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Banking News 06.02.2016

New AT1 rules double PSBs'

debt servicing ability to Rs 2.34 lakh crore


The Press Trust of India

Published on February 5, 2017



Global rating agency Fitch welcomed the move,

saying this will also help them raise domestic capital


Mumbai, February 5 (PTI): The new guidelines issued by the Reserve Bank of India (RBI) relaxing additional Tier 1 (AT1) bonds issued under Basel III will bolster ability of banks, especially the weak public sector ones, whose funds will double to Rs 2,34,000 crore, thus helping avoid bond defaults, say analysts.


"For the weaker public sector banks (PSBs) the risk of their not being able to service the coupon on AT1 bonds has significantly abated with this measure. This will ensure that state-run banks will have as much as Rs 2,34,000 crore at their disposal now as against Rs 1,24,000 crore earlier," domestic rating agency Crisil said in note.


Global rating agency Fitch welcomed the move, saying this will also help them raise domestic capital but does not fully eliminate the default chances for the weakest banks. "The RBI decision avoids potential damage to sentiment in domestic AT1 market, which will have made it even harder for banks to raise the large amount of new capital that they require over the next two years," Saswata Guha, a director at Fitch said in a weekend note.


He said banks' statutory reserves is 25 per cent of their profits now.


On February 2, the RBI amended the regulations governing AT-1 bonds under the Basel-III framework, wherein it allowed lenders to pay coupons from profits and reserves. "Coupons must be paid out of 'distributable items'. In this context, coupon may be paid out of current year profits," it said in a notification, amending Para 1.8(e) of Annex 4 of the July 1, 2015, Master Circular on Basel-III. The amendments are applicable with immediate effect.


Guha further said by allowing banks to also make AT1 payments from statutory reserves, into which banks place 25 per cent of their profits, the RBI has reduced a potential trigger for skipped payments. "The practice of dipping into statutory reserves for distributions is unusual but not unheard of as Italy and Portugal allow this for some payments," Guha said, adding that this underlines pressures that have built in the banking sector.


Earlier, banks could serve AT1 coupons only from either their profits or from revenue reserves only.


The new RBI move comes amid a massive rise in bad loans, which touched over 15.8 per cent of the total system as of September 2016 and the government's inability to infuse more capital into them. The Budget 2018 has allocated a paltry Rs 10,000 crore capital infusion against an actual demand that is multiple times.



From E-Group, Banking-News



RBI mulls giving banks freedom to fix

bank service charges for transactions


The Economic Times

Published on February 5, 2017



New Delhi, February 4 (ANI): In an attempt to promote cashless transactions in the country, Reserve Bank of India (RBI) has given banks the freedom to fix bank service charges for transactions, stated Santosh Kumar Gangwar, Minister of State in the Ministry of Finance, in Lok Sabha on Friday.


RBI has deregulated interest rates on credit card dues. Interest rates are determined by banks with the approval of their respective Board of Directors subject to regulatory guidelines on the interest rate on advances issued by RBI from time to time. RBI does not maintain information on the rate of commission charged.


National Bank for Agriculture and Rural Development (NABARD) has approved a scheme for giving 0.5 percent incentive on payments made through the Aadhaar Enabled Payment System (AEPS) to merchants.


With regards to debit card transactions on PoS devices, between January 1 and March 31, 2017, Merchant Discount Rate (MDR) has been capped at 0.25 percent for transaction value up to Rs. 1,000, and for debit card transactions value between Rs. 1,000 and Rs. 2,000, MDR has been capped at 0.5 percent.


RBI has decided that till March 3, 2017, banks and prepaid payment instrument issuers shall not levy any charges on customers for transactions up to Rs. 1,000 settled on Immediate Payment Service (IMPS), Unstructured Supplementary Service Data (USSD) and Unified Payments Interface (UPI).


Further, Government has issued a direction in public interest to all public sector banks not to charge fees for transactions settled on IMPS and UPI in excess of rates charged for National Electronic Funds Transfer (NEFT) for transactions above Rs. 1,000, with service tax being charged at actual; for USSD transactions till March 3, 2017, above Rs. 1,000, a further 50paise discount is provided.


NPCI has waived switching fees for RuPay Card transactions (both for PoS and e-commerce), IMPS, UPI, National Unified USSD Platform (NUUP) and AEPS, with effect from January 1 to March 31, 2017.


Credit card, debit card, charge card and other payment card services by banks have been exempted from payment of service tax for transactions of up to Rs. 2,000. The government has introduced Lucky Grahak Yojana for customers and Digi Dhan Yojana for merchants to promote means of cashless transactions.


In terms of Office of Controller General of Accounts Office Memorandum dated December 14, 2016, the applicable Merchant Discount Rate (MDR) charges on debit cards for payment up to Rs. 1, 00,000 shall be absorbed by the Government.


In terms of Department of Public Enterprises letter dated December 9, 2016, all Central Public Sector Enterprises (CPSEs) are required to ensure that transaction fees, MDR charges associated with payment through digital means shall not be passed on to the consumers and all such expenses shall be borne by CPSEs.


RBI has also cautioned the users, holders and traders of Virtual Currencies (VCs), including Bitcoins about the potential financial, operational, legal customer protection and security related risks that they are exposing themselves to. The creation, trading or usage of VCs including Bitcoins, as a medium for payment have not been authorised by the Reserve Bank of India.



From E-Group, Banking-News



‘Bad bank’ a possible solution for NPAs: Jaitley


The Business Standard

Published on February 4, 2017



The Economic Survey 2016-17 has suggested

establishment of a 'bad bank' to deal with the NPA issue


New Delhi, February 3 (IANS): Finance Minister Arun Jaitley on Friday said setting up a "bad bank", which is a kind of asset reconstruction company to buy non-performing assets of banks at market price, could be a possible solution to deal with the festering problem of NPAs.


"It (bad bank) is also a possible solution. We will take it on board for discussion," Jaitley said here at the post-Budget interaction with India Inc. The Economic Survey 2016-17 has suggested the establishment of a "bad bank" to deal with the NPA issue.


"The problem has consequently continued to fester: NPAs keep growing, while credit and investment keep falling. Perhaps it is time to consider a different approach -- a centralised Public Sector Asset Rehabilitation Agency that could take charge of the largest, most difficult cases, and make politically tough decisions to reduce debt," the survey noted.


However, Jaitley added he did not want to comment in detail on the subject as he did not want the honest taxpayer's money to be used for such a structure which will buy the NPAs, which have been created by tax evaders.


"We want the banking mechanism also to be pro-active and major debtors to take a pragmatic approach to resolve their NPAs," he added.


The government announced Rs 10,000 crore for the recapitalisation of public sector banks in 2017-18.


On the issue limiting the anonymous cash donation to a political party from the earlier Rs 20,000 to Rs 2,000, Jaitley said the step though gives the donor the option of remaining anonymous, both ends of the transaction will happen through the banking system.


On Goods and Services Tax (GST), Revenue Secretary Hasmukh Adhia said that the government was targeting to finalise the drafts of the three GST bills -- Central GST (cGST), Integrated GST (iGST) and the Compensation Law -- by March 31.


"We expect to finalise the draft bills of GST by March 31 so that they can be taken to Parliament for approval. In May and June we will do the fitment of various commodities into the four GST rate slabs," Adhia said at the same event.



 From E-Group, Banking-News



UDAY fails to provide a panacea for ailing discoms


Pratim Ranjan Bose

The Business Line

Published on February 6, 2017



Out of the 21 States under the scheme,

operational losses increased in seven: Report


Kolkata, February 5: More than one year since its launch and 82 per cent of bailout package (bonds) utilised by States; Ujwal DISCOM Assurance Yojana (UDAY) is failing to bring a new dawn for the State-run power distribution sector.


According to a recent report prepared by Motilal Oswal, out of the 21 States that participated in the scheme, operational losses — measured by the difference between the average cost of supply (ACS) and average revenue realised (ARR) — increased in seven States during April-September 2016. The exceptions are Gujarat and Chhattisgarh. While Gujarat discom increased profits, Chhattisgarh earned a positive margin. They were one of the few better managed discoms (along with West Bengal that didn’t participate in UDAY) and continue to remain so.


The gap widened in Haryana, Madhya Pradesh, Punjab, Karnataka, Jharkhand, Bihar and Uttarakhand. Maharashtra is maintaining the small gap as it was. Andhra Pradesh and Rajasthan reduced the gap.


BJP-ruled Jharkhand was the first state to join UDAY, in December 2015. A year later, it is leading the race for accumulating fresh losses with revenue gap increasing from 90 paise/kWh (kilowatt-hour) to Rs. 2.5/kWh. BusinessLine reported on January 17 about Jharkhand’s non-payment of electricity and coal dues.


Nitish Kumar’s Bihar replaced the positive margin by a gap of 90 paise/kWh. Motilal attributed it to increasing supply to residential sector. Bihar witnessed the highest 12 per cent rise in electricity consumption. The State also tops the chart on AT&C (aggregate technical and commercial) losses at 47.1 per cent, meaning most of the supplies are either pilfered or unpaid.


AT&C losses


Revenue loss can be a function of either high cost of electricity purchase or low tariff. But AT&C loss is a clear measure of the operational efficiency of a discom.


Like the previous two bailout packages in 2001 and 2012, UDAY too insisted on reducing AT&C losses to a respectable 15 per cent. But the figures show discoms utilised funds to clear the balance-sheet without much attempt to improve efficiency.


According to Motilal, AT&C losses have increased by 0.7 per cent to 16.1 per cent in 10 states, including Haryana, Karnataka, Maharashtra, Rajasthan, Andhra Pradesh, Bihar, Punjab, Chhattisgarh, Uttarakhand and MP.


Congress-ruled Uttarakhand records the maximum rise. BJP-ruled Rajasthan — that reduced revenue gap to half, riding on lower interest cost and tariff hike — stands second, with six percentage points rise in AT&C loss.


Since industry and commercial segments pay through the nose for cross-subsidising the rest, there is a limit to increase tariffs.


Economic Survey 2016 pointed out that industrial tariff is “unusually high” in India when compared to rich countries like Australia.


The bottomline is, if there is no improvement in operational efficiency, there will soon be need for another UDAY. India recorded Rs. 3.8 lakh crore (approximately $56 billion at current exchange) combined loss of discoms in March 2015.


Interestingly, the report identified that over and above the prevailing maladies in the distribution system, “rising share of renewable energy (RE) is increasing the average cost of supply, as it is displacing consumption of low-cost coal.”


The share of RE in generation increased from 5.8 per cent to 7 per cent during April-November 2016.



From E-Group, Banking-News



Bank deposits slump by Rs. 90,000

crore in fortnight ended January 20


The Business Line

Published on February 4, 2017



Banks expect 70% of deposits mobilised

during demonetisation period to flow out


Mumbai, February 3: After the spurt in deposits during the demonetisation period (November 8 to December 30), banks now seem to be witnessing a reversal. Bank deposits declined by a whopping Rs. 90,169 crore in the fortnight ended January 20, 2017, according to Reserve Bank of India data.


If one takes into account the fact that banks were open for 12 days during the reporting fortnight, the average daily deposit withdrawal works out to about Rs. 7,514 crore. A back-of-the-envelope calculation shows that banks would have mopped up over Rs. 5 lakh crore as deposits during the demonetisation period.


Bankers are expecting about 70 per cent of the deposits to flow out while the rest could get converted into fixed deposits. The deposit withdrawal comes in the backdrop of the daily withdrawal limit from ATMs first being increased (within the overall weekly limits specified) with effect from January 1, 2017, from the then existing Rs. 2,500 to Rs. 4,500 per day per card.


On January 16, the limit on withdrawals from ATMs was enhanced to Rs. 10,000 per day per card (within the existing overall weekly limit) from Rs. 4,500 and the limit on withdrawal from current, overdraft, and cash-credit accounts were raised to Rs. 1 lakh per week from Rs. 50,000 per week.


In a move that took the nation by surprise, Prime Minister Narendra Modi announced on November 8, 2016, that Rs. 500 and Rs. 1,000 currency notes would no longer be legal tender from midnight of that that day.  Modi said the scrapping of the notes was aimed at tackling black money, terror-financing and counterfeit notes.


In his Budget speech, Finance Minister Arun Jaitley observed that after demonetisation, preliminary analysis of data received in respect of deposits made by people in old currency notes presents a revealing picture. He said during the period November 8 to December 30, deposits between Rs. 2 lakh and Rs. 80 lakh were made in about 1.09 crore accounts with an average deposit size of Rs. 5.03 lakh. Deposits of more than Rs. 80 lakh were made in 1.48 lakh accounts with average deposit size of Rs. 3.31 crore.


MCLRs cut


Following the huge deposit inflows, banks slashed their marginal cost of funds-based lending rate (MCLR). For example, SBI slashed its one-year MCLR by 90 basis points to 8 per cent on January 1. Despite the lending rate cuts, credit growth for the banking system as a whole has been sluggish. In the reporting fortnight, credit given by the banking system nudged up by only Rs. 5,890 crore.



From E-Group, Banking-News



Small Savings Schemes crucial for

Govt borrowing discipline: CEA, SBI


Joel Joseph

The Economic Times

Published on February 3, 2017



Mumbai, February 3:  The government is at the risk of overshooting its market borrowing for the next fiscal year if it does not garner the expected money through small savings schemes at a time when interest rates in these schemes are headed lower. The government, which has seen small savings inflow of Rs 1 lakh crore so far in the current fiscal, has budgeted an identical amount for the next fiscal as well. However, some economists say this target is ambitious.


In his budget speech, FM Arun Jaitley said the government will borrow a net Rs 3.48 lakh crore from the market in fiscal 2018 almost similar to the Rs 3.47 lakh crore in the fiscal ending March 2017. Including redemptions, the borrowing would be Rs  4.23 lakh crore, which is slightly lower than the Rs 4.25 lakh crore budgeted for the fiscal ending March 2017.


“In the current fiscal, inflow into these schemes have been high mainly because people deposited high amount of old Rs 500 and Rs 1,000 notes after demonetisation. That bonanza will not be there next year. If interest rates in these schemes are adjusted downwards it is likely that inflow will not be much which means that the government will have to borrow more from the market,“ said Soumya Kanti Ghosh, chief economic adviser, SBI.


Ghosh said that in the past five years an average of Rs 40,000 crore was collected each year through these schemes mainly because of the Rs 1 lakh crore that has flowed in this year. “Before this year, average deposits in these schemes was Rs 25,000 crore. It is unlikely we will see big numbers in two consecutive years,“ Ghosh said.


Small Savings Schemes like Public Provident Fund (PPF), Kisan Vikas Patra (KVP) and National Savings Certificate (NSC) have attracted inflow because the difference in interest rates between these schemes and bank deposits have widened as bank rates have fallen over the past one year. This difference may stay although it is likely to come down.



From E-Group, Banking-News



What’re 8% GOI Savings Bonds?


Prashant Mahesh

The Economic Times

Published on February 3, 2017



Mumbai, February 3: With falling interest rates on traditional products, investors are on the lookout for alternatives that offer them safety and higher returns than deposits. The ‘8% Savings Bonds’ is one such product.


Who can apply for 8% Savings GOI Bonds?


Investors can apply for ‘8% Savings GOI Bonds’ in individual capacity, joint basis or anyone or survivor. Hindu Undivided Family (HUF), eligible charitable institutions and minors (with a guardian) can also apply for the bonds. However, NRIs are not allowed in invest in these bonds.


How can an investor apply for these bonds? How are the bonds issued?


Investors can apply for these bonds only offline by filling up a simple form and using the services of a distributor. The bonds, issued through banks such as SBI, Axis, ICICI and HDFC, and financial institutions, such as Stock Holding Corporation of India, are available in a physical format. Upon allotment, the certificate is couriered to investors. These bonds are not transferable.


How much interest can investors earn from these bonds?


Investors can earn an interest of 8% per annum on these bonds and opt for either cumulative or non-cumulative option. In case of the non-cumulative option, the interest is paid half-yearly either on February 1 or August 1. For investors who choose the cumulative option, the value of the investments at the end of six years will be Rs 1,601 for every Rs 1,000 invested.


What is the minimum and the maximum limit for investment in the 8% Savings (Taxable) Bonds?


You need to invest a minimum of Rs 1,000, but there is no maximum limit, but it needs to be in multiples of Rs 1,000. The tenure of the bond is six years from the date of issue. No interest will accrue after the maturity of the bond. The interest income from the bonds is taxable, as per your tax slab.



From E-Group, Banking-News



Services sector contracts for

third month, PMI shows


The Business Standard

Published on February 4, 2017



A score above 50 denotes expansion

and one below this level means contraction


New Delhi, February 3 (PTI): The services sector contracted for a third consecutive month in January as business flow failed to recover from the impact of demonetisation, even as muted inflationary pressure raised hopes for the Reserve Bank of India (RBI) remaining "accommodative" in its rate review next week, a monthly survey showed on Friday.


The Nikkei India Services Purchasing Managers' Index (PMI), which tracks services sector firms on a monthly basis, stood at 48.7 in January, as against 46.8 in December 2016.


A score above 50 denotes expansion and one below this level means contraction. While the index remained in the contraction zone for the third straight month, an improvement in the reading from the previous month's level signalled that the sector is heading towards stabilisation.


"India's pivotal services sector remained in contraction territory in the opening month of 2017, with both new business and activity falling for the third straight month," said Pollyanna De Lima, economist at IHS Markit, and author of the report. The survey showed that input cost inflation slowed since December whereas average selling prices shrank again, which might prompt the Reserve Bank to go in for an "accommodative" monetary policy. "PMI price indicators point to relatively muted inflationary pressures in the private sector economy. As such, there is room for accommodative monetary policy," Lima said.


The Reserve Bank's next policy review is scheduled for February 8.


While the PMI index has remained in contraction zone since November, some firms pointed to improved market conditions following the close of the window for exchanging high-value banknotes. "... a rebound in the near term is likely as rates of reduction softened and business confidence improved on the back of hopes that market conditions will soon normalise," Lima added.


Meanwhile, the seasonally adjusted Nikkei India Composite PMI Output Index rose to 49.4 in January from December's 38- month low of 47.6, pointing to a weaker contraction in private sector activity.


"What started as a downturn driven by the 500 and 1,000 rupee note ban appears now to be losing strength. In fact, manufacturers already saw a turnaround, with production being raised in line with higher order books," Lima said.



From E-Group, Banking-News



Budget doesn’t redress job losses due

to demonetisation: RSS-affiliated union


The Hindu

Published on February 5, 2017



New Delhi, February 5: Bharatiya Mazdoor Sangh, the RSS-affiliated trade union, has sharply criticised the Union Budget 2017-18 for failing to come to the aid of crores of workers in the unorganised sector who lost their jobs due to demonetisation.


In a missive to Finance Minister Arun Jaitley, BMS secretary general Virjesh Upadhyay questioned the Centre’s disinvestment plans for public sector firms and the “astonishing” decision to abolish the Foreign Investment Promotion Board. He also opined that the Budget was an inappropriate occasion to announce labour law reforms.


“The poor and the labourer class supported the Centre’s historic decision to demonetise high value currency notes and the same people had to bear the pain and adverse effects of the move… around 2.5 lakh informal sector units shut down and their workers lost their jobs,” he said.


“The real estate sector that was largely thriving on black money has been deeply affected, because of which crores of workers have lost their livelihoods. With lakhs of crores of currency coming to the banks, it was being hoped that the government would give some relief to those rendered jobless and provide more funds for social security and poverty alleviation schemes,” he added, terming the absence of such measures in the Budget as disappointing.


‘Workers’ benefits cut’


The BMS also said the plan to raise more than Rs. 70,000 crore through divestment of stakes in public sector firms and list entities such as IRCTC on the stock exchanges revealed the government’s intent to revive the process of selling off such public sector enterprises.


Urging the government to abandon such policies, the union cited past instances such as the sale of Videsh Sanchar Nigam Limited to the Tata group and the strategic sale of Balco. “These companies didn’t progress after their sale… and their employees’ plight is well-known,” Mr. Upadhyay said.


The union also criticised the reference to labour law reforms in the Budget speech and said it was not a relevant forum to discuss such changes. “In the name of labour law reforms, rights and benefits of workers are being cut… There have been strikes and agitations against this in the country,” the BMS official said.


The BMS also cautioned the government against following the ‘Rajasthan model’ of labour law reforms, as its impact on industry in the State had been different from the growth that had been envisaged by the State government at the time of amending the labour laws.



From E-Group, Banking-News



Banks taking steps to upgrade ATM software,

make them less vulnerable: Govt


The Business Standard

Published on February 4, 2017


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