RBI imposes Monetary Penalty on this PSU Bank

The Reserve Bank of India (RBI) has imposed a monetary penalty of Rs 1.45 crore on Central Bank of India. This penalty has been imposed because the bank failed to comply with certain directions issued by the RBI. The central bank made this announcement on June 14.

According to an RBI press release, the Central Bank of India sanctioned a working capital demand loan to a Corporation against amounts receivable from the Government in the form of subsidies. This action was in violation of the RBI’s directions.

Additionally, the bank failed to credit the amount involved in unauthorized electronic transactions to the customer’s account within 10 working days from the date of notification by the customer. This also goes against the RBI’s guidelines.

Furthermore, the bank failed to resolve complaints and provide compensation to certain customers within 90 days from the date of receipt of such complaints. The RBI stated these reasons for imposing the penalty on the bank.

The RBI conducted a Statutory Inspection for Supervisory Evaluation of the bank with reference to its financial position as of March 31, 2022. Based on the findings of non-compliance with RBI directions and related correspondence, a notice was issued to the bank. The bank was given an opportunity to show cause as to why a penalty should not be imposed on it for its failure to comply with the directions.

After reviewing the bank’s reply to the notice, the RBI found that the charges against the bank were sustained, warranting the imposition of a monetary penalty.

It is important to note that the action taken by the RBI is based on deficiencies in regulatory compliance. The penalty is not intended to determine the validity of any transactions or agreements entered into by the bank with its customers.

The RBI emphasized that the imposition of the monetary penalty does not prejudice any other actions that may be initiated by the RBI against the bank.

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RBI's draft on tighter norms for infra project financing; what will its impact be?

The Reserve Bank of India (RBI) released a draft proposing tighter norms for lending and heightened monitoring for under-construction infrastructure projects.

On May 3, the RBI proposed that lenders should set aside higher provisions for all infrastructure projects that are under-construction, and also asked the lenders to ensure strict monitoring of any emerging stress.

Nifty PSU Bank index plunged around 3.2 percent. The top laggards on the index were Punjab National Bank, Canara Bank, Bank of Baroda and Union Bank, all slumping over four percent.

NBFCs such as REC, Power Finance and IREDA also crashed up to 12 percent as they are they focus on financing power projects, which are a significant part of the infrastructure pie.

Public-sector lenders are disproportionally impacted since public banks have a higher exposure to infrastructure loans.

The RBI note highlighted that the proposal was "taking into account the experience of banks with regard to financing of project loans."

Currently, India is seeing a boom in infrastructure and manufacturing projects, led by the central government's drive to boost the economy.

However, in the past, the domestic banking sector has faced large defaults on infrastructure loans, which pressured the banking system. RBI’s  proposed guidelines are an attempt to prevent any such cases reoccurring, given the ongoing thrust on infrastructure spending.

When a project is in the construction phase, the RBI proposed that lenders set aside a provision of five percent of the loan amount. This will reduced to 2.5 percent once a project is operational.

The required provisions will further be cut to one percent once the project has adequate cash flow to repay current obligations.

The lenders are required to make the five percent provision in a phased manner: two percent in FY25, 3.5 percent in FY26 and five percent by FY27.

Currently, lenders are required to have a provision of 0.4 percent on project loans that are not overdue or stressed.

Also, banks should have clear visibility on the date on which a project is expected to begin commercial operations and increase provisions in case operations are delayed. Any delay over three years in beginning an infrastructure project should change the classification of the loan from standard to stressed.

A Kotak Institutional Equities report said "the memories of the last corporate cycle are quite fresh." This, in turn, has created fresh concerns around the guidelines. However, the report noted that infrastructure loans in the banking system are relatively small at 8 percent of all loans compared to over 15 percent in FY15.

Additionally, the mix of these loans has a higher share of operational loans rather than under construction loans. Besides, the promoters that worked through the last corporate cycle have stronger balance sheets, added the brokerage.

JM Financial said the move will lead to lower returns for lenders in project finance and reduce the incremental appetite for such exposures, if the guidelines are implemented in the current form.

It is a prudent move from the risk management perspective, but it could be detrimental to growth in the infrastructure sector as it is capital-intensive.

When compared to private lenders, public-sector banks will see a larger impact if the draft is implemented. In a report, Kotak Institutional Equities noted that public banks have a higher exposure to infrastructure loans and less to commercial real estate.

On the other hand, private banks take an exposure to the sector through financing operational assets, instead of funding projects under construction.

JM Financial predicted that if the guidelines are implemented, the incremental credit costs for public sector banks would increased in the range of  12-21 bps.

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RBI Curbs On Kotak Mahindra Bank: Check which services will affect

 

RBI on April 24 barred Kotak Mahindra Bank (KMB) from onboarding new customers through its online and mobile banking channels and issuing fresh credit cards, citing supervisory concerns over its technology platforms. The actions followed an RBI examination of the bank's IT systems over the last two years and the bank’s “continued failure” to address concerns, the central bank said.

The ban will not impact existing customers and Koak can continue to provide services to them, including its credit card customers, the RBI said.

The action will likely impact new customer acquisition of Kotak Mahindra Bank as a significant portion of new account openings happen through online and mobile banking channels. Also, the RBI action is bad news for KMB's credit card business as well. As per experts, the central bank's ban on issuing new credit cards could impact the bank’s co-branded credit card deals.

"These actions are necessitated based on significant concerns arising out of Reserve Bank’s IT Examination of the bank for the years 2022 and 2023 and the continued failure on part of the bank to address these concerns in a comprehensive and timely manner," RBI said.

According to the central bank, serious deficiencies and non-compliance were observed in the areas of IT inventory management, patch and change management, user access management, vendor risk management, data security and data leak prevention strategy, business continuity and disaster recovery rigour and drill, and so on.

Explaining the action, the RBI said for two consecutive years, the bank was assessed to be deficient in its IT Risk and Information Security Governance, contrary to requirements under regulatory guidelines.

What triggered the RBI action?

During subsequent assessments, Kotak Mahindra was found to be significantly non-compliant with the corrective action plans issued by the Reserve Bank for the years 2022 and 2023, as the compliances submitted by the bank were found to be either inadequate, incorrect or not sustained, the central bank said.

Back in 2020, the RBI had  announced a similar action against HDFC Bank when it asked the country's largest private sector lender to put all new digital launches on hold till the bank resolve  tech issues. HDFC Bank was barred from launching any new digital products or services and issuing new credit cards as a penalty for repeated instances of outages in its online platforms.

Later, in August 2021, the RBI partially revoked the ban on the bank allowing it to issue new credit cards. Later in March, 2022, the bank informed the exchanges that the RBI has lifted the restrictions that were placed on the fresh digital launches of HDFC Bank.

The RBI had cited similar technology-related concerns as in the case Kotak Mahindra Bank while taking action against HDFC Bank after repeated outages at the lender's data centre. The restrictions barred HDFC Bank from launching any of the activities planned under the Digital 2.0 programme as well as the sourcing of new credit cards.

The RBI had also asked the bank to fix accountability in the matter pertaining to the data centre outages, and examine reasons behind the lapses. Subsequently, an audit was carried out and the bank submitted a roadmap to the central bank.

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For 'biggest scam in India's history', RBI, two private sector banks get threat mails

The sender also claimed to have planted bombs at 11 locations across Mumbai, where the three banks – HDFC and ICICI are the other two – are headquartered.

The Reserve Bank of India (RBI), which is headquartered in Mumbai, and two city-based private sector banks (HDFC and ICICI) on Tuesday received threat mails, in which the sender accused the RBI and private sector banks of carrying out the ‘biggest scam in the history of India,’ and claimed to have planted bombs at 11 locations across the financial capital, Mint reported citing Mumbai Police.

The sender also demanded the resignation of Union finance minister Nirmala Sitharaman and RBI governor Shaktikanta Das, among others, for their 'involvement' in the so-called ‘scam.’

“We demand that both RBI Governor and Finance Minister to immediately resign from their posts and release a press statement with a full disclosure of the scam. We also demand government to give them both and all those who are involved the punishment they deserve,” the emails said, as per Mint.

Where were the ‘bombs’ planted?

Three of the locations at which the sender claimed to have planted bombs were: RBI-New Central Building, Fort; HDFC House-Churchgate; and ICICI Bank Towers, BKC (Bandra-Kurla Complex). Also, the mails warned that the explosives would detonate at 1:30 pm.

What did the police find?

The Mumbai Police said that upon being made aware of the mails, they sent their personnel to each of the 11 locations, though nothing was found.

“A case has been registered and the probe is underway,” a police official told news agency ANI.

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Latest Bank merger news of PSU banks and PSU Insurance Company

 

A government document shared on social media has triggered speculation about possible PSU bank mergers between Union Bank and UCO Bank, and Bank of India and Bank of Maharashtra. The document, whose source couldn't be verified, said that a Parliamentary committee will hold discussions with four PSU banks in the first week of January under banking laws, which govern mergers and acquisitions, among other things.

However, the government has not yet provided official information regarding the merger. Neither of the four PSU banks mentioned have made any stock exchange filings in this regard.

The document being circulated on X (formerly Twitter) is a government PDF issued in the name of Ramesh Yadav, Under Secretary of the Government of India. The letter is issued to the Governor, Reserve Bank of India, Chairman of LIC, IRDAI, and NABARD, along with MD and CEOs of UCO Bank, Bank of Maharashtra, Bank of India, and Union Bank of India.

The PDF is also addressed to CMDs of New India Assurance Company, United India Insurance Company, Oriental Insurance Company, National Insurance Company, and MD & CEO of SBI Life Insurance Company. The subject of the alleged government PDF states 'Study Visit programme of the Committee on Subordinate Legislation, Lok Sabha to Mumbai and Goa from 2 to 6 January 2024'.

The 2-day programme includes informal discussions with the representatives of Union Bank of India and UCO Bank on January 2, and with representatives of Bank of Maharashtra and Bank of India on January 4, 2024, on rules/regulations framed under Banking Regulations Act 1949 and other relevant Acts as applicable to them and the regulatory mechanism in post-merger scenario.

The Finance Ministry has reportedly issued a clarification, saying that this is a parliamentary committee on subordinate legislation, and it has no connection whatsoever with the policies of bank mergers, according to CNBC-Awaaz. Amid the merger buzz, the ministry reportedly changed the agenda of its meeting. According to the new agenda, there is no mention of the word “Merger”, which simply means that there is no proposal for a merger between Union Bank of India and UCO Bank, Bank of India, and Bank of Maharashtra, said CNBC Awaaz in its report.

Meanwhile, No proposal to merge the public sector banks is being considered by the government and the discussions were part of a ‘routine exercise, Reuters also reported citing two sources from the Ministry of Finance.

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Government To Meet RBI, NPCI And TRAI After UCO Bank Incident: What Caused 'Rs 820 Crore Technical Glitch' At The Bank

Public sector UCO Bank on Thursday said it has been able to recover around Rs 649 crore out of Rs 820 crore, which is about 79 per cent of the amount “erroneously credited” to some customers due to a technical issue in the Immediate Payment Service (IMPS).

“The bank has initiated requisite actions to recover the balance amount of Rs 171 crore and the matter has also been reported to the law enforcement agencies for necessary action,” it said in an exchange filing.

During the period from November 10 to 13, the bank observed that due to technical issue in IMPS, certain transactions initiated by holders of other banks have resulted in credit to the account holders in UCO Bank without actual receipt of money from these banks, UCO bank said in another filing. Money is instantly transferred in the IMPS system from one account to another account.

“The bank, as a precautionary measure, has made the IMPS channel offline and is working closely with the stakeholders to resolve the issue and restore the IMPS services at the earliest,” it said.

“The bank re-iterates and assures that all other critical systems are operational and available. The bank continues to provide safe and secured services to customers,” it said.

The financial impact, if any, due to the development is yet to be ascertained and the bank will endeavour to intimate the ascertainment, the bank said.

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RBI supersedes board of large Cooperative Bank for a year, cites poor governance

 

Abhyudaya Cooperative Bank's net non-performing assets (NPAs) ratio have zoomed up to 12 per cent, sources said on November 25. A day after the Reserve Bank superseded the city-headquartered bank's board, it has emerged that the cooperative bank's cost-to-income ratio had zoomed up to 80 per cent.

The RBI order on November 24 had superseded the board for 12 months on material concerns emanating from poor governance standards observed in the bank" but refrained from putting any business restrictions. They placed an administrator and an advisory panel to assist him.

People in the know said that poor governance led to gradual accumulation of NPAs and deterioration on the cost-to-income ratio. According to sources, the bank management led by chairman Sandeep Ghandat had hired excessively to win over voters in the Parbhani district of Maharashtra, which is a political base for the family.

In what should allay any concerns among customers, sources said the bank had made an operating profit in FY23, and has a sizeable proportion of the deposits in the low-cost current and savings account. The bank has also consistently maintained the statutory liquidity ratio and cash reserve ratio, those in the know said.

With the professional team looking after the day-to-day affairs of the bank, it will recover its bad loan to clean up its balance sheet and also improve operating efficiency," a person in the know said. The person added that Abhyudaya Bank will continue its normal business as there are no restrictions placed on it.

On November 24, there were reports saying that the RBI has agreed to open its currency chest for the next three days in order to ensure that all the ATMs of the lender dispense cash as sought by the depositors. The regulatory move against the bank was one of the biggest such actions against any cooperative lender after the PMC Bank case, where strong restrictions were put on the depositors as well.Abhyudaya Cooperative Bank's net non-performing assets (NPAs) ratio have zoomed up to 12 per cent, sources said on November 25. A day after the Reserve Bank superseded the city-headquartered bank's board, it has emerged that the cooperative bank's cost-to-income ratio had zoomed up to 80 per cent.

The RBI order on November 24 had superseded the board for 12 months on material concerns emanating from poor governance standards observed in the bank" but refrained from putting any business restrictions. They placed an administrator and an advisory panel to assist him.

People in the know said that poor governance led to gradual accumulation of NPAs and deterioration on the cost-to-income ratio. According to sources, the bank management led by chairman Sandeep Ghandat had hired excessively to win over voters in the Parbhani district of Maharashtra, which is a political base for the family.

In what should allay any concerns among customers, sources said the bank had made an operating profit in FY23, and has a sizeable proportion of the deposits in the low-cost current and savings account. The bank has also consistently maintained the statutory liquidity ratio and cash reserve ratio, those in the know said.

With the professional team looking after the day-to-day affairs of the bank, it will recover its bad loan to clean up its balance sheet and also improve operating efficiency," a person in the know said. The person added that Abhyudaya Bank will continue its normal business as there are no restrictions placed on it.

On November 24, there were reports saying that the RBI has agreed to open its currency chest for the next three days in order to ensure that all the ATMs of the lender dispense cash as sought by the depositors. The regulatory move against the bank was one of the biggest such actions against any cooperative lender after the PMC Bank case, where strong restrictions were put on the depositors as well.

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RBI Monetary Policy Meeting Highlights: RBI keeps interest rates unchanged

 The Monetary Policy Committee has on August 10 unanimously voted to leave the repo rate unchanged at 6.5 percent, RBI Governor Shaktikanta Das announced today. The Standing Deposit Facility rate is also retained at 6.25 percent; and the Marginal Standing Facility rate, Bank Rate is also retained at 6.75 percent. The MPC has also decided to remain focused on the withdrawal of accommodation with preparedness to act should the situation so warrant.The Reserve Bank of India's Monetary Policy Committee (MPC), has three members from the RBI and three external members. During the last MPC meeting in June, the repo rate was left unchanged. Today's decision marks the third time rates have been left unchanged. The central bank had earlier raised repo rates by a total of 250 bps since May 2022 with an aim to tackle inflation.

This is the third MPC meeting this fiscal. The MPC consists of three external members and three officials of the RBI. The external members of the panel are Shashanka Bhide, Ashima Goyal, and Jayanth R Varma. Besides Governor Shaktikanta Das, the other RBI officials in MPC are Rajiv Ranjan (Executive Director) and Michael Debabrata Patra (Deputy Governor).

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