RBI’s Extensions on Asset Classification Standards Likely To Defer Asset-Quality Pressures, Says Fitch Ratings
The Reserve Bank of India's (RBI) last week announced about forbearance towards stressed sectors signifying a gradual shift away from the regulator's earlier effort to enhance the quality and transparency of asset classification in Indian banking system. However, these extensions are only likely to defer asset-quality pressures unless there is a sustained improvement in macroeconomic conditions, says Fitch Ratings. 
 
In a note, the ratings agency says, "Indian banks have a poor track record with restructuring. The RBI's asset-quality reviews in FY2016 and FY2018 found that a dominant share of loans restructured post-FY2012 had degraded into non-performing loans (NPLs). In that context, we will make appropriate adjustments in order to objectively assess the performance of the underlying loan book of its rated entities in India to ensure their comparability with those of global peers."
 
 
The RBI's latest measures also nudge banks to lend more for specific purposes, namely, automotive and housing purchases, and to the micro-, small- and medium-sized enterprises (MSME) sector. Banks can now knock off the equivalent of additional loans disbursed to these priority fields between end-January and end-July 2020 from their net demand and time liabilities for the purpose of calculating their cash reserve ratio, Fitch added.
 
According to the ratings agency, the move from RBI is intended to improve monetary transmission, supporting credit to fields that have multiplier effects within the wider economy. However, it says, most of these sectors have had above-average lending growth in the past few years, either directly or indirectly via non-banks, and could be at risk were the economy to slow. 
 
Moreover, these measures are unlikely to support sustainable credit growth until capitalisation improves meaningfully across banks, in particular among state-owned banks, which account for nearly two-thirds of the sector's assets, Fitch says.
 
According to the ratings agency, there is a risk that such regulatory forbearance will perpetuate moral hazard, as it follows aggressive lending growth and risk-taking in certain sectors in the five years, to the financial year ended March 2019 (FY18-19). 
 
 
The RBI's extension of the one-time restructuring scheme for MSMEs and the announced relaxation in asset classification for certain real-estate projects mark a further dilution of the regulator's drive to enhance loan recognition. 
 
"It is not clear at the moment whether this forbearance will be extended to non-bank financial institutions (NBFIs) as well, but we believe that the probability of this is high, considering the impact that the NBFI liquidity squeeze and a slowing economy have had on the MSME and real-estate sectors. In recent years, banks have preferred to lend to NBFIs, which lend heavily to the real estate and MSME sectors, as a way to deploy their excess liquidity, while limiting their own direct exposure to these areas," Fitch says.
 
It is unclear whether the latest announcement marks a substantial shift in the RBI's policy approach. Nevertheless, the ratings agency says, it is not surprising in the current weak operating environment and is in line with a recent trend to weaken asset recognition standards. This was among the factors that prompted us to lower our operating environment score for India's banking sector in 2019.
 
"Although we expect India's economic growth to pick up in the coming months, to 5.6% in FY21 from 4.6% in FY20, there are still risks to the country's economic outlook," Fitch concluded.
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    COMMENTS

    rrbudhkar

    2 weeks ago

    RBI please advise Maratha Sahakari bank ltd to allow us to withdraw our amount upto 5 lacs as per direction. Our more money is stucked and we are senior citizen. Pl allow us to withdraw and do not compel for submission of any documents for our own money

    rrbudhkar

    2 weeks ago

    Pl advise Maratha Sahakari bank to pay our money back to us without any documents as per new resolution of 5 lacs limit which was upto 1 Lac. Senior citizens are just suffering for no reason

    RBI to Set up Self-Regulatory Body for Digital Payment System; To Launch CTS Across India
    The Reserve Bank of India (RBI) is planning to set up a self-regulatory organisation (SRO) to improve security, customer protection and pricing, among others, in digital payment system. The central bank aims to release framework for SRO by April 2020.
     
    In a statement, RBI says, “With substantial growth in digital payments and maturity gained by entities in the payment ecosystem, it is desirable to have a self-regulatory organisation (SRO) for orderly operations of the entities in the payment system.
     
    The Reserve Bank will put in place a framework for establishing an SRO for the digital payment system by April 2020 with a view to fostering best practices on security, customer protection and pricing, among others. The SRO will serve as a two-way communication channel between the players and the regulator or supervisor.”
     
    The sharp rise in online frauds coincides with the government’s push for digital transactions without adequate cheques and balances. With the growth of digital payments, there has been increase in digital or online financial frauds. Digital payment methods such as unified payments interface (UPI) and mobile wallets have become latest target of fraudsters. Every day, many people are losing money in online transactions and have no idea how to retrieve it. 
     
    Under the current policy framework, the banking regulator has a totally hands-off attitude to the interface retail customers use for banking operations, which allow such frauds to occur. In this situation, it would be interesting to see how SRO would function and whether it will actually help customers in grievance redressal. 
     
    In other measures, the central bank also decided to expand reach of cheque truncation system (CTS) pan-India from September 2020. CTS essentially means that instead of sending the cheque in physical form by the collecting bank to the paying bank, an electronic image of the cheque is transmitted to the drawee branch for payment through the clearing house. This eliminates the cumbersome physical presentation of the cheque to the paying bank, thus saving in time and costs involved in traditional clearing system. 
     
    To capture extent of digitisation of payments effectively, RBI has decided to set up a digital payment index (DPI). The DPI would be based on multiple parameters and shall reflect accurately the penetration and deepening of various digital payment modes. The DPI will be made available from July 2020 onwards, the central bank says. 
     
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    SC Dismisses SEBI Petition, Asks the Regulator to Deal with Investors Complaint within 4 Months
    While refusing to go in to merits of a case, the Supreme Court directed market regulator Securities and Exchange Board of India (SEBI) to deal with complaints of investors of Bharat Nidhi Ltd positively and objectively within four months in accordance with law. SEBI has approached the apex court against an order passed by the Securities Appellate Tribunal (SAT).
     
    In November last year, the SAT had rapped the market regulator for poor handling of investor complaints on its online complaints platform called SCORES (SEBI Complaints Redressal System) and had termed the 'platform as a mere eyewash'. 
     
    In an order passed on 27 January 2020, the SC bench of Justice Arun Misra and Justice India Banerjee while diluting adverse observations made by the SAT, says, "May be there was some remiss on the part of SEBI to act as a regulator, but casting aspersion was not warranted in the facts and circumstances of the case."
     
    "Since we have not gone into the merits of the case, as the complaints are to be dealt with by the SEBI, we have not made any observation on the remaining part of the merits of the order in view of the limited relief pressed," the apex court says. 
     
    The apex court opined that certain observations made in Paragraph No20 of the SAT order were not called for, such as “the computer generated disposal of a serious complaint speaks volume on the conduct of the respondents” as well as the part of the order relating to “vested interest in not deciding the matter” were not at all called for.
     
    A set of investors had complained to the SAT that the SEBI had simply converted their complaint into ‘market intelligence’ and refused to investigate or provide satisfactory information on action taken. 
     
    In its November 2019 order, a SAT bench comprising Justice Tarun Agarwala, Dr CKG Nair and Justice MT Joshi, had stated, "Disposal of the complaint in this manner in the instant case indicates non-application of mind and non-consideration of the interest of the investors. We have no hesitation in stating that the SEBI as a regulator in the instant case has not performed its duties and has kept the complaint pending for more than six years, which speaks volumes by itself. The Tribunal fails to fathom as to why the complaint could not have been decided unless SEBI officials had a vested interest in not deciding the matter." 
     
    "We find the approach adopted by the respondents (SEBI) to be a strange one. Such computer-generated disposal of a serious complaint speaks volume on the conduct of the respondents in treating the minority shareholders in this shabby manner. It seems that the respondents have lost sight of the mandate provided to them under Section 11 of the SEBI Act which mandates SEBI to safeguard the interest of the investors," the bench had said. (Read: SAT Says SEBI’s Investor Complaint Handling on SCORES is a Mere Eyewash)
     
    The case is related with complaints filed by 22 minority shareholders of Bharat Nidhi Ltd, which held 24.41% stake in Bennett, Coleman & Co Ltd (BCCL) that runs Times of India newspaper among other publications and TV channels. PNB Finance and Industries Ltd (PNBF) and Camac Commercial Co Ltd, also own 9.29% and 13.30% stake in BCCL.
     
    Several times, the minority shareholders had filed complaints with SEBI and stock exchanges about incorrect disclosures on promoter shareholding by BCCL, PNBF and Camac. 
     
    SEBI had either not responded to the complaints at all or adopted a position that investigation in the matter is underway or treated the complaints as market intelligence, without concluding such investigations or passing any reasoned order while disposing of the complaints. 
     
    The minority shareholders had contended that BNL, PNBF and Camac are companies, which are owned and controlled by Vineet Jain, Samir Jain and their family members, who are the managing directors of BCCL, more commonly known as the Times Group. These shareholders also contended that the minimum public shareholding of 25% by a listed company was not followed by these three companies.
     
    The minority shareholders further contended that both the Jain brothers "exercise total control over these three companies and are the ultimate beneficial owners of the company and have wrongly classified themselves as public shareholders of these companies which facts are so glaring but for the reasons best known, SEBI has turned a blind eye and has disposed of the complaints in a cursory manner".
     
    In its submission, the Calcutta Stock Exchange had told the SAT bench that "this issue was submitted to SEBI, which prima facie showed that the three companies had violated the SEBI Listing Obligations and Disclosures Requirements (LODR), which provides for requirement of maintaining minimum public shareholding of 25% by a listed company (MPS Norms) and the company wrongly had shown it as public shareholders."
     
    The respondents objected on using an order or communication from SCORES platform for filing an appeal. The SAT bench, however, said, "If the complainants are aggrieved by the disposal of the complaint on the SCORES platform the said complainants have a right to file an appeal under Section 15T of the SEBI Act. We are further of the opinion that the computer generated communication by the respondent on the SCORES platform, even though it may be an administrative communication is nonetheless an order since it disposes of the lis (litigation) between the parties and disposes of the complaint and the issues raised by the complainants."
     
    The bench observed that since 2013, these shareholders were filing complaints before SEBI and on the SCORES platform. While the complaints filed with SEBI are still pending, those on SCORES were disposed without deciding or settling the issue raised in the complaint. "...disposal of the complaints by the respondents on the SCORES platform is no disposal in the eyes of law. It is merely an eye wash without disposing of the complaints and without settling the controversy involved in the complaints," the SAT had said in its November 2019 order.
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    COMMENTS

    B Ravi

    3 weeks ago

    SC MUSThave directed SEBI about investers money in Pancard Club Ltd. If not SC must look into it andcadvise SEBI to return all investers money back immediately. Thisewho involve in this Pancard club ltd case decission do not know how we are suffring without our heard earned money go blocked in Pancard Club. Actually this company is doing well peple are happy with the schemes because of SEBI's interfearance people's money blocked. I DOUBT whether SEBI has all investers record atleast. Or they themselves wanted to eat all money without giving back to investers. IS SC is also silent.Really worried about or money. Every now and then there is a strugle. Hell

    REPLY

    hdp20014

    In Reply to B Ravi 2 weeks ago

    Pancard investors trust, should also file case against SEBI in SAT court, like above share holders. SEBI is not serious about pancard clubs refund, neither they executed order properly. Still all pancard directors are enjoying. No any action is taken against company and its directors by SEBI.

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