI, and Rs 200 crore to UTI MF remain-key-challenges-for-psu-bank-mergers/ and Rs 150 crore to Reliance Nippon, as per articleshow/71142846.cms India Ratings estimates. Altico has defaulted on interest payment of Rs 19.97 crore to Dated: Sep 16, 2019 Mashreq Bank last week. On September 3, it was downgraded to junk status by rating • SBI Chief Slams ‘Selfish’ Private Sector agencies India Ratings and Care Ratings. Bank For Altico Crisis: Altico is backed by marquee investors like State Bank of India chairman Rajnish Kumar Clearwater Capital Partners, Abu Dhabi has slammed a “selfish” private sector Investment Council and Varde Partners. The lender for the crisis at Altico Capital, as its default was on the troubled company’s ECB unilateral move to secure its own money loan, but was not reportedly allowed by the can potentially cause troubles to the wider Reserve Bank of India to be used for interest financial system. The realty-focused non- repayments, leading to the default. As per banking lender Altico, which owes over Rs they central bank’s norms, ECBs by lenders 4,500 crore to the system (mostly banks), can only be used for on-lending. According defaulted on a nearly Rs 20 crore interest to reports, the ECB money was kept with the payment late last week on an external private sector lender as a fixed deposit and commercial borrowing (ECB) loan. The it moved in swiftly to secure its loans on the default by Altico has resulted in concerns news of its default. over the wider implications. According Source: https://economictimes.indiatimes.com/ to reports, a leading private sector bank industry/banking/finance/banking/sbi-chief- allegedly moved in to secure its exposure slams-selfish-private-sector-bank-for-altico-crisis/ by “netting-off” money from a fixed deposit articleshow/71144155.cms maintained by Altico. “If any bank makes a selfish move, it can have a negative impact Dated: Sep 16, 2019 on the rest of the system,” State Bank of India • RBI Allows Payment Of All Recurring Bills (SBI) chairman Rajnish Kumar told reporters Through BBPS: here over the weekend. “You have taken care of the Rs 50-100 crore (exposure), and felt In a consumer friendly initiative, the RBI happy for saving your money, but if you are on Monday expanded the scope of Bharat damaging the system, then it is not proper,” Bill Payment System (BBPS) to cover all Kumar said, without naming the private repetitive bill payments, which may include sector lender. “Even in the case of the biggest school fees, insurance premiums and of the companies, if a bank pulls the trigger municipal taxes. Currently, the facility of or stops credit flow, the negative impact can payment of recurring bills through BBPS is come,” he added. The need is for bankers to available only in five segments -- direct to

63  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 home (DTH), electricity, gas, telecom and on September 9, Union Bank of India had water. “...it has been decided to expand the informed about an in-principle approval of scope and coverage of BBPS to include all its board for the amalgamation of Andhra categories of billers who raise recurring Bank and Corporation Bank into it. While, bills (except prepaid recharges) as eligible Andhra Bank board on September 13 had participants, on a voluntary basis,” the RBI given its in-principle approval for the said in a circular. BBPS functions under the amalgamation of the lender alongside aegis of National Payments Corporation of Corporation Bank into Union Bank of India. India (NPCI). As per BBPS website, the facility In a separate filing, Allahabad Bank said would be expanded to include other types of that “board of directors of the bank in its repetitive payments like insurance premium, meeting held on September 16, 2019 has mutual funds, school fees, EMIs, and considered and accorded its in-principle municipal taxes, among others. Commenting approval for amalgamation of Allahabad on RBI’s decision, DGM of Taxmann Rachit Bank into Indian Bank. The union Sharma said expansion of biller categories government in late August had approved to would increase the user base of Bharat merge 10 state-run banks into four entities Bill Pay along with providing an efficient, with an aim to strengthen them as also to cost-effective alternative to the existing cut down number of publicly hold banks systems and enhance consumer confidence into of the global sized banks. Among the and experience. BBPS is an integrated bill other amalgamation proposals, Punjab payment system which offers interoperable National Bank is to merge Oriental Bank of bill payment service to customers online as Commerce and United Bank of India with well as through a network of agents on the itself. And the south based Canara Bank ground. The system will provide multiple will merge its regional peer Syndicate Bank payment modes and instant confirmation of with itself. With these merger proposals, payment. the number of state owned banks in India is Source: https://economictimes.indiatimes.com/ slated to come down to 12 from 19 earlier. industry/banking/finance/banking/rbi-allows- Until 2017, there were as many as 27 banks payment-of-all-recurring-bills-through-bbps/ under the ownership of government. articleshow/71154949.cms In April 2017, country’s largest lender amalgamated its six associate banks and the Dated: Sep 16, 2019 Bharatiya Mahila Bank with itself. Another merger followed immediately next fiscal • Boards Of Corporation Bank, Allahabad with the merger of Dena Bank and Vijaya Bank Give In-Principal Approval For Bank into Bank of Baroda. Respective Merger Plans: Source: https://economictimes.indiatimes.com/ Corporation Bank on Monday said the industry/banking/finance/banking/boards-of- board has given its in-principle approval corporation-bank-allahabad-bank-give-in- for the merger with Union Bank of India. principal-approval-for-respective-merger-plans/ “The board of directors in its meeting articleshow/71154963.cms held on September 16, 2019 has given in- principle approval for the amalgamation Dated: Sep 16, 2019 of the Corporation Bank into Union Bank of • Strike Call Given By Officers’ Union May India,” it said in a regulatory filing. Earlier Affect Normal Business At Branches:

64  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 The State Bank of India (SBI) on Monday said Source: https://economictimes.indiatimes.com/ the operations of the bank could be affected industry/banking/finance/banking/strike-call-given- if the two-day strike call given by officers’ by-officers-union-may-affect-normal-business-at- unions materalises. Four unions of officers branches-sbi/articleshow/71154958 .cms of public sector banks have threatened to Dated: Sep 16, 2019 go on a two-day strike from September 26 to • Jet Airways Lenders Make Presentation To protest against the announced consolidation Synergy Group: of 10 state-run lenders into four. “While bank has made all arrangements to ensure normal The lenders to the bankrupt Jet Airways functioning in its branches and offices, it is Monday made a presentation to the South likely that work in our bank may be impacted American conglomerate Synergy Group, to some extent by the strike,” SBI said in a which has reportedly emerged as sole regulatory filing. The bank has been advised potential buyer of the airline, according by Indian Banks’ Association (IBA) that to a source. After the August 10 deadline, the All India Bank Officers’ Confederation Synergy Group Corp, which owns majority (AIBOC), All India Bank Officers’ Association stake in Colombian carrier Avianca (AIBOA), Indian National Bank Officers’ Holdings, had reportedly evinced interest Congress (INBOC) and National Organization in the airline, which had already received of Bank Officers (NOBO) has given a call expressions of interest (EoIs) (which were for all India strike by bank employees on subsequently withdrawn) from energy September 26 and 27, 2019. In the biggest baron Anil Agarwal’s family trust-backed consolidation exercise in the banking space, Volcan Investments, Russian Fund Treasury the government on August 30 announced four RA Partners and the Panama-based Avantulo major mergers of PSBs, bringing down their Group. “The lenders of Jet Airways Monday total number to 12 from 19 in 2017, a move made a presentation to the Synergy Group, aimed at making state-owned lenders global- which is likely to invest in the carrier. They sized banks. According to the consolidation shared information about the airline’s exercise, United Bank of India and Oriental assets, manpower, liabilities, among others,” Bank of Commerce are to be merged with a source told PTI. The source also said the Punjab National Bank, making the proposed exercise is expected to stretch to Tuesday. entity the second largest public sector bank When contacted, Antonio Guizzetti, the (PSB). Syndicate Bank is to be merged with president of the Washington-based Guizzetti Canara Bank, while Allahabad Bank will be & Associates, which is the legal adviser to merged with Indian Bank. Andhra Bank and the Synergy Group, said he was not aware Corporation Bank will amalgamate with the of the developments. The airline owes over Union Bank of India. Earlier this year, Bank Rs 8,500 crore, excluding interest, and other of Baroda merged Vijaya Bank and Dena penal charges, to a clutch of lenders led by Bank with itself to become the second largest the State Bank. The lenders consortium, public sector lender. SBI had merged five of which owns 51 percent, had on June 17 sent its associate banks - State Bank of Patiala, the airline to the NCLT as they could not State Bank of Bikaner and Jaipur, State Bank find a buyer. Following this, the bankruptcy of Mysore, State Bank of Travancore and State tribunal appointed Ashish Chhawchharia Bank of Hyderabad and also Bhartiya Mahila of Grant Thornton as the resolution effective April 2017. professional to manage the affairs of the

65  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 crippled airline. The RP had in late July management interaction pending approval, floated EoIs for the airline with the first two people familiar with the matter said. deadline of August 3 which was extended The heightened scrutiny follows a public to August 1o and another EoI with August interest litigation (PIL) in the Delhi High 31 deadline. Naresh Goyal, who is under ED Court seeking a special investigation into probe for alleged money laundering charges, alleged irregularities, diversion of funds founded Jet Airways over 25 year ago and and other violations said to have been it stopped flying on April 17. In the second committed by the promoters of IHF. The PIL round of submission of EoIs, which closed on filed by NGO Citizens Whistle Blower Forum August 10, the lenders had received interest alleges that the Indiabulls promoters have from Volcan Investments, RA Partners and been advancing dubious loans to companies Avantulo Group. However, Volcan opted out owned by large corporate groups. The latter of the race a day after publicly announcing route a part of these funds back to the accounts its interest in the carrier. It can be noted of companies owned by the promoters of Etihad Airways, which owns 24 percent stake Indiabulls. Indiabulls has described the in Jet, did not submit its bids. Jet Airways has PIL as “malicious” and “malafide” with the liabilities over Rs 36,000 crore, including intention of scuttling the planned merger. over Rs 10,000 crore in vendor dues, Rs 8,500 Senior advocate Mukul Rohatgi, appearing crore along with interest owed to lenders, for Indiabulls, said at a hearing last week over Rs 3,000 crore in salary dues, and more that the petition had been copied from an than Rs 13,500 crore in accumulated losses earlier plea filed by one Abhay Yadav in the over the past three years. Early July the RP Supreme Court. That had subsequently been had received claims worth over Rs 26,500 withdrawn and the facts stated in it were crore as of July 4, including over Rs 200 also said to be wrong with Yadav issuing crore from founder Naresh Goyal, submitted an apology. The next hearing in the current by the holding company of the airline JetAir, case will be held on September 27. “This PIL but was rejected. is now sub judice, so it is only fair that it is Source: https://economictimes.indiatimes.com/ decided by the court,” said one of the people industry/banking/finance/banking/jet-airways- cited earlier. “The RBI is hence in no hurry lenders-make-presentation-to-synergy-group/ to make a decision on this case.” “There are articleshow/71155486.cms also enquiries being done by agencies like Dated: Sep 16, 2019 the Enforcement Directorate and income tax, which the RBI will access. Only after • After Charges Of Wrongdoing at HFC, Exit they receive all this information will a Of Bank CEO, RBI Raises Scrutiny On LVB considered decision be made,” the person And Indiabulls HF: said. An RBI spokesperson didn’t respond to The Reserve Bank of India (RBI) has queries and neither did Indiabulls. The two intensified its “fit and proper” checks on the sides announced that LVB will be acquired managements of Lakshmi Vilas Bank (LVB) by IHF subject to regulatory approval on and Indiabulls Housing Finance (IHF), which April 5. LVB shareholders were to get 0.14 plan to merge, following fresh accusations equity share of the merged company for of wrongdoing and the sudden exit of the each held in the bank. However, on May 4, bank’s CEO. It has also told the companies the contours of the deal changed. The two not to exchange information and barred companies said that IHF and its subsidiary

66  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Indiabulls Commercial Credit Ltd (ICC) will Housing Bank and the RBI are yet to take a be merged into Lakshmi Vilas Bank. Just call. “We have no new information from the after the deal was announced in April, in an RBI. Whatever we have got is in the public unprecedented clarification on its website, domain,” said LVB CFO S Sundar. “As part of the RBI said that the presence of additional the diligence process, there are regular RBI, directors nominated by it on the LVB board NHB inspections and RBI’s inspection is likely didn’t imply central bank approval of the to end by the end of next week,” said one merger proposal. LVB CEO P Mukherjee, who person close to Indiabulls. “RBI has looked has been at the helm of the bank since 2015, into the credentials of incoming promoters quit late last month citing personal reasons. between May and July. RBI will now look at He hadn’t completed a year of the two-year the resultant capital position, asset classes extension the RBI gave him in January 2019. and final business plan. It will take four Both entities had sent five nominations months after issuing in-principle license to for the board of the merged entity. They the final one.” Another person close to LVB include Indiabulls chairman Sameer said that the RBI is likely to scrutinize names Gehlaut, vice chairman Gagan Banga and recommended for chairman and MD of the executive director Ajit Mittal. From the LVB merged entity more closely. side, the names include KR Pradeep, who Source: https://economictimes.indiatimes.com/ is the largest shareholder in the promoter industry/banking/finance/banking/after-charges-of- group of the bank with a 2.01% stake, and P wrongdoing-at-hfc-exit-of-bank-ceo-rbi-raises-scrutiny- Mukherjee, who has since resigned. The deal on-lvb-and-indiabulls-hf/ articleshow/71159673.cms has got the approval of CCI but the National Dated: Sep 17, 2019

• Indian Overseas Bank to offer repo-linked loans from October 1:

Indian Overseas Bank on Tuesday said it will offer consumer loans linked with RBI’s repo rate from October. The bank has decided to offer Repo Linked Lending Rate (RLLR) for new loans sanctioned under retail segment --housing, vehicle, education and clean loans-- and MSMEs from October 1, it said in a release. The Reserve Bank through a notification in early September had advised banks to link all new floating rate for personal or retail loans and MSMEs to one of the external benchmarks. These benchmarks are repo rate, 3/6 months treasury bills yields or any other benchmark published by Financial Benchmarks Pvt Ltd. “Out of the above three benchmarks, IOB has now decided to link interest rates with repo rate for these segment loans and the details of rates will be published with effect from

67  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 October 1, 2019,” said the Chennai-based the bulk of the burden, but at least they’re lender. getting dollops of taxpayers’ money and Source: https://economictimes.indiatimes.com/ being merged into fewer banking groups. A industry/banking/finance/banking/indian-overseas- private-sector lender like Yes doesn’t have bank-to-offer-repo-linked-loans-from-october-1/ a formal public backstop. If it can’t fend for articleshow/71170599.cms itself, the central bank could step in and force an arranged match with a better-run Dated: Sep 17, 2019 bank. The terms won’t be favorable to Yes shareholders. To avoid such a fate, Yes needs • Bank’s Race Against Crisis Puts India On to raise growth capital by convincing new Warning: investors that the worst is over. And that India’s fragile financial system is swinging brings us to the week’s other big incident. between despair and hope. Two separate Yes shares jumped 13.5% after reports that incidents both featuring the lender Yes Bank One97 Communications Ltd., which owns Ltd. recently underscored the drag of past the Indian digital payments network Paytm, underwriting follies as well as the lift from a may buy out a 9.6% stake in Yes from Rana digital reset. It will take time, but good things Kapoor, the lender’s co-founder. Kapoor will come to Indian banking as a result of the was forced to step down as CEO early this present crisis. Start with the sudden default year by the Reserve Bank of India amid a by financierAltico Capital India Ltd. on a controversy over bad-debt accounting. New 199.7-million-rupee ($2.8-million) interest CEO Ravneet Gill, brought in to clean up the payment to Abu Dhabi-based Mashreqbank mess, told Reuters last week that Yes was PSC. Clearwater Capital Partners-backed looking to sell a minority stake to “one of Altico, which borrows money from banks the world’s top three technology companies and mutual funds to make loans to property that had not previously invested in a bank.” developers, called the situation a “liquidity Investors pushed the stock higher despite crisis.” And that made Yes Bank investors their many misgivings. Only two years ago, gloomy. Based on January data, the midsize Yes had a high price-to-book multiple and Indian bank had a 4.5-billion-rupee an even bigger price-to-truth ratio, a term exposure to Altico, the third-highest after I’d coined to describe shareholders’ refusal Mashreq and HDFC Bank Ltd. While HDFC to question the subterfuge at India’s private- Bank, the country’s most valuable lender, sector banks. Although the banking regulator has the capital and current profit to take the had found bad loans to be four times what occasional credit hit, Yes’s capital cushion is Yes had disclosed in audited results, very already frayed by dodgy loans to beleaguered few analysts believed something could go shadow banks and troubled tycoons. Both seriously wrong given Kapoor’s substantial these borrower groups have found it hard to stake — his skin in the game. That was then. refinance debt since the collapse last year of Now, Yes is a battered lender gasping for IL&FS Group, a large Indian infrastructure capital. Despite the many regulatory hurdles financier and operator. Altico’s unraveling on the way to a possible alignment with shows that an end to credit woes is not yet Paytm, which the latter hasn’t confirmed, in sight. At more than $200 billion, India’s a deal could help the bank break free of its world-beating pile of bad loans is bigger than checkered past — and reemerge as a digital Italy’s. State-run Indian banks are carrying lender. If Paytm can monetize the data of its

68  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 350 million mobile wallet users by giving growing major economy. But alongside the them point-of-sale loans using the balance despair, hope is building for a new model led sheet of a bank — whether Yes or someone by supply-chain credit, asset securitization, else — the payment firm will get a second digital lending, and joint underwriting wind. Paytm founder Vijay Shekhar Sharma by finance companies (which know their had an early advantage as India’s mobile borrowers) and banks (which have stable payments pioneer, but Walmart Inc.-owned deposits). The tug of war between the past PhonePe as well as Alphabet Inc.’s Google and the future of banking in India is getting Pay are giving him stiff competition. Paytm’s interesting. What happens to Yes could be a losses are ballooning and it’s becoming gauge of which way the balance of power is evident that without old-fashioned lending, shifting. there may be no other path to profitability Source: https://economictimes.indiatimes.com/ for a pure payments business. Mukesh industry/banking/finance/banking/view-banks- Ambani, India’s richest tycoon, plans to use race-against-crisis-puts-india-on-warning/ his rapidly growing Jio telecom network to articleshow/71160690.cms offer customers discounts and vouchers that Dated: Sep 17, 2019 would be honored even by neighborhood stores. But for extending point-of-sale credit, • RBI Considering Bringing Payment Ambani would also need to borrow the Aggregators And Gateways Under Direct balance sheet of a bank. For Yes, point-of- Supervision: sale financing could be a growth avenue at a time when the turmoil in India’s formal and The Reserve Bank of India on Tuesday shadow banking sectors refuses to end. It’s released a discussion paper detailing put the brakes on what authorities were until the possibility of bringing all payment recently claiming to be the world’s fastest- aggregators and payment gateways under its direct regulation. Such a move would make it mandatory for all these companies to adhere to regulatory compliances prescribed by RBI on minimum net worth, fit and proper criterion for board members and other entry point norms on technology, data storage and security. “The activities of Payment Gateways and Payment Aggregators in online transactions are extremely crucial,” the central bank said. “Entities may be a source of risk in such a technology and customer experience intensive business if they have inadequate governance practices which may impact customer confidence and experience.” As per the current guidelines, these companies are indirectly supervised by the Reserve Bank. Banks with which these entities have business operations are required to create a nodal account and

69  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 scrutinise the daily settlements in these • As Risk Around Debt Funds Rises Investors accounts. However, citing the expanding Are Returning To Bank Deposits: payments ecosystem, the central bank has While investors get used to the risks proposed for making changes to the existing associated with debt funds, the faith in the framework under which these companies industry is being dented by the quick are governed. “The customer, ordinarily has recourse to side pocketing and deals with very limited access to the Payment Gateways defaulters for later payments. Transparency, and Payment Aggregators and must rely liquidity and prospects of better returns on merchants or banks who only can seek prompted chartered accountant Kuntal redress from the Payment Aggregators. Lack Parikh to move a substantial portion of his of proper redress mechanism and uniformity savings from banks to mutual funds about in practice across the entities is also a matter five years ago. Parikh enjoyed higher returns of concern,” according to the central bank. all these years, but is now moving a portion The RBI, in the discussion paper, said that it of his savings back to traditional bank is exploring the possibility of bringing these deposits. A series of defaults on borrowed entities within the purview of the Payment sums by companies and their promoters, and Settlement System Act 2007. If the coupled with regulatory changes, eroded regulators goes through with the proposal, returns from mutual fund debt plans, these companies would be required to apply leading investors to question whether risks for a license within a stipulated period outweigh the returns. As recently as last failing which the businesses would be asked week, UTI Mutual Fund and Reliance Nippon to fold, the central bank said. The approval Asset Management sliced off the holdings of of license would depend on whether these Altico Capital bonds after a default and companies uphold to all basic regulatory suspended normal subscriptions and checks such as fit and proper criterion of redemptions. Kotak Mutual Fund and Aditya board members, having a minimum net Birla Mutual Fund faced similar pressures worth of Rs.100 crore and having basic after some companies such as the Essel technology capacities matching up to the Group defaulted. Debt corporate funds, regulatory prescription. “Sufficient time, of which more than doubled in size in the past say one year, may be given to the existing five years, have returned 7.08% on an market participants to achieve compliance average in the period, compared with 6.25% with the required capitalisation norms,” the yielded now by State Bank of India’s fixed apex regulator said. “They shall adhere to deposits. Bank FDs are taxable, while bond the regulations from the date of issue of the investors get indexation benefits if regulations or as specified therein.” RBI said instruments held for at least three years. that that it has opened the discussion paper Crisil data showed that some mutual funds for public comments following which the schemes from DSP, UTI, DHFL Pramerica final guidelines would be issued. and others have lost their entire value in the Source: https://economictimes.indiatimes.com/ past one year, when funds wrote down the industry/banking/finance/banking/rbi-considering- value of defaulting debt. This led earnings of bringing-payment-aggregators-and-gateways-under- many years to be eroded with just one or direct-supervision/articleshow/ 71173658.cms two defaults. “I have never thought that I Dated: Sep 17, 2019 would lose my principal amount in debt

70  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 investments,” said Parikh, a resident of based advisory firm. “Investors are not Ahmedabad. “This (value erosion) has investing any fresh funds into debt funds, as changed my perception of debt products. I some NBFCs and mortgage firms have have shifted back to fixed deposits that defaulted on their principal/ interest would earn me less, but would be safe.” repayment. After the IL&FS episode, rating What started with the collapse of agencies have become very alert in assigning Infrastructure Leasing & Financial Services ratings.” Companies arbitraging interest (IL&FS) last year is still having ripple effects rates – borrowing short-term at lower rates in the market. Essel Group of Subhash and lending long for higher returns – were Chandra, Vikram Thapar’s CG Power, Dewan given the stick by mutual funds. When they Housing Finance and Sintex are among declined to roll over credit, funds became prominent defaulters to have hit mutual scarce. The likes of DHFL and Essel group funds so far. Events of the past year in debt were hit. Of course, the funds bled. For mutual funds have even irked the markets example, Aditya Birla Mutual Fund invested regulator. “The safety of investment cannot Rs 2,220 crore in DHFL group companies as be compromised for want of higher yields,” on September 30, 2018 which is worth Rs 55 said Ajay Tyagi, chairman of the Securities & lakh in August, showed data from Value Exchange Board of India. “While we have Research. DSP Mutual Fund invested Rs taken steps to restrict such investments, the 126.12 crore on September 30, 2018, in DHFL, industry as a whole needs to do its own which is now worth Rs 40.16 crore in July. analysis on a regular basis to avoid such Fund houses either marked down losses or situations in future.” After years of meagre exited investments in the secondary market. growth since starting in the mid-90s, mutual “Until about a year ago, the significant funds had a blistering growth as they growth of the mutual fund industry was one packaged the advantages of transparency of the most talked about success stories of and liquidity. ‘At the click of a button’ was a capital markets in India,” said Sebi’s Tyagi. slogan that traveled well into individual “The events last year, however, exposed the homes and corporate treasuries looking to fault lines in the industry and showed that a beat market returns. Debt mutual funds’ credit event in even one issuer/group could assets under management rose 85% in have a contagion effect leading to liquidity August 2019 to about Rs 13.22 lakh crore risk across the market.” Investors and from Rs 7.13 lakh crore in August 2014. mutual funds were playing musical chairs. Credit schemes to liquid schemes to plain When the music stopped, they did not find vanilla corporate bond funds flourished as an exit door in a market that was shallow savings moved into debt plans. While debt and that did not have a proper valuation credit risk funds returned an average of mechanism for these illiquid papers. “Much 7.26% in five years, the risk was also building needs to be done on debt infrastructure, up with indiscriminate borrowing that led to governance and accountability,” said Ananth over-leverage. A sudden economic slowdown Narayan, professor of finance at SPJIMR. and halting of payments over disputes led to “We need to increase the corporate bond a credit squeeze, especially for infrastructure repo market liquidity, increase debt firms. “There is a trust deficit among secondary market volumes, improve investors,” said Vikram Dalal, managing accountability of rating companies, and director at Synergee Capital, a Mumbai- strengthen credit departments of mutual

71  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 funds.” The corporate debt market has than-fair share,’’ says Dhirendra Kumar, grown to Rs 30.6 lakh crore by June this year founder & CEO, Value Research, a mutual from Rs 14.4 lakh crore in 2014, RBI data fund research company. Every financial showed. Of this, the size of structured notes asset and investments in these instruments market has grown to Rs 23,000 crore from Rs through mutual funds carry some risks. 878 crore. But the trading volume is less than However, in India banks are a different class a crore a day in this segment. “The secondary with the assumption of 100% safety, although market in corporate debt is so illiquid that deposit insurance covers just about Rs 1 lakh we can very well say there is no such of investments. Given the RBI’s undeclared market,” said BP Kanungo, deputy governor commitment to protect depositors and at the central bank. While mutual funds nearly three-fourths of the banking system have their own credit appraisal methods, a owned by the government, people take the lot of it depended on rating companies that safety of their funds as granted. Although were caught napping. Two of the biggest investors are used to see their NAVs in equity defaults in the past year – IL&FS and Dewan schemes fall dramatically over a period of Housing – carried triple A rating almost until time, they were unaccustomed to the erosion they missed payments. Naresh Thakkar was of value in debt funds. “We do not have a shown the door by ICRA, a unit of Moody’s strong history of bond defaults, which have Investors Services, for his suspected role in been happening in the past one year,” said meddling with rating actions. Sebi has come Kumar of Value Research. “This is only a tiny up with a new set of rules like disclosing portion when it compares with mammoth near-period performance to capture their bank bad loans. The latest default is like a performance. This has led to quick and often Delhi winter for a person, who has never overnight junking of some debt papers. “The experienced winter in true sense.” While rating transition of some corporate debt, investors get used to the risks associated particularly those issued by financial firms, with debt funds, the faith in the industry is has been phenomenal – from sound credit to being dented by the quick recourse to side junk,” said Kanungo. While the regulator pocketing and deals with defaulters for later tightened rules for rating companies, it came payments. Mutual funds as financial up with a bail-out plan for the industry intermediaries have helped companies facing such troubles – a concept called ‘side diversify their risk, reduce their borrowing pocketing’ – where a fund can set aside the costs, and help investors earn better returns. defaulted paper and redeem units at the net But the faith built over the past two decades asset value minus the amount stuck with the needs to be maintained by ensuring practices defaulter. This led to a sudden drop in the that are transparent as investors digest the NAV of a scheme which faced a default from risks associated with such investments. “The a borrower. Although investors may get tagline often associated with mutual funds is whatever value the fund realises when a ‘Mutual Funds Sahi Hai’,” said Tyagi. “We resolution happened, it hit at the very ought to remember that it takes years to foundation of the mutual fund concept – build trust in an industry and only a single liquidity at the click of a button with pass event may erode it. So, there should be a through. “Side pocketing ensures that some collective effort by all stakeholders, investors can get a more-than-fair share of including AMCs, trustees and Sebi to uphold the fund’s real value and some can get a less- and maintain that trust and faith.”

72  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 with Finance Minister Nirmala Sitharaman’s call for protecting honest decision making. This development will instill a sense of protection among bankers from prosecution for genuine decisions, and promote lending. It will decide whether the case is a criminal act or a genuine commercial decision and accordingly, recommend the future course of action. When asked about the move of the Central Vigilance Commission (CVC), Finance Secretary Rajiv Kumar said this will enable bankers to take genuine and commercially prudent decision without fear. The panel in its previous avatar was called the ‘Advisory Board on Bank, Commercial and Financial Frauds’. The Advisory Board for Banking Frauds (ABBF), formed in consultation with the RBI, would function as the first level of examination of all large fraud cases before recommendations or references are made to the investigative agencies by the respective public sector banks (PSBs), CVC said in an order. The four-member board’s jurisdiction would be confined to those cases involving the level of officers of general manager and above in the PSB in case of allegation of fraud in a borrowal account, it said. Lenders would refer all large fraud cases above Rs 50 crore to the board and on receipt of its recommendation or advice, the bank concerned would take further action in Source: https://economictimes.indiatimes.com/ such matter, it said. “(The) Central Bureau of industry/banking/finance/banking/as-risk-around- Investigation (CBI) may also refer any case debt-funds-rises-investors-are-returning-to-bank- or matter to the board where it has any issue deposits/articleshow/71177065.cms or difficulty or in technical matters with the Dated: Sep 18, 2019 PSB concerned,” it said. Other members of the panel are Madhusudan Prasad, former • Bankers Can Now Take Decision Without Urban Development Secretary; D K Pathak, Fear, CVC Sets Up Panel To Examine Fraud: former director general of the Border Anti-corruption agency CVC has set up the Security Force; and Suresh N Patel, former Advisory Board for Banking Frauds, headed MD and CEO of Andhra Bank. The tenure by former Vigilance Commissioner T M of the chairman and members would be Bhasin, to examine bank frauds of over Rs of two years, the order said. It further said 50 crore and recommend actions, in line the board will also periodically carry out

73  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 frauds analysis in the financial system and have over 6,100 branches across the country give inputs for policy formulation related and overseas presence in three countries, it to the fraud to the RBI. The Reserve Bank of said. The business after the amalgamation India (RBI) will provide required secretarial will be more than Rs 8 lakh crore. The services, logistic and analytical support Union government had last month approved along with the necessary funding to the to merge 10 state-owned banks into four board headquartered in Delhi. To check such entities, to strengthen them and also to incidences, the government has already cut number of publicly hold banks into of issued the ‘framework for timely detection, the global-sized banks. Among the other reporting, and investigation relating to large- amalgamation proposals, Punjab National value bank frauds’ to PSBs, which makes it Bank is to merge Oriental Bank of Commerce clear that all accounts exceeding Rs 50 crore, and United Bank of India with itself. And, if classified as an NPA, should be examined Canara Bank will merge its regional peer by banks from the angle of possible fraud. Syndicate Bank with itself. With these The framework also said that a report be merger proposals, the number of state- placed before the bank’s Committee for owned banks in India is slated to come down Review of NPAs based on the findings of the to 12 from 18 earlier. Until 2017, there were investigation. On August 23, Sitharaman said as many as 27 banks under the ownership of the CVC has issued directions that an internal the government. advisory committee (IAC) in banks be set up Source: https://economictimes.indiatimes.com/ to classify possible fraud cases as ‘vigilance’ industry/banking/finance/banking/indian-bank-board- and ‘non-vigilance’ and to support decision gives-in-principle-approval-to-merge-allahabad-bank- making, and prevent harassment for genuine with-itself/articleshow/ 71188505.cms commercial decisions by bankers. Dated: Sep 18, 2019 Source: https://economictimes.indiatimes.com/ • Allahabad Bank To Offer Repo Linked industry/banking/finance/banking/bankers-can-now- Retail, Small Business Loans From take-decision-without-fear-cvc-sets-up-panel-to- October: examine-fraud/articleshow/71187264 .cms Dated: Sep 18, 2019 State-owned Allahabad Bank on Wednesday said it has launched repo-linked retail and • Indian Bank Board Gives In-Principle small business loans. The decision has Approval To Merge Allahabad Bank With come in line with the Reserve Bank of India Itself: guidelines of September 4, 2019, Allahabad Indian Bank on Wednesday said the board Bank said in a regulatory filing. The bank has given its in-principle approval for the had decided to launch retail loans and loans merger of Allahabad Bank with itself. It also to micro & small enterprises linked with cleared the proposed infusion of capital by external benchmark rates published by the government up to Rs 5,000 crore in the Financial Benchmarks India Pvt LTd (FBIL), bank by way of preferential issue of shares, it said. “Presently, the bank has identified Indian Bank said in a statement. The board RBI’s repo rate and three month MIBOR as after deliberations conveyed its in-principle the benchmark rates,” it said. Further, all the approval for the amalgamation of Allahabad saving bank deposits of Rs 40 lakh and above, Bank with Indian Bank, it said. After the long tenure fixed deposit, bulk deposits and amalgamation, the combined entity will flexi fix deposits will be linked with external

74  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 benchmark rate i.e. RBI’s repo rate, it added. an external benchmark from October 1. The The products will be available for general central bank had asked banks to link these public with effect from October 1, 2019, loans either to repo rate or to 3-month or Allahabad Bank said. Stock of Allahabad 6-month Treasury bill yields or any other Bank closed 2.31 per cent down at Rs 31.70 benchmark interest rate published by on the BSE. Financial Benchmarks India. The monetary Source: https://economictimes.indiatimes.com/ authority said banks can offer such external industry/banking/finance/banking/ allahabad-bank- benchmark linked loans to other types of to-offer-repo-linked-retail-small-business-loans-from- borrowers as well and are to free to decide october/articleshow/ 71188737.cms the spread over the external benchmark. Dated: Sep 18, 2019 Source: https://economictimes.indiatimes.com/ industry/banking/finance/banking/rbi-yet-to-hear- • ‘RBI Yet To Hear From Any Banks On from-any-banks-on-fixed-cum-floating-loans/ Fixed-Cum-Floating Loans’: articleshow/71189140.cms The Reserve Bank has not received any Dated: Sep 18, 2019 request from any banks seeking to introduce • FinMin To Hold Review Meeting With fixed-cum- floating rate loans, especially Public Sector Banks On Thursday: home loans, a source said. State Bank chairman Rajnish Kumar had over the Finance Minister Nirmala Sitharaman will past weekend said the bank would seek hold a review meeting with public sector clarification from the regulator on whether it banks (PSBs) on Thursday to discuss various could offer long-term home loans that would issues, including follow up on transmission of initially have fixed rates and then move onto monetary policy rates. The government is set a floating rate structure to balance the asset- to ask PSBs to expeditiously introduce repo- liability mismatch. His comment came after rate linked products “to step up affordable the RBI had earlier this month mandated credit”, according to an agenda item of the all banks to link their personal or retail meeting.The Reserve Bank of India (RBI) had loans to floating rate linked to an external earlier this month made it mandatory for benchmark. Kumar had said there was some banks to link all their fresh retail loans to an ambiguity on fixed rate products after the external benchmark - effective October 1 - RBI’s new mandate on linking retail loan to and the central bank’s repo rate being one an external benchmark. “The RBI has not such benchmark. Following the move, banks got any formal request (to allow fixed plus such as Punjab National Bank and Allahabad floating loan rates for home loans),” a source Bank announced linking their retail loans said Wednesday. He said the central bank with the RBI’s repo rate. The finance ministry has some reservation over such products will also discuss ways in which PSBs can which are also known as ‘teaser loans’ as offer doorstep banking facility. Some PSBs they have potential to create risks in the offer doorstep banking for citizens over 70 system in future. “Such loans can push risks years of age and differently-abled customers. to a future date and that is something RBI Additionally, the ministry will discuss how is concerned about,” the source explained. banks can help customers in tracking online Earlier this month, RBI had mandated banks loan applications for retail, MSME (micro, to link all new floating rate personal or retail small and medium enterprise), housing, and loans and floating rate loans to MSMEs to vehicle loans, among others. The finance

75  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 ministry will ask the top management of become a hotly debated and often a political banks to closely monitor “loans to MSMEs, issue in recent times. While the government small traders, SHG (self-help groups) and feels the central bank is sitting on excess micro finance Institutions borrowers and capital which can be better utilized for socio- collaboration of banks with non-banking economic benefit of its citizens, critics often financial companies for co-origination of point out that it would amount to “raiding loans”. The Centre will also review the the RBI” for short-term benefits which will announcement made by the Finance Minister compromise the credibility of the central last month to mandate release of security bank. The differences between RBI and documents within 15 days of loan closure. government led to first governor Urjit Patel It is intended to help customers, especially and subsequently his deputy Viral Acharya in the corporate sector, who face difficulties resign from the central bank. To determine in applying for various clearances due to the level of excess capital of the RBI, the pending loan repayment. The ministry will government in December 2018 set up a take a stock of pooled assets of NBFCs or panel headed by Jalan with former deputy housing finance companies purchased by governor Rakesh Mohan and representatives PSBs, following a one-time credit guarantee of the finance ministry and the central of up to Rs 1 trillion announced in the Budget bank as members of the committee. The 2019-20. committee last month recommended a new Source: https://economictimes.indiatimes.com/ formula for the transfer of surplus reserves industry/banking/finance/banking/finmin-to-hold- to the government, through which the Centre review-meeting-with-public-sector-banks-on-thursday/ received a onetime payout of Rs. 52,637 crore. articleshow/71190810.cms This was well below market expectations Dated: Sep 18, 2019 and calculations by former chief economic adviser in the finance ministry Arvind • RBI Reserves Can Fund National Security Subramanian, who had claimed that the Exigencies: RBI was in possession of Rs. 4.5-7 trillion The recommendations of the panel to revise of excess reserves, which could be utilized the economic capital framework of the for recapitalizing public sector banks. Jalan central bank are not cast in stone and the in the interview said the report was not a revaluation balance accumulated due to the “constitutional activity” and only advisory depreciation of the rupee — currently left in nature. “Anybody can touch anything. It’s untouched — can be partially used to fund up to government and the RBI. The RBI can defence or security exigencies if need arises, revise its opinion. It’s not written in stone. The former governor Bimal Jalan who headed the RBI and the government may have accepted panel told Mint in an interview. “If you need the report. But if more is required, all those it in some later years, something requires options are open. If something is required to to be done, there is a defence or security be done in public interest, this report does (exigency) as it happens from time to time, not say it should not be done. Both the RBI then you can do that, next year or year after. and the finance ministry take action based All these things are open to consideration on the current situation. If circumstances depending on what the circumstances change, then the action will change,” he are,” Jalan said, RBI’s capital reserves — a added. The Jalan panel had decided not to technical issue replete with jargons—has touch the revaluation reserves-the major

76  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 portion of RBI’s capital base reflecting does not truly reflect financial resilience. nominal gain of its assets which are yet to be “The committee recognized that the RBI’s realized. Justifying its decision not to touch financial stability risk provisions need to the revaluation balances, the committee said be viewed for what they truly are, i.e., the such reserves are highly volatile, and whose country’s savings for a rainy day (a financial levels move autonomously depending on stability crisis), built up over decades, and RBI’s discharge of its public policy objectives maintained with the RBI in view of its role of maintaining price, financial and external as the lender of last resort. Its balance stability, coupled with international market sheet, therefore, has to be demonstrably developments reflected in movements in credible to discharge this function with the the price of foreign assets, exchange rate, requisite financial strength,” the panel’s interest rate and gold price. The panel said report said. Given that the government’s RBI transferring ‘what it has not received’ manoeuvrability on the recapitalization of could be seen as monetization of fiscal commercial banks or the possibility of the deficit. Trying to realize these revaluation RBI getting constrained during a financial gains would involve selling a substantial stability crisis, the committee recognized portion of the RBI’s dollar assets which the need for the RBI to maintain adequate could result in unsustainable temporary risk buffers to ensure appropriate level of rupee appreciation; compromised monetary financial resilience in such circumstances. policy stance with severe liquidity and The committee noted that about half of credit squeeze which will have an adverse the 53 central banks surveyed as a part impact on growth and stability; along of its own cross-country survey incurred with the moral hazard issue of setting the a loss at least once over the last five years precedent for using rupee depreciation because of valuation gains. Incidentally, if funding fiscal expenditure, the report said. the RBI followed this accounting approach, The Committee however was of the view it, too, would have suffered a loss, at least in that it should not concern itself with the 2004–05, 2006–07, 2009–10 and 2016–17, as issue of alternative deployment of excess valuation losses would have exceeded the accumulated revaluation balances as it RBI’s surplus in those years, according to the did not fall within the committee’s terms report. For instance, in 2006–07, 75% of the of reference. It recommended that ‘excess’ RBI’s revaluation balances were wiped out, revaluation balances, if any, should continue amounting to 1.5% of India’s GDP. In 2016– to remain on the balance sheet as risk buffers 17, the RBI’s revaluation balances fell more for market risk, till such time that they are than Rs. 1 trillion due to an appreciating realized through the sale or maturity of the rupee and cross-currency movements. “The underlying asset. The RBI’s realized equity only reason the markets, government fiscal or the component, actually determined by balance and the economy as a whole are the central bank’s management, was 7.2% of not impacted was that the RBI had sufficient its balance sheet in 2018, with revaluation risk provisioning to absorb these risks,” the balances accounting for 73% of the RBI’s committee concluded. economic capital, against 37.9% in 1997. Source: https://www.livemint.com/industry/banking/ During periods of stress and currency rbi-can-transfer-part-of-revaluation-reserves-to-govt- depreciation, the revaluation balances if-needed-bimal-jalan-1568869760024.html of central banks typically go up, and Dated: Sep 19, 2019

77  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 • Fund Houses, Kapoor In A Bind As Yes shares were to fall sharply again, then the Bank Stock Remains Under Pressure: investors will just have to take the hit,” said If you have bitten a bullet, you better chew it an analyst requesting anonymity. While too. Fund houses that have financed Yes Bank Kapoor can’t be forced to sell, investors co-founder Rana Kapoor are finding it hard to can ask him to make good the shortfall do this. Enticed by returns during good times, in collateral value. Indeed, media reports fund managers had entered into a layered suggested that Morgan Credits would repay deal that uses Kapoor’s Yes Bank shares as investor Reliance Nippon Asset Management collateral for a loan. The loan is unsecured Co as Kapoor looks to monetise stakes in since the shares were unencumbered. other companies. He also owns 3.92% stake Simply put, investors can’t force Kapoor to directly in Yes Bank. Meanwhile, the bank’s sell his share to make good a repayment. shares were down over 1% on Wednesday, Since good times seldom trigger prudence, perhaps in expectations of Kapoor selling fund houses were too happy to overlook. off shares to pay back investors. The capital But what can you expect if capricious equity markets regulator has mandated mutual is collateral for a debt instrument that funds to ensure a collateral cover of four demands disciplined repayment? Yes Bank times the loan size, but no timeline has been shares fell 5.6% today, making the lender the indicated. According to J.N. Gupta, a former biggest loser on the Nifty in the first hour of executive at Securities Exchange Board of trade. The stock has dropped a massive 75% India (SEBI), the best recourse for investors in the last five months and needless to say is to invoke pledges. Where it is not possible, has spooked everyone, including Kapoor. unfortunately, they may end up taking the Kapoor’s vehicles are Morgan Credits Pvt hit. “MFs did not anticipate these things Ltd and Yes Capital through which he owns when investments were made in innovative shares in Yes Bank. Both are in a bind now. structures. Now they will have to face the Care Ratings downgraded Morgan Credits reality,” he said. The rating downgrade of bonds to BBB- from A- on Tuesday even the shares-backed bonds will force fund though fund houses had forced Kapoor to managers to side- pocket their investments, secure the loan through pledging shares as well as demand Kapoor make good last week. Of course, this meant that the the shortfall in value. Perhaps Kapoor’s collateral value can be lowered. In February, turnaround to a willing seller of Yes Bank when Care Ratings had given A- to the bonds, shares from someone who considered them the collateral to loan ratio was 2.0. Since diamonds forever was driven partly because then Yes Bank shares have dropped 63%, of the probability of pledges being invoked. resulting in the downgrade. In the case of Yes Source: https://www.livemint.com/market/mark-to- Capital, however, the value of shares has to market/fund-houses-kapoor-in-a-bind-as-yes-bank- be 2.25 times that of the loan because there stock-remains-under-pressure-1568871414286.html is no pledge. As of August, the outstanding Dated: Sep 19, 2019 bond of Yes Capital rated by Care Ratings • RBI Asks Banks, NBFCs To Limit Sharing was Rs. 207 crore, against Yes Bank stake Of Consumers’ Credit Data: of 2.97%. The fall in the bank’s shares has brought down the cover to 2.37 times from The Reserve Bank of India (RBI) has asked as high as 4 times three months ago. “So far, banks and non-banking finance companies the cover is comfortable. But if Yes Bank (NBFCs) to restrict access to consumers’

78  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 credit data, reports The Economic Times. • Oriental Bank To Offer Retail And Small The central bank, in a letter, has asked banks Biz Loan Products Linked With Repo From and NBFCs to stop granting unregulated Oct 1: entities access to consumer data held by State-owned Oriental Bank of Commerce credit information companies, the report (OBC) on Thursday said it has launched new said. The move will impact the business retail and micro & small enterprise (MSE) model of Fintech companies. Such sharing of loan products linked to the Reserve Bank information is a violation under the Credit of India’s repo rate. The new products will Information Companies (Regulation) Act, be available to borrowers from October 1 2005 (CICRA), and the banking regulator onwards. Interest rates on these products will has warned regulated entities that it may directly be linked to an external benchmark, penalize them in case of a breach, the which in this case is the repo rate, it said in report said. The lenders have to inform the a release. The bank added that the link will central bank within 15 days if they have ensure fair and transparent transmission implemented the measures. Money-control of the monetary policy rate immediately to could not independently verify the story. The the customers, it said in a release. “All new central bank sent the letter on September floating rate loans to MSEs and retail loans 16. The following day RBI representatives offered by OBC shall have interest rate linked met the heads of four credit information to the repo rate. With the new variant, repo companies. Banks and NBFCs are required to rate-linked home loans will be available at provide details of every retail loan to all four interest rate of 8.35 per cent onwards and credit information bureaus – TransUnion loans for MSE borrowers will be available CIBIL, Equifax, Experian and CRIF High from 8.65 per cent onwards,” the bank said. Mark. As per RBI, this data is supposed to Source: https://economictimes.indiatimes.com/ be confidential. But it found that banks and industry/banking/finance/banking/oriental-bank-to- NBFCs partner with Fintech companies and offer-retail-and-small-biz-loan-products-linked-with- institutional agents, giving them access to the repo-from-oct-1/articleshow/ 71204797.cms data without consumers’ consent. “This kind of outsourcing model has been prevalent Dated: Sep 19, 2019 for a few years. These agents include online • Banks With Exposure To Poorly-Run marketplaces, IT companies, analytics firms NBFCs Will Have To Take Larger Haircuts, and institutional agents,” a source told the Warns RBI Governor: paper. This pattern of data sharing appeared Banks will have to take more haircuts while during an annual audit of some banks, the resolving the stressed loans extended to non- report stated. “The RBI sought clarity on the banking lenders who are found wanting on provisions under which the data was being the corporate governance front, Reserve shared under CICRA,” a senior executive at Bank governor Shaktikanta Das warned one of the credit information bureaus told Thursday. On the government move to have the paper, adding that this practice has been merge 10 banks to four larger ones, Das happening for years. said the amalgamations ought to be non- Source: https://www.moneycontrol.com/news/ disruptive and affirmed the central bank’s business/rbi-asks-banks-nbfcs-to-limit-sharing-of- support to ensure the same is achieved. consumers-credit-data-report-4453271.html Das’ comment on non-banking finance Dated: Sep 19, 2019

79  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 companies (NBFCs) comes at a time when the move by the government will have to banks are grappling with the resolution of be non-disruptive and normal operations, stressed cases like their over Rs 50,000 crore including lending and recovery of dud assets dues from mortgage financier DHFL. The should not be impacted because of the same. Wadhawans-promoted stressed entity was Boards of most of these 10 banks are yet to accused of corporate governance lapses in take decisions on the mergers, and the RBI the past. “(In resolving the crisis at those) will fully help to make the mergers process NBFCs which have major governance issues, as smooth as possible, Das said making it they (banks) need to take a larger haircut. clear that the issue will reach RBI only when These are business failures but there is also the boards decide formally. Das said these an element of administrative or governance banks have formed internal working groups lapses in them, “ Das said while speaking at to make the merger process smoother. an event organized by Bloomberg News here Source: https://economictimes.indiatimes.com/industry/ this evening. Das further said banks will have banking/finance/banking/banks-with-exposure-to- to take a “balanced call” while dealing with poorly-run-nbfcs-will-have-to-take-larger-haircuts- the issues of stressed loans. He, however, warns-rbi-governor/ articleshow/71207015.cms made it clear that RBI will not immediately Dated: Sep 19, 2019 resort to using recent amendments in the • RBI To Ensure Mega Bank Mergers Are statutes which empower it to take control Non-Disruptive, Shri Shatikanta Das: of an NBFC, as the first priority is be to find “market based” solutions for the same. The Reserve Bank is in discussions with The market-based solutions can involve the government to ensure that the mega promoters cutting stake, new promoters bank merger process is carried out in a coming in or securitisation of the assets non-disruptive, governor Shatikanta Das to raise resources to come out of liquidity said Friday. The critical issue is to ensure issues. He said RBI continues to monitor the that the process of transition following the 50 largest NBFCs on a continuing basis and merger should be in the most non- disruptive it will be using the powers of the amended manner, he said. Last month, the government statutes only if any need arises. It can be had announced creation of four large state- noted that the going has been tough for run banks by merging ten of them. That will many an NBFC over the last one year, since take down the number of total state-owned infra-focused sectoral major IL&FS started banks to 12 from the 19 this April. “This is an defaulting on its loans, exposing the chinks issue which is also being discussed between in the sector that contributes a fifth of the the government and the RBI so as to ensure total credit assets of the country beginning that the entire process of transition is non- last September. The IL&FS saga triggered a disruptive,” Das said at an India Today event. liquidity crisis among NBFCs immediately, The governor said the transition has to be non- but RBI refused to play its role as the lender disruptive in terms of credit disbursements, of last resort, attributing the crisis to asset loan repayments, loan collections and all liability mismanagement. NBFCs typically other functions of banking should not be depend on short-term borrowing to finance affected. Of the 10 banks getting merged, only long-term assets like home loans, which has a few of them have so far received the board led to the troubles in the sector, the RBI had mandate and none of them have moved the said. On the issue of bank mergers, Das said RBI seeking approvals.

80  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Source: https://economictimes.indiatimes.com/ fraction of the so-called global players, the industry/banking/finance/banking/rbi-to-ensure-mega- union said. But our farmers do not need bank-mergers-are-non-disruptive-shatikanta-das/ big banks, they need a bank branch in their articleshow/71218160.cms village so that they don’t have to depend on Dated: Sep 20, 2019 the usurious money lenders, it said.

• AITUC Backs Bank Officers’ 2 Day Strike Source: https://economictimes.indiatimes.com/ Against Merger Of Banks: industry/banking/finance/banking/aituc-backs- bank-officers-2-day-strike-against-merger-of-banks/ Central trade union All India Trade Union articleshow/71219681.cms Congress on Friday announced its support Dated: Sep 20, 2019 to the two-day strike called by bank officers’ unions next week to oppose the merger of • RBI Announces New Guidelines For public sector banks. Bank officers’ unions ‘Failed’ ATM Transactions: have given a strike call on September 26 In a big boost for customers making and 27. “The government’s move (to merger e-commerce payments online, banks will banks) is actually meant to create space for now have to resolve failed debit card private banking, which the AITUC is strongly transactions within five days, and UPI and opposed to. Therefore the AITUC backs wallet based transactions within one, as per the strike call and prepares for a national latest guidelines on Turn Around Time (TAT) convention of the workers to move into announced by the Reserve Bank of India action to oppose all such anti-people and on Friday. Furthermore, the central bank pro-corporate policies,” an AITUC statement has also instructed all payment operators said. Since August 30, 2019, when the to also resolve failed ATM, swipe machine government announced its plan to merge and Aadhar Enabled Payments (AEPS) 10 banks into four (third time), there have transactions within five days and IMPS been strong protests from common people, transactions in one day as well. Failure to including bank officers and employees, the resolve complaint within the stipulated statement said. Because the government is time would make these lenders liable to adamant, the officers have decided to take pay customers Rs.100 for every delayed day, their protest to a higher level: a two day the apex regulator told banks and payment strike on September 26 and 27 and indefinite system opetators in a circular posted on strike from the middle of November if the RBI website. A failed transaction is when government persists with their plan. AITUC an account gets debited but the payment is pointed out that earlier two mergers have not registered; a pain point faced by many not resulted into any tangible gains as bad customers especially while transacting loans have not come down. The merged online. “It has been observed that a large banks are not in any advantageous position number of customer complaints emanate to lend, many branches have closed, on account of unsuccessful or ‘failed’ employees have had their seniority rankings transactions,” the central bank said. “Failure completely muddled, it added. The claim that should be on account of various factors not the government wants to increase the size directly attributable to the customer such of banks to bring them on par with global as disruptions of communication links, Non players is laughable- all the PSU banks put Availability of cash in ATMs, time out of together will have their total capital only a sessions, non-credit to beneficiary’s due to

81  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 various causes, etc.” Earlier, in the absence an event, organised by CII here. SBI Deputy of a uniform guideline for addressing MD S K Varma said credit demand from the these complains, each bank had their own large corporates was “sluggish” so far in this resolution and compensation policies. RBI fiscal but a revival in near future with good governor Shaktikanta Das had pointed this monsoon is expected. He further said there out in April while making his monetary policy was “no shortage” in liquidity. In the biggest speech and initiated a consultation process consolidation exercise in the banking space, to find an adequate solution. “Rectification/ the government had announced four major Compensation paid to the customer for mergers of public sector banks, bringing these ‘failed’ transactions is not uniform,” down their total number to 12 from 27 in the central bank circular read. “After 2017. United Bank of India and Oriental Bank consultation with various stakeholders, the of Commerce will be merged with Punjab framework for TAT for failed transactions National Bank, making the proposed entity and compensation therefore has been the second largest PSB. Similarly, Syndicate finalized which will result in customer Bank will be merged with Canara Bank, while confidence and bring in uniformity in Allahabad Bank will be amalgamated with processing of the failed transactions?” Indian Bank. Andhra Bank and Corporation Source: https://economictimes.indiatimes.com/ Bank will be consolidated with Union Bank industry/banking/finance/banking/rbi-announces- of India. PSBs are under pressure to meet the new-guidelines-for-failed-atm-transactions/ capital adequacy requirements under Basel articleshow/71224066.cms III and looking at the government support Dated: Sep 20, 2019 for capital, Khara said. “Government had been supportive to capitalise these banks. • Banks’ Credit Must Grow 12 Per Cent To There is a question mark on how long this Meet $5 Trillion Economy Target, SBI will happen. Keeping this in mind, perhaps, Official: the merger has been conceived. Maybe, the The credit from banks must grow by 12 government needs to ensure that the funds per cent every year to meet the Centre’s are used as growth capital,” Khara said target to achieve a USD 5-trillion economy while replying to a question. Elaborating the within the next five years and the step benefit of merger of its associate banks with taken for mergers of the PSBs is in the SBI, he said the bank had saved Rs 4,350 right direction to meet the goal, a top SBI crore in rationalising human resources official said Friday. Supporting the move to in its branches, another Rs 1,800 crore merge the public sector banks (PSBs) by the from treasury operations and others and Union Finance Ministry, State Bank of India Rs 400 crore through reduction of cost of (SBI) MD Dinesh Kumar Khara said that resources. It helped in improving financial the merger is “well- thought of” and will positions and better ratings on the global strengthen the banking system to support benchmarks, he added. the economy to pursue USD 5-trillion target. Source: https://economictimes.indiatimes.com/ “The banks’ credit must grow by 12 per cent industry/banking/finance/banking/banks-credit-must- year-on- year to meet the goal. Now the grow-12-per-cent-to-meet-5-trillion-economy-target- banks’ credit is about Rs 98 lakh crore. The sbi-official/articleshow/ 71224159.cms decision to merge the PSBs is in the right Dated: Sep 20, 2019 direction to meet the target,” Khara said at

82  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 • RBI Hikes Loan Cap To Rs 40 Crore For Oriental Bank of Commerce will provide Small Exporters: benefits to their stakeholders and help the country to become a USD 5-trillion economy, Aiming to boost credit supply to small an official said here on Friday. Allaying exporters, the Reserve Bank Friday apprehensions of stakeholders, United Bank enhanced the loan sanctions limit qualifying of India MD and CEO Ashok Kumar Pradhan as priority sector lending by banks to Rs 40 said there will be “no retrenchment” of crore per borrower. The limit was capped at human resource of the three banks or no Rs 25 crore per borrower earlier, according voluntary retirement scheme (VRS) will to a notification. It can be noted that the RBI come in the process of merger of these and the government have been taking a slew state-run lenders. “PNB, OBC and UBI are of measures to spur economic growth, which being merged to make them a bigger force has dipped to a six-year low by taking slew and the collective efficiency of the staffs of measures. The RBI has also decided to of the three banks will help customers”, remove the existing criteria of ‘units having Pradhan said addressing a press conference turnover of up to Rs 100 crore’ as part of here after an interactive meet with the city- the changes. The changes have been done based employees and customers of the three “to boost credit to the export sector”, the banks. The merger will help the country’s central bank said in the notification. Priority economy and improve the capital base of the sector lending is a mandatory requirement lenders to take on big development projects under which lenders are required to and offer best operational facilities, Pradhan devote a portion of their advances to said, adding that there is enough liquidity in empower focused groups of the economy. the banks. With a combined capital base of All sectors put together, this adds up to 42 Rs 17.96 lakh crore as on March 31, 2019, the percent of the total lending for each bank. UBI chief said this amount would become Existing guidelines for domestic scheduled over Rs 20 lakh crore after amalgamation. commercial banks to classify ‘incremental “We will have a huge presence with over export credit over corresponding date of the one lakh workforce,” he said. He further preceding year, upto 2 percent of adjusted said that the merger will help the Centre’s net bank credit or credit equivalent amount target to achieve a USD 5-trillion economy of off- balance sheet exposure, whichever within the next five years. On the technology is higher’ under PSL will continue to be integration, he said all the three banks were applicable, the RBI said. There is no change using the same computer programme and in the present instructions in respect of both UBI and OBC are upgrading it to the foreign banks, it added. latest version used by the PNB. Responding Source: https://economictimes.indiatimes.com/ to queries whether the present account industry/banking/finance/banking/rbi-hikes- numbers of the three bank customers will be loan-cap-to-rs-40-crore-for-small-exporters/ changed after the amalgamation, Pradhan articleshow/71224528.cms said, “With the technological integration the Dated: Sep 20, 2019 account number will be changed and it will • Stakeholders To Benefit From Merger Of be done smoothly without any discomfort to PNB, UBI and OBC: the customers.” He also said some branches The proposed amalgamation of Punjab of these banks will be combined into one if National Bank, United Bank of India and they exist in the same locality while some

83  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 of them will be relocated to the uncovered The share sale has also reduced the total areas. promoter/ promoter group ownership in Yes Source: https://economictimes.indiatimes.com/ Bank to 15.7% from 18%. industry/banking/finance/banking/ stakeholders- Source: https://economictimes.indiatimes.com/ to-benefit-from-merger-of-pnb-ubi-and-obc/ industry/banking/finance/banking/rana-kapoors-stake- articleshow/71225160.cms sale-to-have-no-impact-on-growth-plans-says-yes- Dated: Sep 20, 2019 bank/articleshow/71229898 .cms Dated: Sep 21, 2019 • Rana Kapoor’s Stake Sale To Have No Impact On Growth Plans, Says Yes Bank: • No Concern To Asset Quality Post UBI, OBC Merger, PNB CEO: Yes Bank has clarified that the sale of stake by former CEO Rana Kapoor will have no The Punjab National Bank (PNB), which is impact on the bank’s plans. In a statement the anchor bank for a scheduled merger to the BSE, the bank said that its growth with the United Bank of India (UBI) and plans remain firmly on track. “The board of the Oriental Bank of Commerce (OBC), directors of Yes Bank would like to state that has said that it does not see any erosion in the financial position of the bank is sound and asset quality after the merger and the best stable, its operating performance continues HR, process and products will be chosen to be robust and its growth plans stay firmly for the consolidated entity to offer a win- on track. As has been publicly disclosed, one win situation for the combined staff and of the promoter entities of Yes Bank sold a customers of these three banks. “Everything part of its stake yesterday. This sale was relating to the merger is going on smoothly. effected purely to deleverage the debt of this We don’t foresee any challenges. Other entity,” the bank said. On Thursday, Morgan banks have done it successfully and we can Credits Pvt Ltd (MCPL), the holding company repeat that. The asset quality of PNB and the controlled by Yes Bank co-founder Rana merging banks will not at all suffer rather it Kapoor has reduced its stake in the bank by will strengthen as they will have a collective 2.3% to prepay non-convertible debentures bargaining and negotiating power with (NCDs) from Reliance Nippon Life Asset the defaulters,” Sunil Mehta, the Managing Management Co. A total of 5.8 crore shares Director and CEO of PNB told IANS. “In terms were sold at Rs 58.16 a piece to net Rs 337 of roadmaps, we have already created inter- crore which will be used to pre pay the bank committees which are interacting with debentures. The shares were sold via a block each other on the best processes, products deal in the market. “The proceeds will be and systems to be adopted for each bank and solely utilized to prepay substantial portion the best will selected for a win-win situation of outstanding NCDs of MCPL subscribed by for the customer. Similarly the best practices various schemes of Reliance Nippon. MCPL among the HR will be adopted for the staff.” had in April 2018 placed rated, zero coupon The merged entity will be operational from NCDs amounting Rs 1160 crore with Reliance April 2020. Under the consolidation, the three Nippon, the only borrowing of MCPL),” MCPL banks will be merged into one entity to make said in media statement. MCPL had made the second-largest PSB with a business of Rs total prepayments (including interest) to 17.95 lakh crore and 11,437 branches. The NCD holders of Rs 722 crore till date, ahead three banks recently got a capital infusion of the scheduled maturity date of April 2021. of Rs 16,000 crore. The OBC was earlier a

84  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Prompt Corrective Action (PCA) bank under country head of branch banking, HDFC Bank. the Reserve Bank of India (RBI) with lending, “Grameen Loan Melas allow us to do just that, management compensation and directors’ taking HDFC Bank’s entire range of products fees and branch expansion restrictions. But and services.” Residents of these rural areas in February this year, it was out of the PCA. can avail of loans to purchase tractors, The respective boards of the three banks vehicles, two-wheelers and take credit for have given in-principle approval for the agriculture purposes. They can also open amalgamation. The UBI’s Board of Directors current or savings accounts while opting for has approved in-principle a plan to raise consumer durable loans at no extra costs. upto Rs 3,000 crore via a preferential sales HDFC Bank will also offer business loans of shares. The UBI, currently under PCA, and emerging enterprise loans to small will come out of the framework because traders and shopkeepers. Furthermore, Self of bank merger. On September 19, Finance Help Groups (SHGs) can avail of finance Minister Nirmala Sitharaman met the heads through the bank’s Sustainable Livelihood of the public sector banks where the issue Initiative (SLI). Such village fairs would on the preparation of merging banks to also serve as a platform to educate the local meet the April 2020 deadline was discussed, people about banking services. “Services like along with credit offtake in retail, and home Missed Call Banking, which allow customers and personal loans. The government last to complete basic banking transactions such month announced the merger of 10 public as checking account balance, ordering a sector banks into four strong lenders with cheque book by dialling a toll free number, countrywide networks and global reach to will be showcased at the melas,” HDFC Bank boost credit and revive economic growth said in a release. The bank’s network of 5000 in the nation’s bid to become a $5 trillion branches will support those melas. Over economy in the next five years. After this, half of those branches are in rural and semi the total number of public sector banks will urban areas. “We believe initiatives such as come down from 24 to 12. these will help fulfil the changing aspirations Source: https://economictimes.indiatimes.com/ of customers in rural India, bring prosperity industry/banking/finance/banking/no-concern- to their homes and boost the rural economy,” to-asset-quality-post-ubi-obc-merger-pnb-ceo/ said Vohra. articleshow/71243441.cms Source: https://economictimes.indiatimes.com/ Dated: Sep 22, 2019 industry/banking/finance/banking/hdfc-bank-to- hold-1000-grameen-loan-melas-over-next-6-months/ • HDFC Bank To Hold 1000 Loan Melas: articleshow/71244715.cms HDFC Bank, India’s largest lender by market Dated: Sep 22, 2019 capitalisation, has planned to organise • SBI To Roll Out Co-Lending Model With 4-5 1,000 Grameen Loan Melas over the next NBFCs: six months after the finance minister asked lenders to expand credit through loan melas State Bank of India (SBI) is expected to last week. These village loan fairs will be launch a co-lending business model soon held across more than 300 districts and cover with 4-5 medium to large-sized NBFCs, an around 6,000 villages across the country official of the lender said. Once the present “We want to take banking products to the hurdles relating to the integration of doorstep of every Indian,” said Arvind Vohra, technology with the non-banking finance

85  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 companies (NBFCs) are removed, the model State Bank of India on Monday said it will of co-lending will be launched and it will adopt repo rate as the external benchmark be completely automated without manual for all floating rate loans for MSME, home intervention from on-boarding of customers and retail loans, from October 1, 2019. On to loan disbursement and monitoring, the September 4, the Reserve Bank of India SBI official said. Under the co-lending model, (RBI) had mandated all banks to link all the bank will have an exposure between 70 new floating rate personal or retail loans and 80 per cent while the rest will be borne and floating rate loans to micro, small and by the NBFCs but this arrangement will be medium enterprises (MSMEs) to an external “only” for the priority sector lending, he benchmark from October 1 onwards. “We said. “We are close to launch co-lending have decided to adopt repo rate as the financing model with NBFCs in line with external benchmark for all floating rate the Reserve Bank of India guidelines. We loans for MSME, housing and retail loans will tie-up with 4-5 medium to large-sized effective October 1, 2019,” the bank said in NBFCs and it would be finalised in 30-40 a release. The RBI gave the banks options to days,” SBI Deputy Managing Director Sujit benchmark their floating rate loans either to Kumar Varma said. It has been a year since repo rate, three-month or six-month treasury the Reserve Bank of India (RBI) laid out the bills or any benchmark market interest rate framework for co-origination of loans by published by Financial Benchmarks India banks and NBFCs in the priority sector. Co- Private (FBIL). The bank has also extended origination is a new system introduced by the external benchmark-based lending to the RBI in the wake of the liquidity crisis at medium enterprises, to boost lending to the non-banking finance companies to enhance MSME sector as a whole. It had introduced the credit flow to productive sectors. The floating rate home loans effective July 1, designated officials are looking at the tie- 2019, but has made some modifications in ups with NBFCs and the lender is weighing the scheme effective October 1, 2019, to whether the NBFCs have a robust business comply with the latest regulatory guidelines, model and technology , he said. “Entire the release said. process of co-lending business model will be Source: https://economictimes.indiatimes. automated taking from business proposal to com/industry/banking/finance/banking/sbi-to- disbursement and tracking of the account. adopt-rbis-repo-rate-as-external-benchmark/ Now, integration of technology of both the articleshow/71255005.cms bank and NBFCs is underway,” Varma said. Dated: Sep 23, 2019 He said the co-lending model would help the bank to meet the priority sector lending • RBI Panel Recommendations Credit target. Positive For Mortgage-Backed Securities: Source: https://economictimes.indiatimes.com/industry/ Moody’s Investors Service on Monday banking/finance/banking/sbi-to-roll-out-co-lending- said the 9 September recommendations of model-with-4-5-nbfcs/articleshow/71246636.cms the Reserve Bank of India’s (RBI) Housing Dated: Sep 22, 2019 Finance Committee, if implemented, will • SBI To Adopt Repo Rate As External be credit positive for Indian residential Benchmark For All Floating Rate Loans mortgage-backed securities (RMBS). It From Oct 1: said one of the recommendations is to

86  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 standardize loan servicing processes across • ICICI Bank To Set Up 450 New Branches home loan lenders to make it easier to This Fiscal: transfer loan servicing from one provider ICICI Bank on Monday said it will expand to another, if the original provider fails. its retail network by adding 450 new “The recommendation would be credit branches this financial year. Of these, the positive for Indian RMBS because it will bank has made 320 branches operational increase the likelihood that a suitable for customers and in the process, it has replacement can step in and take the place crossed the milestone of having 5,000 of a failed operator,” said Dipanshu Rustagi, branches, ICICI Bank said in a statement. an assistant vice-president and analyst Another set of 130 branches will also be at Moody’s. The RBI also recommended customer-ready by the end of the current standardizing loan documentation criteria financial year, it said. With this, the bank and establishing minimum loan eligibility has a wide network of over 5,190 branches, and disclosure requirements for RMBS deals. extension counters and automated teller “Such a move will increase transparency in machines (ATMs) across the country the Indian mortgage sector, reducing risks in and nearly half of the branches are in the underlying loans backing RMBS deals,” rural and semi-urban areas to facilitate added Rustagi. Another recommendation financial inclusion in the country, it said. is to link home loan lending rates to a “We believe that a wide branch network common external benchmark, such as continues to be important for retail the RBI’s repo rate. Moody’s said such banking. It helps deepen the relationship a correlation will mitigate interest rate with the customer by serving them a wide risk in RMBS transactions, because it will range of products and offerings,” ICICI remove the interest rate mismatch between Bank Executive Director Anup Bagchi a lender’s own benchmark rate and coupon said. More importantly, the branches offer rates. “As for the recommendation on the consultation and guidance to customers tax treatment of securitization transactions, for all kinds of banking requirements Moody’s says that if implemented, such including mortgages, business banking, a measure will support the development other loans and investments, he said. In of the Indian RMBS sector, by removing the past few years, the bank has seen uncertainty for originators and investors,” that the nature of business at branches the rating agency said in its note. The has evolved and customers are now more central bank has requested comments on keen to seek advice and guidance from the recommendations by 30 September, branches for complex transactions, loans and the central and state governments, and investments. For simple transactions, financial regulators and tax authorities will they prefer doing it over digital channels need to approve recommendations within like internet and mobile banking, it said. their purview before the changes can be Source: https://economictimes.indiatimes.com/ implemented. industry/banking/finance/banking/icici-bank-to-set-up- Source: https://www.livemint.com/industry/banking/ 450-new-branches-this-fiscal/articleshow/71258666. rbi-panel-recommendations-credit-positive-for- cms mortgage-backed-securities-1569223353508.html Dated: Sep 23, 2019 Dated: Sep 23, 2019

87  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 • PNB Housing Fin’s Effective Tax Rate To sector,” Gupta said. These measures will boost Come Down By 8-9% Points: liquidity in HFCs (housing finance companies) and shall immensely help in enhancing the PNB Housing Finance on Monday said the sector’s fund position and further strengthen company’s effective tax rate will come the asset liability management. Moreover, down by 8-9 percentage points following the the reduction in corporate tax rate will be a government’s decision to slash corporate tax big boost to the capital base and help revive rate. For 2018-19, the effective tax rate of PNB the growth and employment generation Housing Finance on consolidated basis was across all sectors, Gupta added. Stock of the 31.30 per cent. On September 20, Finance company traded 2.43 per cent down at Rs 663 Minister Nirmala Sitharaman announced on BSE. slashing the basic corporate tax rate for domestic companies to 22 per cent from 30 Source: https://economictimes.indiatimes.com/ per cent. The effective tax rate for domestic industry/banking/finance/banking/corp-tax-cut-pnb- companies reduced to 25.17 per cent from housing-fins-effective-tax-rate-to-come-down-by-8-9- 34.94 per cent inclusive of surcharge and points/articleshow/71258889.cms cess. “Considering the tax reductions per the Dated: Sep 23, 2019 announcement, the expected reduction in • PSB Strike, Weekend To Hamper Cash the effective tax rate for PNB Housing can be Withdrawals: anywhere between 8-9 per cent,” it said in a regulatory filing. As per the government’s Customers of Public Sector Banks (PSBs) are latest investment boosting measure, new likely to face hassles in cash withdrawals at manufacturing companies that start bank branches and ATMs, as an impending production on or before March 31, 2023 and bank strike is going to coincide with planned are incorporated on or after October 1, 2019 monthly non-working day and the weekend. will have an option to pay tax at 15 per cent if A strike called by state-run lenders’ unions they do not avail any exemption/incentive. The against the mega PSB merger will commence effective tax rate for such companies will be on September 26, Thursday, and end on 17.01 per cent, inclusive of surcharge and cess. September 27, Friday. This strike, along This is a very positive move and is expected with the planned monthly non-working day to result in enhanced economic activity along of fourth Saturday on September 28 and with the reduction in tax rates, PNB Housing Sunday on September 29, will effectively Finance said. Company’s Managing Director shut PSB operations for four consecutive Sanjaya Gupta said a slew of measures have days. The strike call has been given by four been taken by the government to revive officers’ unions of the banking industry All the economy and housing finance sector. India Bank Officers’ Confederation (AIBOC), “This includes measures like relaxation in All India Bank Officers’ Association (AIBOA), minimum holding period to six months for Indian National Bank Officers Congress securitization, additional liquidity support to (INBOC) and National Bank Officers’ NHB for further lending to HFCs, on-lending of Organization (NOBO). housing loans up to Rs 20 lakh to be qualified Source: https://economictimes.indiatimes.com/industry/ under PSL (priority sector lending), relaxation banking/finance/banking/psb-strike-weekend-to- in ECB end use and fund for real estate sector, hamper-cash-withdrawals/articleshow/71262947.cms which are all positive for housing finance Dated: Sep 23, 2019

88  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 • Bank Unions Defer 2-Day Strike; the second largest public sector bank Operations To Be Normal On September (PSB). Syndicate Bank is to be merged with 26-27: Canara Bank, while Allahabad Bank will be merged with Indian Bank. Andhra Bank and In view of the consideration of the positive and Corporation Bank will amalgamate with the workable solution by the Finance Secretary, Union Bank of India. Earlier this year, Bank the 48 hours strike stands deferred, the of Baroda merged Vijaya Bank and Dena joint statement by the unions said. Officers’ Bank with itself to become the second largest unions of public sector banks have deferred public sector lender. SBI had merged five of the proposed two-day strike following an its associate banks - State Bank of Patiala, assurance from Finance Secretary Rajiv State Bank of Bikaner and Jaipur, State Bank Kumar to look into their concerns. Four of Mysore, State Bank of Travancore and unions of bank officers had threatened to State Bank of Hyderabad and also Bhartiya go on a two-day strike from September 26 to Mahila effective April 2017. protest against the consolidation of 10 state- run lenders into four. “Finance Secretary Source: https://economictimes.indiatimes.com/ Rajiv Kumar was positive in formation of industry/banking/finance/banking/bank-unions- a committee consisting of all concerned to defer-2-day-strike-operations-to-be-normal-on- address the issues arising out of the proposed september-26-27/articleshow/71264985 .cms merger of 10 banks including preserving Dated: Sep 23, 2019 the identity of all the banks. An appeal was made to us to revisit our strike call in • RBI Enforces Restrictions On PMC Bank, view of the discussions,” a joint statement Customers Clamor For Their Deposits: said issued on Monday. In view of the Chaos reigned outside the Sion branch of consideration of the positive and workable the Mumbai-based Punjab and Maharashtra solution by the Finance Secretary, the 48 Cooperative Bank (PMC Bank) on Tuesday hours strike stands deferred, it said. As a as depositors thronged to withdraw their result, normal banking activity would not be money after the Reserve bank of India put affected. The Indian Banks’ Association (IBA) restrictions on the bank. Police personnel had informed SBI that the All India Bank were seen manning the gate of the branch to Officers’ Confederation (AIBOC), All India ensure that the crowd doesn’t turn violent. Bank Officers’ Association (AIBOA), Indian Meanwhile, branch officials were replying National Bank Officers’ Congress (INBOC) to queries, trying to assuage concerns of the and National Organisation of Bank Officers harrowed customers. While the bank has (NOBO) had given a call for a pan-India stopped all transactions, they are allowing strike by bank employees on September 26 customers to take out their belongings from and 27, 2019. The government on August the locker in lots. Meanwhile at the bank’s 30 announced its mega consolidation plan Marol branch, the crowd comprising mostly to bring the down the total number of elderly people turned violent, threatening PSBs to 12 from 19 in 2017 in a bid to make to detain bank officials at the branch. The them global-sized banks. As per the plan, crowd had ‘gheraoed’ the branch manager, United Bank of India and Oriental Bank of seeking clarity on their deposits. “We have a Commerce are to be merged with Punjab marriage in the family and all our deposits National Bank, making the proposed entity are in a single account with the bank,” said

89  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 one of the depositors. Satish Maruti Patik, a non-performing assets as a percentage of 44-year old customer of the bank for the past total assets stood at 3.96% and overdues 20 years, said, “My Rs. 60 lakh is stuck with at Rs. 331 crore. “As the MD of the Bank, I the bank. I had deposited Rs. 2 lakh just two take the responsibility and assure all the days ago. The bank is saying we could get depositors that these irregularities will be the money back in 1 month or 2 months or rectified before the expiry of 6 months. All even 6 months. But I wonder if we will get efforts are made to remove the restrictions our money back at all,” he said. Like Patil, Rs. by rectifying the irregularities,” Thomas 11,000 crore worth of depositors’ money is assured. stuck at the urban-cooperative bank for the Source: https://www.livemint.com/industry/banking/ next few months. In a statement issued late rbi-enforces-restrictions-on-pmc-bank-customers- on Monday, the Reserve Bank of India (RBI) clamour-for-their-deposits-1569318235460.html restricted withdrawal of money from the Dated: Sep 24, 2019 customers’ account to Rs. 1000 for six months, “According to the directions, depositors will • Demand For Vehicle Loan Shrinks: be allowed to withdraw a sum not exceeding Rs. 1,000 of the total balance in every savings Bank loans to finance vehicle purchases in bank account or current account or any India has slipped to 4.9% year-on-year at other deposit account by whatever name the end of July, less than half of the growth called, subject to conditions stipulated in recorded in the year-ago period, indicating the RBI Directions.” The RBI, however, said a slump in demand for cars and trucks the issue of directions to PMC Bank should which is in sync with the overall private not be construed as cancellation of banking consumption slowdown. The automobile licence by the central bank. PMC Bank can sector contributes 6.5% to India’s gross continue to undertake banking business with domestic product with strong backward restrictions till further notice/instructions linkages with sectors such as steel, plastic, from RBI. The Reserve Bank may consider rubber and auto parts. According to Reserve modifications of these directions depending Bank of India’s latest data, the slowdown upon circumstances. The restrictions will in demand has been more pronounced in remain in force for a period of six months the first quarter of FY20 with outstanding from the close of business of the bank on retail vehicle loans shrinking 0.9% to Rs 23 September, said RBI. Further, according 200419 crore from Rs 202154 crore at the to the RBI’s restrictions, PMC Bank will also end of March. Last year, same period, banks’ not be able to grant or renew any loans and vehicle loans grew 11.2%. “Fall in vehicle advances, make any investment, incur any loan is due to lower auto sales. We don’t liability including borrowing of funds and see much substitution by NBFCs as they accept fresh deposits, disburse or agree to also have problems,” said Madan Sabnavis, disburse any payment whether in discharge chief economist at CARE Ratings. “Demand of its liabilities and obligations, without remains low due to lower income growth prior approval in writing from the central and slow job creation, besides onerous new bank. The bank’s managing director Joy registration and insurance norms,” he said. Thomas said the lender has been put under Interestingly, banks loans to vehicles, vehicle restriction due to irregularities disclosed to parts and transport equipment sector grew RBI. According to March end data, the bank’s 10.2% year-on-year to Rs 82728 crore. State

90  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Bank of India’s group chief economic advisor the past six months amid tight economic Soumya Kanti Ghosh said in a report last conditions and some lumpy loans to real month that consumption slowdown is more estate companies located in the financial entrenched and has dipped by Rs 1.5 lakh capital that turned sour, making it difficult crore in the first quarter compared with the for the bank to meet its commitments, two preceding March quarter. The private final people familiar with the matter said. The consumption expenditure has slumped to sudden freeze ahead of the festival season 3.1% in Q1, the weakest level since Q3FY15 is set to upset calculations of customers when it grew by a mere 2%, according and deal a big blow to a state that is heavily to State Bank of India’s economic report reliant on the cooperative bank structure to released on August 30. In a separate report, service millions of customers in its villages. Ghosh said the slowdown in the automobile The development comes at an awkward time sector is not just restricted to India but is for the state government in Maharashtra, spread across other nations. “Studies done the BJP, and other political parties such as in the sector show that auto sales in Asia- the NCP and the Congress, which are known Pacific are expected to fall 2-3.5% this year to have a strong support base among the after declining roughly 1% in 2018. Besides customers of cooperative banks. The state India, China, Indonesia, Malaysia are also goes to polls in October. “Depositors will be going through auto slowdown,” the report allowed to withdraw a sum not exceeding Rs said. Auto sales in the Asia-Pacific, estimated 1,000 of the total balance in every savings at around 43-44 million vehicles in the bank account or current account,” RBI said previous year, are expected to drop 2-3.5% in a statement. “Without prior approval in this year. Even in Germany, automobile writing from the Reserve Bank, (PMC Bank) production dipped 12% in the first half of the will also not be able to grant or renew any year, owing to decline in car sale in the US loans and advances, make any investment, and Canada. incur any liability including borrowal of Source: https://economictimes.indiatimes.com/ funds and acceptance of fresh deposits,” the industry/banking/finance/banking/demand-for-vehicle- statement said. PMC’s collapse is unlikely to loan-shrinks/articleshow/71282208.cms impact financial markets or other private or public sector banks as co-operative banks Dated: Sep 24, 2019 have meagre dealings in money markets as they largely depend upon deposits. Savings • RBI Imposes Restrictions On PMC Bank, of up to Rs 1 lakh is guaranteed by the Withdrawal Restricted To Rs 1,000 Per deposit insurance but anything beyond that Account: would be repaid depending on the recovery The Reserve Bank of India has ordered under the RBI-appointed administrator. “I Punjab and Maharashtra Co-operative would like to tell the public that there is no (PMC) Bank not to do any business for six need to get panicky because we have DICGC months and capped depositor withdrawals (Deposit Insurance and Credit Guarantee at Rs 1,000, throwing the lives of thousands Corporation) cover through which deposits of traders, self-employed and daily wage of up to Rs 1lakh are covered,” JB Bhoria, earners into disarray. The regulator has the RBI-appointed administrator told ET also appointed an administrator for the Now. “Besides, we have our own assets bank. Defaults appear to have surged in which are liquid. We are trying our best

91  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 to sort out the situation. Prima facie there unilaterally, it suggests a plan of action to appears to be some NPAs, but I am told the state government and leaves it to the that they are all secured by the assets…” discretion of the state on whether the lender The collapse appears to have been sudden should continue to operate or wind up. and is shrouded in mystery with the bank “PMC Bank has been put under regulatory management voluntarily approaching the restriction under Section 35A of the Banking regulator to initiate the action instead of Regulation Act for a period of six months the regulator initiating the process which is due to irregularities disclosed to RBI,” the practice. “Normally, the RBI initiates the the bank’s managing director Joy Thomas action after a regulatory supervision exposes said in a message to depositors. “I take wrongdoing and if it feels that the financials responsibility and assure all the depositors are weak for it to continue,” said a person that these irregularities will be rectified familiar with operations. “Here, the bank in six months. I know it is a difficult time came to the RBI and demanded that it freeze for all of you. We assure (you) that we will the business so that things could be brought definitely overcome this situation and stand back to order, if at all it could.’’ Industry strong.” PMC Bank, a cooperative bank with experts say there were also mismatches 137 branches and at least 51,000 members between the data uploaded on the RBI server spread over seven states including Delhi and manual entry data maintained by the and Punjab, has deposits of about Rs 11,617 bank. Speculation was rife that the bank crore, making it among the country’s top had an exposure of Rs 400 crore to one of five urban co-operative banks. Its bad loans the real estate firms, HDIL, which filed for almost doubled to 3.76% of gross advances bankruptcy recently. PMC Bank’s chairman by March 2019, from 1.99% a year earlier. S Waryam Singh was on the board of HDIL PMC Bank’s membership shrunk to 51,000 in in 2015. Customers took to Twitter to express March this year from 62,000 a year earlier. their disappointment. “And what should the account holder do on receiving this message. Rs 1,000 is all that we can withdraw over 6months. We stopped keeping cash at home because you encouraged online transaction and now we can’t even withdraw our own hard-earned money,” tweeted Amruta Lokhande, a depositor with the bank. Cooperative banks are the weakest link in the financial system with their supervision and administration falling within the purview of both state governments and the RBI. At the end of March 2019, 1,542 urban cooperative banks were operating in the country, out Source: https://economictimes.indiatimes.com/ of which 46 had negative net worth and 26 industry/banking/finance/banking/rbi-bars-punjab- were under RBI administration. The year maharashtra-co-op-bank-from-business-transactions/ before, 39 had negative net worth and 20 articleshow/71271849.cms were under RBI administration. While Dated: Sep 25, 2019 the central bank cannot take any action

92  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 • As NPA Resolution Crawls, Banks Stare At which include credit cards, education loans Spike In Credit Cost: and personal loans have seen a moderation to 18 percent over FY19. The agency believes With slower pace of resolution of bad loans, that the slowdown in the near-term can banks are staring at a spike in their credit partially be offset by market share gains for cost, which is set to rise in the range of 1.9- banks in the overall retail segment as NBFCs 4.6 percent for the second half of the current are still facing deep liquidity challenges. The fiscal, says report. In its earlier assessment, report expects the Rs 70,000 crore capital India Rating had estimated the system-wide immediate allocation for public sector banks credit cost floor at 1.9 percent and capped to be adequate to provide for existing stress, it at 4.4 percent for the second half of FY20. given the slow pace of corporate stressed “Given that the pace of resolutions has resolutions. The agency sees return on assets slowed down significantly since then, credit of state-run banks & their private sector cost is expected to be marginally higher peers is expected to increase by up to 10 bps than earlier estimate, while the floor will be and 30 bps, respectively, as a result of the cut irrelevant. On a bottom-up basis, credit cost in corporate taxes. is set to rise to 4.6 percent for the system in H2,” an India Rating report said Tuesday. For Source: https://economictimes.indiatimes.com/ the second half, it has revised upwards the industry/banking/finance/banking/as-npa-resolution- credit cost estimate for state-run banks by 30 crawls-banks-stare-at-spike-in-credit-cost/ basis points to 5.2 percent, while for private articleshow/71281336.cms sector banks it is pegged at 3.2 percent-at the Dated: Sep 25, 2019 same level as the previous estimate. “Any pick up in stressed asset resolutions may • Bank Loans Contract For Second Time In result in lower net credit cost,” it added. Two Years This August: The agency said material incremental Bank loans contracted for the second time NPA generation for fiscal 2020 and 2021 in three years in April-August by nearly may come from the agriculture and MSME a percentage point or over Rs 90,000 sectors. With the RBI giving forbearance crore reflecting the low credit demand to MSMEs until March 2020, some of the and caution by banks after bankruptcy incremental stress in this segment can show laws came into play to resolve bad loans. up in FY21, unless the economy picks up, Incremental bank loans between April and the report said. Muted rural income growth, August this year contracted by Rs 91030 along with announcements or expectations crore, compared to a growth of Rs 1.5 lakh of farm loan waivers continue to weigh crore in the same period a year ago, latest on asset quality of farm loans. The agency Reserve Bank of India data showed. “It is remains cautious on the retail loans where reflective of two things. One, companies are some banks have increased provisioning as not borrowing much due to low investment” a precautionary measure following reports said Madan Sabnavis, chief economist at of rising delinquencies. “We believe there Care Ratings. “Second, banks are not keen will be further moderation in retail loans to lend to industry and prefer retail, where in FY20, given the consumption slowdown there is an improvement. Overall, it reflects across segments including housing and auto,” low growth tendencies” An analysis of the the report said. Even the unsecured loans, loan growth pattern during April-August

93  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 over the last ten years shows that credit • Indian Bank To Link Retail & MSME Loans contraction in the period are rare, excepting To RBI’s Repo Rate From October 1: April- August 2017, when it contracted by State-owned Indian Bank on Wednesday Rs 92,700 crore. This implies that, after said it has decided to link all new floating the enactment of bankruptcy laws in 2016, rate retail as well as MSME loans with the enabling banks quicker resolution of bad Reserve Bank of India’s (RBI) repo rate, loans, lenders have been cautious extending effective October 1. The RBI has mandated loans. “Bank balance sheets tend to spike up all banks to link their loans with external in March and September end. Post-March, benchmarks, such as repo, aimed at faster we typically have a contraction through transmission of rate cuts effected by it to the lean season. September end is when we consumers. “In conformity with the RBI should see a busy season spike,” said Ananth guidelines dated September 04, 2019, on Narayan, assistant professor of finance at S External Benchmark Based Lending, the P Jain Institute of Management Studies. “I bank has decided to link all new floating think what is worrisome is the dip in the rate loans to personal or retail segment and year-on-year growth numbers, which are new floating rate loans to micro and small more comparable” he added. NBFC lending enterprises (MSE), to Reserve Bank of India has dipped last September after the crisis at policy Repo Rate with effect from October 1, infra-lender IL& FS was unearthed. Overall 2019,” according to a BSE fling. Several banks, bank lending on an year-on-year basis has including State Bank of India, have already actually dipped, both in percentage terms announced to link their loan products with to 10.2% from 13.4 percent in the same external benchmarks from next month. period a year ago, as well as in absolute Source: https://economictimes.indiatimes.com/ terms to Rs 9lakh crore, compared to Rs 10.4 industry/banking/finance/banking/indian-bank-to-link- lakh crore the year ago. “This is probably a retail-msme-loans-to-rbis-repo-rate-from-october-1/ combination of both the general economic articleshow/71300031.cms slowdown, as well as banks reluctance to open the spigots,” Narayan said. But the sops Dated: Sep 25, 2019 that the government announced on Friday, • PMC Says Has Enough Liquidity, including a steep reduction in corporate Depositors’ Money Fully Safe: taxes aimed at reviving the economy, Allaying fears of the depositors and customers, could lift credit demand. “I think the next Punjab & Maharashtra Cooperative Bank two-three months will be interesting and (PMC), which is under RBI management critical. Need to see if lending picks up, now, said it has enough liquidity to meet all post the slashing of the corporate tax rates liabilities and every penny of the public is and the promise of shamiana banking into secure. Asserting that all its loans are fully Diwali” Narayan said. secured, the management admitted that one Source: https://economictimes.indiatimes.com/ large account-HDIL--is the sole reason for industry/banking/finance/banking/bank-loans- the present crisis leading to the regulatory contract-for-second-time-in-two-years-this-august/ action Tuesday when RBI superseded articleshow/71294996.cms its management and placed it under an

Dated: Sep 25, 2019 administrator for the next six months. The regulator has also capped cash withdrawal at

94  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Rs 1,000 per customer during this period and HDIL for sell of its assets and recover the also banned the bank from any fresh lending dues. “We have been working with HDIL during this period. Though the bank’s now for the past many months and we know suspended managing director Joy Thomas they are in advanced stages of monetizing did not disclose the exposure to HDIL, which their assets. That’s why we are saying that he described as the largest and one of the we will be out of the problem soon,” he oldest customers, he said all other accounts said. Describing HDIL as an old customer are safe and fully-secured. “All other loans and the largest and has been supporting are more than fully-secured and there is no the bank for years, Thomas said, “when we need for any customer to panic,” Thomas told were a single unit bank, they supported us, in an interview Wednesday evening. “We they also supported us when we were facing have enough liquidity and back-up securities problems. When nobody was depositing for all what we have lent. As a cooperative even a penny with us, they had put in Rs 13 bank, we never do unsecured lending and lakh way back in 1988. “Nearly 40-50 percent our loan coverage ratio has always been of our turnover used to come from them 100-110 percent,” Thomas said. He said the only. We have earned a lot of profit from bank has a cash liquidity of around Rs 4,000 them...otherwise how can a young bank like crore in the form of SLR (statutory liquidity ours would have grown and come among the ratio) and CRR or cash reserve ratio, while top five,” he averred. Thomas said HDIL has its liabilities are around Rs 11,600 crore. One been facing problems for the last three-four of the reasons for the RBI action is the highly years after they had lost some of the projects, under-reported NPAs, which according to including the their key slum rehabilitation sources are in high double-digits, while as projects near the Mumbai airport and other per its FY19 balance sheet, it stood at a low bankers stopped lending to it. However, he 2.19 percent, which though was more than exuded confidence that the bank will be out double of 1.05 percent in FY18. Thomas of the regulatory restrictions much ahead of admitted that the problem rose because the RBI’s six months period, say in two-three of under-reporting of NPAs from the HDIL months. He said the focus is to safeguard account. The slum redevelopment company, the interest of small depositors as it is the which has landed in cash crunch, has festive season and they would want money. already gone to the bankruptcy now, has “We have already approached the RBI for been delaying payments for the past few increasing the withdrawal limit to Rs 15,000. years. “The divergence was only on HDIL. We have enough liquidity to serve that There was a difference between what we demand,” Thomas said. were reporting and what the actual numbers Source: https://economictimes.indiatimes.com/ were. There was a delay on repayment for industry/banking/finance/banking/pmc-says-has- the last two-three years and we have been enough-liquidity-depositors-money-fully-safe/ under-reporting that,” Thomas admitted. He, articleshow/71300348.cms however, declined to quantify its exposure Dated: Sep 26, 2019 to HDIL, saying the loan is fully-secured. • Bank Credit Grows By 10.26%, Deposits Explaining that the problem is the delayed 10.02%: repayments by HDIL, he is sure of returning to normalcy sooner than later as the loan is Bank credit and deposits grew at 10.26 per fully-secured and the bank is in talks with cent and 10.02 per cent to Rs 97.01 lakh crore

95  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 and Rs 127.22 lakh crore, respectively, in the funds and LVB was at the center of it,” said fortnight ended September 13, according to the complaint, which was filed against the the recent RBI data. In the year-ago fortnight, directors of Lakshmi Vilas. The directors banks advances were at Rs 87.98 lakh crore face charges of cheating, breach of trust, and Rs 115.63 lakh crore. In the previous misappropriation and conspiracy, Chennai- fortnight ended August 30, 2019, bank loans based Lakshmi Vilas said in a statement increased by 10.24 per cent to Rs 96.80 lakh filed to the Bombay Stock Exchange and crore and deposits by 9.73 per cent to Rs the National Stock Exchange of India on 127.80 lakh crore. In July, the non-food bank Thursday, adding it was considering taking credit increased by 11.4 per cent on year- “appropriate legal measures.” The bank’s on-year (y-o-y) basis, as compared with an shares fell nearly 5% on Friday. Reuters was growth of 10.6 per cent in July 2018. Advances not immediately able to contact the directors to the services sector decelerated to 15.2 per of Lakshmi Vilas Bank or RFL for comment. cent in the month from 23 per cent in the It was unclear how many directors were year-ago period. Credit to agriculture & allied under investigation. The police investigation activities rose by 6.8 per cent as compared is occurring as the domestic banking sector with an increase of 6.6 per cent in the same has been roiled by defaults from housing month last year. Loans to industry were up finance companies and the central bank has by 6.1 per cent in July 2019 as compared taken charge of a leading co-operative lender with an increase of 0.3 per cent. Personal this week. India’s banks are also grappling loans increased by 17 per cent in July 2019 as with roughly $150 billion in stressed assets compared with an increase of 16.7 per cent in and the country’s non-banking finance July 2018, RBI data had shown. companies are struggling with liquidity Source: https://economictimes.indiatimes. pressures. Lakshmi Vilas said earlier this com/industry/banking/finance/banking/bank- year it would merge operations with housing credit-grows-by-10-26-deposits-10-02-rbi-data/ finance firm Indiabulls Housing Finance Ltd articleshow/71317382.cms (IBHF) in a share-swap deal. Indiabulls did Dated: Sep 26, 2019 not immediately respond to a request for comment on potential implications for the • Lakshmi Vilas Bank Directors Probed For merger. One source at Lakshmi Vilas, who Alleged Fraud: asked to remain anonymous, said the merger The police have opened a probe into the would not be affected by the investigation. directors of Lakshmi Vilas Bank after a “RFL had first raised the issue in May 2018 customer accused them of misappropriating and the merger talks started well after that. funds, the bank said late on Thursday. As a result they are aware about it and it Indian financial services company Religare shouldn’t derail the talks,” the source said. Finvest (RFL) has accused Lakshmi Vilas IBHF did not immediately respond to a of misappropriating Rs 790 crore ($111.4 request for comment. Its shares were trading million) it kept with the bank as a fixed 3% lower on Friday. deposit, according to a copy of a complaint Source: https://economictimes.indiatimes.com/ filed with the Economic Offences Wing of industry/banking/finance/banking/lakshmi- the New Delhi police that was reviewed by vilas-bank-directors-probed-for-alleged-fraud/ Reuters. “It appeared that there was a wider articleshow/71332285.cms conspiracy to illegally misappropriate RFL’s Dated: Sep 27, 2019

96  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 • RBI Initiates Prompt Corrective Action lending to corporates and focus on reducing For Lakshmi Vilas Bank After Directors the concentration of loans to certain sectors. Probed For Alleged Fraud: They are also restricted from opening new The Reserve Bank has initiated Prompt branches and paying dividends. Banks Corrective Action (PCA) against Lakshmi currently under PCA are United Bank of Vilas Bank (LVB) due to high level of bad India, Indian Overseas Bank, Central Bank loans, lack of sufficient capital to manage of India, IDBI Bank and UCO Bank. LVB’s risks and negative return on assets for two Chief Executive Parthasarathi Mukherjee consecutive years, the private sector lender had quit in August citing personal reasons. said on Saturday. The RBI move comes amidst Based on a complaint by financial services the Delhi Police’s Economic Offences Wing company Religare Finvest Ltd (RFL) which registering a complaint against the board of accused the bank of misappropriating LVB alleging cheating and misappropriation Rs 790 crore it kept with the lender as a of funds. The regulatory action may cast fixed deposit, the Delhi Police’s Economic doubts over the proposed merger of Offences Wing (EOW) had on September 23 Indiabulls Housing Finance with LVB, registered a first information report (FIR) which is awaiting RBI nod. The Delhi High against directors of the bank for alleged Court on Friday agreed to hear a petition cheating, criminal breach of trust, criminal alleging Indiabulls gave loans worth crores misappropriation and criminal conspiracy. of rupees to shell companies. In a regulatory Calling the move a “desperate measure”, filing, LVB said RBI has taken the action “on the private lender had on Friday stated that account of high net NPAs, insufficient Capital the registration of the police complaint does to Risk (Weighted) Assets Ratio (CRAR) and not mean anything at this stage and that the Common Equity Tier 1 (CET 1), negative bank will cooperate with the investigating return on assets for two consecutive years agencies and regulatory authorities. “The and high leverage.” PCA was initiated after bank is committed to cooperate with the an on-site inspection, under the risk-based investigating agencies and regulatory supervision, was carried out for the year authorities apparently in order to bring out ended March 31, 2019. “RBI has also advised the malicious attempts of RFL to mislead the the Bank on the restrictions put in place and public to cover up massive fraud indulged the actions to be taken by the Bank, which by their own promoters, employees, group the Bank has taken note of for necessary companies,” it had said. compliance, with progress to be reported on Source: https://economictimes.indiatimes.com/ a monthly basis to RBI,” it added. For FY19, industry/banking/finance/banking/rbi-initiates- the bank’s net NPA stood at 7.49 per cent, prompt-corrective-action-for-lakshmi-vilas- capital adequacy ratio was at 7.72 per cent bank-after-directors-probed-for-alleged-fraud/ and its return on assets was (-) 2.32 per articleshow/71346862.cms cent. It had reported a net loss of Rs 894.10 Dated: Sep 28, 2019 crore for 2018-19. PCA is aimed at improving • FSDC Mulls Upon Revisiting Laws To the performance of the bank and will not Detect Early Signals Of Instability: have any adverse impact on the day-to-day operations, including acceptance/repayment The FSDC meeting was chaired by Reserve of deposits in the normal course, LVB said. Bank Governor Shaktikanta Das and Under PCA, banks are mandated to cut attended by members of the Sub-Committee.

97  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 The Financial Stability and Development to complete a debt resolution plan quickly Council (FSDC) of the RBI on Friday reviewed so that fresh funds start flowing in, sources recent developments in global and domestic said on Sunday. “The banks led by SBI, economies and deliberated upon revisiting are expected to move quickly to complete some existing laws to detect early warnings the debt resolution proposal so that fresh of instability. The FSDC Sub-Committee lending starts to move into the company and discussed measures to promote interest turnaround of a systemically large retail and competition in stressed asset markets, financial enterprises is done smoothly,” they enhance the scope of Legal Entity Identifier said. Earlier on Saturday, the company had (LEI) to more effectively monitor group announced the appointment of Vaijinath exposures and issues relating to credit rating MG, a former Chief General Manager of State agencies and audit quality. “The Council also Bank of India as its CEO, and also floated draft mulled upon the role of credit rating firms debt resolution plan according to which, it and stressed asset market development. has assumed a price of Rs 54 per share for The role of credit rating firms has been debt conversion into equity by lenders to under the RBI and the SEBI scanner after a acquire 51 per cent in the company. The spate of defaults by highly rated companies, plan is subject to approval of investors especially non-banking finance companies and bankers. After the appointment of (NBFCs). “The Sub-Committee also the CEO, the firm is set to get a CFO and deliberated upon measures to strengthen additional nominee directors on board, the systems against frauds and to revisit the sources said. The company wants to have framework for early warning signals,” said a timely execution of the debt resolution a statement from the Reserve Bank of India. plan, and especially the promoters have The meeting was chaired by Reserve Bank shown resolve and commitment over the Governor Shaktikanta Das and attended by last few months, they added. The debt- members of the Sub-Committee. Though laden housing finance company has sold not a statutory body, the FSDC is India’s its strategic investments, even in core retail initiative to strengthen and institutionalise financial services firms like Avanse, Aadhar, the mechanism of maintaining financial DHFL Pramerica AMC to bring liquidity. stability, financial sector development and DHFL said, the company, in the past 12 inter-regulatory coordination along with months has repaid obligations of nearly Rs monitoring macro-prudential regulation of 45,000 crore, which is nearly 40 per cent of economy. No funds are separately allocated its current balance sheet size. The company to the Council for undertaking its activities. is expecting consent of its shareholders by Source: https://economictimes.indiatimes.com/ Monday for expanding the board capacity industry/banking/finance/banking/fsdc-mulls-upon- to induct additional nominee director/s. revisiting-laws-to-detect-early-signals-of-instability/ Once these take place, the company will be articleshow/71349640.cms run by the team of professionals including Dated: Sep 28, 2019 the chief experience officers (CXOs) already in place and the management will report • DHFL Lenders Led By SBI Expected To to the board. As on July 6, 2019, company’s Complete Debt Resolution Plan Quickly: total debt outstanding was Rs 83,873 crore of State Bank-led lenders of crisis-hit Dewan which Rs 74,055 crore is secured loans and Housing Finance Ltd (DHFL) are expected Rs 9,818 crore unsecured.

98  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Source: https://economictimes.indiatimes.com/ Urban cooperative banks are divided into two industry/banking/finance/banking/dhfl-lenders-led-by- tiers based on their area of operation. While sbi-expected-to-complete-debt-resolution-plan-quickly/ only 31% of them are in tier-2 category, they articleshow/ 71361267.cms account for more than 85% of deposits and Dated: Sep 29, 2019 advances. Many small cooperative banks and cooperative societies also keep their deposits • The Co-Op Crisis, How 1,500-Odd Urban in large urban cooperative banks. Agarwal Cooperative Banks Are Being Run And says the urban cooperative banks often Regulated: offer slightly higher interest rates than state- Last Friday, no one turned up to deliver run banks and aggressively seek deposits milk at Avillion Greenfields, a cooperative from housing societies. “The biggest worry housing society in Mumbai. The delivery is that this [crisis at PMC Bank] can have a boys were apparently unable to withdraw cascading effect,” says Arvind Khaladkar, enough cash from their bank to buy milk who during his time as chairman of Pune- supplies. Their savings are currently stuck based Janata Sahakari Bank, was credited at Punjab Maharashtra Cooperative (PMC) with turning around the cooperative lender. Bank, which has been put under restrictions He says nearly 130 smaller banks have by the Reserve Bank of India for refusing to deposits at PMC Bank, and if the lender is recognise its bad loan situation. Withdrawals unable to return their money, all these small from bank accounts have been restricted. banks will have to mark their deposits as It’s not just the milk boys. Raju Agarwal, civil NPAs. “Cooperative banks operate on thin contractor who lives in Avillion Greenfields, margins and this NPA will mean they will has fixed deposits of nearly Rs 50 lakh in all be in loss, triggering a wider crisis,” the the same urban cooperative Bank. Even the retired banker told ET Magazine. Soon after two Avillion Greenfields housing societies at the RBI appointed an administrator for Jogeshwari East together have deposits of PMC Bank last Tuesday, angry depositors nearly Rs 3.5-crore in the crisis-hit lender. gathered outside different branches to “Nearly 200 residents in our complex have get their money out. By Thursday, RBI deposited money in PMC Bank. And for the increased the cash withdrawal limit from Rs last few days, there has been a pall of gloom 1,000 to Rs 10,000. Meanwhile, several first all around,” Agarwal, 57, tells ET Magazine. information reports have been filed against The lender, with deposits in excess of Rs the bank’s top management. On Friday, even 11,000 crore, appears not to have adequately as the bank’s deposed managing director Joy reported the size of its non-performing Thomas held a press conference in Mumbai, assets, especially a Rs 2,500 crore exposure assuring safety of deposits, many of the to real estate company HDIL Group, which depositors met near a branch in Andheri to has been taken to the bankruptcy courts by discuss how to bring the management and creditors. The plight of PMC Bank depositors the board to book. While all the focus is now across Maharashtra, Karnataka, Goa, on PMC Bank, Khaladkar refers to a larger Gujarat, Andhra Pradesh, MP and Delhi and issue — of how cooperative banks struggle the impunity with which its officials flouted to invest the funds raised as deposits and norms raises questions about management end up extending risky loans. “At one time, of all 1,500-odd urban cooperative banks PMC Bank had lower deposits than Janata with total deposits of nearly Rs 4.5 lakh crore. Sahakari. But they overtook us. When you

99  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 grow fast, you need to also deploy that cash relief for depositors and rehabilitation for fast. That is when mistakes happen.” The the bank.” Urban cooperative banks are bank’s books also show a sudden spurt in caught in a time warp, he says. “They have term deposits. While its term deposits grew assets like branch networks, but today by 11.6% in FY17 and 10.96% in FY18, in when banks are going fully online, what is FY19, the deposits jumped by 18.9%, crossing the value of the branches?” The PMC Bank Rs 9,325 crore. Thus, the real growth in FY19 crisis has also broken out at a time when was double that of FY18. In this period, the most cooperative banks and cooperative bank’s total deposits grew by 16.89% to Rs housing societies are rushing to hold their 11,617 crore. Former BJP MP Kirit Somaiya, annual general meetings (AGM) before the who first registered a police case against PMC September 30 deadline. Though the AGM Bank and also met RBI deputy governor NS of PMC Bank has been postponed amid Vishwanathan over the issue, says: “This is a the ongoing crisis, fireworks are likely at horrible situation — a clear financial fraud. meetings of other urban cooperative banks. The main borrower of PMC, HDIL, is already Source: https://economictimes.indiatimes.com/ insolvent. There has to be an immediate industry/banking/finance/banking/the-co-op-crisis- how-1500-odd-urban-cooperative-banks-are-being- run-and-regulated/articleshow/ 71353894.cms Dated: Sep 29, 2019

• Four PSBs Carry On Their Search For CEOs:

The process to hire the chief executives and managing directors at Bank of India, Bank of Baroda, Canara Bank and Punjab National Bank is ongoing, even as the government has announcement the amalgamation of 10 state-run banks to create four larger lenders. The searches commenced before Finance Minister Nirmala Sitharaman announced the amalgamation in August, bringing down the total number of state-run banks to a dozen from 27 in 2017. Two of these four - PNB and Canara Bank - are getting merged, but the search for the top jobs at both lenders is ongoing separately. The CEO/MD posts will become vacant on September 30 at PNB, in mid-October at Bank of Baroda and in January at Canara Bank. At Bank of India, the post is currently vacant. September 23 was the deadline to apply. The Bank Board of Bureau, which conducts the selections for top jobs at state-run banks, has received about 60 applications for the MD and CEO positions at these four banks, a person privy

100  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 to the selection process said. People from rate in its bi-monthly monetary policy public and private sectors have applied review on October 4. With this reduction, the almost in equal numbers, he said. A few of rate are going to further go down. Without those who have applied for the positions informing the rate, Corporation Bank said are either the heads of operations or even it has decided to link all new floating rate CEOs or MDs of private banks, the person loans to retail, personal segment and Micro said, but did not name anyone. A shortlist & Small Enterprises (MSE) to Reserve Bank of eligible candidates is being prepared and of India’s policy repo rate. “Our Bank has interactions with them will begin in the first decided to Repo Linked Lending Rate (RLLR) week of October with a panel set up by the to Repo Rate + Mark Up that is (5.40 per cent Bank Board of Bureau. The Korn Ferry Hay + 2.85 per cent = 8.25 per cent) with effect Group will conduct a leadership quality from October 1, until further review,” Indian profile of the shortlisted candidates. Overseas Bank said. As a gesture to small Source: https://economictimes.indiatimes.com/ borrowers, the bank has decided to charge industry/banking/finance/banking/four-psbs-carry-on- Mudra loans up to Rs 50,000 at an interest their-search-for-ceos/articleshow/71367292.cms rate of 8.25 per cent, passing a benefit of 0.25 Dated: Sep 30, 2019 per cent to these borrowers. Further, the bank announced its decision to link interest • Canara, Corporation Bank, Others rate on savings accounts with balance of Rs Introduce Repo Linked Loan Products: 25 lakh and above. However, interest rate to Further, the bank announced its decision to be paid for such accounts is presently pegged link interest rate on savings accounts with at 4 per cent level offered by the bank. In balance of Rs 25 lakh and above. However, a bid to improve transparency, the RBI interest rate to be paid for such accounts is directed all banks to link loans to repo rate presently pegged at 4 per cent level offered from October 1. In 2019, the RBI reduced the by the bank. Rushing to meet the RBI deadline repo or short-term lending rate by 110 basis of October 1, many public sector lenders like points (bps), but the banks have reportedly Canara and Corporation Bank announced passed on only up to 40 bps to borrowers. launch of repo rate linked lending rate for Source: https://economictimes.indiatimes.com/ faster transmission of interest rate cut to industry/banking/finance/banking/four-psbs-carry-on- borrowers. Earlier this month, the Reserve their-search-for-ceos/articleshow/71367292.cms Bank of India (RBI) made it mandatory for Dated: Sep 30, 2019 banks to link their retail and MSME loans to external interest rate benchmarks effective • PNB Ties Up With NBFCs For Co-Orginating October 1 for faster transmission of rate Loans Worth Rs 4,000 Crore: cut to borrowers. With banks launching this product, rates for home, car and The Punjab National Bank has started tying personal loans will come down. Canara up with non-banking financial companies Bank in a regulatory filing said Repo Rate (NBFCs) for co-originating loans amounting Linked Lending Rate (RLLR) of the bank for to Rs 4,000 crore since the last two months retail loans and Micro, Small and Medium and though the lender has not decided Enterprises (MSME) is 8.30 per cent with if it will link the deposit rates with the effect from October 1. It is widely expected RBI repo rates, its retail loan rates will be that RBI is going to cut its benchmark lending based on repo rates from October 1, its

101  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Managing Director and CEO Sunil Mehta capital support. All these things will enable said on Monday. “We have funded four a stronger balance sheet. Globally, as we such portfoilos aggregating Rs 4,000 crore know there are large-sized banks. In India, in the past two months, and the bank is we don’t have a large size bank listed even in the process of identifying more such in the global first 100 banks. So India needs portfolios,” Mehta said. The stress on large-sized banks and this amalgamation is NBFCs and HFCs is seen as a key reason for a step in that direction.” Emerging from the slowdown in the economy, as it has caused Nirav Modi fraud shadow, PNB posted a net reduced credit flow to small businesses. profit of Rs 1,019 crore for the June quarter Asked if the PNB will link its deposits against a loss of Rs 940 crore registered in and lendings rates to RBI’s repo rate as the corresponding quarter of the previous external benchmark linking from October fiscal. 1, Mehta said: “We have not linked them Source: https://economictimes.indiatimes.com/ to the repo rates because sometimes it can industry/banking/finance/banking/pnb-ties-up-with- create more volatility. We will deliberate nbfcs-for-co-orginating-loans-worth-rs-4000-crore/ issues and take a call.” Acting upon their articleshow/71376792.cms commitment to review lending rates in the Dated: Sep 30, 2019 context of policy rate cuts, all PSBs effected weighted average rate cuts of 27 basis • Bandhan Bank Overcomes All Regulatory points till August and another 10 effected Hurdles For Merger With Gruh Finance: additional rate cuts ranging from 15 to 5 basis points this month. Further, to enable Bandhan Bank has overcome all the automatic transmission of externally bench regulatory hurdles for its merger with marked rates, 15 PSBs have introduced housing finance company Gruh Finance with repo-rate-linked loan products for housing the National Company Law Tribunal, Kolkata and vehicles, consumer credit, cash credit Bench clearing the scheme of amalgamation. limits and mortgage-based loans. Already, Bandhan Bank has received the certified over 1.08 lakh repo-linked proposals, copy of the NCLT order on Monday, Managing amounting to over Rs 40,000 crore, have Director Chandra Shekhar Ghosh told ET. been sanctioned. The remaining three PSBs “We will now have to fix the merger date. will be introducing such products by 1 Hopefully all the processes will be completed October. At the end of August 2019, overall in a month’s time,” Ghosh said. Merger with credit growth in the banking sector stood Gruh Finance will help the Kolkata-based at 10.1 per cent on a year-on-year basis. private lender diversify its loan portfolio of On the merger of PNB with Oriental Bank Rs 45400 crore, which is at present heavily of Commerce and United Bank of India, skewed towards micro loans with 85% with PNB as the anchor bank, Mehta said: share. Gruh Finance has a loan portfolio of “Post the merger from April 1 next year, Rs 17700 crore. the bank’s strength in terms of assets is Source: https://economictimes.indiatimes.com/ going to be rising. We have prepared the industry/banking/finance/banking/bandhan-bank- consolidated balance sheet of the three overcomes-all-regulatory-hurdles-for-merger-with- banks also. This combined balance sheet is gruh-finance/articleshow/71380343.cms giving a better picture than the standalone Dated: Sep 30, 2019 one. “The government has given us adequate

102  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 India’s Foreign Trade

ndia’s overall exports (Merchandise and IServices combined) in April-August2019-20* are estimated to be USD 227.36 billion, exhibiting a positive growth of 3.20 per cent over the same period last year. Overall imports in April-August 2019-20* are estimated to be USD 268.24billion, exhibiting a negative growth of 1.18per cent over the same period last year.

20 was USD133.54 billion (Rs.9,31,055.96 crore) as against USD135.62 billion (Rs.9,20,240.02 crore) during the period April-August 2018-19, registering a negative growth of 1.53 per cent in Dollar terms (positive growth of 1.18 per cent in Rupee terms).Non-petroleum and Non Gems and Jewellery exports in August 2019 were USD19.60 billion, as compared to USD20.76 billion in August 2018, exhibiting a negative growth of 5.61 per cent. Non-petroleum and Non Gems and

*Note: The latest data for services sector released by RBI Jewellery exports in April-August 2019- is for July 2019. The data for August 2019 is an estimation, 20 were USD99.41 billion, as compared to which will be revised based on RBI’s subsequent release. USD99.17 billion for the corresponding • Merchandise Trade:- period in 2018-19, an increase of 0.24 per cent. o Exports (Including Re-Exports): Exports in August 2019 were USD26.13 o Imports: Imports in August 2019 were billion, as compared to USD27.81 billion USD39.58 billion (Rs. 2,81,606.41 crore), in August 2018, exhibiting a negative which was 13.45 per cent lower in Dollar growth of 6.05 per cent. In Rupee terms, terms and 11.46 per cent lower in Rupee exports were Rs. 1,85,881.11crore terms over imports of USD45.73 billion in August 2019, as compared to Rs. (Rs.3,18,043.86 crore) in August 2018. 1,93,397.12 crore in August 2018, Cumulative value of imports for the period registering a negative growth of 3.89 per April-August 2019-20 was USD206.39 cent. In August 2019, major commodity billion (Rs.14,38,839.05crore), as against groups of export showing positive USD218.81 billion (Rs.14,85,661.27crore) growth over the corresponding month during the period April-August 2018-19, of last year are Cumulative value of registering a negative growth of 5.68 per exports for the period April-August 2019- cent in Dollar terms (negative growth

103  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 of 3.15per cent in Rupee terms).Major 2018-19. Non-Oil and Non-Gold imports commodity groups of import showing wereUSD27.34 billion in August 2019, negative growth in August 2019 over the recording a negative growth of 9.33 corresponding month of last year are: per cent, as compared to Non-Oil and Non-Gold imports of USD 30.15 billion in August 2018. Non-Oil and Non-Gold imports were USD136.53 billion in April- August 2019-20, recording a negative growth of 5.64 per cent, as compared to Non-Oil and Non-Gold imports USD 144.69 billion in April-August 2018-19. • Trade In Services:- o exports (Receipts): As per the latest press release by RBI dated 13thSeptember o Crude Oil And Non-Oil Imports: Oil 2019, exports in July2019 were USD 19.08 imports in August 2019 were USD10.88 billion (Rs. 1,31,313.76 crore) registering billion (Rs. 77,380.49 crore), which a positive growth of 8.72 per cent in dollar was 8.90 percent lower in Dollar terms terms, vis-à-vis July 2018. The estimated (6.81percent lower in Rupee terms), value of services export for August 2019* compared to USD11.94 billion (Rs. is USD 19.44 billion. 83,032.28 crore) in August2018. Oil imports in April-August 2019-20 were o Imports (Payments): As per the latest USD55.33 billion (Rs. 3,85,835.81 crore) press release by RBI dated 13thSeptember which was 6.34 per cent lower in Dollar 2019, imports in July 2019 were USD 12.83 terms (3.81 percent lower in Rupee billion (Rs. 88,274.17 crore) registering a terms) compared to USD59.07billion positive growth of 18.24 per cent in dollar (Rs. 4,01,124.26 crore), over the same terms, vis-à-vis July 2018. The estimated period last year. In this connection it is value of service Import for August 2019* mentioned that the global Brent price ($/ is USD 13.38billion. bbl) has decreased by 18.98% in August • Trade Balance:- 2019 vis-à-vis August 2018 as per data o Merchandise: The trade deficit for available from World Bank. Non-oil August 2019 was estimated at USD13.45 imports in August 2019 were estimated billion as against the deficit of USD17.92 at USD28.71 billion (Rs. 2,04,225.92 crore) billion in August 2018. which was 15.05 per cent lower in Dollar o Services: As per RBI’s Press Release dated terms (13.10 percent lower in Rupee 13thSeptember 2019, the trade balance terms), compared to USD33.79 billion (Rs. in Services (i.e. Net Services export) for 2,35,011.57 crore) in August 2018. Non- July, 2019 is estimated at USD6.26 billion. oil imports in April-August 2019-20 were o Overall Trade Balance: Taking USD151.06 billion (Rs. 10,53,003.24crore) merchandise and services together, which was 5.43 per cent lower in Dollar overall trade deficit for April-August terms (2.91 percent lower in Rupee 2019-20* is estimated at USD40.89billion terms), compared to USD159.74 billion as compared to USD51.13 billion in April- (Rs. 10,84,537.01crore) in April-August August 2018-19.

104  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Merchandise Trade

Exports & Imports : (US $ Billion)

August April-August

Exports (Including Re-Exports)

2018-19 27.81 135.62

2019-20 26.13 133.54

% Growth 2019-20/ 2018-19 -6.05 -1.53

Imports

2018-19 45.73 218.81

2019-20 39.58 206.39

% Growth 2019-20/ 2018-19 -13.45 -5.68

Trade Balance

2018-19 -17.92 -83.19

2019-20 -13.45 -72.85

Exports & Imports (Rs. Crore)

August April- August

Exports (Including Re-Exports)

2018-19 1,93,397.12 9,20,240.02

2019-20 1,85,881.11 9,31,055.96

% Growth 2019-20/ 2018-19 -3.89 1.18

Imports

2018-19 3,18,043.86 14,85,661.27

2019-20 2,81,606.41 14,38,839.05

% Growth 2019-20/ 2018-19 -11.46 -3.15

Trade Balance

2018-19 -1,24,646.73 -5,65,421.25

2019-20 -95,725.30 -5,07,783.09

105  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Services Trade

Exports & Imports (Services) (US $ Billion)

July 2019 April-July 2019-20

Exports (Receipts) 19.08 74.38

Imports (Payments) 12.83 48.48

Trade Balance 6.26 25.90

Exports & Imports (Services) (Rs. Crore)

July 2019 April-July 2019-20

Exports (Receipts) 1,31,313.76 5,15,865.75

Imports (Payments) 88,274.17 3,36,242.10

Trade Balance 43,039.59 1,79,623.65

106  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Top Banking Developments

• Bank Of India Launches Festive Offer, offer Rs 5 lakh personal accident insurance Waives Loan Processing Charges: on maintaining balance of Rs 500 along with one debit transaction per month. Customers State-owned Bank of India (BoI) under its would also be eligible for cashback, if they festive offer for retail products is offering decided to receive government subsidies in home loans at concessional interest rate with their Bharosa account or if they made cash no processing charges to woo customers. The deposits in it, the company said in a statement. bank has waived loan processing charges and “The benefits of this product will be further will provide home loan at concessional rates, amplified through a structured roadway for BoI general manager Salil Kumar Swain phased introduction of other features linked said. Home loan of up to Rs 30 lakh would be to formal banking. To begin with, it will be available at 8.35 per cent while loan above Rs available at over a quarter million banking 30 lakh would be linked to repo rate, he said. points. Bharosa savings account customers At the same time, the bank offering education can also withdraw cash, check their balance loan at competitive rate, he added. The bank or access a mini statement of their account has also launched an SME welcome offer, he at over 6,50,000 AePS (Aadhaar-enabled said, adding, loans between Rs 50 and Rs 5 payment system) enabled outlets across crore would be available at concessional rate India,” it said. Airtel Payments Bank offers depending on value of security. Last month, digital banking services through a network the country’s largest lender State Bank of of 5,00,000 neighbourhood banking points India (SBI) announced a number of offers spread across the the country. including cheaper rates for home and auto loan borrowers, to cash in on festival fervor. Source: https://economictimes.indiatimes. Customers can avail cheaper loans with com/industry/banking/finance/banking/airtel- added benefits such as waiver in processing payments-bank-launches-bharosa-savings-account/ fees, pre-approved digital loans and loans articleshow/71171670.cms with no escalation in interest rates spread Dated: Sep 17, 2019 across various categories, SBI had said. • SBI Launches Mobile App YONO In UK: Source: https://economictimes.indiatimes.com/ State Bank of India (SBI) has launched its industry/banking/finance/banking/bank-of-india- digital banking app YONO in the UK, marking launches-festive-offer-waives-loan-processing-charges/ its global launch. SBI Chairman Rajnish articleshow/71034882.cms Kumar unveiled the app at an exclusive Dated: Sep 08, 2019 event hosted in coordination with the UK • Airtel Payments Bank Launches ‘Bharosa’ India Business Council (UKIBC) in London Savings Account: on Monday. “YONO SBI UK is one of the highlights of SBI’s technological capabilities. Airtel Payments Bank here on Tuesday I am delighted to launch YONO for our UK launched “Bharosa” savings account services, customers, after its success in India,” said designed for deepening the financial inclusion Kumar. “I am sure the easy-to-use features in the country. Along with convenient banking and refreshing design will ensure that the services, Bharosa savings account would app offers a positive customer experience

107  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 and showcases bank’s strong focus on digital to promote vigilance awareness, a function banking,” he said. Available on both the was held at PNB Corporate Office, chaired Apple’s App Store and Google Play Store, by Central Vigilance Commissioner Sharad YONO SBI UK is described as an enhanced Kumar. Besides other activities, such as mobile app which is “simple, intuitive, and inauguration of e-pledge mission, social user friendly” for customers to carry out outreach through technological platforms for almost all their banking needs. After the UK, promoting the central theme of ‘Integrity - A the app will begin being launched by SBI at its way of Life’, the bank introduced technology other operations worldwide. Richard Heald, based solutions through the Preventive UKIBC Group CEO, said: “It is exciting to see Vigilance (PV) portal, which is the first of how passionate SBI is in its determination its kind, the bank said in a statement. The to deliver innovative technological products PV portal will facilitate all staff members for its customers, particularly here in the to contribute towards arresting procedural UK which has a large Indian diaspora.” The lapses and unhealthy practices, and will app will allow customers with accounts at usher in a coherent climate conducive to both SBI UK and SBI in India to access both banking for the modern age, it said. Speaking accounts through one app, thereby improving at the occasion, PNB Managing Director Sunil the customer experience and ease-of-use. The Mehta highlighted the importance of integrity app would also allow customers to change for quality of business and in turn promoting their address, e-mail, mobile numbers peace and prosperity in the society. online. SBI said that YONO also comes with Source: https://economictimes.indiatimes.com/industry/ a strong cordon of device binding to protect banking/finance/banking/pnb-launches-preventive- the security of customer funds. Launched in vigilance-portal/articleshow/71299261.cms 2017 by SBI in India, YONO has become very Dated: Sep 25, 2019 popular, especially among the youth, as it • Banks To Launch First Phase Of Customer caters to their banking and lifestyle needs Outreach Loan Initiative On Oct 3: simultaneously, SBI noted. The UK version will offer SBI account holders numerous features The state-owned banks and several private like easy UK money transfers or payments sector financial entities are gearing up to and remittances to India, available 24x7 with launch first phase of ‘customer outreach attractive exchange rates on remittances to initiative’ covering 250 districts on October India and so on. The SBI UK said the facility to 3, for providing loans to retail customers and open an account online through the app will MSMEs to meet festival time needs. During be made available soon. four-day period beginning October 3, loans Source: https://economictimes.indiatimes.com/industry/ will be provided for retail, agriculture, vehicle, banking/finance/banking/sbi-launches-mobile-app- home, MSME, education and personal needs yono-in-uk/articleshow/71276980.cms of consumers. The second phase will be in 150 Dated: Sep 24, 2019 districts and will be held between October 21 and October 25, just before Diwali, sources • PNB Launches Preventive Vigilance Portal: said. This is part of the systematic bank reform Punjab National Bank (PNB) on Wednesday process which envisioned taking banks to launched a Preventive Vigilance portal to doorsteps and increasing ease of customer facilitate its staff members to check procedural access and delivery of services, sources lapses and promote good practices. In order added. During the annual performance

108  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 review earlier this month, public sector banks will be provided for retail, agriculture, vehicle, decided to undertake outreach exercise in home, MSME, education and personal needs identified 400 districts. Later, private sector of consumers. The second phase will be in 150 too expressed their willingness to join the districts and will be held between October 21 initiative. These camps will provide a one stop and October 25, just before Diwali, sources destination for MSMEs, small retail businesses said. This is part of the systematic bank reform and end customers to access all bank services, process which envisioned taking banks to especially loans in auto, home, personal and doorsteps and increasing ease of customer business section. While at one level it will help access and delivery of services, sources businesses to gear up for the festive season, it added. During the annual performance will also provide ready cash in the hands of review earlier this month, public sector banks the consumers. Needless to say, all prudent decided to undertake outreach exercise in financial norms and due diligence will be identified 400 districts. Later, private sector followed by PSBs while disbursing loans, the too expressed their willingness to join the sources said. Awareness camps will be held initiative. These camps will provide a one stop in these districts to let people know about the destination for MSMEs, small retail businesses event. For spreading information, the sources and end customers to access all bank services, said, local vendor associations, commercial especially loans in auto, home, personal and organizations and chambers of commerce business section. While at one level it will help may also be engaged to spread the message businesses to gear up for the festive season, it among merchants and customers. In line will also provide ready cash in the hands of with the government’s thrust on Digital India, the consumers. Needless to say, all prudent the initiative will focus on financial inclusion financial norms and due diligence will be schemes and digital payment methods so as followed by PSBs while disbursing loans, the to encourage consumers and merchants to sources said. Awareness camps will be held increasingly shift to these payment modes, the in these districts to let people know about the sources noted. Apart from PSBs, NBFCs/HFCs/ event. For spreading information, the sources MFIs/SIDBI and private sector banks can also said, local vendor associations, commercial participate in the scheme. organizations and chambers of commerce Source: https://economictimes.indiatimes.com/industry/ may also be engaged to spread the message banking/finance/banking/banks-to-launch-first- among merchants and customers. In line phase-of-customer-outreach-loan-initiative-on-oct-3/ with the government’s thrust on Digital India, articleshow/71378768.cms the initiative will focus on financial inclusion Dated: Sep 30, 2019 schemes and digital payment methods so as to encourage consumers and merchants to • Banks To Launch First Phase Of Customer increasingly shift to these payment modes, the Outreach Loan Initiative On Oct 3: sources noted. Apart from PSBs, NBFCs/HFCs/ The state-owned banks and several private MFIs/SIDBI and private sector banks can also sector financial entities are gearing up to participate in the scheme. launch first phase of ‘customer outreach Source: https://economictimes.indiatimes.com/industry/ initiative’ covering 250 districts on October banking/finance/banking/banks-to-launch-first- 3, for providing loans to retail customers and phase-of-customer-outreach-loan-initiative-on-oct-3/ MSMEs to meet festival time needs. During articleshow/71378768.cms four-day period beginning October 3, loans Dated: Sep 30, 2019

109  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Top Expert Reports

• NPAs May Come Down To Rs 9.1 Lakh Cr the stressed-assets space and helped speed By FY20 (ASSOCHAM- CRISIL): up resolution, ironing out issues regarding legal aspects and resolution timelines will be The gross bad loans of banks are expected to critical to boost investor confidence, it said. come down marginally to Rs 9.1 lakh crore The report also said that with a higher cash by the end of the current financial year, share becoming a norm, asset reconstruction according to a report. Indian banks' gross non- companies (ARCs) will need to focus more on performing assets (NPAs) stood at Rs 9.4 lakh resolutions and attracting co-investors. Assets crore as on March 31, 2019, said a joint study under management (AUM) growth of ARCs by Assocham- Crisil. "There is a significant are therefore, expected to be range-bound potential opportunity for stressed-assets at 8-10 per cent over the medium term, the investors, given around Rs 9.4 lakh crore report added. Going forward, with increase NPAs in the banking system as on March 31, in proportion cash deals, the discounts 2019. Of this, the corporate segment, which are expected to remain on the higher side. has seen active interest from most investors, To make way for newer acquisitions and is estimated to account for 70 per cent," the also attract new and repeat investors, it is report 'Bolstering ARCs' said. It said large imperative for ARCs to quickly resolve the stressed borrowers have debt aggregating to assets and redeem the security receipts. Rs 5.4 lakh crore, which is a huge playing field ASSOCHAM- CRISIL study also highlighted in itself for investors. Of the total, National that ARCs have learnt from past experiences Company Law Tribunal (NCLT) list-1 and list- and are implementing successful strategies 2 comprised around Rs 2.1 lakh crore and to improve recovery rates. "The recovery existing stock of NPAs comprised another Rs rate which is gross recovery to principal debt 2 lakh crore. "Over and above this, assets of acquired is expected to improve to 44-48 per around Rs 1.3 lakh crore are estimated to be cent from earlier level of 40 per cent owing under stress but have not been recognised as to quicker debt aggregation, acquisition of NPAs, these assets could potentially slip into lower vintage of assets, positive changes in NPAs over the near to medium term," the regulatory framework and improved credit report said further. Power, infrastructure and discipline and support from promoters of a steel sectors together constitute about half of company under resolution," it said. Rs 4.1 lakh crore worth stressed assets. Power Source: https://economictimes.indiatimes.com/ sector accounts for the largest proportion, industry/banking/finance/banking/npas-may- and resolution in this sector has not been come-down-to-rs-9-1-lakh-cr-by-fy20-report/ significant. It said the revised stressed asset articleshow/70962027.cms framework is expected to benefit stressed power sector assets that were operational and Dated: Sep 03, 2019 on the verge of being referred to insolvency • State-Owned Banks' Profitability And RoA proceedings under IBC (estimated at Rs 1 lakh To Be Low In Current Financial Year (ICRA): crore as on March 31, 2019). RBI's resolution Rating agency ICRA on Wednesday said framework on recognising bad loans and the profitability and return on assets (RoA) of Insolvency and Bankruptcy Code (IBC) have public sector banks (PSBs) are likely to remain paved the way for attracting investors into low during the current financial year on the

110  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 back of continued provisioning on existing seasonal credit de-growth, it said. Gross NPAs and fresh bad loans. Provisioning on existing for PSBs rose to 12.3 per cent of the total gross and fresh non-performing assets (NPAs) will advances as on June 30, 2018, compared with consume majority of operating profits, ICRA 12 per cent as on March 31, 2019. For private said in a statement. "This would result in banks, the NPAs rose 4.2 per cent of their overall poor profitability and feeble return advances as at the end of June 2019 from 4.1 on equity (RoE) of less than 1 per cent," it said. per cent as on March 31, 2019, it added. With Private sector banks will also face another incremental stress emerging from real estate, challenging year due to high credit cost and a automobiles, MSME, non-banking financial muted RoE at 9-10 per cent, notwithstanding company and, possibly retail, sectors amid 15-30 per cent growth in their net profits the slowing gross domestic product growth during the current fiscal, it said. Though trends and subsequent impact on economic PSBs on an aggregate basis returned to profit activity and income levels, gross slippages for the first time in the first quarter ofthe are estimated to remain elevated at 3.2-3.6 current financial year, after 10 consecutive per cent of standard advances during 2019-20 quarters of losses from third quarter of 2016- as compared to 3.9 per cent in the previous 17, it said. "This was a result of reduction in financial year. As regards credit and deposit their net NPA levels by March 2019 upon the growth, it said there has been de-growth sizeable provisioning done in 2018-19. As in credit outstanding between March and per ICRA's estimates, the losses before taxes August this year, with non-food bank credit for PSBs stood at Rs 1.15 lakh crore during declining to Rs 96.2 lakh crore as on August 16 2018-19 which were somewhat lower than from Rs 97.25 lakh crore as on March 29. "The capital infusion of Rs 1.27 lakh crore by the de-growth in bank credit could be because of Government of India (GoI) and LIC in IDBI seasonally weak credit demand during the Bank," it said. On the other hand, strong net first half of the financial year or; possibly interest income growth and decline in credit because of increased credit risk aversion of provisions drove a strong 30 per cent growth banks given some of the recent defaults by in profit after taxes for private banks during large borrowers," it said. In contrast, there has the first quarter of the current financial year. been an improvement in incremental deposit Regarding asset quality, it said fresh gross build-up of the banking system, leading to slippages for both PSBs (accounting for about easing in credit deposit ratio to 76.4 per cent 73 per cent of the total slippage) and private as on August 2019 from 77.7 per cent as on banks rose on a sequential basis during the March 2019. first quarter, driven by increased slippages Source: https://economictimes.indiatimes.com/ in the micro, small and medium enterprises industry/banking/finance/banking/state-owned-banks- (MSME) segment and the seasonal spike profitability-and-roa-to-be-low-in-current-financial- witnessed in the agricultural segment. The year-icra/articleshow/ 71297046.cms same stood at Rs 85,643 crore, compared to Rs Dated: Sep 25, 2019 77,784 crore during the fourth of 2018-19 and Rs 94,756 crs during the first quarter of FY19. • PSBs Best For Sustainable Development; The gross NPAs for both PSBs and private India, Russia, Sa Have Anorexic Loan Portfolio banks rose marginally in percentage terms (UNCTAD): Backing public sector banks is during the first quarter of the current financial best for sustainable development, however, year after declining in 2018-19, mainly countries such as India, Russia and South because of lower base of advances due to Africa have anorexic loan portfolio against

111  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 their gross domestic product, which is too low discussion of public financing options, as to meet sustainable development goals, said part of a wider process of repairing the social a UN report on Wednesday. Public banking contract on which inclusive and sustainable should be given back its traditional, bigger outcomes can emerge and from which private role if the environmental and economic finance can be engaged on more socially landscape is to be transformed by 2030, said productive terms, said Kituyi. Many banks' the UNCTAD Trade and Development Report low loan-to-equity ratio is a constraining 2019 released here. "It is public banking factor, particularly development banks that that does the heavy lifting and hence public raise resources in national and international banking should be better supported for capital markets. As banks have a fixed capital the future. Public banks are designed to be base, the scale of their lending is limited by different from private banks; to focus on long- how markets view their solvency, which to a term projects whose benefits exceed purely large extent depends on their credit ratings, commercial returns and on sectors and the report said. Banks' efforts to achieve high locations that private finance ignores," said ratings are unnecessarily constraining their the United Nations Conference on Trade and lending by up to USD 1 trillion, the UNCTAD Development (UNCTAD) report on 'Financing said, citing estimates from credit rating A Global Green New Deal'. Public banks in agencies. Greater policy support is essential many countries, despite constant ideological to build on the positive opportunities public barrage, are already doing this, especially in banking is already creating, the report said. developing world and have added hundreds It also suggested measures such as freeing of billions of dollars of loans to development, central banks from their narrow focus on it said. UNCTAD's analysis shows that public price stability/inflation targeting, so they and especially development banks are can recover their historical, bolder role and insufficiently capitalised to scale up their support a Global Green New Deal. "This required role. "Some banks are highly should include creating and guiding credit engaged - with outstanding loans by the China toward greener activities, including issuing Development Bank at over 13.4 per cent of green bonds and, if necessary, acting as a China's GDP and the Korean Development buyer of last resort. Giving development Bank at 10.5 per cent of Korea's GDP. "But and other public banks more capital so they other public banks in countries such as India, can scale up lending, including by direct Malaysia, Mexico, the Russian Federation and financing and enabling banks to reinvest their South Africa have anorexic loan portfolios profits," it suggested. Among others, it said at just between 1 to 2 per cent of their sovereign wealth funds should be directed countries' GDPs," the report said. This is too towards developmental need and a review low for the Sustainable Development Goals by governments of their own requirements or for a Global Green New Deal. "This year's for their banks to achieve super high credit Trade and Development Report suggests that ratings. It also said that public banks should meeting the financing demands of the Agenda not become diverted from their purpose. 2030 requires rebuilding multilateralism Source: https://economictimes.indiatimes.com/ around the idea of a Global Green New Deal, industry/banking/finance/banking/psbs-best-for- and pursuing a financial future very different sustainable-development-india-russia-sa-have- from the recent past," said Mukhisa Kituyi anorexic-loan-portfolio-unctad/ articleshow/ Secretary-General of the UNCTAD. The place to 71299617.cms begin building such a future is with a serious Dated: Sep 25, 2019

112  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Top RBI Circulars

Circular Number Date Of Issue Department Subject RBI/2019-2020/74 30.9.2019 Sovereign Gold Bond The Chairman & Managing Director IDMD.CDD. (SGB) Scheme 2019-20 - All Scheduled Commercial Banks No.891/14.04.050/2019-20 Series V/VI/VII/VIII/IX/X - (Excluding RRBs) Designated Post Operational Guidelines Offices Stock Holding Corporation of India ltd.(SHCIL) National Stock Exchange of India Ltd. & Bombay Stock Exchange Ltd. RBI/2019-2020/73 30.9.2019 Sovereign Gold Bond The Chairman & Managing Director IDMD.CDD. Scheme (SGB) 2019-20 All Scheduled Commercial Banks, No.890/14.04.050/2019-20 Series V/VI/VII/VIII/IX/X (Excluding RRBs) Designated Post Offices Stock Holding Corporation of India Ltd.(SHCIL) National Stock Exchange of India Ltd. & Bombay Stock Exchange Ltd. RBI/2019-2020/72 30.9.2019 Auction of Government All Scheduled Commercial Banks Ref.No. IDMD/889/ of India Dated Securities All State Co-operative Banks/ 08.02.032/2019-20 All Scheduled Primary (Urban) Co-operative Banks/All Financial Institutions/ All Primary Dealers RBI/2019-2020/71 26.9.2019 Remittance of All Agency Banks DGBA.GBD. government receipts No.661/42.01.011/2019-20 (physical receipts) to Government account RBI/2019-2020/70 26.9.2019 Recovery of Interest on The Chairman and Managing DGBA.GBD. delayed remittance of Directors/Managing Director/CEO All No.653/42.01.011/2019-20 Government Receipts Agency Banks into Government Account RBI/2019-2020/69 25.9.2019 Agency Commission- All Agency Banks DGBA.GBD. Furnishing reconciliation No.648/31.12.007/2019-20 certificate RBI/2019-2020/68 23.9.2019 Auction of Government All Scheduled Commercial Banks Ref No.IDMD/812/ of India Dated Securities All State Co-operative Banks/ 08.02.032/ 2019-20 All Scheduled Primary (Urban) Co-operative Banks/All Financial Institutions/ All Primary Dealers. RBI/2019-2020/67 20.9.2019 Harmonisation of Turn All Operators and Participants of DPSS.CO.PD Around Time (TAT) and Authorised Payment Systems No.629/02.01.014/2019-20 customer compensation for failed transactions using authorised Payment Systems

113  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Circular Number Date Of Issue Department Subject RBI/2019-2020/66 20.9.2019 Priority Sector Lending The Chairman/Managing Director FIDD.CO.Plan. (PSL) – Classification of & CEOs All Scheduled Commercial BC.12/04.09.01/2019-20 Exports under priority Banks including SFBs (Excluding Sector Regional Rural Banks) RBI/2019-2020/65 19.9.2019 Implementation of The Chairpersons/CEOs of all the DBR.AML.BC.No.16/ Section 51-A of Unlawful Regulated Entities 14.06.001/ 2019-20 Activities Prevention Act (UAPA), 1967- Updates to ISIL (Da’esh) & Al-Qaida Sanctions List RBI/2019-2020/64 19.9.2019 Concurrent Audit System All Scheduled Commercial Banks DBS.CO.ARS.No.BC.01/ (other than Regional Rural Banks), 08.91.021/2019-20 Small Finance Banks, Payments Banks and Local Area Banks RBI/2019-2020/63 19.9.2019 Priority Sector Targets The Chairman/ Managing Director FIDD.CO.Plan. - Lending to Non- Chief Executive Officer (All BC.No.11/04.09.01/2019-20 Corporate Farmers – FY Scheduled Commercial Banks 2019-20 including Regional Rural Banks, Small Finance Banks and Foreign banks with more than 20 branches) RBI/2019-2020/62 16.9.2019 Auction of Government All Scheduled Commercial Banks Ref.No.IDMD/ of India Dated Securities All State Co-operative Banks/All 739/08.02.032/ 2019-20 Scheduled Primary (Urban) Co- operative Banks /All Financial Institutions/ All Primary Dealers. RBI/2019-2020/61 16.9.2019 Bharat Bill Payment The Chairman and Managing DPSS.CO.PD. System - Expansion of Director / Chief Executive Officer No.605/02.27.020/2019-20 biller categories Scheduled Commercial Banks including RRBs / Urban Co-operative Banks / State Co-operative Banks / District Central Co-operative Banks / Payment Banks / Small Finance Banks Bharat Bill Payment System Providers / System Participants and prospective Bharat Bill Payment Operating Units RBI/2019-2020/60 12.9.2019 Large Exposures All Scheduled Commercial Banks DBR.No.BP. Framework (Excluding Regional Rural Banks) BC.18/21.01.003/2019-20 RBI/2019-2020/59 12.9.2019 Risk Weight for All Scheduled Commercial Banks All DBR.No.BP. Consumer Credit except Local Area Banks All Small Finance BC.17/21.06.001/2019-20 credit card receivables Banks All Regional Rural Banks

114  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 Circular Number Date Of Issue Department Subject RBI/2019-2020/58 09.9.2019 Auction of Government All Scheduled Commercial Banks Ref.No.IDMD/681/ of India Dated Securities All State Co-operative Banks/All 08.02.032/ 2019-20 Scheduled Primary (Urban) Co- operative Banks /All Financial Institutions/ All Primary Dealers RBI/2019-2020/57 09.9.2019 Master Circular - All Agency Banks DGBA.GBD.No.521/ Disbursement of 31.02.007/2019-20 Government Pension by Agency Banks RBI/2019-2020/56 05.9.2019 Change in name of All State Co-operative Banks/ Central DCBR.RCB. “The Orissa State Co- Co-operative Banks No.03/19.51.025/2019-20 operative Bank Ltd.” to “The Odisha State Co-operative Bank Ltd” in the Second Schedule to the Reserve Bank of India Act, 1934 RBI/2019-2020/55 05.9.2019 Exim Bank's Government All Category – I Authorised Dealer A.P. (DIR Series) Circular of India supported Banks No.7 Line of Credit of USD 800 million to the Government of the Republic of Maldives RBI/2019-2020/54 05.9.2019 Alteration in the name All Scheduled Commercial Banks DBR.No.Ret. of "IDFC Bank Limited" BC.14/12.07.160/2019-20 to "IDFC FIRST Bank Limited" in the Second Schedule to the Reserve Bank of India Act, 1934 RBI/2019-2020/53 04.9.2019 External Benchmark All Scheduled Commercial Banks DBR.DIR. Based Lending (excluding RRBs) All Small Finance BC.No.14/13.03.00/2019-20 Banks All Local Area Banks

115  ASSOCHAM Banking e-Bulletin  September 2019  Volume 50 List Of ASSOCHAM Banking & Financial Services Publications

Name Of Report Cost

14th Annual Banking Summit-cum-Social Banking Excellence Awards 2018 Rs. 2,000/-

Indian Valuation System In Changing Scenario: “A Game Changer” Rs. 1,500/-

Building The NBFC Of The Future – A Scalable And Profitable Model Rs. 2,000/-

11th Global Insurance Summit “Increasing Role of Insurance for Economic Growth Rs. 1,500/-

White Paper On Household Savings In India & Simplification Of Insurance Rs. 1,500/-

Code of Hope – The Insolvency And Bankruptcy Code Is Changing The Bad-Loan Rs. 2,000/- Resolutions Paradigm, One Step At A Time

Bolstering of ARCs – Focus on Quicker Resolution & Co-Investor Model Among Imperatives Rs. 1,000/-

Deepening The Debt Market – Issues and imperatives Rs. 1,000/-

Strengthening the IBC Code Rs. 1,500/-

Role of Trade Finance for Inclusive Growth Rs. 1,500/-

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