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Tag: Reserve Bank of India

  • RBI slaps penalties on American Express Banking Corp, HDB Financial Services

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    The Reserve Bank of India (RBI) on Friday said it has imposed a penalty of Rs 31.80 lakh on American Express Banking Corp for non-compliance with certain directions on ‘Credit Card and Debit Card – Issuance and Conduct’.

    The central bank has also imposed a penalty of Rs 4.2 lakh on HDB Financial Services for non-compliance with certain provisions of the ‘Reserve Bank of India (Know Your Customer (KYC) Directions, 2016’.

    In a statement, the RBI said it conducted a statutory inspection for supervisory evaluation (ISE 2024) of American Express Banking Corp with reference to its financial position as on March 31, 2024.

    Based on the supervisory findings of non-compliance with RBI directions and related correspondence, a show cause notice was issued.

    Also Read: Indian states to raise Rs 2.82 lakh crore through debt in current quarter, RBI says


    After considering the bank’s reply to the notice, additional submissions made by it and oral submissions made during the personal hearing, RBI found that the charge warranted imposition of monetary penalty. The American Express Banking Corp did not make any efforts to reverse credit balances of certain credit cardholders, arising out of refund / failed / reversed transactions, to their bank accounts. RBI also said that the penalty is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.

    In another statement, RBI said based on supervisory findings of non-compliance with directions and related correspondence in that regard, a show cause notice was issued to HDB Financial Services.

    After considering the company’s reply to the notice, RBI said it found that the charge was sustained, warranting imposition of monetary penalty.

    The company failed to obtain Permanent Account Number (PAN) or equivalent e-document thereof or Form No. 60 in certain loan accounts disbursed during FY 2023-24, RBI said.

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    In this case also, the central bank said the penalty is based on deficiencies in regulatory compliance and not intended to pronounce upon the validity of any transaction or agreement entered into by the company.

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  • RBI slaps ₹1.32 crore monetary penalty on PNB

    RBI slaps ₹1.32 crore monetary penalty on PNB

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    The Reserve Bank of India (RBI) has imposed a monetary penalty of ₹131.80 lakh on Punjab National Bank (PNB) for non-compliance with its directions issued on ‘Loans and Advances’ and ‘Know Your Customer (KYC)’.

    Based on supervisory findings of non-compliance with its directions (after Statutory Inspection for Supervisory Evaluation with reference to PNB’s financial position as on March 31, 2022) and related correspondence in that regard, RBI said a notice was issued to the bank advising it to show-cause as to why penalty should not be imposed on it for its failure to comply with the directions.

    After considering the bank’s reply to the notice and oral submissions made during the personal hearing, RBI found, inter alia, that the following charges against the bank were sustained, warranting imposition of monetary penalty, the central bank said in a statement.

    RBI noted that the public sector bank (i) sanctioned working capital demand loans to two State government owned Corporations against amounts receivable from government by way of subsidies/refunds/reimbursements, and (ii) failed to preserve the records pertaining to the identification of customers and their addresses obtained during the course of business relationship in certain accounts.

    The central bank said its action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transactions or agreement entered into by the bank with its customers.

    Further, imposition of monetary penalty is without prejudice to any other action that may be initiated by RBI against the bank.

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  • Rupee ends almost flat on likely RBI intervention

    Rupee ends almost flat on likely RBI intervention

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    The Rupee ended almost flat on Wednesday despite robust dollar demand from corporates, especially oil companies, as RBI likely intervened in the non-deliverable forward market to prevent it from depreciating to a new low.

    The Rupee closed at 83.5450 per Dollar against Tuesday’s 83.5650, which was an all time closing low

    Traders say that the RBI probably sold Dollars in the NDF market to stem the rupee’s fall in the spot market.

    To a question on the proposed expansion of RBI’s intervention kit, Governor Shaktikanta Das, at the last monetary policy press meet, said: “Our intervention in the NDF (non-deliverable forward) market has also undergone a change. We are now very clear and explicit that the RBI is there in the forward market, and we are there. “

    In his monetary policy statement, Das emphasised that the Indian rupee (INR) has moved in a narrow range with low volatility during 2024-25 so far (up to June 5), despite trading under pressure amidst foreign portfolio investment (FPI) outflows.

    The relative stability of the INR bears testimony to India’s sound and resilient economic fundamentals, macroeconomic and financial stability, and improvement in the external outlook, he added.

    Meanwhile, the 10-year benchmark (7.10 Government Security 2034) opened little changed at 7.01 per cent despite a fall in treasury yields overnight (following better than expected treasury auction), according to Nuvama said in a report.

    “Yields were ranged through the day as market participants remained on sidelines awaiting CPI inflation in India and the US. In addition, caution ahead of the FOMC meeting outcome also kept participants on the sidelines,” it added.

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  • RBI: Consumers expect higher rise in overall spending over the next one-year, reveals survey

    RBI: Consumers expect higher rise in overall spending over the next one-year, reveals survey

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    Consumer confidence paused on its uptrend as sentiments on all parameters, except spending, recorded some moderations in the latest bi-monthly consumer confidence survey released by the Reserve Bank of India. For the year ahead, consumer confidence remained at elevated level in the optimistic terrain though it declined, albeit marginally, due to relatively tempered sentiments on the general economic situation and employment prospects.

    Consumers expect higher rise in overall spending over the next one-year vis-à-vis the previous survey round; more respondents expect an increase in both essential and non-essential spending, the survey revealed.

    The bi-monthly inflation expectations survey of households for the three-month and one year ahead periods increased by 20 basis points (bps) and 10 bps, respectively, but remained in single digits. Their perception on current inflation, however, moderated by 10 bps and stood at 8.0 per cent in the latest survey round. A higher share of respondents expected prices and inflation to rise for all major product groups over the next three months as well as one-year periods. Among occupation categories, self-employed respondents group expected highest inflation. At the aggregate level, female respondents had marginally lower inflation assessment and expectations than their male counterparts.

    The survey of professional forecasters showed that real gross domestic product (GDP) is expected to grow by 6.8 per cent in 2024-25, revised up by 10 basis points (bps) from the previous round. It is expected to grow by 6.7 per cent in 2025-26, revised up by 20 bps from March 2024 survey round. The panellists placed GDP growth forecasts in the range of 6.4-8.1 per cent for 2024-25 and in the range of 6.0-7.7 per cent for 2025-26.

    Annual growth in real private final consumption expenditure (PFCE) and real gross fixed capital formation (GFCF) for 2024-25 are expected at 6.0 per cent and 8.6 per cent, respectively. Real gross value added (GVA) growth projection has been revised up marginally to 6.6 per cent for 2024-25 and kept unchanged at 6.4 per cent for 2025-26.

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  • RBI directs all lenders to review their lending practices

    RBI directs all lenders to review their lending practices

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    The Reserve Bank of India has directed all lenders to review their practices regarding mode of disbursal of loans, application of interest and other charges and take corrective action, including system level changes, as may be necessary, to ensure fairness and transparency while dealing with customers.

    The central bank’s directions come as it encountered instances of lenders resorting to certain unfair practices in charging interest during the onsite examination of lenders (regulated entities/REs) for the period ended March 31, 2023.

    REs include all commercial banks ((including small finance banks, local area banks and regional rural banks), excluding payments banks; co-operative banks; and all non-banking financial companies (including microfinance institutions and housing finance companies).

    The RBI highlighted a few unfair practices, including the charging of interest from the date of sanction of loan or the date of execution of the loan agreement and not from the date of actual disbursement of the funds to the customer.

    Similarly, in the case of loans being disbursed by cheque, instances were observed where interest was charged from the date of the cheque whereas the cheque was handed over to the customer several days later.

    In the case of disbursal or repayment of loans during the course of the month, some REs were charging interest for the entire month, rather than charging interest only for the period for which the loan was outstanding.

    In some cases, RBI observed that REs were collecting one or more instalments in advance but reckoning the full loan amount for charging interest.

    The central bank emphasised that these and other such non-standard practices of charging interest are not in consonance with the spirit of fairness and transparency while dealing with customers.

    “These are matters of serious concern to the Reserve Bank. Wherever such practices have come to light, the RBI through its supervisory teams has advised REs to refund such excess interest and other charges to customers.

    REs are also being encouraged to use online account transfers in lieu of cheques being issued in a few cases for loan disbursal,” per the central bank directive.

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  • RBI orders Agency Banks to facilitate government transactions on March 31

    RBI orders Agency Banks to facilitate government transactions on March 31

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    The Reserve Bank of India (RBI) has asked Agency Banks to keep all their branches dealing with government business open on March 31, 2024 (Sunday).

    This follows the Government of India’s request to keep all branches of the banks dealing with Government receipts and payments open for transactions on the said day to account for all the Government transactions relating to receipts and payments in the FY24 itself.

    RBI asked Banks to give due publicity about the availability of the above banking services on this day.

    The central bank maintains the Principal Accounts of Central as well as State Governments at its Central Accounts Section, Nagpur. It has put in place a well-structured arrangement for revenue collection and payments on behalf of the Government across the country.

    A network comprising the Government Banking Divisions of RBI and branches of agency banks appointed under Section 45 of the RBI Act carries out government transactions.

    The central bank has 33 agency banks, including 12 public sector banks, 20 private sector banks and one foreign bank (DBS Bank India Ltd).

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  • Administrator likely to be appointed at Paytm Payments Bank after March 15

    Administrator likely to be appointed at Paytm Payments Bank after March 15

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    With less than a fortnight to go for Paytm Payments Bank to wind down its operations, highly placed sources in the banking circles say the bank could be the first significant instance in over two decades where the Reserve Bank of India may not hesitate to take a drastic step such as cancellation of its bank license. “If that be the case, an administrator could be appointed at the bank to oversee certain critical aspects,” said a person with knowledge of the matter.

    Failed transactions

    A move of this nature is likely after three–four instances of failed due diligence done on Paytm Payments Bank in a bid to take over its business. Being a deposit-taking entity, it is learnt that a few large banks, including a rival payments bank, are interested in Paytm’s wallet business and have shown interest in taking over Paytm Payments Bank. “However, with reports of inadequate KYC compliance looming over the bank, the interested parties stepped back,” said a banker aware of the matter.

    According to a few more sources, the regulator had sounded off the interested entities acquiring Paytm Payments Bank as they would be at their own risk and no dispensation on the compliance front would be extended to them. “This was a deterrent for any transaction to go through,” said the person quoted above.

    It may be noted that on February 26, the board of Paytm Payments Bank was reconstituted with new members and Vijay Shekar Sharma stepped down as the chairman of the bank. Subsequently, One97 Communications (OCL) terminated all its contracts with the bank. Sharma holds 51 per cent equity in Paytm Payments Bank, while the rest is held by OCL.

    Next steps

    Another banker added that, with the RBI explicitly mentioning in the FAQ dated February 16 that no credits can be made to Paytm Payment Bank’s savings account and no fresh deposits with partner banks through Paytm Payments Bank will be allowed after March 15, 2024, indicates that the bank is unlikely to be in existence for long.

    However, for depositors who may not have withdrawn or closed their accounts with the bank within the slated timelines, their sums will be transferred to ‘unclaimed deposits’ account under the “Depositor Education and Awareness” (DEA) Fund Scheme, 2014. The role of the administrator would be to ensure that any deposit claims made thereafter is satisfactory repaid to the depositors. As of March 31, 2023, Paytm Payments Bank held ₹3,285.27 crore of deposits, with ₹2,955.96 crore of deposits with 1–3 year maturity.

    License revocation likely

    Paytm Payments Bank faced with risk of license revocation after March 15

    Move likely as talks with 3 – 4 large banks for takeover fail

    Inadequate compliance by Paytm Payments Bank seen as reasons for failed takeover talks

    RBI may appoint an administrator to oversee unclaimed deposits after March 15

    Vijay Shekhar Sharma holds 51 per cent stake in Paytm Payments Bank; rest with One97 Communication

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  • ‘86% of Asia’s central banks, supervisory authorities adopting big data, ML’

    ‘86% of Asia’s central banks, supervisory authorities adopting big data, ML’

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    The share of Asian central banks and supervisory authorities adopting big data and machine learning has risen to 86 per cent. This involves nowcasting exercises, applications to granular financial data, and suptech/regtech applications such as the computation of the economic policy uncertainty (EPU) indices in India.

    An important area is fraud detection, with data reflecting that one-third of Asian central banks deploy big data algorithms for anti-money laundering/combating terrorism financing purposes, RBI Deputy Governor Michael Patra said, quoting a survey.

    “Machine learning has also been extensively used in Asia for research purposes to inform monetary policy decisions, facilitate data management, and support regulatory supervision,” Patra said as part of his address at the 59th SEACEN Governors’ Conference on February 15. The RBI released the text of the speech on Tuesday.

    Other applications include using text analysis to evaluate monetary policy credibility, ensuring consistency in central banks’ communication of supervisory issues to financial institutions, improving efficiency in the compilation of statistics, assessing the state of the labour market or of trade conditions, extracting information on tourism activities, and capturing firms’ sentiment or evaluating employees’ feedback.

    Growing interest in digital forms of payments worldwide has also led SEACEN central banks to explore the possibilities of central bank digital currency (CBDC), which is currently in various stages of experimentation in different member countries.

    “The overarching goal for developing CBDC as digital cash among the SEACEN central banks appears to be to create a resilient payment system for consumers and businesses to transact in any situation. SEACEN central banks are actively coordinating their efforts to develop CBDCs, with near real-time exchanges of information on progress,” he said.

    Inflation vs growth

    Citing a working paper from the SEACEN centre, Patra said estimates suggest that the sacrifice ratio — the loss of output to achieve a reduction in inflation by one percentage point — is between zero and 0.5 per cent of GDP, even as the extent of contraction in output was widely divergent across member economies.

    “Asia will likely contribute about two-thirds of global growth in 2024, a carryover of its blockbuster performance in 2023. Disinflation is expected to remain on track in Asia, and convergence with central bank targets is being sighted. Thus, the outlook for Asia in a stormy and unsettled global environment is one of sustained growth with stability,” Patra said.

    As a result, the region is a preferred habitat for international financial flows on the back of positive growth differentials vis-à-vis the rest of the world, deep and vibrant financial markets, and reasonable stability in financial asset prices.

    On the other hand, global spillovers from geopolitical developments, geo-economic fragmentation, and the tightening of financial conditions as a result of aggressive and synchronised monetary policy tightening worldwide have imposed downward pressures on currencies in the region, resulting in a widening of risk spreads and reversals of portfolio equity and debt flows.

    Capital inflows to SEACEN member economies more than doubled from an average of $400 billion in 2000-2010 to over $900 billion in 2011-2021. The volatility of capital inflows into SEACEN economies declined between 2000-2010 and 2011-2021. However, the variability of portfolio equity, trade credit, and advance flows rose, leading to a need for varied responses, he added.

    As such, changing workforce demographics, the rise of financial products and services beyond the conventional definition of banking, digitalisation, climate change, talent shortages, and persistent supply shocks, apart from the pandemic and the recent inflation experience, will continue to pose challenges.

    Patra also touched upon the fact that climate change poses a common and potentially overwhelming macrofinancial risk for all SEACEN member countries, given the alarming rise in the incidence and intensity of extreme weather events in recent years.

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  • India’s central bank extends some Paytm Payments Bank restrictions deadline to March 15 | TechCrunch

    India’s central bank extends some Paytm Payments Bank restrictions deadline to March 15 | TechCrunch

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    India’s central bank extended the deadline for some of the business restrictions it’s imposing on Paytm’s Payments Bank to March 15 from February 29, giving the Indian financial services firm an additional 15 days to comply with the rules but squashing chances of any major concessions.

    The Reserve Bank of India said Friday that Paytm Payments Bank, an associate firm of the Indian financial services firm that processes the group’s transactions, will be barred from accepting customer deposits, credit transactions and top ups in bank account, prepaid instruments, wallets, FASTags from March 15, 2024.

    The update follows the RBI widening its curbs on Paytm’s Payments Bank late last month, an update that has wiped Paytm’s market cap by 55% to $2.6 billion in the 16 days since. Paytm, which serves more than 15 million merchants and 330 million wallet customers, went public in 2021 at a valuation of $20 billion. Its cash balance at December’s closure last year stood at more than $1 billion.

    The central bank said in a statement that it was extending the deadline in the “interest of customers (including merchants) of PPBL who may require a little more time to make alternative arrangements and the larger public interest.”

    Many other payments bank’s services will be permitted until March 15 instead of the earlier February 29 deadline, the central bank said (PDF). The RBI also published an FAQ (PDF), detailing how the embargo on Paytm’s Payments Bank will impact merchant and customers. In the FAQ, the central bank said merchants using Paytm’s QR code, soundbox and point-of-sale terminal devices will not be impacted by the disruption at Paytm, provided those machines and instruments are linked to other bank accounts.

    In its order late last month, the RBI directed Paytm as well as Paytm Payments Bank to terminate their nodal accounts not later than February 29. In the clarification posted Friday, the RBI said it’s maintaining the same deadline for the cancellation of nodal accounts, required by payments firms to facilitate transactions. (Paytm said early this month that it plans to tieup with multiple banks and use their nodal accounts.)

    Earlier this week, Macquarie dramatically cut its 12-month price target on Paytm, citing risks of customers leaving the platform in the wake of heightened regulatory scrutiny. Macquarie, which famously predicted the slump at Paytm before the listing, lowered its target to 275 rupees, the most brutal by any major brokerage firm. Shares of Paytm closed trading at 341 Indian rupees, or $4.11, Friday.

    Check back for updates as the story develops.

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    Manish Singh

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  • RBI to bring framework for authentication of digital payment transactions

    RBI to bring framework for authentication of digital payment transactions

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    While SMS-based One Time Password has been the primary way for authenticating digital transactions, the Reserve Bank of India is looking at other mechanisms in line with technological advancements.

    Over the years, the Reserve Bank has prioritised the security of digital payments, in particularly the requirement of an Additional Factor of Authentication (AFA). Though RBI has not prescribed any particular AFA, the payments ecosystem has largely adopted SMS-based One Time Password (OTP).

    “With innovations in technology, alternative authentication mechanisms have emerged in recent years. To facilitate the use of such mechanisms for digital security, it is proposed to adopt a principle-based ‘Framework for authentication of digital payment transactions’. Instructions in this regard will be issued separately,” RBI said in a statement



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  • India’s Paytm is in flux | TechCrunch

    India’s Paytm is in flux | TechCrunch

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    Shares of Paytm plunged 10% on Monday, the third consecutive session of declines, touching an all-time low of 438.35 Indian rupees (or $5.28) after the RBI’s clampdown last week looks to have had a more extensive impact than previously anticipated.

    The trading was halted after Paytm’s shares fell 10%, the artificial limit put on its daily trade by the local exchanges. Even as Paytm initially anticipated RBI’s decision to have a maximum annual impact of $60 million to its business, the financial services firm has shed about $2.5 billion in its market cap in three days, or more than 40% of its value since Wednesday close. (Paytm’s market cap on Monday stood at $3.35 billion, below the $3.4 billion valuation at which it raised capital from Ant Financial in 2015 and far below its IPO valuation of $20 billion. More on numbers here.)

    The Reserve Bank of India (RBI) last week widened its curbs on Paytm’s Payments Bank, which processes transactions for Paytm, barring it from offering many banking services, including accepting fresh deposits and credit transactions across its services. In response, Paytm initially said it will terminate business with its affiliate and seek partnership with other banks.

    However, uncoupling Paytm from its affiliated Paytm Payments Bank appears to engender additional difficulties, both technical and perceptual.

    Shares of ubiquitous financial services firm Paytm, which went public in 2021. (Images, data: Yahoo Finance)

    TechCrunch first reported last week that the RBI is considering canceling Paytm’s Payments Bank license. In early 2018, when Paytm received the Payments Bank license – which allows the holder to offer customers a savings account of up to $2,400 – it had to surrender its PPI license, the permit required to operate the wallet business.

    Paytm Payments Bank houses more than 330 million wallet customers and Paytm cannot transition them to a different banking partner until the central bank returns the firm its PPI license. And it’s unclear if the central bank – which has been uncharacteristically strong-worded in its penalty order on Paytm – will make any concessions by the deadline (February 29). Indian daily Hindu Businessline reported on Sunday that Paytm is trying to sell the wallet business.

    And that is not the only other license at stake. As Bengaluru-based fintech investor Osborne Saldanha adds:

    The obvious, direct impact is that Paytm’s payment banking operations will be halted until RBI releases further instructions. It is however unclear if RBI will allow Paytm to ever resume payment banking operations even post compliance with RBI’s requirements as the notification does state any remedial clauses. It’s entirely possible that RBI may cancel Paytm’s payment banking license altogether. If that happens, bear with me as I’m not able to conclusively decipher, but it seems Paytm might not even have a payment aggregator license, as the payment aggregator license would have resided in the payment bank license and Paytm’s application for a payment aggregator license was returned by RBI.

    In its notification last week. the RBI said Paytm’s “persistent” noncompliance with an earlier order — from March 2022, when the RBI ordered Paytm to stop adding customers to Payments Bank — raised supervisory concerns and warranted further actions. The RBI said an audit found the instances of noncompliances, but didn’t go into details.

    The local media reported last week that Paytm Payments Bank was riddled with issues such as money-laundering and that India’s crime-fighting agency Enforcement Directorate was probing the firm. Paytm declined (PDF) that the ED was conducting any investigation, and in a townhall with employees on Saturday, Paytm’s senior executives assured that the issues reported in media were “old” and had been fixed “long back,” TechCrunch first reported.

    As we attempt to understand the full extent of the potential damage from the RBI’s initial ruling to Paytm, the company is already beginning to bleed customers and merchants. As Macquarie analyst Suresh Ganapathy pointed out on an analyst call last week, many Paytm customers are already harbouring the belief that Paytm is defunct.

    The ongoing episode with Paytm is also shaking the confidence of investors in the Indian fintech market. The RBI has introduced a series of regulatory changes — or clarifications —  in the last three years and fintech as a sector was already becoming hostile for many VCs.

    “I believe this action against Paytm is precedent-setting, harsh and impacts the broader financial services ecosystem in India. I don’t remember the last time RBI canceled the license of a bank for reasons other than adequate capital requirements,” Saldanha added.

    Bipin Singh, co-founder of financial services firm MobiKwik, defended the RBI’s rationale: “Having worked with the regulator closely over the last decade or so, I can say conclusively that RBI is neither against innovation nor against fintechs. If they were, we wouldn’t have the huge fintech ecosystem in India today. Compliance, however, is not negotiable,” he tweeted.



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  • ED to probe Paytm Payment Bank if money laundering found

    ED to probe Paytm Payment Bank if money laundering found

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    The Directorate of Enforcement (ED) will probe Paytm Payment Bank if there are fresh money laundering charges by the Reserve Bank of India (RBI), a senior Finance Ministry official confirmed on Saturday.

    businesslineasked: “Is it correct that ED will probe Paytm Payment Bank if there are fresh charges of money laundering by RBI?” In response to this, the official said, “Yes.“

    The highly-placed official’s remarks are significant in the context of government agencies raising security concerns related to fund flows with links to China. Also, RBI has uncovered data breaches and found violations of the PMLA. Some reports also suggested that it might lose its payment bank license.

    Earlier this week, banking regulator RBI said that Paytm Payment Bank will not be allowed to take further deposits, credit transactions or top-ups in customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc., after February 29, 2024. However, interest, cash-backs, or refunds may be credited anytime. It also said that the Nodal Accounts of One97 Communications Ltd and Paytm Payments Services Ltd. are to be terminated as soon as February 29, 2024.

    Further, settlement of all pipeline transactions and nodal accounts (in respect to all transactions initiated on or before February 29, 2024) shall be completed by March 15, 2024 and no further transactions shall be permitted thereafter.

    “The Comprehensive System Audit report and subsequent compliance validation report of the external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank, warranting further supervisory action,” RBI said while giving reasons for its action. However, it clarified that withdrawal or utilisation of balances by its customers from their accounts, including savings bank accounts, current accounts, prepaid instruments, FASTags, National Common Mobility Cards, etc., are to be permitted without any restrictions, up to their available balance.

    In March 2022, RBI directed Paytm Payment Bank to stop, with immediate effect, the onboarding of new customers. The bank has also been directed to appoint an IT audit firm to conduct a comprehensive System Audit of its IT system. Onboarding of the new customers by Paytm Payments Bank Ltd will be subject to specific permission to be granted by the RBI after reviewing the report of the IT auditors. This action is based on certain material supervisory concerns observed in the bank.” It said.

    Meanwhile, on Friday, Paytm founder Vijay Shekhar Sharma said there would be no impact on the paytm app, and it would continue to provide services as usual. ”Your favourite app is working, will keep working beyond February 29 as usual. I, with every paytm team member salute you for your relentless support. For every challenge, there is a solution and we are sincerely committed to serve our nation in full compliance. India will keep winning global accolades in payment innovation and inclusion in financial services – with Paytm Karo as the biggest champion of it,” Sharma said.



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  • RBI’s tightening of norms for unsecured retail loans is credit positive: Moody’s

    RBI’s tightening of norms for unsecured retail loans is credit positive: Moody’s

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    The Reserve Bank of India’s recent measures to tighten norms for unsecured retail loans will help strengthen underwriting norms through higher risk-weighted assets and is “credit positive” because lenders will need to allocate higher capitals for such loans improving their loss-absorbing buffers and may dampen their growth appetite, Moody’s Investor Service said in a note.

    “The unsecured segment has been growing very rapidly in the past few years exposing financial institutions to a potential spike in credit costs in case of sudden economic or interest rate shocks,” it said.

    The RBI on November 16, raised risk weights on riskier unsecured retail loans and credit cards by banks and NBFCs by 25 percentage points.

    India’s unsecured lending segment has become very competitive over the past few years with banks, NBFCs and fintechs, including several new entrants, aggressively growing loans in this category. In the past two years, personal loans grew around 24 per cent and credit card loans grew 28 per cent on average compared with overall banking sector’s credit growth of around 15 per cent.

    “Several NBFCs, which until now focused on secured lending categories such as infrastructure, real estate and vehicle loans, have also pivoted to these riskier segments. The net interest margins for such loans are also declining because of steep competition,”Moody’s said.

    Further, several banks and NBFCs are sourcing unsecured loans through fintech companies’ apps. However, fintechs’ loan origination and collection models are largely untested and could expose the NBFCs and banks to asset quality volatility, it added.

    Capital impact

    Moody’s expects banks to be able to absorb higher risk weights on their capital because the overall banking sector’s exposure to unsecured retail credit is small at around 10 per cent as of September 2023. Moreover, the sector’s overall capitalisation is at a historically high level, with a Common Equity Tier 1 (CET-1) ratio of 13.9 per cent as of March 2023.

    However, the impact of the new underwriting rules could vary among individual lenders depending on their exposure to unsecured loans, it said.

    The central bank’s decision to also increase risk weights on banks’ exposure to NBFCs by 25 percentage points will be applicable to NBFCs which until now benefitted from risk weights below 100 per cent because of their higher domestic ratings. The strain, though, should be minimal because the higher risk weights are not applicable to loans extended for housing finance and priority sectors such as agriculture and MSMEs, among others.

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  • Retail lending has grown more in rural areas relative to urban areas: CAFRAL report

    Retail lending has grown more in rural areas relative to urban areas: CAFRAL report

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    Retail lending has grown more in the rural areas relative to the urban areas across lenders, as creditors started tapping the underserved market segment, with the rural-urban differential growth highest for NBFC (non-banking finance company) and Fintech NBFC lenders, per a report by CAFRAL.

    The year-on-year (y-o-y) growth in loans sanctioned for rural and urban areas was about 70 per cent and 65 per cent, respectively, for NBFCs in 2022, according to the charts in the India Finance Report 2023, which has been put together by the Centre for Advanced Financial Research and Learning. CAFRAL is an independent body of the Reserve Bank of India.

    The y-o-y growth in loans sanctioned for rural and urban areas was about 200 per cent and 140 per cent, respectively, for Fintech NBFCs in 2022.

    CAFRAL’s researchers, however, noted that despite the recent growth spurt in credit to rural areas, total retail credit to rural areas was merely 18.8 per cent ( ₹66.52 lakh crore) of the total credit in 2021.

    Of the 57.58 lakh crore sanctioned by NBFCs in 2021, the share of rural credit accounted for only 20.8 per cent ( ₹11.99 lakh crore), clearly highlighting the urban-rural divide in access to credit, opined the researchers.

    They observed that fostering NBFC growth can potentially help narrow the rural-urban credit gap, as NBFCs reach out to rural borrowers through their deep penetration in rural areas.

    The researchers observed that RBI has previously used branch expansion policy as a tool to improve financial access in rural areas. For example, the most recent data from RBI shows that about 30 per cent of all bank branches are in rural areas where over 60 per cent of the population lives.

    “This lack of access to formal financial institutions amongst rural households also implies constrained access to credit.”

    “A credit supply shock leads to large consumption responses in rural compared to urban households. Rural consumption response estimate for NBFC loans is nearly double that in the urban areas,” they said.

    The report said that data-driven underwriting processes and new financial products and credit delivery methods are reaching credit-constrained borrowers.

    Though rural retail lending has seen strong growth, especially for NBFCs, credit access is still concentrated in urban areas, and much of the population remains underserved.

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  • Individual investors can subscribe to Floating Rate Savings Bonds, 2020 (Taxable), under RBI’s Retail Direct Portal

    Individual investors can subscribe to Floating Rate Savings Bonds, 2020 (Taxable), under RBI’s Retail Direct Portal

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    The Reserve Bank of India, in consultation with the Government of India, has expanded the basket of products offered through the Retail Direct Portal, allowing retail investors to subscribe to Floating Rate Savings Bonds (FRSBs), 2020 (Taxable).

    FRSBs are interest bearing, non-tradeable bonds, issued by the Government of India, which are repayable on the expiration of seven years from the date of issue.

    Currently, individual (retail) investors can invest in Central Government Securities, Treasury Bills, State Government Securities and Sovereign Gold Bonds through the Retail Direct Portal.

    RBI-Retail Direct Scheme (RDS) was launched on November 12, 2021. Under the Scheme, individual investors are permitted to open Retail Direct Gilt account with RBI, using an online portal (https://rbiretaildirect.org.in), through which investments in Government Securities can be made in primary and secondary market.

    The central bank said the scheme has brought Government Securities within easy reach of retail investors by simplifying the process of investment.

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  • Reliance on third-party technology providers requires robust risk management practices by banks: RBI DG Jain

    Reliance on third-party technology providers requires robust risk management practices by banks: RBI DG Jain

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    Banks must carefully manage the adoption of new technologies and ensure adequate controls and safeguards to address potential vulnerabilities, according to Reserve Bank of India Deputy Governor MK Jain.

    Additionally, the reliance on third-party technology providers requires robust due diligence and risk management practices to mitigate the risks associated with outsourcing.

    “Banking is undergoing a significant technology revolution, driven by the emergence of fintech companies. This is pushing traditional banks to embrace digital transformation and become agile and innovative.

    “While technology brings numerous benefits, such as increased efficiency and improved customer experiences, it also presents varied risks,” Jain said at the 25th SEACEN-FSI Conference of the Directors of Supervision of Asia Pacific Economies in Mumbai. 

    Data privacy

    The Deputy Governor observed that closely linked to technology is the issue of data.

    “The banking industry, by the nature of its business, possesses a wealth of data that can be leveraged for various purposes. This data covers customer information, financial transactions, credit histories, and more.

    Also read: Underserved, marginalised populations more vulnerable to cyber risks: RBI Deputy Governor

    “While there are significant opportunities to derive value from this data, it is crucial to acknowledge and address the inherent risks associated with its handling, including those relating to data breaches and privacy concerns,” Jain said.

    The Deputy Governor emphasised that supervisors need to examine IT issues holistically.

    Future proofing

    “It is crucial to determine whether banks have the capacity to develop robust IT systems that align with their business strategies. Future-proofing banks’ IT infrastructure becomes imperative, necessitating strategic investments in both capital and operational expenditure.

    “As virtual work environments and cyber risks become more prevalent, effective IT governance takes on heightened sign,” he said.

    He underscored that data analytics empowers supervisors with the ability to extract valuable insights from vast amounts of data.

    This enables them to make data-driven decisions, identify risks, and take timely actions to safeguard financial stability.

    “By leveraging the power of data analytics, banking supervisors can considerably strengthen their supervisory frameworks,” Jain said.

    The Deputy Governor said as banks adopt new technologies, it is essential for supervisors to be equipped with the necessary knowledge, skills, and resources to effectively supervise and regulate these advancements.

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  • RBI conceptualises ‘bunker’-like light weight, portable payments system

    RBI conceptualises ‘bunker’-like light weight, portable payments system

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    MUMBAI – RBI is exploring a light weight and portable Payment and Settlement System (LPSS), which will be independent of conventional technologies and can be operated from anywhere by a bare minimum staff.

    “Such a light weight and portable payment system could ensure near zero downtime of payment and settlement system in the country and keep the liquidity pipeline of the economy alive and intact,” the central bank said in its annual report for 2022-2023.

    The system would facilitate uninterrupted functioning of essential payment services like bulk payments, interbank payments and provision of cash to participant institutions, during extreme and volatile situations or catastrophic events. It will operate on minimalistic hardware and software, be made active only on a need basis, and process transactions critical to ensure economic stability.

    “Having such a resilient system is also likely to act as a bunker equivalent in payment systems and thereby enhance public confidence in digital payments and financial market infrastructure even during extreme conditions,” the report said.

    Existing conventional payment systems like RTGS, NEFT and UPI are designed to handle large volumes while ensuring sustained availability and hence are dependent on complex wired networks backed by advanced IT infrastructure, which could be rendered unavailable due to disruptions in the underlying information and communication infrastructure.

    Strengthening framework

    As a part of the ‘Utkarsh 2.0’ initiative, RBI will put in place a resilient framework for oversight of Centralised Payment Systems — NEFT and RTGS. It will also look to upgrade the RTGS system, including improvements in existing and introduction of new functionalities.

    The central bank will also review the continuation of the Payments Infrastructure Development Fund (PIDF) Scheme given that it has met its initial targets well ahead of schedule.

    ”Implementation of the scheme resulted in various innovative ideas and field level experiences which the advisory council members felt necessary to explore. The feasibility of continuing the scheme on these lines will be explored,” RBI said.

    Global standards

    RBI said it is at an advanced stage of procurement and upgradation of SOC (Security Operation Centre) technologies, and making NEFT compliant with Global Messaging Standards.  

    “Adoption of ISO 20022 will provide structured and granular data, improved analytics, end-to-end automation, and better global harmonisation. It will also pave the way for interoperability between RTGS and NEFT,” it said, adding that the RBI’s retail payment system will also be compliant with these standards.

    The central bank is in the process of putting in place the required infrastructure for collection of details of payment touch points under the initiative of geo-tagging payment acceptance infrastructure. It is also looking to roll out the UPI facility for foreign nationals at all entry points in the country, inter-linking of UPI with Fast Payment Systems (FPS) of other countries to enable both foreign inward and outward remittances, and issuance of RuPay cards in other countries.

    The agenda for 2023-24 includes upgrading the e-Kuber platform, which has been designated as a Critical Information Infrastructure (CII), to offer functionalities such as comprehensive real time dashboards, enhanced user experience, scalability, resilience, easier process orchestration, ease of integration with external and internal systems, front-end improvements for enhancing productivity, robust controls, and an integrated security architecture platform.

    Nextgen data centre

    In addition, the central bank has initiated the project to construct a new next generation data centre to address the capacity expansion constraints, meet ever-increasing IT landscape needs and avoid region-specific risks.

    “The construction of the data centre has commenced and shall be in an advanced stage of completion in 2023-24,” the report said.

    Other priority items include implementation of ‘Payee Name Lookup’ in Centralised Payment Systems, exploring enabling of real-time payee name validation before fund transfers, continued initiatives to enhance dissemination of granular data on payment systems, and enhancing of RBI’s internal applications to reduce dependence on manual and paper-based procedures.

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  • RBI’s MPC will continue to be in pause mode in June meeting: SBI report

    RBI’s MPC will continue to be in pause mode in June meeting: SBI report

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    State Bank of India’s economic research department (ERD) expects one more pause by the Reserve Bank of India’s Monetary Policy Committee (MPC) in view of the recent Consumer Price Index (CPI) and Core CPI numbers. The MPC will hold its bi-monthly deliberations on June 6-8, 2023.

    “With CPI declining at 4.7 per cent in April, the question is whether 6.5 per cent is the terminal rate…Given that the current rate of 6.5 per cent is already higher than the required rate of 6.22 per cent, we expect one more pause by RBI MPC meeting in June 23, while carefully watching the CPI and Core CPI number in ongoing months,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI.

    The ERD’s machine learning-based analysis is indicating that this terminal rate could decline to 6 per cent in the next quarter, possibly opening up opportunities for MPC to look at the data trends more carefully for a rate action towards the end of the year.

    Ghosh noted that the US Fed has likely reached its terminal rate, soothing frayed nerves of markets going ahead.

    After hiking the policy repo rate cumulatively by 250 basis points from 4 per cent to 6.50 per cent since May 2022, the MPC hit the pause button at its last meeting in April.

    Governor Shaktikanta Das then said, “Let me emphasise that the decision to pause on the repo rate is for this meeting only…While the recent high frequency indicators suggest some improvement in global economic activity, the outlook is now tempered by additional downside risks from financial stability concerns.

    “Headline inflation is moderating but remains well above the targets of central banks…Looking ahead, headline inflation is projected to moderate in 2023-24. The monetary policy actions taken since May 2022 are still working through the system.”

    Das emphasised that the MPC will not hesitate to take further action as may be required in its future meetings.

    SBI’s ERD said the CPI reading for April 2023 at 4.7 per cent substantiates MPC’s decision to take a pause last month.

    Impact of climate change on growth

    The ERD said concerns remain on the growth front as India remains at the forefront of the most vulnerable countries to the likely adverse impacts of climate change.

    Ecowrap noted that India is at the 7th position out of 181 countries in the Global Climate Risk Index 2021, despite slew of controlling measures initiated to control green house gas emissions and promote renewable energy.

    “More than 3/4th of Indian districts are considered hotspots for extreme climate events which have a direct bearing on price prints volatility (mostly supply side).

    “It is evident that climate change poses a significant threat to India, impairing future growth materially if friction points remain significantly unchecked in time,” the report said.

    According to Ghosh, Credit, insurance and capital markets remain quite vulnerable to risks emanating from multiple drivers as the country braces for the return of El Nino this year.

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  • RBI asks HDFC Bank to comply with CRR, SLR, LCR post HDFC merger

    RBI asks HDFC Bank to comply with CRR, SLR, LCR post HDFC merger

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    The Reserve Bank of India (RBI) has asked HDFC Bank to continue to comply with regulatory requirements for cash reserve ratio (CRR), statutory liquidity ratio (SLR) and liquidity coverage ratio (LCR), without exceptions, post the merger of HDFC Limited.

    Post the merger, asset classification of loans will also continue to be as per applicable norms for banks. Investments, including subsidiaries and associates of HDFC, will continue as investments of HDFC Bank, the private sector lender said in an exchange filing. HDFC Bank had requested RBI to make certain dispensations in view of the merger, to which the regulator responded on April 20, granting certain forbearances and clarifications.

    The RBI has allowed HDFC Bank to calculate adjusted net bank credit for the purpose of priority sector lending (PSL) targets, considering one-third of HDFC’s outstanding loans as on the merger date for the first year. The remaining portfolio will need to be equally considered over the next two years.

    Shareholding

    The regulator also allowed HDFC Bank or HDFC to increase their shareholding in HDFC Life Insurance and HDFC ERGO General Insurance to over 50 per cent, prior to the effective date. HDFC Bank can also continue holding HDFC’s stake in HDFC Education and Development Services for two years. The stake in HDFC Credila Financial Services will need to be brought down to 10 per cent within two years without onboarding new customers. HDFC’s loan against shares for promoter contribution, or in excess of ₹20 lakh to individuals, will be allowed to continue till maturity.

    Also read: HDFC Bank’s Q4 PAT up 20% on strong growth in NII

    The bank said it will need to undertake a one-time mapping of HDFC’s borrowers for benchmark and spreads, wherein all retail, MSME and other floating rate loans of HDFC will be linked to appropriate benchmarks within six months from the merger.

    HDFC Bank may engage with the RBI for certain clarifications in respect of this letter and will also approach the regulator with the crystalised amounts of the liabilities as of the effective date, it said.

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  • India’s financial system insulated from developments in US, Switzerland: Das

    India’s financial system insulated from developments in US, Switzerland: Das

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    India’s financial system remains “completely” insulated from the recent developments in the US and Switzerland, said RBI Governor Shaktikanta Das.

    The recent developments in the US include the failure of Silicon Valley Bank and Signature Bank due to asset-liability mismatches and their closure. Financial stress at Switzerland’s second largest bank, Credit Suisse, led Swiss authorities to merge it with larger rival UBS.

    At a press conference in Washington on Thursday, Das said at the global level, the recent developments in the banking system in the US and in Switzerland, have once again brought into focus the importance of financial stability and banking sector stability, said a PTI report.

    The Governor was in Washington for the annual spring meeting of the International Monetary Fund and the World Bank along with Finance Minister Nirmala Sitharaman.

    ‘Very healthy’

    “So far as India is concerned, the Indian banking system remains completely insulated from the developments that have taken place in the US or in Switzerland. Our banking system is resilient, stable and healthy,” Das said.

    “The parameters related to banking, whether it is capital adequacy, or it is the percentage of stressed assets or it is the liquidity coverage ratio of individual banks both at individual level as well as at the systemic level or issues like provision coverage ratio, aspects like net interest margin of banks, profitability of banks, whichever parameter you take into consideration, the Indian banking system continues to be very healthy,” he said.

    Das said as far as the Reserve Bank of India (RBI) is concerned, over the last few years, “We have significantly improved and tightened our regulation and supervision of the entire banking system, including the non-banking financial companies”. The focus of supervision is on early identification of any buildup of vulnerabilities and not waiting for the crisis to build up, he said.

    In his monetary policy statement last week, Das observed that with the fight against inflation far from over, the global economy is now confronted with serious financial stability challenges from the recent banking sector developments in some advanced economies.

    “This calls for a reappraisal of the responsibilities of the regulators and the regulated entities world over and their collective role in safeguarding the stability of the financial system. While regulators need to identify potential vulnerabilities and take proactive regulatory and supervisory measures, it is incumbent upon the regulated institutions to exercise due diligence in their risk management and corporate governance practices,” he had said.

    They need to pay close attention to asset-liability mismatches and profile of their deposit base, while building up adequate capital buffers and conducting periodic stress tests, he added. 

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