Snippets from the Indian Banking and Finance Arena – November 2020

RBI announces: India in historic technical recession. Is COVID pandemic the only reason? 

RBI’s deputy governor in charge of monetary policy, along with a team of economists made an alarming announcement saying “India has entered a technical recession in the first half of 2020-21 for the first time in its history.” This unprecedented recession in India’s economic history is a result of shrinking of Indian economy consecutively for second quarter. The contraction of GDP by 8.6% in quarter ending September is based on RBI’s first ever published ‘nowcast’, which is an estimate based on high-frequency data. The official statistics would be published on 27th November. While the Covid pandemic has affected the trajectory of economic growth but it cannot be a cover for mismanagement of economic policies of the government. BusinessStandard

Four years after demonetization, cash in system at all-time high

The nation witnessed the 4th Anniversary of Demonetization this year on 8th November. Even this year, many political leaders came forward chiding this autocratic move of the BJP Government as how demonetization harmed the economy and caused immense burden for ordinary people in the name of reducing black money and cash transactions in the economy. However, a recent news report points out that the cash in the system remains at all-time high. In October 2020, notes worth a staggering Rs. 26.19 lakh crore remained in circulation, despite the push by the government for scaling up digital transactions. On November 4, 2016, four days before the demonetization announcement, Rs. 17.97 lakh crore were available with citizens. A study by RBI found that while digital transactions have increased, currency in circulation to GDP ratio has also simultaneously swelled, falling in line with the “overall economic growth.” NewsBytes

In solidarity with nation-wide bank unions strike on November 26

Public sector banks across India would be observing a nation-wide strike on 26th November opposing the privatisation of banks and outsourcing of jobs. Along with this, bank unions have also laid out demands for increase in interest rate of bank deposits and reduce bank charges levied on customers. The demand also includes taking stringent measures against wilful loan defaulters and recovering the pending corporate NPAs. All India Bank Employees’ Association (AIBEA) has stated that the strike is against the “anti-economic policies, anti-worker labour policies and anti-farmer legislations in the country.” Bank unions play a crucial role in taking forward the demands not just of bank employees, but the larger interest of the nation and its citizens. In solidarity with the bank unions strike. BusinessInsider

Loan moratorium: RBI urges SC to lift interim order banning declaration of NPAs

The RBI had on 27th March issued a circular which allowed lending institutions to grant a moratorium on payment of instalments of term loans falling due between March 1, 2020, and May 31, 2020, due to the pandemic. Later, the moratorium was extended till 31st August this year. Then on 3rd September Supreme Court had come up with an interim order, which held that accounts not declared as NPAs till 31st August this year are not to be declared NPAs till further orders. This interim order was passed by Supreme Court to bring relief to stressed borrowers facing hardships due to the COVID-19 pandemic. On 5th November, RBI had urged Supreme Court to lift this interim order stating that the central bank is “facing difficulty” due to this directive. A few weeks earlier, in a filing to Supreme Court, RBI had warned that failure to immediately lift an interim stay on banks classifying any loan as a non-performing asset (NPA) would also undermine the central bank’s regulatory mandate. While the central bank is keen that the smaller loan accounts get declared as NPAs to fulfil its regulatory mandate, the RBI has earlier gone at great length to not disclose the name of wilful defaulters and provide relief through restructuring of large-scale loans through various measures. TheEconomicTimes

Bank of Baroda withdraws order reducing free cash transactions due to ‘Covid situation’

Indian Banks have repeatedly come under scrutiny for burdening the ordinary people with arbitrary bank charges. Bank of Baroda had earlier announced that it would reduce the number of free cash deposits and withdrawals allowed at its branches from five to three with effect from 1st November. While this rule came into effect but just in a couple of days Bank of Baroda decided to withdraw these charges giving the pretext of “Covid-19 situation”. Ministry of Finance issued a notice after the opposition leaders accused the current Government of burdening people with additional bank charges and clarified that no other public sector bank is planning to increase bank charges in near future in view of Covid situation. A constant pressure needs to be put on the banks to withdraw the bank charges burdening the poor. ThePrint

Regional Rural Banks get support of Rs 670 crore from the Government to meet regulatory capital requirements

India has 43 Regional Rural Banks (RRBs) who play a key role in catering to the credit and banking requirements of agriculture sector and rural areas with a focus on small and marginal farmers, micro and small enterprises, rural artisans and weaker sections of the society. Roughly one-third of these RRBs, especially from north-eastern and eastern regions were in losses and needed capital infusion to meet regulatory capital requirement of 9 per cent. To fulfil this requirement, a support of Rs 670 crore was provided by the government, along with matching funds from state governments and sponsor banks. The crucial role provided by RRBs can be judged by the fact that priority sector loans constituted 90.6 per cent or Rs 2.70 lakh crore of the gross loans outstanding of RRBs as on March 31, 2020. FinancialExpress

Govt. extends Emergency Credit Line Guarantee Scheme till March 31, 2021; guaranteed credit support to be provided to 26 stressed sectors

Building upon the earlier announced Emergency Credit Line Guarantee Scheme (ECLGS) 1.0, the Government has announced ECLGS 2.0 which would provide guaranteed credit support to 26 stressed sectors identified by KV Kamath Committee. Earlier, RBI had formed a five member committee under the chairmanship of former ICICI Bank CEO KV Kamath to make recommendations on the financial parameters to be considered for the one-time restructuring of loans impacted by the Covid 19 pandemic. Under ECGLS 2.0, entities in the 26 stressed sectors, plus the health sector will be provided 100% guaranteed collateral-free additional credit at capped interest rates with credit outstanding of above Rs 50 crore and up to Rs 500 crore as of February 29, 2020. Entities will get additional credit up to 20% of outstanding credit under ECGLS 2.0. The credit under ECGLS 2.0 will be having a 1-year moratorium period and a 5-year repayment period. It is to be seen that this extension of credit does not encourages evergreening of loans to companies in the long run. BusinessToday

RBI announces ‘on tap’ TLTRO scheme of Rs 1 lakh crore to enable banks to provide liquidity support to host of sectors

RBI announced in October an ‘on tap’ Targeted Long-Term Repo Operations (TLTRO) scheme of up to Rs 1 lakh crore to enable banks to provide liquidity support to a host of sectors, including agriculture, retail, drugs and pharmaceuticals and MSMEs. Liquidity availed by banks under the scheme has to be deployed in corporate bonds, commercial paper and non-convertible debentures issued by entities in sectors like agriculture; agri-infrastructure; secured retail; MSMEs; and drugs, pharmaceuticals and healthcare. The Long-Term Repo Operations (LTRO) is a tool under which the RBI provides one-year to three-year money to banks at the prevailing repo rate, accepting government securities with matching or higher tenure as the collateral. While the RBI’s current windows of liquidity adjustment facility (LAF) offer banks money for their immediate needs ranging from 1-28 days, the LTRO supplies them with liquidity for their 1- to 3-year needs. LTRO operations are intended to prevent short-term interest rates in the market from drifting a long way away from the policy rate, which is the repo rate. MoneyControl

8 lakh Bank Employees to get 15% wage hike due from Nov 2017 to 2022; Indian Banks’ Association (IBAs) & Bank Unions reach agreement

Over 8 lakh bank employees across 35 banks would get 15% wage hike due from Nov 2017 to 2022. This wage hike is a result of 11th bipartite agreement signed between Indian Banks’ Association (IBA) and bank unions. This wage hike would lead to an additional cost of Rs 7,900 crore to the banks. In order to accommodate this wage hike, banks should not burden its customers with more bank charges. MoneyControl

Government yet again lays emphasis on linking of bank account with Aadhaar, despite constant opposition to Aadhaar

At the Annual General Meeting of Indian Banks’ Association this month, Finance Minister Nirmala Sitharaman said, “Ideally by December, if not by March 31, 2021, every account should have a PAN where needed and applicable and Aadhaar in every case.” The Finance Minister emphasized that every bank account in the country should be seeded with Aadhaar Card by December 2021. There have been umpteen examples in the past few years about the faulty implementation of Aadhar Card in the country and several civil society groups and concerned citizens have challenged the validity of Aadhaar and the ensuing threat of surveillance through Aadhaar. It is highly problematic when the Government continues to push Aadhaar despite the opposition around it. IndianExpress

RBI announces co-lending scheme for banks, NBFCs for priority sector

The RBI has recently come up with a Co-Lending Model (CLM) scheme for priority sector borrowers under which banks will be permitted to co-lend with all registered NBFCs (including HFCs) based on a prior agreement. RBI claims that primary focus of the scheme would be to improve the flow of credit to the unserved and underserved sector of the economy taking advantage of the lower cost of funds from banks and greater reach of the NBFCs. However, given the prior unstable track record of NBFCs and lack of stringent regulatory control similar to the banks, to what extent priority sector will benefit is doubtful and this scheme may carry the risk of legitimizing shadow banking of NBFCs. LiveMint

RBI imposes ₹1 cr penalty on Jio Payments Bank over re-appointment of MD & CEO

RBI imposed a penalty of Rs 1 crore on fintech firm Reliance Jio Payments Bank Limited. Jio Payments Bank Ltd. is a joint-venture between Reliance Industries (70% holding) and the State Bank of India (30% holding), which became operational in April 2018. The penalty was imposed due to non-compliance with RBI directions. As per RBI guidelines, Jio Payments Bank was required to submit an application under Section 35B of the Banking Regulation Act, 1949 (the Act) in the case of reappointment of MD & CEO of the bank four months prior to the date on which the term of the current position holders was to expire. However, Jio Payments Bank submitted this application less than a month prior to that date, which was a deficiency in the regulatory compliance. Reliance Jio Payments Bank has already been under scanner because of appointment of some key retired SBI officials in top positions, pointing towards a possible conflict of interest. LiveMint