The CBIís arrest of top IDBI officials for sanctioning loans that went bad after a restructuring programme may delay resolution of bad debts on the books of public sector banks (PSBs). IDBI sanctioned a loan of Rs 900 crore to Kingfisher Airlines (KFA), and while the bank was one among a consortium of 17 lenders, bankers felt that IDBI was targeted because the institution breached internal norms. Several bankers felt that defaults stemming from legitimate commercial failures were being unfairly tarred with the brush of corruption, and the fear of retribution would likely suppress any revival in credit, which has to rise if the government wishes to achieving its goal of driving investment Ė a push that is critical for economic growth.
Private banks have addressed bad loans by growing advances and doing one-time settlements with defaulters. PSBs havenít been able to do either, implying the necessity of falling back on the government for capital. The capital infusion as part of the Indradhanush scheme has been touted as far too less and bankers expect the government to set aside more funds to make any perceptible difference.
Source: The Economic Times, January 26, 2017
The government is likely to announce the second tranche of capital infusion in public sector banks as it tries to assess their requirements in maintaining appropriated regulatory capital. Banks have made presentations to the finance ministry on their requirements, and around six banks may get more than Rs 10,000 crore in the second round. Several lenders have not been able to meet the conditions as per the capitalization programme due to the demonetisation drive. In a recent report, rating agency ICRA pegged the capital requirement of PSBs between Rs 1.5 and Rs 1.8 lakh crore till FY 2017-19 to meet the Basel III requirements. The Reserve Bank of India (RBI) has mandated that banks maintain an extra 2 per cent of their assets as capital over the mandatory requirement of 7 per cent. In FY17, the finance ministry has allocated Rs 22,915 crore to 13 state-run banks.
Source: The Hindu Business Line, January 25, 2017
In an attempt to encourage banks to provide education loans, the Reserve Bank of India (RBI) has said that rescheduling of the payment period of such loans due to unemployment of borrower will not be treated as restructured accounts for computing NPAs. Banks can allow up to three spells of moratorium, not exceeding 6 months each, during the life cycle of education loans, taking into account spells of unemployment or underemployment without treating the exercise as restructuring. However, banks would have to maintain a higher provisioning of 5 per cent during the additional moratorium period and one year thereafter. This statement was made on the occasion of clarification sought by the Indian Banks Association (IBA) on whether education loans with extended repayment periods were being treated as restructured loans.
Source: The Economic Times, January 22, 2017
The Reserve Bank of India’s (RBI) research arm, Institute of Development and Research in Banking Technology (IDRBT), completed the first ever end-to-end test of the technology behind Bitcoin in an attempt to boost the use of blockchain technology in banking. This was done as part of a project involving regulators, banks, financial institutions and clearing houses. A white paper on the same was released by the RBI, claiming that the overall proof of concept provided a good demonstration of the use-cases and helped broaden the understanding of the technology and its potential to other real-life applications.
However, while the promotion of virtual transactions and the shift towards a less cash economy is a key part of the government’s efforts for cleaning up the system and weeding out corruption, several government officials have cautioned citizens against the use of virtual currencies, including Bitcoin, claiming that is has not yet been authorized in India. Trading in virtual currencies currently enjoys no legal protection mechanisms, exposing users to financial, legal and operational risks.
Source: The Times of India, January 16, 2017
According to Oil Minister, Dharmendra Pradhan, banks and oil marketing companies (OMCs) will bear transaction charges for fuel bought using cards at petrol pumps, and customers will not be burdened with the Merchant Discount Rate (MDR). Post demonetisation, the charge was passed on to customers, which was later waived off by the government in a bid to promote digital payments. While a lot of to and fro has happened with banks deciding to pass on the MDR to petrol pump operators, and with petrol pump owners threatening to stop accepting card payments, the government’s decision has put the matter at risk, but not to everyone’s happiness. Banks and OMCs are discussing the issue and are expected to come through with a mechanism so that the MDR can be levied without much inconvenience. The government had issued guidelines in February 2016 stating that the MDR charge will not be passed on to consumers and that stakeholders need to take appropriate steps to absorb it.
Source: Moneycontrol, January 13, 2017
The initial public offer of Bombay Stock Exchange (BSE), the first by a domestic stock exchange in India, which was to raise up to Rs 1,243 crore, was oversubscribed 11.85 times till the afternoon trade on the last day of the offer. The IPO received bids for bids for 12,80,04,066 shares against the total issue size of 1,07,99,039 shares, according to data from the National Stock Exchange (NSE). The IPO is expected to be sold in the price band of Rs 800-850 apiece, with existing investors offloading shares worth nearly Rs 1,350 crore through the offer. The IPO of 15,427,197 shares of face value of Rs 2 each will constitute up to 28.26 per cent of the fully-diluted post offer issued share capital of BSE. The issue is being managed by Edelweiss Financial Services, Axis Capital, Jefferies India, Nomura Financial Advisory and Securities (India), Motilal Oswal Investment Advisors, SBI Capital Markets and SMC Capitals. Its rival, National Stock Exchange (NSE) too has filed draft papers with SEBI for an estimated Rs 10,000-crore IPO.
Source: The Hindu Business Line, January 25, 2017
India International Exchange (India INX), the wholly owned subsidiary of Asia’s oldest bourse, Bombay Stock Exchange (BSE), commenced trading at Gujarat International Finance Tech (GIFT) city. The first trade took place between Globe IFSC and Edelweiss IFSC. Technology offerings will facilitate co-location of members in its own data centre at GIFT IFSC as well as algo trading including that of high frequency traders. It will also provide cross-border opportunities of investment with a comparatively low cost of transaction in the world’s most technologically advanced platform. India INX provides a competitive advantage in terms of tax structure and supportive regulatory framework. These include exemptions from security transaction tax, commodity transaction tax and long term capital gain tax waivers as well as waiver from income tax levy for the first five years. BSE's closest competitor, NSE (National Stock Exchange), is also expected to launch its international exchange soon.
Source: Business Today, January 16, 2017
Securities and Exchange Board of India (Sebi) is set to allow purchase of mutual funds (MF) units through digital wallets and electronic payment applications. The move comes at a time when online payments are getting a huge push by the government as part of a strategy to steer towards a more digital and ‘less-cash’ economy. MF schemes will be the only products in which transactions worth up to Rs 50,000 will be allowed through e-wallets. For all other products, the existing limit of Rs 10,000 a month will remain. SEBI is of the view that a greater use of Internet as a distribution channel can help increase the penetration of mutual funds, especially among the young investors, and also reduce the cost of buying mutual fund schemes.
Source: Business Standard, January 9, 2017