WEEKLY FINANCIAL SNIPPETS- 18/08/2018

1. SEBI MAY MAKE SUBMISSION OF NET WORTH STATEMENT COMPULSORY FOR RETAIL INVESTORS: On a recommendation by the committee on fair market conduct headed by former Law Secretary Mr. Vishwanathan, Securities and Exchange Board of India (SEBI) may soon ask retail investors to submit a Net-Worth statement to their brokers. The aim is to keep a check on Retail Investors’ trading limits. This is as per a news report by Business Line.

 

2. INDIRECT TAX BASE INCREASES BY 65% SINCE GST ROLL-OUT: Since the roll-out of GST in July 2017, the Indirect Tax base has expanded by 65% to 1.6 million in a year. Under the previous tax regime it was 7 million. The number of people filing Income Tax (Direct Tax)   has also increased to 67.50 million compared to 40 million in 2013-14, which is a rise of 68%.

 

3. FINANCE MINISTRY SEEKS A CLEAR DIVIDEND POLICY FROM RBI: The Finance Ministry has asked the Reserve Bank of India to review its dividend and capital conservation rules. The government wants a clear policy on the pay-outs it gets from RBI. These matters were discussed during a meeting between Finance Ministry officials and RBI Deputy Governors.

 

4. BANKS TO COME OUT OF PCA FRAMEWORK BY THIS YEAR END: Financial Services Secretary Mr. Rajiv Kumar has expressed that the banks would come out of Prompt Corrective Action (PCA) framework by the end of this fiscal. As many as 11 banks are under PCA. Of these, Dena Bank and Allahabad Bank are facing restriction on expansion of business. Noting that Public Sector banks are growth engines, Mr. Kumar said that Banks have made a recovery of Rs 36,551 of bad loans during the first quarter, registering a growth of 49% over the last fiscal.

 

5. COSMOS BANK’S SERVER HACKED, Rs.94 CRORE SIPHONED OFF IN 2 DAYS: Hackers managed to siphon off over Rs.94 crore through a malware attack on the server of Pune-based Cosmos Bank by cloning thousands of bank’s ATM cards over a period of two days. In two days around 91 crores were withdrawn from various ATMs in 28 countries and another Rs.2.5 crore were taken out in India.

 

6. RBI LENS ON 200 BAD-LOAN ACCOUNTS: The Reserve bank of India has started examining about 200 bad-loan accounts from as far as 2011 onwards as part of its annual inspection of bank books to rule out any nasty surprises in bankruptcy court or subsequent to debt resolution. These include the accounts of Videocon, Essar Steel, ABG Shipyard, Bhushan Steel etc. RBI is looking at repayment history, classifications, provisions and debt restructuring among other things to ensure that all procedures were correctly followed.

 

7. 88% OF RURAL HOUSEHOLDS HAVE SAVINGS ACCOUNTS: As per a survey conducted by NABARD, The Financial Inclusion drive has resulted in increasing of bank accounts in rural areas with 88% of rural households having savings accounts. Incidence of Indebtedness (IOI), which is a proportion of households having outstanding debt on the date of the survey, was 52.5% and 42.8% for agricultural and non-agricultural households respectively. Similarly about 26% of agricultural households and 25% of non-agricultural households were found to have been covered under insurance. 20.1% agricultural households and 18.9% of non-agricultural households have subscribed to pension schemes.

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WEEKLY FINANCIAL SNIPPETS-11/08/2018

1. SBI POSTS Rs. 4,876 CRORE LOSS IN THE FIRST QUARTER OF FY’18-19: State Bank of India has reported net loss of Rs. 4,876 crore for the quarter ended June 2018. This is due to fresh slippage of Rs. 26,249 crore in the Non-Performing Asset (NPA) category for which the bank had to keep provisions. The profits were also hit by large depreciation in the value of its bond portfolio following an increase in interest rates.

 

2. BANKS COLLECTED Rs. 5,000 CRORE FROM CUSTOMERS FOR NOT MAINTAINING MINIMUM BALANCE IN FY’ 17-18: As many as 21 Public Sector Banks and 3 private banks collected around Rs. 5,000 crore as penalties from customers’ for not maintain minimum balance in their accounts in 2017-18. State Bank of India, who suffered a staggering net loss in this period, was the highest grosser in penalising its customers.

 

3. OVER 2,00,000 “NON-FILERS” FILED ITR IN FY’18 : As many as 2,00,000 “non-filers” have filed their Income Tax Returns in last fiscal. I-T department had issued notices to 3,04.000 individuals who had deposited cash of more than Rs 1 million in their respective accounts post demonetization but had not filed returns before the due date. As a result returns were filed by 2,09,000 persons and have paid self-assessment tax of Rs 64.16 billion. This was told by Minister of State for Finance Mr. Shiv Pratap Shukla in Rajya Sabha.

 

4. RBI CANCELS LICENCES OF 368 NBFCs IN 2018: The Reserve Bank of India has cancelled licences of 368 Non-Banking Financial Companies (NBFCs) in six months ended June 20018 for failing to meet regulatory norms. The move is being seen as an attempt to clean up the sector, which has more than 11,402 NBFCs of which 222 are non-deposit taking NBFCs. Industry experts say that majority of the licences thus cancelled belong to NBFCs which had failed to meet RBI’s requirement of net owned fund of Rs. 2 crore.

 

5. PNB IN TALKS WITH GOVERNMENT DEPARTMENTS TO SELL ITS HQ: Punjab National Bank (PNB) is in negotiation with a few of government departments, including Income tax and central excise, to sell its headquarters situated  at Bhikaji  Cama Place in New Delhi. The bank is going for second round of valuation of the property due to high demand. The bank expects to raise nearly Rs. 700-800 crore from the sale of its earlier head office in New Delhi. The bank has set a target of Rs.8,600 crore from sale of its non-core assets in FY 18-19.

 

6. SBI LAUNCHES “MOPAD”: State Bank of India has launched a payments machine called “MOPAD” (Multi Option Payment Acceptance Device) that would help merchants eliminate the multiple choices that they keep to facilitate transactions from cards to QR code based payments. MOPAD is a Point Of Sale (POS) terminal that would accept payments from cards, UPI, Bharat QR, and SBI Buddy wallet which till now required different modes of tools to receive payments.

 

7. RBI DECLARES Rs. 50,000 CRORE DEVIDEND FOR 2017-18: The Reserve Bank of India (RBI) has announced the transfer of Rs. 50,000 crore to the centre from its 2017-18 surplus. The amount included Rs. 10,000 crore transferred as an interim dividend to aid the Centre’s efforts to control the FY18 fiscal deficit.

 

 

8. 10 PSU BANKS WILL BE HEADLESS BY THIS MONTH END: Seven Public Sector banks are already functioning without their Chiefs and the term of three more bank CEOs will end this month end, making it 10 banks without CEOs. This has created a huge void in state-run banks, that too at this time when most of the banks are grappling with bad loans and are in a bad shape.

WEEKLY FINANCIAL SNIPPETS- 04/08/2018

1. INCOME TAX RETURN FILING DEADLINE EXTENDED TO AUGUST 31: The Finance Ministry has announced the extension of Income Tax Return (ITR) filing deadline by a month to August 31^ST Until last assessment year there was no penalty for delayed filing of ITR. But from Assessment Year 2018-19 there is a penalty of Rs 5,000/- for delayed filing of ITR till December 2018 and thereafter Rs 10,000/- If Total Income is less than Rs.5 lakhs then the penalty is Rs.1,000/- only.

 

2. MULTI YEAR THIRD PARTY INSURANCE FOR VEHICLES: Last week Supreme Court gave a decision to have mandatory multi years third party insurance of two years for cars and five-years for two wheelers. This may lead to inflation adjusted pricing due to which consumers may have to shell out at least 10-12% more for their multi-year third party motor insurance.

 

3. RBI RAISES REPO RATE BY 25 BASIS POINTS: The Reserve bank of India has raised the repo rate by 25 basis points (bps) to 6.5%. The bank lending rates may be hiked because of this in future. This is the second hike by RBI during this financial year. Loan rates have been going up for the past few months as banks are looking to protect their margins. With deposits growing up steadily there is a need for banks to increase the deposit interest rates as well.

 

4. INDIA POST PAYMENTS BANK TO START OPERATIONS SOON WITH 650 BRANCHES: India Post Payments Bank (IPPB) is expected to go live with 650 branches across India with around 17 crore accounts by August 2018. RBI has given its approval to IPPB after testing its entire system. The final approval for the launch is pending before RBI. IPPB is the third entity to receive payments bank permit after Airtel and Paytm.

 

5. PUBLIC SECTOR BANKS PLAN TO LINK PAY WITH PERFORMANCE: Senior Management staff of Public Sector Banks (PSBs) may now have to perform to earn more. In a first of its kind move for PSBs, SBI, Punjab National bank and Bank of Baroda are planning to introduce performance-linked pay. It will have a component of fixed and variable pay. But this will take time to evolve. Performance-linked pay is widely used in private sector to reward the better performers in the organisation.

 

6. RBI INSTRUCTS PAYTM PAYMENTS BANK TO STOP OPENING FRESH ACCOUNTS: The Reserve Bank of India has instructed Paytm Payments Bank (PPB) to stop opening fresh accounts till all the concerns it has raised against the PPB are solved. Firstly RBI has asked PPB to go for a physical verification of Know-Your-Customer (KYC) process instead of e-KYC for adding new customers. RBI is also not in agreement with the close relations between PPB and Paytm’s parent body One97 Communications, which has been giving away cash backs and other promotional offers to PPB  account holders.

 

7. ICICI BANK WARNS OF RISK TO REPUTATION IN REPORT TO SEC: ICICI bank has warned its domestic and international shareholders that the bank faces reputation risk and regulatory action. It has highlighted the on-going investigations into the allegations relating to its CEO Ms Chanda Kochar as risk factor. The bank has filed its Annual Report both for Indian and international investors. The balance sheet was filed with the Securities Exchange Commission (SEC) to comply with the listing requirements for bank’s American depository receipts (ADRs).

WEEKLY FINANCIAL SNIPPETS- 28/07/2018

1. SEBI PROPOSES FRAMEWORK ON 25% BORROWING VIA CORPORATE BONDS FOR LARGE COMPANIES: With a view to deepen the corporate bonds market to make it more vibrant and liquid and to reduce the reliance of big corporates on banks for financing, Security Exchange Board of India (SEBI) has come out with a proposal that will require Large Corporates to raise 25% of their borrowings through corporate bond market from next fiscal. If implemented this will come in force from 1^ST April 2019.

 

2. PRIVATE BANKS SHOWING INTEREST IN FUNDING HIGHWAY PROJECTS UNDER PPP MODE: Private Banks including HDFC, have shown interest in funding highway projects in Public Private Partnership (PPP) mode. Road Transport & Highways Minister Mr. Nitin Gadkari has informed the Lok Sabha that private Banks have assured funding to the tune of 1.30 lakh crore for highway construction.

 

3. AMENDMENT IN PREVENTION OF CORRUPTION ACT WILL ENCOURAGE BONAFIDE DECISION MAKING IN BANKS: Bankers who are presently living under the fear of investigative agencies for foisting cases even where a bonafide decisions go wrong, are a lot relieved with both the houses of Parliament passing certain amendments to the Prevention of Corruption Act that provides a shield against random arrests by the police. Now it is mandatory for the police to seek prior permission from a relevant authority before initiating prosecution against government officials, including bankers.  Further a case has to be closed within 4 years. According to Mr Rajnish Kumar, CMD SBI, this will have a very positive impact on decision making among bankers.

 

4. GOVERNMENT ASKS RBI TO SUGGEST ON PSU BANK MERGER: The government has asked the RBI to examine the possibility of merger among public sector banks to achieve synergy and increase scale of But it has not set any timeline for merger of PSU banks. With a view to facilitate consolidation among PSU banks to create strong and competitive entities, serving as catalysts for growth with improved risk profile of the bank, the government has put in place an Alternative Mechanism (AM) comprised of three Ministers. The proposals received from banks for in-principle approval to formulate schemes of amalgamation shall be placed before the institution although there is no proposal for consideration yet.

 

5. TOP STATE-RUN BANKS SIGN INTER-CREDITOR AGREEMENT: More than a dozen lenders led by State Bank of India have signed the Inter-creditor agreement (ICA), potentially paving the way for speedy resolution of stressed assets. No Foreign Bank or any private Bank has signed the agreement yet. An Inter-creditor agreement is an agreement signed amongst the bankers which stipulates how their competing interests are resolved and how to work in tandem in service to their mutual borrower. The objective is to use this ICA for faster facilitation of resolution of stressed assets.

 

6. BANK OF BARODA SETS UP “WAR ROOM LAWYER TEAM” FOR BAD LOAN RECOVERY: Bank of Baroda has set up a dedicated team of lawyers which is named as ‘War Room Lawyer Team” to speed up recovery of bad loans that get embroiled in litigation. The bank has 380 high-value bad loan accounts with a total outstanding of about Rs 15,000 crore. Such recovery measures are expected to reap benefits to the bank and bring back the bank’s profits.

 

7. 25% ATMs OF PUBLIC SECTOR BANKS MAY BE VULNERABLE TO FRAUD: The government has indicated that nearly 25% of the ATMs run by public sector banks  may be vulnerable to frauds as 74% of the cash dispensers are running on outdated software and they lack basic security features. The government however did not disclose details of such ATMs that were run by private sector banks.

 

8. RBI TO ISSUE NEW Rs. 100 NOTES : The Reserve Bank of India will shortly issue new Rs.100 denomination notes in Mahatma Gandhi series. The base colour of the note will be lavender. The note has other designs as well aligning with the overall colour scheme on both sides.

WEEKLY FINANCIAL SNIPPETS – 14/07/2018

1. RBI’S NEW CASH MANAGEMENT NORMS HIKE BANKS’ COSTS: With Reserve Bank of India’s new standards for cash logistics companies starting from July 6^th 2018, some banks are raising the issue of higher costs and demanding higher inter-bank payments for use of ATMs. As per the new norms, banks must ensure that service providers and their sub-contractors they engage, must have a net worth of at least Rs. 100 crore. In case of existing contracts the bank must ensure that the net worth criteria is met by March 2019. The cash logistic companies must have a fleet size of minimum 300 specifically fabricated cash vans and these vans should be equipped with GPS, tubeless tyres, emergency hooters and CCTV covering.

 

2. IMPS FUND TRANSFER DOUBLES IN THE FIRST QUARTER OF FY’ 19: IMPS (Immediate Money Transfer) offers instant round-the-clock interbank electronic funds transfer service that can be accessed through multiple channels like mobile, internet, SMS.  Transfer of funds through IMPS crossed a whopping Rs. 3.23 lakh crore in April-June quarter of 2018-19 financial year. The figure stood at 1.17 lakh crore during the same period in the last fiscal. The number of transactions through IMPS crossed 10 crore mark in March 2018 and touched a high of 12.04 crore in June 2018.

 

3. PUBLIC SECTOR BANKS MAY NEED Rs. 1.3 LAKH CRORE FOR LOAN RECAST PLAN: The committee on Stressed Assets has estimated that public sector banks will need around Rs. 1.30 lakh Crore over a period of two years to deal with resolution of stressed loans , including funding of the proposed Asset Management Company  and the stressed asset fund. The capital requirement may be over and above the additional funds that banks would need to set aside for potential losses from loans that are classified as Non-Performing Assets during the two year period. While the government is set to provide Rs. 65,000 crore, the remaining amount will come through the sale of non-core assets, internal accruals and planned equity raising.

 

4. PUNJAB NATIONAL BANK MAY POST NATION’S BIGGEST BANK PROFIT IN QUARTER 2 OF FY 2018-19: Punjab National Bank that saw its earnings wiped out by an unprecedented fraud, aims to report the nation’s biggest bank profit in the second quarter ending September 2018. This may materialise through sale of assets and recovery of bad loans. Much of its earnings will come from a planned sale of PNB’s stake in its housing finance unit.

 

5. FITCH WARNS AGAINST AUTO-LOAN DELINQUENCIES: Rating agency Fitch has warned against fresh auto-loan delinquencies if fuel prices continue to rise. It said that high petrol and diesel prices could strain India’s commercial vehicle operators and lead to a rise in auto-loan delinquencies. Freight rates have so far not kept pace with the fuel price increase and this would bleed the commercial vehicle operators.

 

6. RBI MAKES IT MANDATORY TO MENTION BUYER’S NAME ON DEMAND DRAFT: Reserve Bank of India has decided to make it mandatory to mention the buyer’s name in the demand draft at a bank branch. This is one of the measures taken by RBI to make banking instruments safe and stronger.

 

7. GROSS NPAs OF PSBs STOOD AT 14.5% AT THE END OF FY 18: The Gross Non-Performing Assets (GNPAs) have continued to rise. The bad loans have surged to a staggering 11.6% of the total advances at the end of FY 2018, up from 9.6% in FY 2017. Public Sector Banks are badly hit by this bad loan scenario with 14.5% of their loans turning bad at the end of FY 2018.

WEEKLY FINANCIAL SNIPPETS – 07/07/2018

1. PROJECT SASHAKT”—BANKS GIVE SHAPE TO INTER-CREDITOR PACT FOR BAD DEBTS: Banks have finalised an inter-creditor agreement and are working on details of an Asset Management Company as part of Five-pronged mechanism they have identified to resolve the mounting issue of Non-Performing Assets under “ Project-Sashakt”. Under “Project Sashakt”, financial institutions will enter into an inter-creditor agreement to authorise the lead bank to implement a resolution within 180 days. The agreement is the base for the Bank-Led Resolution Approach (BLRA) for loans between Rs. 50 – 500 crores. The inter-creditor agreement will be a legal document and enforceable in any court of law.

 

2. RBI REGULATIONS ON AUDITORS PUT BANKS IN A SPOT: Reserve Bank of India has come out with a framework for statutory auditors and has issued certain regulations around auditors and in case of errant auditors, they can be barred from auditing. Now several banks and NBFCs have approached PwC and other big audit firms seeking clarity on likely implications of a clause that could bar audit firms accused of irregularities from servicing financial institutions.

 

3. SBI CARD LAUNCHES ARTIFICIAL INTELLIGENCE POWERED VIRTUAL ASSISTANT ELECTRONIC LIVE ASSISTANT: SBI cards, the country’s second largest credit card issuer has announced the launch of “ELA” (Electronic Live Assistant), a virtual assistant for customer support and services. Driven by Artificial intelligence and Machine Learning, ELA is designed to enhance customer experience by providing relevant and instant responses to customer queries.

 

4. RBI GRANTS LICENCE TO BANK OF CHINA TO SET UP BRANCHES IN INDIA: The Reserve Bank of India has issued licence to Bank of China to launch operations in India. Bank of China is one of the very few state owned commercial banks in China. India and China are focussing on expanding their economic ties notwithstanding differences on several sticky issues.

 

5. UNSECURED BANK LOANS RISE FOUR –TIMES IN LAST THREE YEARS: Banks’ unsecured loan book has grown four times in the bank credit during the past three years, helped by a rise in discretionary spending, technology-driven disbursements and lower interest rates. Between 2015 and 2018, unsecured credit, comprising of personal, MSME and credit card loans have grown on a compounded annual growth rate of nearly 27% which is almost four times growth in bank credit.

 

6. PSU BANKS TO SET UP AMCs FOR LOAN RESOLUTION: Public Sector Banks will take lead in setting up an Asset Management Company (AMC) for resolution of loans above Rs. 500 crore as part of further efforts aimed at rescuing bad assets and restoring lenders to health so that they can focus on further credit growth to push forward India’s ongoing economic recovery. The initiative will be run by the banks without any government support, will be in harmony with all current laws and will function as an additional supporting element to the Insolvency and Bankruptcy Code (IBC) process.

 

7. COMPANY DIRECTORS’ TO FURNISH PERSONAL NUMBERS FOR VERIFICATION: In a significant move, the Corporate Affairs Ministry has decided to carry out KYC (Know Your Customer) process for all Directors of a Company, including those who have been disqualified. The Directors will have to share their personal mobile numbers and E-mail ids with the government as part of verifying their credentials, amid continuing efforts to weed out shell companies.

WEEKLY FINANCIAL SNIPPETS-30/06/2018

1. RBI TO PUNISH AUDITORS FOOR LAPSES IN BANK AUDIT: Reserve Bank of India has said it would punish statutory auditors for lapses in conducting Bank’s audit. It may even bar the said auditors from taking fresh audit assignment. RBI said the quantum of punishment will depend on the magnitude of the divergence from prescribed norms and the auditors would be provided sufficient hearing before any such action is taken. Their role has recently been called into question for lapses in identifying bad loans. RBI had found significant divergence in asset classification in almost all the leading banks.

 

2. PNB LAUNCHES CENTRALIZED LOAN PROCESSING CENTRE (CLPC): Punjab National Bank launched its first CLPC as part of its efforts to strengthen internal system and process. Many steps have been taken by the bank under its “Mission Parivartan”, an initiative to push the bank forward on its transformation journey. It has also launched a new initiative called Reach In Reach Out (RIRO). RIRO and CLPC are efforts to improve its credit quality and ensure faster processing of loans. The bank said this   will improve turn-around-time and will also serve as a strong communication tool with customers and staff. In our opinion many banks are already having their respective CLPCs and our experience says that CLPCs don’t reduce the turn-around-time but instead it delays the process.

 

3. GOVERNMENT REJECTS “BAD BANK” IDEA BUT OK WITH ARC: The government has rejected the “Bad Bank” idea but is ok with launching of an Asset Reconstruction Company (ARC) that will take over the state-run banks’ bad /toxic loans as it is not keen on diverting more taxpayers money towards their resolution. Big cases of loan defaults are already in the process of resolution under IBC so it will not make much sense to have a bad bank for smaller bad loans as not much value can be derived from them.

 

4. NEARLY 25% OF BANK LOAN BOOK HAS TURNED SOUR: As per the Financial Stability Report released by RBI, nearly 25% or one-fourth of banks loan book has turned sour and the worst is not yet over. The bi-annual report further says that lower profits could prevent banks from building cushion against unexpected losses or shocks. Bad loans of 11 PSU banks placed under PCA may worsen from 21% in March 2018 to 22.3% and six PSBs facing PCA may not be able to meet required minimum capital requirement as per the Basel norms of 9%.

 

5. PNB INTERNAL REPORT REVEALS LAPSES THAT LEAD TO $ 2 BILLION FRAUD BY NIRAV MODI: A 162 page report submitted by PNB internal auditors tasked with probing the fraud, lays bare lapses that go far beyond a few Branch officers. The report points out how 54 PNB officials –ranging from clerks to foreign exchange officers, and auditors to head of regional offices, allowed the fraud to be perpetuated. PNB CEO Mr. Sunil Mehta told the press that they have already suspended 21 officials and no one will be spared.

 

6. SAY GOOD BYE TO SHARE CERTIFICATES, YOU HAVE TIME TILL DECEMBER TO CONVERT THEM TO DEMAT FORM: About 2.3% of India’s $ 2 trillion plus market capitalisation is still held in physical stock even after two decades after Stock Exchanges went online. Holders of these physical shares in listed companies now face December 2018 deadline to convert them into dematerialised form if they have to sell or hold them.

 

7. NUMBER OF CREDIT CARD ACCOUNTS GREW 50% SINCE DEMONETIZATION: A CIBIL study has revealed that the number of credit card accounts following the note-ban reform in November 2016 has increased by nearly 50%.

WEEKLY FINANCIAL SNIPPETS- 23/06/2018

1. MICROFINANCE LOAN CAP RAISED TO Rs. 80,000 PER BORROWER: Microfinance lenders including private banks such as Axis Bank, RBL Bank etc. have raised their cumulative micro loan cap per borrower to Rs. 80,000 from Rs. 60,000, a clear hike of 33%. This is prompted by strong demand and rise in self-employment amid poor industrial sector.

 

2. PUBLIC MONEY EXTREMELY SAFE IN PSU BANKS: Finance Minister Mr. Piyush Goyal has said that public money is extremely safe in state-owned banks. He was speaking against the backdrop of several recent fraud cases including the $ 2 billion PNB scam. He also said that the government is open to the question of giving more powers to RBI for effectively regulating the public sector banking.

 

3. 18,000 BANK BRANCHES/POST OFFICES HAVE AADHAAR FACILITY NOW: In July 2017  the Unique Identification Authority of India (UIDAI) had asked private as well as public sector banks to set up Aadhaar updation centres in at least one out of ten branches. In less than one year, the banks and post offices have set up as many as 18,000 Aadhaar centres for enrolment and updation of the biometric ID at such locations.  Out of this, around 10,000 Aadhaar centres have been set up by banks and around 8,000 centres by post offices.

 

4. RBI REVISES THE HOUSING LOAN LIMITS UNDER PRIORITY SECTOR: With a view to bring convergence of the Priority Sector lending guidelines for housing loans with Affordable Housing Schemes, and to give a fillip to low-cost housing for Economically Weaker Sections and Low Income Groups, the housing loan limit for eligibility under priority sector lending has been raised to Rs. 35 lakhs (earlier 30 lakhs) in metropolitan centres and 25 lakhs     (earlier Rs 20 lakhs) in other centres. However there is a condition that the overall cost of the dwelling unit in the metropolitan centre and other centres should not exceed Rs. 45 lakhs and Rs. 35 lakhs respectively.  In a further notification, the RBI has announced that the existing family income limit of Rs. 2 lakh per annum for loans to housing for Economically Weaker Section (EWS) and Low Income Groups (LIG) stands revised to Rs. 3 lakh and Rs. 6 lakh respectively.

 

5. P2P LENDING COMPANIES CHANGE TRACK IN A BID TO BECOME NBFCs : Peer-to-Peer (P2P) lending companies are changing their business model as they intend to migrate to Non-Banking Finance Companies (NBFCs). After the RBI came out with new regulations for these companies, most of them had literally stopped lending. While mandating Rs. 20 million as minimum net worth, RBI had also imposed a Rs. 1 million cap for individual lending on such platforms. Now a couple of P2P companies have NBFC licence from RBI.

 

6. PRIORITY SECTOR LOANS HAVE LOWEST WRITE-OFFs: Write-offs by banks for priority sector loans (agriculture, MSMEs and smaller home loans) account for just 25% of the total write-offs. Rest 75% relates to big companies like working capital and project loans. As per RBI guidelines banks must lend 40% of their total advances to priority sector lending and in this, 18% must go to agriculture. During 2016-17 banks have written off Rs. 24,682 in priority sector loans and Rs. 79,580 crore in other loans.

 

7. INDIANS FACE 25% HIGHER RISK TO FINANCIAL FRAUDS: As per a report by Experian, a global financial information company, Indians are at a higher risk of online financial fraud. With more and more Indians becoming digitally more active the risk of frauds has increased as one in four customers becoming victims to these frauds. 24% of Indians have experienced frauds while transacting online.

WEEKLY FINANCIAL SNIPPETS 16/06/2018

1. GOVERNMENT PLANS TO FORM A LARGE PUBLIC SECTOR ASSET RECONSTRUCION COMPANY: The government is planning to set up a large Public Sector Asset Reconstruction Company (ARC), sort of a big Bad Bank. The government wants to fast track the resolution of stressed assets in the banking system. This way it can set right the PSBs’ impaired capacity  to ease credit flows,especially to Medium & Small Enterprises. A committee under Sunil Mehta, Non-Executive Chairman of PNB has been asked by the government to appraise on this issue.

 

2. 90,000 NON-FILERS ON TAX RADAR: More than 90,000 persons who had deposited Rs. 10 lakh or more in their bank accounts during demonetization period are on the radar of Income-Tax department for not filing tax returns by March 31, 2018. Department had served notices to nearly 3 lakh persons who had deposited Rs. 10 lakh or more during the said period and of these nearly 2.1 lakh persons filed their returns by March 31, 2018. The rest will now face action.

 

3. RESERVE BANK OF INDIA ISSUES GUIDELINES ON LOAN SYSTEM FOR DELIVERY OF BANK CREDIT: The Reserve bank of India has issues guidelines on loan system for delivery of bank credit. According to this, the borrowers who have a total working capital limits of Rs. 150 crores and above should have at least 40% of it as  Term Loan component FROM Ocober1, 2018. The same will be revised to 60% from April 1, 2019. This is a move to instil discipline among large borrowers with working capital limits.

 

4. GOVERNMENT TO SET UP NBFC FOR FOOD COMPANIES: The government is planning to set up a Non-Banking Finance Company (NBFC) dedicated for funding food processing industry. This NBFC will exclusively fund food processing projects. This would be named as Agro Processing Financial Institute. It will be a lending institution driven by private sector, where government will have a stake. The government will have 20% stake and soon will issue a Request For Proposal (RFP), inviting both private and foreign sector financial firms to hold the residual stake.

 

5. PSU BANKS’ NPA WRITE-OFFS SURGE TO 140% OVER THEIR LOSSES IN FY-18: Public Sector Banks          (PSBs) have written-off Non-Performing assets (NPAs) worth Rs. 1.2 Trillion, ( Rs 1, 20,000 Crores), an amount that is nearly 1.5 times more than their total losses posted in 2017-18. This is the first time that banks have made huge writ-offs on bad loans. A write-off means the bank has made 100% provision from its earnings against the loss asset and this loss asset (NPA) is no longer a part of bank’s balance sheet.

 

6. BANKS MAY ASK BIG BORROWERS FOR MORE PROOF BEFORE SANCTIONING LOANS: The government may ask state-run banks to run a re-check on big borrowers with Corporate Affairs Ministry or Registrar of Companies (ROC) before sanctioning high value consortium loans. The idea is to find out if the borrower has any associated shell companies, get a fix on subsidiaries with direct or indirect beneficiaries and to determine whether there are any red flags against the prospective borrower. This follows the fraud and diversion of funds being uncovered at present,where in most of the cases it was found that the loans from banks were diverted to shell companies. State owned banks may also seek such information on their own for smaller value loans if they want a higher degree of comfort.

 

7. RBI MUST ACT AS AN ALERT INSPECTOR, NOT JUST OFF-SITE SURVEYOR: Reserve Bank of India Union has requested Governor Mr. Urjit Patel to monitor banks through a combination of risk-based supervision, off-site surveillance and on-site inspections of operational systems. In a written letter to the Governor, the union has suggested that the RBI should undertake random supervision of bank branches in all parts of the country periodically, possibly 10% of bank branches comprising all regions on an annual basis which will give the best result.

WEEKLY FINANCIAL SNIPPETS- 09/06/2018

1. BANKS’ BAD LOANS CROSS Rs. 10 LAKH CRORE: Indian Banks’ Gross Non-Performing Assets
(NPAs) stood at Rs. 10.25 lakh Crore as on 31/03/2018. As on 31/12/2017 the bad loans were
Rs. 8.86 lakh Crore. That means in the last quarter of FY 2018 the pile has grown by Rs. 1.39
Lakh crore or 16% jump from December quarter which is really alarming. A break-up of NPAs
shows that 21 Public Sector Banks (PSBs) have a Gross NPA of Rs 8.97 lakh crore and that of 18
private sector banks stood at Rs 1.28 lakh crore as on 31/03/2018.
2. AFFORDABLE HOME LOANS A WORRY FOR RBI: Reserve Bank of India has said that it is closely
monitoring the small Housing loan segment of up to Rs. 2.00 lakh and after careful analysis of
the said data, it has been observed that the level of NPAs (Bad loans) for ticket size of up to Rs.
2.00 lakh is very high and has been rising briskly. Reserve Bank has warned all banks that it will
be constrained to make small ticket housing loans more expensive under the affordable housing
scheme and force borrowers to pay up more money if banks don’t tighten the standards and
address the rising bad loan scenario in this segment.

3. CO-OPERATIVE BANKS COULD BECOME SMALL FIANANCE BANKS: Reserve Bank of India has
opened the doors for Urban Co-operative Banks (UCBs) to convert into Small Finance Banks
giving them more freedom and access to open branches pan India and thus opening up a larger
market for these lenders which at present are of local nature. The details of the scheme will be
announced separately.

4. CAPITAL FIRST’S MERGER WITH IDFC BANK GETS RBI NOD: Reserve Bank of India has issued a
No Objection Certificate for the merger of IDFC Bank and Capital First. Now IDFC Bank has to
approach the shareholders and creditors of the merged companies. A clearance from NCLT is
also required to clear the way for both the entities to merge. Capital First Home Finance and
Capital First Securities will also merge with IDFC bank.

5. TROUBLED MSMEs GET A BREATHER FROM RBI: In a relief to Micro, Small & Medium
Enterprises (MSMEs) affected by the rollout of GST, RBI has given them a temporary breather
by allowing them to delay their loan repayments by 180 days without being classified as NPA.
This facility will be available to all MSMEs with aggregate credit limits of up to Rs. 25 crore,
irrespective of whether they are registered under GST or not. Accordingly, eligible MSME
accounts, which were standard as on 31/08/2017 shall continue to be standard asset if
payments due as on 01/09/2017, and falling due thereafter up to 31/12/2017 were paid not
later than 180 days from their original due date.

6. PSBs’ FY18 LOSSES HAVE WIPED OUT GOVERNMENT’S $ 13 BILLION INFUSIONS: Losses by
state run banks have entirely wiped out $ 13 billion ( Rs 87,100 Crores) capital infusion by the
government and the situation is not likely to improve in the current fiscal as well. Rating agency
Fitch has said that the big losses will pressure the banks viability rating.

7. BANKS PLAN TO SELL Rs. 28,000 CRORE NPAs: Seven banks including the big brothers like SBI
and ICICI Bank are in the process of selling their bad loan portfolio totalling to Rs. 28,000 crore
to asset reconstruction companies in the coming weeks without waiting for the resolutions. SBI
and ICICI bank have already disclosed their list of assets that would be put on sale and other
banks are in final stages. The largest share is that of IDBI bank which has identified 30 accounts
with Rs. 21,399 crore. SBI has identified 12 accounts worth Rs. 1,325 crore while ICICI bank has
identified 16 accounts amounting to Rs. 2,330 crore.

8. AXIS BANK LAUNCHES NEW CHAT BOT SERVICE: Axis bank has launched a virtual assistant for
its customers armed with artificial intelligence and machine learning algorithms and named it
“AXIS AHA” The chatbot is designed to provide relevant contextual responses to customer
queries and even help them make transactions on the chat window itself.