WEEKLY FINANCIAL SNIPPETS – 29/10/2016

RBI TO AUDIT CYBER SECURITY AT BANKS: In view of the latest financial data leakage that has happened recently, RBI is looking to take matters in its own hands and scrutinise security of banks. For that RBI is looking to rope in outside help that would try and exploit the loopholes in the information technology system of the banks so as to rule out repeated breaches in future. This would be a kind of IT (Information Technology) audit which directly deal with the loopholes in IT system of banks.

BANKS TOLD TO ADHERE TO CYBER NORMS: Indian Banks were recently stung by the biggest financial data breach to hit the banking industry as a result of which the banks were forced to compromise as many as 3.2 million debit cards. As a result of this, Reserve Bank of India has directed banks to strictly adhere to the cyber security norms and guidelines issued in June 2016. Banks have been advised to review the extant cyber security arrangements.

HUNDREDS OF SMALL NBFCs FACE CLOSURE THREAT ON TIGHTER RATING NORMS: Nearly 200 Non-Banking Financial Companies (NBFCs) face closure in the next few months as they don’t meet the Reserve Bank of India’s mandated requirement of minimum investment grade credit rating to accept deposits. These companies which are mainly localised small time lenders have now approached the regulator seeking relaxation in the said norms.

BSE INTRODUCES PAPERLESS “SIP” FACILITY FOR MUTUAL FUND INVESTORS: The BSE has introduced paperless “SIP”( Systematic Investment Plan) facility to mutual fund investors. This move will drastically cut the registration time and allow subscribers to transact through different payment modes including Net Banking.

BANKS MAY ACQUIRE CORE SECTOR ASSETS: The government has decided to encourage state run banks to acquire assets of loan defaulters in steel, power and shipping sectors. State run banks will manage these companies. This will necessarily involve the banks to invokepower under the contract, converting part of their debt into equity, taking control of those units and appointing a management team of established people to manage these units.

BANKS MOVE TO LOWER CREDIT CARD EXPOSURE: Banks are slowing their exposure to their credit cards business amid fears that they may be fuelling growth in a segment that may come under pressure due to slowing pay rises and uncertainties over jobs.

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WEEKLY FINANCIAL SNIPPETS – 22/10/2016

RBI EASES NORMS FOR FOREIGN INVESTMENT IN START-UPS: The Reserve Bank of India has now permitted Foreign Venture Capital Investors ( FVCIs) to invest in Indian start-ups without any prior approval. SEBI registered FVCIs have also been permitted to invest in un-listed firms without any prior permission from RBI. They do not require any prior approval and can invest in equity or equity linked instruments or debt instruments issued by Indian start-ups.

RBI PERMITS 100% FDI IN MORE FINANCIAL SERVICES: The Reserve Bank of India has permitted 100% Foreign Direct Investment (FDI) in “Other Financial Services” carried out by NBFCs under automatic route. The “Other Financial Services“ will include activities which are regulated by any financial sector regulator like RBI, SEBI, Insurance Regulatory, Pension Fund Regulatory etc. Such foreign Investment will be subject to certain conditions like minimum capitalization norms.

SBI BLOCKS OVER 6 LAKHS DEBIT CARDS ON SECURITY BREACH FEAR: Sate bank of India has said that it has blocked and will replace 6,25,000 debit cards fearing data/security breach. SBI said it will compensate its customers in case of lapses. On getting information from VISA/MASATERCARD and RUPAY, as a measure of precaution, they have decided to replace these cards.

PSU BANKS ASKED TO REFER HIGH-VALUE BAD LOAN RESOLUTION CASES TO OVERSEEING PANEL: The Finance Ministry has asked public sector banks to approach the newly formulated Over Seeing Committee ( OC) for resolution of all High-value bad loans and not just accounts considered under Scheme for Sustainable Structuring of Stressed Assets ( S4A). The Over Seeing Committee (OC) is a two member committee which includes former SBI Chairman Mr. Janki Ballabh and former chief vigilance commissioner Mr. Pradeep Kumar which is set up by Indian Banks’ Association in consultation with RBI and vigilance and investigating agencies.

MERGERS ARE NOT QUICK FIX SOLUTIONS FOR BANKING SECTOR: As per the report of The Associated Chambers of Commerce and Industry of India (Assocham), an Industry body, it says the government should focus on making banking system more stronger and give the lenders independence to find their own solutions instead of stressing on mergers. Assocham President Mr. Sunil Kanoria while releasing the report said that mergers and consolidation of public sector banks is certainly no answer to the present crisis, which can only be resolved by professionalising these banks with the government keeping an arm’s length.

WEEKLY FINANCIAL SNIPPETS – 15/10/2016

1. TOTAL BANK DEPOSITS CROSS Rs 100 LAKH CRORE FOR THE FIRST TIME: India’s banking system reported total deposit of Rs 100.00 lakh crores for the first time ever in September 2016. This is as per the data released by RBI. With demand deposits crossing  Rs 10 lakh crores and time deposits crossing Rs 90 lakh   The month of September saw the highest ever monthly rise of 5.32 lakh crores. Although 100 lakh crores is a big milestone, historical data reveal that the deposit growth has slowed down considerably in the last five years. While banks’ deposit grew at a CAGR of 12.88% in the previous five years, it had grown at a CAGR of 19.9% in the previous five years.

2. PSBs LOSSES MAY HAMPER ABILITY TO PAY INTEREST ON BONDS: As per CRISIL Rating’s report, a sharp decline in profitability and mounting losses of some of the Public Sector Banks could wipe out their revenue reserves and hamper their ability to pay interest on bonds issued to meet Basel III norms. While the government has committed capital infusion to PSBs, the coupon on AT1 bonds can only be serviced through current year’s profit or from revenue reserves and hence any capital infusion by government alone cannot improve the banks’ ability to service coupon      ( interest) on the bonds.

3. GOVERNEMENT PLANNING MERGER OF TWO BIG PSU BANKS AFTER DEBT CLEAN-UP: Government of India is planning and may merge two big banks in the coming fiscal once the clean-up of bad asserts is completed. Consolidation of India’s public sector banks would represent a final step in rebuilding a strong financial system capable of underwriting credit growth and more job creating investment.

4. FIRST HALF FINANCIAL STATEMENTS (H1) TO BE SUBMITTED BY BANKS TO RBI BY NOVEMBER 30TH: The Reserve Bank of India has asked banks to submit the first- cut reporting of their financial statements for the first half of the fiscal ending September 30 with regard to Indian Accounting Standards by November 30th. This will help RBI to ascertain the difficulties faced by these banks as part of the transition to the International Financial Reporting Standards from April 2018.

5. RBI CHIEF WARNS OF RISKS FROM BREXIT AND U.S. ELECTIONS: Reserve Bank of India Governor Mr. Urjit Patel has warned India and fellow BRICS countries( Brazil, Russia, India, China and South Africa) to be prepared to confront potential “political risk” events such as Britain’s exit from European Union and U.S. Elections. Mr. Patel said that India has already moved in this regard to improve its defences, through measurable progress in price stability, fiscal rectitude and sustainable current accounts. He further added that government initiatives such as ‘’Make in India” intended to turn it into a manufacturing hub.

WEEKLY FINANCIAL SNIPPETS—08/10/2016

RBI LOWERS BENCHMARK REPO RATE BY 25 BPS TO 6.25%: Reserve Bank of India has cut the interest rates by quarter points and now the new repo rate would be 6.25%, which is the lowest in 6 years. With this, Mr Urjit Patel the new RBI Governor, by dropping the interest rate to a near six year low, appears to be making way for a different way of doing things despite the inflation forecast for financial year 2016 nudging over the target.

NEW GUIDELINES ON STRESSED ASSETS : Indian Banks which are burdened by bad loans are likely to get a breather in the way they classify restructured stressed loans, opening up the possibility of more bailouts for the ailing companies. RBI has said that banks need not classify the sustainable part of restructured loans as bad. The relaxation in the said guidelines will help most banks and will be a relief for the banking system.

FINETECH STARTUPS TO GRAB BUSINESS FROM FINANCIAL INSTITUTIONS AND BANKS: Finetech startup companies are rolling up their sleeves to get share in the financial market. As consumption is picking up, the banks are struggling to keep up with the growing market and then NBFCs are still slow to learn the ways of online business, these Finetech startups are grooming up day by day. A few companies are plugging the e-commerce sites directly to provide consumers with easy EMI options, others are trying the personal loan segment by filling their wallets before they go out for shopping.

DELINQUENCIES IN LAP(LOANS AGAINST PROPERTY) MAY RISE, NBFCs MAY HAVE MORE STRESS: Delinquencies in LAP portfolio of financial institutions is likely to rise to over 5% over the next four quarters. This is due to stagnant property prices and risk aversion. More than the banks, NBFCs will have more stress  as out of the total  LAP portfolio of Rs 2.5 lakh crores for the entire financial sector, about 1.2 lakh crores is estimated to be on the books of NBFCs.

BANKS MAY DELAY IFRS IMPLEMENTATION ON ACCOUNT OF CAPITAL WORRIES: Reporting agency Fitch has said that migrating to the International Financial Reporting Standards (IFRS) format is likely to be delayed in the domestic banking sector as banks are finding it difficult to meet Basel III requirement. Basel III capital requirements are to be met by Indian banks by end of March 2019.

WEEKLY FINANCIAL SNIPPETS- 01/10/2016

1.BANKS CAN’T PUBLISH DEFAULTERSPHOTO RANDOMLY: Reserve Bank of India has said that Banks can publish photographs of only those borrowers in newspapers who have been declared “Wilful Defaulters “as per central Bank’s guidelines. It directed the Banks to formulate a policy in this regard and the policy should clearly set out the criteria based on which the decision to publish photographs of the defaulters is taken.

2.PSBs ASKED TO USE “NEIN” DATABASE TO CHECK ANTECEDENTS OF ECONOMIC OFFENDERS: Public Sector Banks (PSBs) have been asked to use the National Economic Intelligence Network (NEIN) database to check the antecedents of borrowers and inform the authorities about the financial irregularities. Intelligence agencies have asked the banks to submit the information in a standard format. With this, promoters with questionable financial track record may find it very difficult to get credit from PSBs. This is a part of a strategy to prevent bad loans from piling up.

3.NPAs TO DIP ON HIGH INDUSTRIAL CAPACITY UTILISATION: SBI Chairperson Ms Arundhati Bhattacharya has said that the stressed assets level in the banking sector will come down once the key industrial sectors start functioning at their optimum capacity. Presently most of the industrial sectors are working at 60 to 65% of their capacity and once this is accelerated to 80 to 85%, we will see NPAs coming down as the demand comes back in the economy and will see more and more capital utilisation.

4LENDERS TO GAUGE BORROWERS INTENT TO PAY, NOT JUST ABILITY TO PAY: So far banks and finance companies have factored borrower’s ability to pay the loan rather than his intent to pay. Borrowers may no longer be judged solely on the ability to repay the loan, their intent to repay too may become a critical parameter to avail loan. A number of finance companies have tied up with consulting firms which specialise in psychometric testing in lending that gauges the borrower’s creditworthiness on the basis of their intent to repay, instead of their ability. This issue has gained importance after the Vijay Mallya’sKing Fisher loan fiasco.

5.ELEVEN INDIAN BANKS RISK BREACHING BASELIII CAPITAL TRIGGERS: As per the rating agency Fitch, Eleven of India’s Banks will likely be in danger of breaching Basel III capital triggers. The agency had estimated that India’s banks will need $90 billion in new capital to comply with Basel III banking norms which are due to fully kick in by March 2019. State run banks accounted for 80% of that amount.

6.BLACK MONEY: I-T RAIDS INCREASE THREE FOLDS: In the backdrop of the lack lustre results in the Centre’s Income–Disclosure Scheme (IDS) which hasnot yielded desired results so far, the government has started building pressure across the country by increasing the number of income tax raids, which have gone up by three times in the first four months of this financial year.