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Banking News 03.02.2017

Digital payment worry: After peaking in Dec,

PoS transactions fall over 25% in January


Shritama Bose

The Financial Express

Published on February 3, 2017



Mumbai, February 2: The value of transactions at point-of-sale (PoS) machines dropped over 25% in January after peaking in December in the wake of demonetisation. The aggregate value of credit and debit card transactions between January 1 and 30 was Rs 41,748.43 crore, as against Rs 52,223.84 crore for December, data released by the Reserve Bank of India (RBI) showed.


The volume of PoS transactions also fell to 230.44 million from 311 million in December, even as the average ticket size of transactions rose to around Rs 1,812 from roughly Rs 1,680.


The figures suggest that in January, consumers went back to using cash for some transactions as the Reserve Bank of India gradually eased restrictions on cash withdrawals.


In December, card-based transactions had risen over 48% from their November levels and even surpassed the Rs 51,121 crore clocked in October, which marked the peak of the festive season.


The Budget for 2017-18 saw the government announcing a mission targeting 2,500 crore digital transactions for the year through Unified Payments Interface (UPI), Unstructured Supplementary Service Data (USSD), Aadhar Pay, immediate payment service (IMPS) and debit cards.


In his speech, finance minister Arun Jaitley said banks have a target to introduce 10 lakh new PoS terminals by March and they will be encouraged to introduce 20 lakh Aadhar-based PoS terminals by September.


These plans may meet behavioural resistance from consumers, if the slowdown in January is anything to go by.


The value of transactions made through the UPI channel, however, continued to grow, rising more than twice from its December level to Rs 1,669.59 crore.


The volume of such transactions rose to 4.19 million in January from 2 million in December.


The growth in UPI transactions came at the cost of growth in mobile wallet usage. Transactions made through wallets dropped marginally to Rs 2,099.2 crore in January from Rs 2,125.43 crore in December.


The USSD channel, meant for feature phone users, grew steadily on a low base, to Rs 37.23 crore in January from Rs 10.37 crore in the previous month.



From E-Group, Banking-News



RBI issues ‘Draft Guidelines’ on

Interest Rate Risk management


The Business Standard

Published on February 3, 2017



IRRBB refers to the current or

prospective risk to a bank's capital and earnings


Mumbai, February 2 (PTI):  The Reserve Bank of India of Thursday released the draft guidelines on Interest Rate Risk in Banking Book (IRRBB), which stress on greater disclosures by lenders.


IRRBB refers to the current or prospective risk to a bank's capital and earnings, arising from adverse movements in interest rates that affect banking book positions.


An excessive IRRBB can pose a significant threat to a bank's current capital base and/or future earnings if not managed appropriately, the RBI explained.


The draft guidelines suggest lenders to compute and disclose the changes in economic value of equity and net interest income.


If the economic value of equity goes over 15 per cent of the core tier-1 capital, banks may be required to take appropriate action as per Pillar 2 of Basel III Capital regulations.



From E-Group, Banking-News



Fraud Loan Accounts: RBI Cautions

Banks against delay in reporting


The Indian Express

Published on February 3, 2017



Mumbai, February 2: Reserve Bank of India (RBI) Deputy Governor S S Mundra has warned banks that any delay on the part of the bankers in initially red flagging an exposure and subsequently declaring it as a fraud will have far reaching implications as “banks and bankers could be charged for abetting the criminal offence”.


“My call to you, therefore, is to identify and declare the account as fraud without wasting time. The best course of action would be to follow the instructions in letter and spirit and take a responsible and pro-active stand while attending consortium meetings,” Mundra told bankers.


While advances-related frauds constituted nearly 92 per cent of the total frauds reported by all banks, the RBI has observed that the exposure had got seasoned as an NPA for 3 to 4 years before the borrower was declared as fraudulent, he said. “As a consequence, the gap between the date of occurrence and detection has been widening. Further, the gap between first bank and the last bank reporting the borrowal account as fraud to the RBI is also very long,” Mundra said at a seminar on ‘Financial Crimes Management’ arranged by CAFRAL.


“What is the concern here? As you know ‘fraud’ is a criminal offence and any delay on the part of the bankers in initially red flagging an exposure and subsequently declaring it as a fraud will have far-reaching implications on the employee conduct and internal governance standard. Banks and bankers could be charged for abetting the criminal offence,” Mundra said.


Mundra’s statement has come after the CBI recently arrested a former chairman and four other ex-officials of IDBI Bank along with four former executives of Kingfisher Airlines in connection with the Vijay Mallya loan default case. As a penal measure, borrowers who have committed a fraud are debarred from availing finance from banks, FIs and NBFCs for a period of five years from the date of full payment of the defrauded amount.



From E-Group, Banking-News



Bank credit to industry shrinks for 3rd

straight month to Rs 25.79 lakh crore


Shritama Bose

The Financial Express

Published on February 3, 2017



Mumbai, February 2:  Bank credit to the industry contracted on a year-on-year (y-o-y) basis in December for the third straight month, falling 4.3% to Rs 25.79 lakh crore.


Data released by the Reserve Bank of India show that in December 2015, the corresponding figure stood at Rs 26.95 lakh crore, up 4.9% over December 2014.


Retail loans, which have of late been a bigger avenue of business to bankers, recorded their weakest growth in 18 months, growing at just 13.5% to Rs 15.09 lakh crore. In December 2015, loans to individuals had grown 18.5% over the year-ago period.


Industrial credit has been falling almost consistently since August, recovering briefly to clock a 0.9% growth in September.


Credit deployment in the industry fell across categories – 8.2% in the micro and small segment, 7.9% in the medium segment and 3.5% in large industry.


Bank credit to the industry has been muted for the last couple of years, as lenders turned cautious amid worsening asset quality, while higher-rated corporates chose to raise money from the bond market.


Loans to individuals, on the other hand, had been clocking growth in the mid-to-late teens since May 2015. In December, outstanding on credit cards grew the most– 26% – among all categories of loans to individuals, as the government’s decision to demonetise roughly 86% of the currency in circulation pushed people to digital modes of spending.


Vehicle loans and consumer durable loans grew 18.9% and 16.3%, respectively. Housing loans grew 14.8%, as compared to 18.9% in the year-ago period, as home-buyers kept borrowing on hold in anticipation of a demonetisation-induced fall in real estate prices.


While the government has announced a slew of measures in the Budget to boost demand for credit in the affordable housing segment, the outlook for overall credit growth remains uncertain.


Bankers have signalled that fresh rate cuts may not happen anytime soon. Paresh Sukthankar, deputy managing director at HDFC Bank, said on January 24, “The reality is that you’ve already seen a fairly sharp decline in lending rates, including on the wholesale side, because of MCLRs (marginal cost of funds-based lending rates). To that extent, the interest rate cut egging on for borrowing is done. Now, it is pretty much linked to what happens to underlying demand itself.”



From E-Group, Banking-News



Post- Budget Tax Cut:

SBI plans scheme to revive SMEs


George Mathew

The Indian Express

Published on February 3, 2017



The scheme will be applicable to SMEs which were making profits and now finding it difficult to service their loan repayment or payment schedules.


Mumbai, February 2: Close on the heels of the Union Budget proposal on a five percentage point cut in corporate tax to 25 per cent for businesses with a turnover of up to Rs 50 crore, State Bank of India (SBI), which accounts for almost half of the banking sector’s SME portfolio, on Thursday said it is working on a scheme to bail out good small and medium units (SMEs) which are facing issues relating to demonetisation and slowdown in the economy.


“We are working on the modalities of the scheme for SMEs with turnover up to Rs 25 crore. The scheme will be applicable to SMEs which were making profits and now finding it difficult to service their loan repayment or payment schedules,” SBI managing director Rajnish Kumar said.


“We have a huge SME loan portfolio. We will help genuine SMEs which are finding the current environment tough. We have over one million SME customer base,” Kumar told The Indian Express. According to figures available with the Reserve Bank of India, SBI accounts for half — close to Rs 1,70,000 crore— of the total SME portfolio of Rs 3,43,600 crore of the entire banking sector. “Once SBI announces the scheme, others may also come out with their plans,” said the former chairman of a nationalised bank.


“Our scheme is different. It has nothing to do with the RBI’s latest scheme or the Budget proposal,” Kumar said. In a big relief to the banking sector and SME units, the Reserve Bank had last month relaxed the norms for bad loan classification for small borrowers, including farmers, who are reeling under the impact of demonetisation.


The RBI has given small borrowers additional 30 days to repay, over and above the 60 days extended repayment period announced last month. This relief applies to dues payable between November 1 and December 31, 2016— the period when demonetisation impacted small borrowers. “Our scheme to help small units will consider various options to aid the small units.


Many of them were facing genuine problems,” Kumar said. However, he didn’t give details of the number of units which will benefit from the scheme. Many small borrowers had approached the banks and the RBI for relief in view of the currency crunch and restrictions on withdrawal of cash from ATMs and banks.


Further, demand for goods also came down after demonetisation and many units have either shut shop or are on the verge of closing down. Though the RBI has lifted the withdrawal limits on the current account, Rs 24,000 weekly restriction is still applicable on savings bank accounts.


“Demonetisation can put pressure on NPAs especially for SMEs whose turnover has been affected … This needs to be monitored closely by banks,” said Care Ratings.


“The demonetisation drive has impacted nearly 70 per cent of businessmen in the country’s financial capital of Mumbai and the manufacturing hub of Pune along with nearby areas.” an SBI research report said recently.



From E-Group, Banking-News



No statistics on impact of demonetisation: Das


Surabhi & Richa Mishra

The Business Line

Published on February 3, 2017



Department of Economic Affairs Secretary Shaktikantha Das

says govt also does not have exact data to assess windfall


New Delhi, February 2: The government does not have any exact data to show the ‘windfall’ from the demonetisation of high-value notes, said Economic Affairs Secretary Shaktikanta Das.


But the November 8 decision to replace old Rs 500 notes with new ones and scrap Rs 1,000 notes has resulted in banks having enough low-cost deposits to give loans at lower interest rates, he said.


“There are no statistics on the impact of demonetisation. What people are talking about are impressions and presumptions,” he told BusinessLine in an interview.


Asked about the government’s basis of stating that the impact of demonetisation would not spill over into the next fiscal year, Das said that initially informal and cash-based sectors were impacted by the cash crunch, but they would now begin to spring back as remonetisation is almost complete.


“Cash is available in sufficient quantity and restrictions on withdrawal except those from savings accounts are lifted. But how many people draw more the mandated Rs 24,000 per week or Rs 1 lakh per month from their savings accounts?” he said.


Sectors such as agriculture have not been affected by demonetisation, Das added. “The impact, if any, of demonetisation will not spill over to next year. It would have impacted in the last two to three months but now we are almost back to normal,” he stressed.


While he declined to comment on the Reserve Bank of India’s monetary policy statement next week, Das said: “As far as banks and surplus liquidity is concerned, I think there is an expectation that banks will reduce their lending rates as they also have low-cost deposits.”


A decision on the policy rates will be taken by the Monetary Policy Committee, he said. The RBI will make its sixth bi-monthly policy statement on February 8.


Das noted that banks will have to use the idle cash for lending. “They have to lend, else what will they do with the idle cash? Last year, as a temporary measure, we had raised the market stabilisation scheme limit to Rs 6 lakh crore,” he said, adding that this is unlikely to be done in the next fiscal year as well.



From E-Group, Banking-News



RBI issues revised rules on

Commercial Paper issuance


The Reuters

Published on February 2, 2017



Mumbai, February 2:  The Reserve Bank of India (RBI) issued revised guidelines for commercial papers, including mandating that the issuer must disclose the end-use of such funds and that it cannot buy back its securities before 60 days from the sale to investors.


The central bank, in a circular late on Thursday, added the issuer will also need to ensure that proceeds from CP issuance are used to finance only current assets and operating expenses.


Among other guidelines, the RBI said the issuer must receive at least two ratings from a credit agency, and would have to assign the lower rating to the CP, up from a requirement of needing only one rating.


CP issuers must now also keep any lender from which it has outstanding loans informed about such market borrowing.



From E-Group, Banking-News



‘Big gaps in cyber security preparedness in banks’


The Business Line

Published on February 3, 2017



Warrants immediate attention of the boards and

senior management of banks: S S Mundra


Mumbai, February 2:  The assessment of gaps in banks’ cyber security preparedness reveals that barring a few banks the gaps are significant, more so in respect of public sector banks, according to the RBI. This warrants immediate and continued attention of the boards and senior management of banks, said Deputy Governor SS Mundra, at a recent seminar on ‘Financial Crimes Management’ organised by CAFRAL.


“In the changed world, if bank boards do not have expertise in this (cyber security) area, it would become a handicap in the smooth operations of banks. Second, the traditional ways of allocating budgets for IT services in general and cyber security in particular need to undergo a radical change leading to need-based assessment and cost-effective solutions,” he said.


The Deputy Governor noted that the scare that was created during a recent ATM/debit card incident clearly indicates that cyber security requires top attention by the boards.  Referring to an article published by Risk.Net on the ‘Top 10 Operational Risks for 2017’, Mundra said it indicated cyber risk to be uppermost in the minds of chief risk officers.


In this regard, the Deputy Governor emphasised that it is important that the CISO (chief information security officer)is sufficiently senior in hierarchy; understands technology well; appreciates the security aspects of all the technologies adopted by the bank; is responsive; and is sufficiently enabled to stall launch of unsecured products, whenever necessary. “However, ground realities do not provide the needed comfort. I want to use this forum to reiterate that the role of CISO needs to be clearly articulated and reinforced immediately,” he said.


The RBI has observed that in many cases the banks react to cyber incidents in a knee-jerk and an ad-hoc manner which at times has a potential to jeopardise future investigations. “Having a thorough plan of action with clearly identified roles and responsibilities in the event of cyber incidents is a must in today’s environment,” said Mundra.



From E-Group, Banking-News



Little about labour, less about jobs


K R Shyam Sundar & Rahul Suresh Sapkal

The Business Line

Published on February 3, 2017



While the Budget signalled a shift in rhetoric from flexible

labour laws to institutional measures, it had little else to offer


The Economic Survey generally kindles expectations of what could figure in the Budget. The Universal Basic Income as a worthy replacement for generally inefficient subsidy schemes is a sort of a teaser for consumption only.


The survey is a shocker for two reasons. One, while advocating the possible reclamation of the low-skilled-labour-intensive manufacturing space in the global trade — since a dominant player such as China has vacated it thanks to rising wages — it does not reflect indignation that minimum wages even in the progressive States in India hover around what prevails in Bangladesh and is lower than what it is in Vietnam.


Two, in another chapter, it recognises that the growth in employment was due to growth in vulnerable categories such as contract and casual. Blaming labour regulation for failure on the economic front does not sit well with this reality. The Budget, however, indicates a slight change for the better at least in the policy rhetoric.


Worsening situation


The situation is grim. The Employment and Unemployment Surveys of the Labour Bureau show rising unemployment and poor quality of jobs even during 2011-2015. Reports indicate that the demonetisation drive worsened the plight of the vulnerably placed in the labour market in several ways, the most stress arising out of closure of establishments.


For a change, both the working class and the salaried class were frustrated by demonetisation and sops in the Budget were expected. The manufacturing sector, the traditional bastion of labour laws, has not been doing well of late. And the sword of labour law reforms has hung over the working class perennially. These factors rendered this year’s Budget more interesting.


On the job front, the Budget has taken less explicit measures. For example, the peak level allocation of Rs. 48,000 crore for MGNREGS is surely expected to boost work (not jobs) rates and hence rural incomes, even at the poor current intake of 47.8 or more days of work in drought-prone areas as well.


The farmers’ lobby has lashed at the Government’s insensitivity to the continuing woes in the agricultural sector. The farm sector is least likely to provide jobs in rural areas. The rural sector is not likely to witness much job creation in the non-farm segment, apart from construction of roads. Migration from rural to urban areas is unlikely to be contained in this context.


Fuzzy and focussed


High and rising public investment, especially in the infrastructure and the affordable housing sectors, will create jobs both directly and indirectly. The rural thrust in the Budget will enhance the market base of FMCG companies, but this may not not contribute as much to employment figures as it would to its financial curves.


While the Budget lacks focus on manufacturing save its mention of encouragement to the three sectors just mentioned, this sector is hoping to cash in on the rise in public investment.


Further, the abolition of the Foreign Investment Promotion Board which anyhow became irrelevant thanks to the high share of automatic routed foreign investment and the policy signal of new FDI policies, have raised hopes of foreign investment; this could generate some jobs.


Corporates and the salaried class were watching out for the tax proposals with interest. Those earning more than Rs. 5 lakh annually were disappointed as the Government provided decent relief to micro and small firms, and employees earning less than this figure.


The revenue loss due to this will be mopped up by surcharges on the high-salaried; it’s a kind of progressive measure. The drop in income tax for micro and small enterprises could result in a surge in investment which in turn could generate jobs.


Significant matter


Interestingly, perhaps for the first time, ever a finance minister emphasised the need to ensure a labour rights regime and harmonious labour relations to enhance productivity as opposed to peddling the usual stuff on the dire need to have a flexible labour regulation regime to boost productivity. This is a significant recognition of the role of the “mutual survival” thesis widely known and taught in the field of industrial relations: capital requires labour cooperation as much as labour needs investment for the creation of jobs.


Further, the minister stressed on the need to simplify, rationalise and amalgamate the existing labour laws into four codes. It is interesting, though, that he did not mention the labour flexibility agenda in the restructuring programme. It indicates an important change in the policy language.


It is another question as to how the Government (at the Centre and in the States) will ensure a regime of labour rights when the enforcement machinery has been systematically diluted in the post-reform period, and how industrial harmony can be maintained with the rising incidence of contract and casual labour.


The outlay on the enforcement and training regime in particular and the labour ministry in general ought to witness a steep rise in budgetary allocation; this does not appear to be the case. The special thrust on labour-intensive industries needs to be seen in the context of high reported labour rights violations and poor labour standards.


It is interesting to note that the Railway Board recently barred “safety officials” from becoming union members; this measure is expected to hurt the two recognised trade unions in the Railways. That’s how much significance the Budget attaches to enhancing safety. This too rankles labour rights activists.


Clearly, Budget 2017 offers little cheer to workers.


Sundar is a professor at XLRI, Jamshedpur, Sapkal is an assistant professor at the Maharashtra National Law School, Mumbai



 From E-Group, Banking-News



Why Political Funding Reforms in Budget

Will Likely Lead to Greater Opacity


Gaurav Vivek Bhatnagar

The Wire Online

Published on February 2, 2017



Proposed amendments to RBI Act, IT Act and RP Act would leave the RBI and IT department with no means to probe funding of political parties.

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