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 1ST April 2019.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.
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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 6th 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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.

 

  1. 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%.

 

  1. 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.

 

  1. 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.

 

  1. 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%.