Money & Banking
RBI may allow partial SLR conversion to meet Basel-III norms

Currently, the SLR is pegged at 23%, while the average industry holding is above 28% and the central bank has hinted at allowing part of it as liquid assets under Basel-III

Mumbai: The Reserve Bank of India (RBI) has hinted at allowing part of the statutory liquidity ratio (SLR) holdings of banks to be treated as liquid assets under the Basel-III guidelines, which will come into effect next fiscal, reports PTI.

 

"We already have quite a bit of liquidity ratio requirement.... If you look at our SLR, it is supposed to be maintained continuously.

 

"Therefore, question arises whether we add some more liquidity on top of SLR, which will be definitely not good for our banks. So, we are looking at carving out SLR so that a part of it can become usable," RBI Deputy Governor Anand Sinha told reporters on the sidelines of an event.

 

However, Sinha did not offer any details on how much of the SLR holdings can be converted. Currently, the SLR is pegged at 23%, while the average industry holding is above 28%.

 

The Basel III framework, which was adopted in the wake of the 2008 global financial crisis to safeguard banks in case of stress, seeks a higher liquidity coverage ratio that requires banks to hold marketable high quality liquid assets.

 

As per the RBI estimate, domestic banks need Rs1.4-1.5 trillion for complying with the guidelines.

 

Referring to the Basel committee meeting, which extended the final implementation deadline by a year to March 2019, Sinha said now banks have to be 100% compliant with the liquidity management from 2019, but he did not elaborate on its impact on the domestic banks.

 

Yesterday, banks got a respite when the global regulators extended deadline for Basel-III compliance by a year to 2019.

 

They also broadened the definition of liquid assets to include shares, retail mortgage-backed securities, among others.

 

Referring to final new bank licence norms, Sinha said that the central bank would come up with new regulations soon.

 

He, however, did not divulge any timeline.

 

Earlier, addressing a seminar on the proposed guidelines on non-banking finance companies (NBFCs), Sinha said the concerns of the industry would be taken into consideration but they could not be treated at par with banks.

 

Allaying fears regarding the new benchmark of Rs25 crore for registration, the deputy governor said they would not be out of business due to this proposed norm as feared by many analysts.

 

He also stressed on the stringent liquidity management measures implemented for NBFCs to protect them against any systemic failure.

 

Talking about the proposed guidelines regarding maintaining higher tier-I capital by most NBFCs, Sinha said as per global standards, the gap between capital adequacy ratio between banks and NBFCs have to be shortened.

 

The apex bank released the final draft guidelines on NBFCs last month based on the recommendations of the Usha Thorat committee report.

 

The key recommendations of these reports are higher tier-I capital ratio, reduction of NPA recognition period, higher liquidity assets, among others.

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RBI asked to give all details about NBFCs operating in Karnataka

The petitioner had sought a direction to the RBI to regulate and fix the ceiling rate on lending by NBFCs, particularly Muthoot Finance and Manappuram Finance, which he alleged are engaged in pawn broking and charging an exorbitant interest of 39% to 40% from customers

Bangalore: The Karnataka High Court has directed the Reserve Bank of India (RBI) to furnish within six weeks all details of non banking finance companies (NBFCs) operating in the state and the names and number of private finance companies offering secured and unsecured loans, reports PTI.

 

The division bench, comprising acting Chief Justice K Sreedhar Rao and Justice BV Nagarathna, acting on public interest litigation (PIL) by one DM Suresh, also directed the RBI to give details about the secured and unsecured loans by NBFCs.

 

The court warned that the licences of these companies would be cancelled if they were found violating laws.

 

The petitioner had sought a direction to the RBI to regulate and fix the ceiling rate on lending by NBFCs, particularly Muthoot Finance and Manappuram Finance, which he alleged are engaged in pawn broking and charging an exorbitant interest of 39 to 40% from customers.

 

The petitioner contended that such companies were "fleecing" customers despite the state government fixing 14% as maximum lending rate for secured loans.

 

He also wanted the state Government to withdraw exemption certificates given to such companies under the Money Lending Act and for these two companies to be brought under the Pawn Brokers Act.

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Bank of America to pay $11.6 billion to settle Fannie Mae deal

Under the agreements, Bank of America would pay $3.55 billion in cash to Fannie Mae and repurchase for $6.75 billion residential mortgage loans it had sold to the government-controlled company

Washington: Bank of America said it would pay $11.6 billion to settle claims on soured loans sold to government-backed mortgage finance giant Fannie Mae during the home price bubble, reports PTI.

 

Under the agreements, Bank of America Corp said it would pay $3.55 billion in cash to Fannie Mae and repurchase for $6.75 billion some residential mortgage loans it had sold to the government-controlled company.

 

In addition, Bank of America will pay $1.3 billion to address mortgage servicing issues, Fannie Mae said in a separate statement.

 

"A favourable resolution of this long-standing dispute between Fannie Mae and Bank of America is in the best interest of taxpayers," said Bradley Lerman, Fannie Mae executive vice president.

 

Fannie Mae, the nation's largest mortgage buyer, said the deal would compensate it for actual and projected losses resulting from the loans.

 

The loans had been bundled into mortgage-backed securities and bought by the finance giant over 2000-2008, but had not met its underwriting standards.

 

As the housing bubble collapsed, Fannie Mae and sister company Freddie Mac were reeling on the brink of bankruptcy from soured loans.

 

The government stepped in with a combined $180 billion taxpayer-funded bailout in September 2008 and put both firms -- responsible for the bulk of US mortgages -- under the control of the Federal Housing Finance Agency. The government is not expected to recover much of the money it injected into the two.

 

The settlement announced covers residential mortgage loans originated by Bank of America's own home loan unit and by entities related to Countrywide Financial Corporation, which the bank acquired in 2008.

 

"These agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time," said Brian Moynihan, Bank of America chief executive.

 

The Charlotte, North Carolina-based bank estimated the measures would reduce pre-tax earnings for the 2012 fourth quarter by $2.7 billion.

 

Separately, government regulators announced today a settlement with 10 mortgage servicers, including Bank of America, which will pay $8.5 billion in cash and other assistance to borrowers hurt by the servicers' "deficient" practices.

 

Shares in Bank of America were flat at $12.11 in morning trade in New York.

 

For the struggling bank, the Fannie Mae settlement marks another milestone in its efforts to extricate itself from the US mortgage crisis that shook global financial markets in 2007-2008 and sparked the US Great Recession.

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