New RBI risk capital charges for banks' investment in debt instruments
The Reserve Bank of India (RBI) on Thursday came up with a fresh set of risk capital charges for banks investing in debt instruments such as mutual funds or exchange-traded funds (ETF).
 
RBI Governor Shaktikanta Das said that computation of total capital charge for market risk shall incorporate elements of both debt and equity instruments.
 
This will result in substantial capital savings for banks and is expected to give a boost to the bond market, he said.
 
As per RBI's extant Basel III guidelines, if a bank holds a debt instrument directly, it would have to allocate lower capital as compared to holding the same debt instrument through a Mutual Fund (MF) or Exchange Traded Fund (ETF).
 
This is because specific risk capital charge as applicable to equities is applied to investments in MFs or ETFs, whereas if the bank was to hold the debt instrument directly, specific risk capital charge is applied depending on the nature and rating of the debt instrument.
 
"It has therefore been decided to harmonise the differential treatment existing currently. At the same time, it is observed that a debt MF/ETF also has features akin to equity, since in the event of default of even one of the debt securities in the MF/ETF basket, there is often severe redemption pressure on the fund notwithstanding the fact that the other debt securities in the basket are of high quality," RBI's Statement on Developmental and Regulatory Policies said.
 
"Hence, it has been decided that the general market risk charge of 9 per cent will continue to be applied," it said.
 
As per the latest circular, the specific risk capital as percentage of the exposure investment in Central and State Government Securities has been kept at zero per cent, investment in other approved securities of Central government is also at zero per cent while in other approved securities guaranteed by state governments, it has been kept at 1.80 per cent.
 
For corporate bonds, those with AAA rating the specific risk capital charge has been kept at 1.8 per cent and for those with AA rating the charge has been kept at 2.7 per cent.
 
"In case of debt mutual fund/ETF which contains a mix of the above debt instruments, the specific risk capital charge shall be computed based on the lowest rated debt instrument/instrument attracting the highest specific risk capital charge in the fund," the circular said.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    RBI for Online Dispute Resolution System in Digital Payments
    In a major development for digital payment services, the Reserve Bank of India (RBI) has decided that payment system operators (PSOs) will have to implement online dispute resolution (ODR) systems in a phased manner.
     
    The RBI has said that, to begin with, authorised PSOs shall be required to implement ODR systems for failed transactions in their respective payment systems. Based on the experience gained, ODR arrangements will be extended to other types of disputes and grievances.
     
    As the number of digital transactions rise significantly, there is a concomitant increase in the number of disputes and grievances.
     
    "Recourse to technology driven redressal mechanisms that are rule-based, transparent and involve minimum (or no) manual intervention is necessary to deal with them in a timely and effective manner. Accordingly, the Reserve Bank shall require Payment System Operators (PSOs) to introduce Online Dispute Resolution (ODR) Systems in a phased manner," RBI's statement on developmental and regulatory policies said.
     
    Further, the central bank has also proposed to allow a pilot scheme for small value payments in off-line mode with built-in features for safeguarding interest of users, liability protection, among others.
     
    It noted that there has been considerable growth in digital payments using mobile phones, cards, wallets, etc. However, lack of Internet connectivity or low speed of Internet, especially in remote areas, is a major impediment in adoption of digital payments.
     
    Against this backdrop, providing an option of off-line payments through cards, wallets and mobile devices is expected to further the adoption of digital payments. RBI has been encouraging entities to develop off-line payment solutions.
     
    "Based on experience gained, detailed guidelines for roll-out of the scheme will be announced in due course," said the statement.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    m.prabhu.shankar

    2 months ago

    Good Move

    Ramesh Popat

    2 months ago

    Too late ..and slow start..!

    KV Kamath To Head RBI Committee on Setting Parameters for Loan Restructuring
    The Reserve Bank of India (RBI) has decided to set up a committee under KV Kamath for looking into one-time restructuring of loans and financial parameters needed to be factored into resolution plans. RBI says the move has been announced in a bid to provide relief to stressed companies which have not been able to repay loans due to cash-flow issues amid the pandemic, and it will issue final notification in this regard after considering the Kamath committee recommendations.
     
    In his video address, RBI governor Shaktikanta Das says, "The Reserve Bank is constituting an Expert Committee (chairman: KV Kamath), which shall make recommendations to the RBI on the required financial parameters, along with the sector specific benchmark ranges for such parameters, to be factored into resolution plans. The expert committee will also undertake a process validation of resolution plans for borrowal accounts above a specified threshold."
     
    Mr Kamath is former chairman of BRICS Bank and ICICI Bank. 
     
    The panel led by Mr Kamath has members like Diwakar Gupta, vice president of Asian Development Bank and TN Manoharan, chairman of Canara Bank, Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services LLP as strategy advisor and Indian Banks' Association (IBA)'s chief executive, who would act as member-secretary.

    Mr Gupta would join the panel from 1 September 2020 after completing his term at ADB. Mr Manoharan will be on the panel from 14 August 2020, after completion of his term as Canara Bank's chairman.

    At present, Sunil Mehta, former managing director (MD) and CEO of Punjab National Bank (PNB) is the chief of IBA.
     
    RBI says, the economic fallout on account of the COVID-19 pandemic has led to significant financial stress for a number of borrowers across the board.
     
    "The resultant stress can potentially impact the long-term viability of a large number of firms, otherwise having a good track record under the existing promoters, due to their debt burden becoming disproportionate, relative to their cash flow generation abilities. Such wide spread impact could impair the entire recovery process, posing significant financial stability risks," it added.
     
    Considering this situation, Mr Das, the RBI governor says, "with the intent to facilitate revival of real sector activities and mitigate the impact on the ultimate borrowers, it has been decided to provide a window under the prudential framework to enable the lenders to implement a resolution plan in respect of eligible corporate exposures without change in ownership, and personal loans, while classifying such exposures as standard subject to specified conditions. Such conditions are considered necessary to ensure that the facility of this resolution window is available only to the COVID-19 related stressed assets. Besides, the crucial aspect of maintaining financial stability has also been suitably factored in."
     
    As per RBI, necessary safeguards are being incorporated, including prudent entry norms, clearly defined boundary conditions, specific binding covenants, independent validation and strict post-implementation performance monitoring. 
     
    It says, "Given the intent to facilitate revival of real sector activities and mitigate the impact on the ultimate borrowers, the framework will not be available for exposures to financial sector entities as well as central and state governments, local government bodies (e.g. municipal corporations) and anybody corporate established by an act of Parliament or state legislature."
     
    Here are the key features of the resolution framework for exposures other than personal loans:
     
    1. Only those borrower accounts shall be eligible for resolution under this framework which were classified as standard, but not in default for more than 30 days with any lending institution as on 1 March 2020. Further, the accounts should continue to remain standard till the date of invocation. All other accounts, as hitherto, may be considered for resolution under the 7th June Prudential Framework, or the relevant instructions as applicable to specific category of lending institutions where the Prudential Framework is not applicable.
     
    2. The resolution plan may be invoked anytime till 31 December 2020 and will have to be implemented within 180 days from the date of invocation.
     
    3. Lenders shall have to keep additional provisions of 10% on the post-resolution debt.
     
    4. In order to enforce collective action, specific voting thresholds are being prescribed even for invocation of the resolution plan; and those lending institutions not signing the inter-creditor agreement (ICA) within 30 days from the date of invocation shall attract higher provisions of 20.
     
    5. Post-implementation, the asset classification of the account shall be retained as standard, or if the account had slipped into NPA after invocation but before implementation, the asset classification shall be restored upon implementation.
     
    6. RBI is constituting an expert committee (chairman:  KV Kamath) which shall make recommendations to the RBI on the required financial parameters, along with the sector-specific benchmark ranges for such parameters, to be factored into each resolution plans. The final notification in this regard shall be issued by RBI after considering the recommendations.
     
    7. The expert committee shall also undertake a process validation of resolution plans for accounts above a specified threshold.
     
    8. The lending institutions may allow extension of the residual tenor of the loan, with or without payment moratorium, by a period not more than two years.
     
    9. Wherever the resolution plans involve conversion of a portion of debt into equity and other debt instruments, the debt instruments with terms similar to the loan shall be counted as part of the post-resolution debt, whereas the portion converted into other non-equity instruments shall be fully written down.
     
    10. In respect of accounts involving consortium or multiple banking arrangements, all receipts by the borrower; all repayments by the borrower to the lending institutions; as well as all additional disbursements, if any, to the borrower by the lending institutions as part of the resolution plan, shall be routed through an escrow account maintained with one of the lending institutions.
     
    For personal loans, RBI says a separate framework is being prescribed and the resolution plan for personal loans under this framework may be invoked till 31 December 2020 and will be implemented within 90 days thereafter. 
     
    "The lending institutions are, however, encouraged to strive for early invocation in eligible cases. The timelines for implementation of resolution plan in case of personal loans are assessed to be adequate since, unlike larger corporate exposures, there will not be any requirement for third party validation by the expert committee, or by credit rating agencies, or need for ICA. The contours of the plan may be decided based on the board approved policies of the lenders subject to extension of the residual tenor of the loan, with or without payment moratorium, by a period not more than two years," it added.
     
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    COMMENTS

    s5rwav

    2 months ago

    RBI Not Need Any Committee of Outsiders like Mr KV Kamath. Cabinet Secretary to Govt of India Must Stop it. Fast.

    https://docs.google.com/viewer?a=v&pid=forums&srcid=MDM3NzY0OTcwNTkzMjU3MDQ4MjQBMDg4NDg0MDQxNzE5ODU0MzA1NjgBQnBPX1gtbUhDZ0FKATAuMQEBdjI&authuser=0

    s5rwav

    2 months ago

    RBI Not Need Any Committee. Ample Experienced Officers are Available at RBI. RBI Governor is Competent Authority to Stop Sale of Dwelling House by the Banks to Recover their Dues. I am Babubhai Vaghela from Ahmedabad. Thanks.

    https://docs.google.com/viewer?a=v&pid=forums&srcid=MDM3NzY0OTcwNTkzMjU3MDQ4MjQBMTQzNDM1OTcwNjA1NzczMzc5MzMBdGRBOUFycDVDZ0FKATAuMQEBdjI&authuser=0

    s5rwav

    2 months ago

    No Need for Any Committee by RBI. Let RBI Governor and RBI Officers Frame the Policy. Mr KV Kamath cannot be in Any Committee of India.

    https://docs.google.com/viewer?a=v&pid=forums&srcid=MDM3NzY0OTcwNTkzMjU3MDQ4MjQBMTcxNTQ5MjgzMTIzMDczNzkxNjUBc1FqSlVDTldDZ0FKATAuMQEBdjI&authuser=0

    REPLY

    Sanjiv.shanbhag

    In Reply to s5rwav 2 months ago

    As a Regulator, RBI has vicarious responsibility and accountability. Do not use other's shoulders to put gun. Outsiders cannot guide for adopting best practices and to achieve good governance.

    Ramesh Popat

    2 months ago

    A compulsion.... forever!

    s5rwav

    2 months ago

    Mr KV Kamath and Mrs Chanda Kochhar Headed ICICI Bank Facing Criminal Case No CR EN 219 of 2019 at Mirzapur Court at Ahmedabad for Filing Bogus Court Case RCS 445 of 2013 by the ICICI Bank Limited against me in Vadodara Civil Court and illegally Stopping me
    - Bank Investor - from Attending the Bank AGM of 2013. Judicial Order, on Affidavit Dated 9 December 2019 Filed by the Complainant, with the Magistrate of Mirzapur Court Ahmedabad, is Awaited. Mr KV Kamath cannot be Made to Head Any Committee in India. I am Babubhai Vaghela from Ahmedabad the Complainant in Criminal Complaint Case in Ahmedabad. Thanks.

    REPLY

    s5rwav

    In Reply to s5rwav 2 months ago

    In Criminal Complaint Case No CR EN 219 of 2019 against Mr KV Kamath and Mrs Chanda Kochhar and then Board of Directors of ICICI Bank Limited, Mr #HTPunjabi the Magistrate of Mirzapur Court at Ahmedabad to Pronounce the Judicial Order on Affidavit on Jurisdiction Issue Filed by the Complainant Babubhai Vaghela on 9th December 2019. I am Babubhai Vaghela from Ahmedabad. Thanks..... https://docs.google.com/viewer?a=v&pid=forums&srcid=MDM3NzY0OTcwNTkzMjU3MDQ4MjQBMDAwNTE4NjE5NzY0Njk4NDExODEBY0gyVjRBN0hBd0FKATAuMwEBdjI&authuser=0

    Sanjiv.shanbhag

    2 months ago

    Common citizens are thrusted and harassed with bank's requirements / compliances running into pages, influencial bigwigs ( individuals and non individual entities) are by and large intentionally left exposed to non recovery / short recovery of loans granted. Depositing Passport with bank should be made mandatory beyond specified loan thresh hold limit.

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