Now, Ombudsman for Digital Transactions as Well
With the digital mode for financial transactions gaining traction in the country, there is an emerging need for a dedicated, cost-free and expeditious grievance redressal mechanism for strengthening consumer confidence in this channel. India is one of the few countries to have separate ombudsmen for digital transactions.
 
The Reserve Bank of India (RBI) says it will implement an ‘Ombudsman Scheme for Digital Transactions’ covering services provided by entities falling under RBI's regulatory jurisdiction. The scheme will be notified by the end of January 2019.
 
The number of complaints related to digital transactions, and deficiencies in mobile banking, rose to as high as 28%, as of June 2018, of the total number of grievances with the RBI. Complaints relating to the digital mode of financial transactions accounted for just about 19% during the financial year ended March 2017, according to the central bank.
 
The Ombudsman scheme provides cost-free complaint redressal mechanism about deficiency in services by financial services provider. 
 
Last year, the RBI has reviewed its banking ombudsman scheme to include mis-selling and complaints relating to internet and mobile banking as valid grounds of complaints. However, with increase in digital transactions as well as customer grievances, there was a need for separate Ombudsman to help customers get speedy justice.
 
Limiting Customer Liability Extended to Prepaid Instruments
 
The RBI has also decided to bring customer of prepaid payment instruments (PPIs) under limited liability. 
 
Earlier, RBI had issued instructions on limiting customer liability in respect of unauthorised electronic transactions involving banks and credit card issuing non-banking financial companies (NBFCs). 
 
"As a measure of consumer protection, it has been decided to bring all customers up to the same level with regard to electronic transactions made by them and extend the benefit of limiting customer liability for unauthorised electronic transactions involving PPIs issued by other entities not covered by the extant guidelines on the subject. The guidelines will be issued by the end of December 2018," RBI added.
 
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COMMENTS

Harish

1 week ago

The need of the hour is to first improve the system of non-digital ombudsman so that public do not have to wait endlessly for progress of their cases. Adopting simple courtseys like replying to status seeking queries will be a good beginning.

RBI Keeps Repo Rate Unchanged at 6.5%
The Reserve Bank of India (RBI) on Wednesday maintained status quo on repo rate (short-term lending) at 6.5% in its fifth monetary policy review for 2018-19.
 
Following the move, the reverse repo rate (short-term borrowing) stands at 6.25%. Subsequently, the marginal standing facility (MSF) and the Bank Rate have also remain unchanged at 6.75%.
 
In a statement, the Reserve Bank said, "The decision of the monetary policy committee (MPC) is consistent with the stance of calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2 per cent, while supporting growth."
 
Even as inflation projections have been revised downwards significantly and some of the risks pointed out in the last resolution have been mitigated, especially of crude oil prices, the MPC felts that several uncertainties still cloud the inflation outlook.

"First, inflation projections incorporate benign food prices based on the realised outcomes of food inflation in recent months. The prices of several food items are at unusually low levels and there is a risk of sudden reversal, especially of volatile perishable items. Secondly, available data suggest that the effect of revision in minimum support prices (MSPs) announced in July on prices has been subdued so far. However, uncertainty continues about the exact impact of MSP on inflation, going forward."

"Thirdly, the medium-term outlook for crude oil prices is still uncertain due to global demand conditions, geo-political tensions and decision of OPEC which could impinge on supplies. Fourthly, global financial markets continue to be volatile. Fifthly, though households' near-term inflation expectations have moderated in the latest round of the Reserve Bank's survey, one-year ahead expectations remain elevated and unchanged. Sixthly, fiscal slippages, if any, at the centre or state levels, will influence the inflation outlook, heighten market volatility and crowd out private investment. Finally, the staggered impact of housing rent allowance (HRA) revision by state governments may push up headline inflation. While the MPC will look through the statistical impact of HRA revisions, it will be watchful of any second-round effects on inflation," it added.
 
While the decision on keeping the policy rate unchanged was unanimous, Dr Ravindra H Dholakia voted to change the stance to neutral. 
 
The next meeting of the MPC is scheduled between 5th to 7 February 2019.
 
Here are the latest policy rates following MPC review… 
 
Repo Rate: 6.50%
Reverse Repo Rate: 6.25%
Bank Rate: 6.75%
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The NBFC Real Estate Crisis After IL&FS Defaults – What, Why and What Next?
  • NBFCs account for over 50% of total developer financing - close to Rs4 trillion in FY2018
  • Real estate has already exhausted over 75% of available credit
  • Consolidation of not only developers but also NBFCs on the cards
 
As an alternative to the main banking sector, non-banking finance companies or NBFCs have had few peers, which makes the perfect storm that has gathered around them now all the more worrisome. While the Reserve Bank of India (RBI) and the Government have taken steps to ring fence the NBFC crisis and support its financing needs by providing additional liquidity to banks and credit enhancement for refinancing needs, there are speculations over spill-over concerns in the market in the near-term.
 
How did the current crisis play out?
 
The ongoing liquidity crisis in the NBFC industry is the result of asset-liability mismatch (ALM). Since the NBFCs cannot raise retail deposits from the general public, they depend on wholesale lending for their capital requirements. As a result, the cost of funds for NBFCs is higher than that of banks.
 
The biggest error that the majority of NBFCs and housing finance companies (HFCs) committed with regards to the real estate sector is that they ventured into long-term lending to builders and also into underwriting loans with very long-term repayment tenures.
 
As a result, the NBFCs short-term borrowing was channelised towards financing long-term loans. They were heavily dependent on banks, mutual funds and private placements to meet their capital requirement as well as for refinancing of loans. 
 
However, post the IL&FS default, banks and mutual funds have stopped refinancing the loans of NBFCs and also stopped the disbursal of sanctioned loans to them, since there is still no clarity regarding the spill-over impact of the IL&FS default.
 
How bad is the situation for real estate?
 
NBFC loans to developers have seen a phenomenal rise since 2014, particularly due to the slowdown in bank loan disbursals. Interestingly, as per the current fiscal, NBFCs alone account for more than 50% of the total developer financing, which is somewhere close to Rs4 trillion in FY2018 as on date.
 
However, the recent NBFC crisis has clearly spelt intense gloom - if not outright doom - for Indian real estate. Nearly $34 billion of mutual funds debt in NBFCs and HFCs is maturing between October 2018 and March 2019. Prior to the crisis, the sector was already dealing with a massive cash crunch and subdued demand, due to which more than 75% of the available credit facility was already exhausted.
 
With the rise in banks’ NPAs to Rs10 lakh crore (as on March 2018), up Rs1.39 lakh crore in a quarter, further funding from banks to NBFCs and HFCs (currently have an exposure to bank lending of more than 40%) seems extremely difficult.
 
The liquidity crunch has been a major pain-point for Indian real estate over the last two to three years owing to tepid sales, banks’ refusal to disburse loans due to rising NPAs and the widening debt-equity ratio even with the biggest developers. The recent NBFC crisis in September has only exacerbated the pain for the real estate sector and its major stakeholders – the developers.
 
Post the IL&FS crisis, some NBFCs even halted the disbursal of earlier sanctioned loan amounts to developers for fear of widening the funding crisis even further. The worst phase came when some NBFCs urged developers to return the money that was disbursed to them so that they can repay their dues.
 
As per the S&P BSE realty index data, the debt-equity ratio of the top 10 listed players (on a stand-alone basis) in FY2014 ranged anywhere between 0.10 to 0.85, which has increased in the current fiscal to range anywhere between 0.17 to more than 1. This may not seem overly alarming, but the situation is worse in the case of small and mid-size developers whose debt-equity ratio is much higher.
 
The major bailout option for most of these small developers is to possibly consolidate. It also needs to be highlighted that out of the approximately 10,000 developers in the country today, only 35-36 are listed. Hence, the financial numbers could be even worse.
 
What next?
 
The Government’s consistent assurance of ensuring credit to NBFCs is some sort of a relief, particularly for skittish investors who started panic selling in the equity market post the IL&FS default. Sensing trouble, even the RBI came forward to aid NBFCs by relaxing liquidity norms and allowing banks to lend more. Vey recently, the apex bank relaxed asset securitisation norms for the NBFCs in a bid to ease the persistent stress on the sector.
 
Only time will tell whether or not we feel this heat in the near term. However, one major outcome visible in the coming year will be the consolidation of several small NBFCs.
 
What ARE NBFCs anyway?
 
NBFCs are financial institutions that are essentially engaged in the business of providing loans and advances primarily to retail customers. Unlike the formal banking sector, they cannot accept deposits from the public; they depend solely on wholesale lending and banks for their operations. Two-wheeler loans, consumer durable loans, gold loans, vehicle finance and loan against property are the segments where NBFCs have a very strong presence across the country and enjoy a much larger share than the public sector banks.
 
Which sectors do they fund?
 
After agriculture, the MSME sector is heavily dependent on NBFCs for loans and working capital. Since banks cannot be present in every nook and corner of the country, NBFCs have capitalized on their highly localized presence to grow their business on the back of strong rural demand and the thriving SME and MSME sectors. Their local network and understanding of customer profiles at a local level give them an edge over the banks when it comes to lending at the micro level.
 
Due to these advantages, NBFCs could rapidly scale their businesses where the formal banking system was slow in lending. Also, the rising non-performing assets (NPA) crisis in the overall banking sector made banks reluctant to lend to the perceived riskier sectors like SME and MSME, thus helping NBFCs to gain market share. Real estate, also considered a high-risk sector, depended heavily on NBFC funding as well.
 
(Shobhit Agarwal is managing director and chief executive of ANAROCK Capital)
 
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COMMENTS

Ramesh Poapt

2 weeks ago

march19 will be mischievous/mysterious! beware!

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