News Analysis India

Tag: RBI

  • NBFCs: Reserve Bank of India to step up vigil with four-layered regulatory framework

    By PTI

    MUMBAI: The Reserve Bank of India (RBI) will put in place a four-layered regulatory structure for non-banking financial companies to keep a stricter vigil on the shadow banking sector and minimise risks for the overall financial system.

    The detailed set of norms, which will come into force from October 2022, provides for a Scale Based Regulation (SBR) framework that takes into consideration capital requirements, governance standards, prudential regulation and other aspects of the Non-Banking Financial Companies (NBFCs).

    The central bank’s latest move, after extensive stakeholder consultations, also comes against the backdrop of previous instances, including the collapse of IL&FS in 2018 and later DHFL, that had a spillover impact on the entire financial system, especially in terms of liquidity woes.

    Since then, the focus shifted to having tighter regulations rather than a light touch approach for the country’s shadow banking sector.

    Unveiling the four-layered framework, RBI on Friday said that over the years, the NBFC sector has undergone considerable evolution in terms of size, complexity, and interconnectedness within the financial sector.

    Many entities have grown and become systemically significant, and hence there is a need to align the regulatory framework for NBFCs keeping in view their changing risk profile, it said in a statement.

    To begin with, the central bank will issue an integrated regulatory framework for NBFCs, providing a holistic view of the SBR structure, set of fresh regulations being introduced and respective timelines.

    NBFCs will be split into four layers — Base Layer (BL), Middle Layer (ML), Upper Layer (UL) and Top Layer (TL).

    The Base Layer will consist of NBFCs currently classified as non-systemically important NBFCs (NBFC-non deposit taking), besides Type I NBFCs, non-operative financial holding company, NBFC-P2P (Peer to Peer lending platform) and NBFC-AA (Account Aggregator).

    The asset size threshold for this layer will be less than Rs 1,000 crore.

    Currently, the threshold for systemic importance is Rs 500 crore.

    The Middle Layer will consist of all non-deposit taking NBFCs classified currently as NBFC-ND-SI (Non-Deposit Taking Company-Systematically Important) with asset size of over Rs 1,000 crore and all deposit taking NBFCs irrespective of size.

    The upper layer will comprise of those NBFCs which are specifically identified by the Reserve Bank as warranting enhanced regulatory requirement based on a set of parameters.

    The top ten eligible NBFCs in terms of their asset size shall always reside in the upper layer, irrespective of any other factor, RBI said.

    “The Top Layer will ideally remain empty. This layer can get populated if the Reserve Bank is of the opinion that there is a substantial increase in the potential systemic risk from specific NBFCs in the Upper Layer. Such NBFCs shall move to the Top Layer from the Upper Layer,” it noted.

    Regulatory minimum Net Owned Fund (NOF) for NBFC-Investment and Credit Companies (ICC), NBFC Micro Finance Institution (MFI) and NBFC-Factors would be increased to Rs 10 crore and a glide path has been charted out for meeting this requirement.

    However, for NBFC-P2P, NBFC-AA, and NBFCs with no public funds and no customer interface, the NOF will continue to be Rs 2 crore.

    The extant NPA classification norm stands changed to the overdue period of more than 90 days for all categories of NBFCs.

    A glide path is provided to NBFCs in base layer to adhere to the 90 days NPA norm, the statement said.

    In order to enhance the quality of regulatory capital, RBI said that NBFC-UL would maintain Common Equity Tier 1 capital of at least 9 per cent of Risk Weighted Assets while they will be required to hold differential provisioning towards different classes of standard assets.

    In addition to the CRAR, NBFC-UL will also be subjected to leverage requirement to ensure that their growth is supported by adequate capital, among other factors.

    A suitable ceiling for leverage will be prescribed subsequently for these entities as and when necessary.

    According to RBI, Housing Finance Companies would continue to follow specific regulation on sensitive sector exposure, as are currently applicable.

    There shall be a ceiling of Rs 1 crore per borrower for financing subscription to Initial Public Offer (IPO).

    NBFCs can fix more conservative limits, RBI said.

    Further, the central bank has outlined large exposure limit for all counterparties and groups of connected counterparties and for the capital market and commercial real estate.

    To strengthen corporate governance, it has suggested inclusion of independent directors on the board, among other requirements.

  • RBI remains laser-focused to bring back inflation to 4 per cent: Governor Das

    He opined that continued monetary support is necessary as the economic recovery process even now is delicately poised and growth is yet to take firmer roots.

  • Supreme Court refuses to entertain plea by pre-schools for moratorium on loan repayment 

    By PTI

    NEW DELHI: The Supreme Court on Friday refused to entertain a plea seeking direction to the Centre and RBI that those running playschools be granted “interest-free moratorium period for term loans” and that their EMI be deferred till the corona situation subsides.

    A bench comprising Justices L Nageswara Rao and B R Gavai, however, granted liberty to the petitioner to approach the RBI with his representation “How can the court grant the relief you are asking for in this petition. You make a representation they will decide but don’t file petitions like this. It’s not within the realm of this court to provide what you are asking for and the relaxations you are seeking,” the bench said.

    At this juncture, advocate Rohit Pandey, appearing for the petitioner, sought liberty to approach the Reserve Bank of India (RBI) with his representation.

    The top court then granted liberty to the petitioner that he may approach the RBI.

    “We would not like to entertain this writ petition. However, the petitioner is granted liberty to approach the RBI which may suitably decide the representation in accordance with law,” the bench said.

    The apex court was hearing a plea filed by The Indian Council of Early Childhood Educators and Institutions (ICECEI), having professional individuals, groups, pre and play schools as members, seeking a direction that the loans availed by such institutions be not declared non-performing assets (NPAs) due to non-payment of EMIs during the second wave.

    The plea said like regular schools, they are not earning by imparting online education to toddlers.

    “The present writ petition is filed to enforce fundamental rights, particularly the right to livelihood and right to dignity which is enshrined under Article 21 by seeking directions to take effective and remedial measures to redress and overcome the financial stress and hardship faced by pre-schools across the country during the second wave of COVID-19 in the form of fresh loan moratorium, extension of time period under the restructuring scheme and temporary cease on the declaration of NPA by financial banks,” said the plea.

    Unlike other schools which are into online education mode, these institutions cannot impart education through such mediums to toddlers and hence, have become unable to earn, it said.

    The plea filed through ICECEI’s President Yash Pal Singh referred to the RBI’s notifications issued last year by which the relief of suspension of monthly loan instalment was granted to borrowers.

    “The Central Government and its ministries concerned along with the Reserve Bank of India has failed to bring in any such relief in this present situation for all those stressed sectors and individuals for whom sustenance and existence has been a question,” the plea said.

    The second wave of COVID-19 has shaken the health care and financial system, it said, adding the government be asked to permit lending institutions to grant interest-free moratorium period for term loan and defer the payment of loan instalments for a period of six months or till situation from COVID-19 normalises.

    “Issue writ to ensure that all the lending Institutions … must not take the recent 16 months of the loan repayment track, Credit Score and Credit Report into consideration while scrutiny/processing the loan application or extending any grant /relief packages released by respondent Centre to the benefit of pre/playschools,” it said.

    It also sought a direction that financial institutions shall not take action for auctioning respect of any property of any citizen or person or party or any body corporate for a period of two years, the plea said.

  • ‘Happy and proud’: KTR overjoyed at Telangana’s contribution to Indian economy

    By Express News Service

    HYDERABAD: IT and Industries Minister K Taraka Rama Rao on Thursday expressed his elation after the “Handbook of Statistics on The Indian Economy 2020-21” placed Telangana on the fourth position when it comes to the ‘Net State Value Added,’ by a state at current prices.

    The list was disclosed by the Reserve Bank of India on Wednesday. 

    Tweeting a report that appeared in The New Indian Express, KTR expressed his happiness and pride.

    Happy & proud that the Latest RBI report says #Telangana is the 4th largest contributor to India’s economyUnder the leadership of Hon’ble CM KCR Garu,Telangana state continues to punch above its weightRanks 12th in population & 11th geographically, 4th in nation building pic.twitter.com/mTSU8SOOkg
    — KTR (@KTRTRS) September 16, 2021
    “Happy and proud that the latest RBI report says Telangana is the 4th largest contributor to India’s economy. Under the leadership of CM KCR, Telangana State continues to punch above its weight,” he tweeted, also pointing out that though Telangana stood 12th in population numbers and 11th in terms of geographical area in the country, it stood 4th in nation building. 

    Telangana’s ‘Net State Value Added’ increased from Rs 4,16,930 crore in 2014-15 to Rs 8,10,503 crore in 2020-21. The top three contributors are Tamil Nadu, Karnataka, and West Bengal. 

  • RBI penalises 2 co-op banks for deficiencies in regulatory compliance

    By PTI

    MUMBAI: The Reserve Bank of India (RBI) on Wednesday said it has imposed penalties on two cooperative banks for deficiencies in certain regulatory compliance.

    A penalty of Rs 5 lakh has been imposed on The Swasakthi Mercantile Cooperative Urban Bank, Vijayawada, for contravention of/ non-compliance with certain provisions of the directions issued under a 2015 circular on ‘Board of Directors- UCBs’.

    In another statement, the RBI said a penalty of Rs 40,000 has been imposed on Shikshak Sahakari Bank, Nagpur, for non-compliance with regulatory directions contained in the directive on ‘Membership of Credit Information Companies (CICs)’ and the provisions of Credit Information Companies Rules, 2006.

    In both cases, however, the central bank said the action on the lenders was based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by them with their customers.

  • Extent of food items price rise remained relatively modest in Covid second wave: RBI article

    The article has been prepared by Jibin Jose, Vimal Kishore, and Binod B Bhoi from the Department of Economic and Policy Research, RBI.

  • Parliament passes Deposit Insurance and Credit Guarantee Corporation amendment bill

    By PTI

    NEW DELHI: The Lok Sabha on Monday passed a bill that seeks to ensure that account holders will get up to Rs 5 lakh within 90 days of the RBI imposing moratorium on their banks from the Deposit Insurance and Credit Guarantee Corporation (DICGC).

    The Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021 was passed by a voice vote amid an uproar by Opposition parties over various issues, including the Pegasus snooping row and farm laws.

    The Rajya Sabha passed the bill last week.

    Finance Minister Nirmala Sitharaman, in her brief statement, said the legislation will benefit small depositors, including those of the Punjab and Maharashtra Cooperative (PMC) Bank.

    The benefits will also accrue to the depositors of 23 cooperative banks, which are in financial stress and on which the Reserve Bank of India (RBI) has imposed certain restrictions, she said.

    Sitharaman said the interest of the small depositors will have to be kept in mind, adding that Prime Minister Narendra Modi has increased the insurance amount for them from Rs 1 lakh to Rs 5 lakh and within 90 days of moratorium being declared on a bank and also for those who are already under stress, the money will be available.

    Once the bill becomes law, it will provide immediate relief to lakhs of depositors, whose money is parked in stressed lenders such as the PMC Bank and other small cooperative banks.

    According to the current provisions, the deposit insurance of up to Rs 5 lakh comes into play when the licence of a bank is cancelled and the liquidation process starts.

    DICGC, a wholly-owned subsidiary of the RBI, provides an insurance cover on bank deposits.

    At present, it takes 8-10 years for the depositors of a stressed bank to get their insured money and other claims.

    Though the RBI and the Centre keep monitoring the health of all banks, there have been numerous recent cases of banks, especially cooperative banks, being unable to fulfil their obligations towards the depositors due to the imposition of a moratorium by the RBI.

    Last year, the government increased the insurance cover on deposits by five times to Rs 5 lakh.

    The enhanced deposit insurance cover of Rs 5 lakh came into effect from February 4, 2020.

    In September 2019, the RBI superseded the board of the PMC Bank and imposed various regulatory restrictions after financial irregularities came to light.

     

  • Online lending platforms can’t be allowed to charge exorbitant interest: HC

    An expert body is required to look into the issue, the high court said, added that it expects that the Centre and RBI will come out with some solution by the next date of hearing, August 27.

  • RBI working on digital currency, pilot projects likely in near future: Deputy Governor

    By PTI
    NEW DELHI: The RBI is working on phased introduction of its own digital currency and is mulling pilot projects in wholesale and retail segments in the near future, Deputy Governor T Rabi Sankar said on Thursday.

    He also said several countries have implemented specific purpose Central Bank Digital Currencies (CBDCs) in the wholesale and retail segments.

    A CBDC is a legal tender issued by a central bank in a digital form.

    It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency.

    Sankar said developing a domestic CBDC could provide the public with uses that any private virtual currency (VC) offers and to that extent might retain public preference for the rupee.

    “It could also protect the public from the abnormal level of volatility some of these VCs experience,” he said while participating in an online discussion organised by The Vidhi Centre for Legal Policy.

    Introduction of CBDC, he said, has the potential to provide significant benefits such as reduced dependency on cash, higher seigniorage due to lower transaction costs and reduced settlement risk.

    “Introduction of CBDC would possibly lead to a more robust, efficient, trusted, regulated and legal tender-based payments option.

    There are associated risks, no doubt, but they need to be carefully evaluated against the potential benefits,” he said.

    The Deputy Governor said it would be the RBI’s endeavour, “as we move forward in the direction of India’s CBDC”, to take the necessary steps which would reiterate the leadership position of the country in payment systems.

    He said CBDCs are likely to be in the arsenal of every central bank going forward.

    Setting this up will require careful calibration and a nuanced approach in implementation.

    Sankar stressed that drawing board considerations and stakeholder deliberations are important, while technological challenges have to be looked at as well.

    “RBI is currently working towards a phased implementation strategy and examining use cases which could be implemented with little or no disruption,” he said.

    Some key issues under RBI’s examination include, the scope of CBDCs, the underlying technology, the validation mechanism and distribution architecture.

    “However, conducting pilots in wholesale and retail segments may be a possibility in near future,” the Deputy Governor said.

    Sankar further said legal changes would be necessary as the current provisions have been made keeping in mind currency in a physical form under the Reserve Bank of India Act.

    He said consequential amendments would also be required in the Coinage Act, Foreign Exchange Management Act (FEMA) and Information Technology Act.

    “As is said, every idea will have to wait for its time. Perhaps the time for CBDCs is near,” he remarked.

    He also highlighted some the risks associated with digital currencies, like sudden flight of money from a bank under stress.

    “There are associated risks. But they need to be carefully evaluated against the potential benefits,” he added.

    The finance ministry, in 2017, had set up a high level inter-ministerial committee to examine the policy and legal framework for regulation of virtual / crypto currencies.

    It had recommended the introduction of CBDCs as a digital form of fiat money in India.

    The RBI has also been exploring the pros and cons of introduction of CBDCs since quite some time.

  • From next year, pay Rs 24.78 per ATM transaction after free monthly limit

    By Express News Service
    NEW DELHI:  Withdrawing cash from ATMs will be costlier from January 1, 2022, as the Reserve Bank of India (RBI) has allowed banks to charge customers up to Rs 21 per transaction (plus 18% GST, which makes it Rs 24.78). Currently, the cap is Rs 20 per transaction plus GST. 

    The increase, according to RBI, is “to compensate the banks for the higher interchange fee and given the general escalation in costs”. While the banking regulator has set the upper limit, banks charge different rates within the limit. For example, SBI allows five free transactions in a month.

    Thereafter, it  charges Rs 10 plus GST for withdrawing money from its own machines. For non-SBI ATMs, this will be Rs 20 plus GST. ICICI Bank levies a flat Rs 20 plus GST from the fifth transaction onwards. RBI has also increased the interchange charge from Rs 15 to Rs 17 for each financial transaction and from Rs 5 to Rs 6 for non-financial transaction.

    Interchange charges are the fees a bank pays to another lender when the former’s customer uses the latter’s ATM to withdraw cash. According to RBI, the first five transactions in a month will be free if customers use their own banks’ ATMs. They are also eligible for free transactions (including financial and non-financial) from other bank ATMs – three transactions in metro centres and five transactions in non-metros. 

    These changes are based on the report from a committee formed by the central bank in 2019 to review ATM charges. The committee had submitted its report in July 2020. The last time the interchange fee for ATM transactions was changed was in August 2012, while the charges payable by customers were last revised in August 2014.