Money & Banking
RBI puts Central Bank of India under PCA due to high NPAs
The Reserve Bank of India (RBI) has placed state-run Central Bank of India under the prompt corrective action (PCA) due to high net non-performing assets (NPAs) and negative ROA of the Bank for past two consecutive years.
 
Central Bank is the fifth to be placed under PCA by RBI. Earlier, Reserve Bank has placed Indian Overseas Bank, IDBI Bank, UCO Bank and Dena Bank under the PCA due to huge NPAs.
 
In a communication to bank employees, Rajeev Rishi, Chairman and Managing Director of Central Bank of India, said, "...being placed under PCA should be taken up as a wakeup call. Now is the time for all of us to gear up all our efforts towards tackling the factors on account of which we are in present predicament."
 
Here is the letter sent by the Bank CMD...
 

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COMMENTS

Ramesh Jaradhara

1 week ago

The countdown is going on .....1st, 2nd, 3rd, 4th and now 5th PSU bank is under PCA. The real picture of Indian PSU banking is much gloomier than this. Within a very short span of time, we will see the uncovering face of all the PSU banks clearly. Whom to blame? Indian politics is such a thing that we cannot trust the credibility of its leaders for their nefarious intentions at the cost of the nation. RBI as a figurehead of the banking industry cannot absolve its responsibility too. Instead of being a watchdog, RBI is most of the time, seen as a mere ornament of the banking sector regulation. On the other hand, bank's have very loose control on their credit dispensation process, as a result loan underwriting standards have gone down or consciously diluted. The consequence is all clear to see by everyone. Huge NPAs are not the problem but the consequence of less vigil and lack of dedication on the part of its employees. A changing mindset and attitude on the part of all is the key to solving the menace of NPAs.

Vaibhav Dhoka

2 weeks ago

In every fraud scam or bailout the ultimate looser is taxpayer.In this case RBI has stopped payment of dividend in which the loose is shareholders from public.Alternately banks are introducing new ways and means to loot its customer and RBI remains mute spectator.We should pity our self for having such system of loot.

Simple Indian

2 weeks ago

All PSU Banks are facing NPA issues due to Finance Ministry's interference in their functioning. It's the phone calls from FM or Ministry to Heads of PSU Banks to disburse loans to undeserving businessmen like Vijay Mallya, which should stop. All perennially loss-making PSU Banks will keep getting recapitalized by Govt with taxpayers' money, just like Air India, so it's taxpayers who are burdened with inefficient Banks, while Banks can continue to behave as per 'instructions' from FM, as usual.

GLN Prasad

2 weeks ago

CBI invited itself to this position. They never cared for common and sincere customers and their focus on high net worth borrowers and large volume of lending to influential groups. To hope atleast 25% recovery in such group exposure can be treated as excellent performance. Never neglect ordinary borrowers is the lesson PSUs must learn.

REPLY

Kunal Singh

In Reply to GLN Prasad 2 weeks ago

It isn't just one bank. All the PSBs are reeling under the stress of the same "influential groups" while the HDFC/ICICI Banks enjoy the cream of the retail segment.

Nifty, Sensex In no-man’s Land – Wednesday closing report

We had mentioned in Tuesday’s closing report that Nifty, Sensex were headed lower. The major indices of the Indian stock markets were range-bound on Wednesday and closed with minor gains over Tuesday’s close. The trends of the major indices in the course of Wednesday’s trading are given in the table below:

The Indian equity markets on Wednesday closed on a flat-to-positive note on the back of healthy wholesale price index (WPI) data and buying in capital goods, oil and gas as well as energy stocks. Official data released during market hours showed that India's annual rate of inflation based on wholesale prices decelerated in May to 2.17% from 3.85% in April as food prices eased. However, investors remained cautious ahead of the outcome of two-day US Federal Reserve's rate-setting meet later in the evening. On the NSE, there were 662 advances, 793 declines and 64 unchanged.
 
Telecom major Reliance Communications (RCom) Chairman Anil Ambani has voluntarily decided to forego his salary and commission from the company during the current financial year as part of its "strategic transformation programme", RCom announced on Wednesday. "Reliance Group Chairman Anil D. Ambani voluntarily decides to draw no salary or commission from RCom in current financial year. The decision is part of the company promoters' commitment to the Strategic Transformation Program," an RCom release said. Announcing that the RCom management too has followed the chairman's lead, the statement said: "RCom management team on-board to defer personal pay by up to 21 days."  "Measures to remain in place till December 2017," it added. The company’s shares closed at Rs18.30, up 1.39% on the BSE.
 
Tea production in northern West Bengal, home to the world famous Darjeeling tea, was badly hit on Tuesday as most of the tea gardens remained shut on the second day of the strike called by trade unions. A joint forum of 24 trade unions of the tea industry in North Bengal have resorted to a two-day industrial strike, demanding implementation of minimum wages, reinforcement of entitlement for tea workers and distribution of land holding among tea workers for residential purposes. According to industry experts, the strike severely affected work at 300 tea gardens in North Bengal, including 87 in Darjeeling. 
 
India’s annual rate of inflation based on wholesale prices decelerated further in May 2017 to 2.17% from 3.85% in April as food prices eased, official data showed on Wednesday. Wholesale prices decelerated in April to 3.85% from 5.29% reported for March, as prices of food, fuel and manufactured products fell. According to data from the Ministry of Commerce and Industry, the wholesale price index (WPI), with the revised base year of 2011-12, in May 2016 declined to 0.90%. On a year-on-year (YoY) basis, expenses on primary articles, which constitute 22.62% of the WPI's total weightage, declined by 1.79% as compared to a rise of 4.38% during the same month a year ago. However, prices of food articles dipped 2.27% during the month under review. Prices of manufactured products, which comprise nearly 64.23% of the index, rose by 2.55%. With inflation coming under government control and the IMD predicting a favourable monsoon, aggregate demand in the Indian economy can be expected to be favourable. This is bound to cheer investors in the stock markets.
 
Officials of the US central bank in Washington are reviewing an option to raise short-term interest rates and by how much, a media report said on Tuesday. Most economists expect the Federal Reserve to boost the benchmark rate a modest quarter of a per cent, to a range between one and 1.25%, Voice of America reported. The fed cut rates nearly to zero at the worst of the financial crisis to make borrowing cheaper in a bid to boost economic growth and employment.  Since then, the recovering economy and improved unemployment rate, at 4.3%, have prompted the central bank to gradually raise rates. Officials are worrying that keeping rates too low for too long could spark a burst of inflation that could hurt the economy.  Federal Reserve Chair Janet Yellen will meet with journalists on Wednesday afternoon. Stock market investors in India are cautious ahead of the decision from the Federal Reserve.
 
The top gainers and top losers of the major indices are given in the table below:
 
 
The closing values of the major Asian indices are given in the table below:
 
 
 

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RBI’s IT framework for NBFCs lacks clarity

There are around 11,338 non-deposit taking non-banking finance companies (NBFCs) registered in India. Out of this number, a small fraction, or about 239 NBFCs, are systemically important NBFCs. The Reserve Bank of India, (RBI) through its framework, is considering imposing mandatory provisions on larger NBFCs to enable their information technology (IT) systems to be in consonance with their size of operations.

However, for smaller NBFCs the intention of the RBI is not very clear. Though the section laying down the applicable guidelines for smaller NBFCs starts with the word ‘recommendation’, it is pertinent to note that the same has to be put in place by 30 September 2018. The subsequent lines of the Directions state that the NBFC ‘shall’ have a Board approved IT policy or information system policy, which makes it sound as a mandatory provision. In such a situation where formulation of the Policy seems mandatory, consequently the implementation also becomes compulsory. Hence, in our view the vague language of the Directions creates a confusion with regard to the nature of the compliance. It is expected that RBI will come up with some clarification in this regard to clear the air of doubt.
In the era of technology, IT aids plenty of resources to enhance the credit system of the country. Over the years, the NBFC sector has grown in size and complexity. As the NBFC industry matures and achieves scale, its Information Technology /Information Security (IT/IS) framework, business continuity planning (BCP), disaster recovery (DR) management, IT audit, etc. must also be benchmarked to best practices. To enhance the safety, security, efficiency in processes leading to benefits for NBFCs and their customers, the Reserve Bank of India (RBI) has come up with the Master Direction - Information Technology Framework for the NBFC Sector (“Directions”) vide its notification number Master Direction DNBS.PPD.No.04/66.15.001/2016-17 dated 8 June 2017. These Directions have not just laid down a mere statement of good intentions but are largely focusing on implementing several operational requirements.

Applicability

The directions have been categorised into two parts:

a. Directions applicable to all NBFCs with asset size above Rs500 crore (Considered Systemically Important) are provided in Section-A and
b. Directions for NBFCs with asset size below Rs 500 crore are provided in Section-B.

Timelines for Compliance


NBFCs- Systemically Important shall comply with the Master Directions by 30 June 2018 and other NBFCs (asset size below Rs500 crore) shall comply by 30 September 2018.
NBFCs may have already implemented or may be implementing some of the requirements indicated in the directions. Therefore, the NBFCs are now required to conduct a formal gap analysis between their current status and stipulations as laid out in the Directions and put in place a time-bound action plan to address the gap and comply with the guidelines laid therein. Such an analysis may be submitted to the Board of the company within six months of the issuance of these directions. Accordingly, NBFCs may place these directions before the Board, together with a gap-analysis vis-a-vis the Master Direction and the proposed action by 30 September 2017.

Section A: Systemically Important NBFCs i.e. with asset size below Rs500 crore


The focus of the proposed IT framework is on IT Governance, IT Policy, Information & Cyber Security, IT Operations, IS Audit, Business Continuity Planning and IT Services Outsourcing. The Board has to take up the task of preparing the gap analysis before the end of third quarter; accordingly the background work for this has to be initiated at the earliest. For an NBFC-SI, the following agenda items may be taken up by the Board in its upcoming meeting:

1. Prepare a gap analysis between the current status of the IT framework and the guidelines laid down in the Directions.

2. Formation of Committees:
a. IT Strategy Committees

Chairman of the Committee: An independent director
Other Members: Chief Information Officers (CIOs) & Chief Technology Officers (CTOs)
Frequency of Meeting: An appropriate frequency with maximum gap of 6 months between two meetings

b. IT Steering Committees

operating at an executive level and focusing on priority setting, resource allocation and project tracking

3. Policies to the framed and implemented by the Board:
a. Information Technology Policy

The policy shall be in line with the organizational objectives
b. Information Security Policy

The IS Policy shall be based on the following principles: Confidentiality, Integrity, Availability and Authenticity
IS framework must be provided in the IS Policy

c. Cyber Security Policy

The policy shall elucidate the strategy containing an appropriate approach to combat cyber threats given the level of complexity of business and acceptable levels of risk

d. Change Management Policy

The senior management shall ensure that the policy is being followed on an ongoing basis

e. Policy for Information System Audit (IS Audit)
IS Audit shall identify risks and methods to mitigate risk arising out of IT infrastructure such as server architecture, local and wide area networks, physical and information security, telecommunications etc.
f. Business Continuity Planning Policy
To minimise the operational, financial, legal, reputational and other material consequences arising from a disaster
 
4. Designate a senior executive as the Chief Information Officer or in-Charge of IT operations

5. Migrate to the IPv6 platform as per National Telecom Policy issued by the Government of India in 20121

6. Reporting requirement with RBI to be complied with.

7. Conduct of IS Audit to form an integral part of the Internal Audit system.

Section B: NBFCs with asset size below Rs500 crore

The RBI has laid down certain recommendations for NBFCs with smaller asset size to develop basic IT systems mainly for maintaining the database. The Action Points for such smaller NBFCs are as follows:

1. To have a Board approved Information Technology policy/Information system policy in place by 30 September 2018.
2. IT Systems should be progressively scaled up as the size and complexity of NBFC’s operations increases.

Let us wait for the Reserve Bank to come up with some clarification on implementation of IT policy for smaller NBFCs, which will clear the air of doubt.

(Anita Baid works as Manager at Vinod Kothari & Co)

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