RBI launches new prepaid payment instrument for digital transactions up to Rs 10,000

Reserve Bank of India has given Indian consumers a new option to make their daily payments at local shops and retail outlets for the purchase of daily household goods and services.

In a bid to give increased impetus to small ticket digital payments RBI on Tuesday has introduced a new Prepaid Payment Instrument (PPI) which will come with a monthly rechargeble limit of Rs 10000 and can be used only for making retail payments.

"To give impetus to small value digital payments and for enhanced user experience, it has been decided to introduce a new type of semi-closed PPI..." the central bank announced in press release on Tuesday. "These PPIs shall be used only for purchase of goods and services and not for funds transfer."

The newly introduced payment instrument can be issued by banks and existing non bank PPI players. These companies would be able to verify credentials of customers seeking to open their PPI accounts using an OTP sent to user's verified mobile number and a digital identification document recognized by the Department of Revenue, the banking regulator said.

"The minimum details shall necessarily include a mobile number verified with One Time Pin (OTP) and a self-declaration of name and unique identity/ identification number of any ‘mandatory document’ or ‘officially valid document’ (OVD) listed in the ‘Master Direction - Know Your Customer (KYC) Direction," according to the central bank.

This will come as a boost especially for wallet companies such as Paytm and Phonepe that have reeled due to high costs of KYC compliance since the Supreme Court denied them permission to access Aadhar database to complete full KYC authentication.

The PPI can be used for a monthly limit of Rs. 10000 and the amount can only be uploaded only from bank account linked with customer's verified mobile number. Furthermore, RBI has also fixed an annual limit of Rs 1.2 lakh that can be recharged on these accounts.

RBI governor Shaktikanta Das had spoken about the possible launch of such an instrument while making his Monetary Policy speech on December 5. The governor had emphasised on the need for a seamless, easy to issue payment instrument to increase the use of digital payments at small merchant locations where typically the failure rate of transactions are known to be high.

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Key points from RBI policy meets

Reserve Bank of India (RBI) is currently on a rate cutting spree as the central bank has reduced the repo rate -- the rate at which it lends to banks -- for the fifth time in a row. After this reduction of 25 basis points (bps), which overall translates into 135 bps or 1.35 percentage points this year, the repo rate now stands at 5.15 per cent.

Here's are the key takeaways from the monetary policy committee (MPC) meet:

Rate cut may bring cheer among borrowers:

When the RBI cuts rates, banks are expected to pass on the benefit to consumers and reduce interest rates on home, auto, personal or other loans which may result in lower EMIs (equated monthly instalments).

As the RBI has compelled banks to align all their retail loans to external benchmarks, and a majority of lenders have adopted the repo rate as the benchmark, the cut will likely bring cheer to borrowers.

Any scope for another rate cut?

The central bank has maintained its "accommodative" stance. "The Reserve Bank will continue the 'accommodative' stance as long as it is required to revive the growth," RBI governor Das said .

This leaves borrowers with a hope that that the key lending rate may fall further.

Shaktikanta Das on PMC Bank crisis:

"As soon as this issue came to the central bank's notice, the RBI has acted very swiftly. One incident should not be used to generalise the state of all cooperative banks. Banking system sound, stable and there's no reason to panic," Das stated on Punjab and Maharashtra Cooperative (PMC) Bank crisis.

RBI governor on 'single-use plastic ban':

Just seconds before the MPC media briefing was about to get over, the RBI governor was congratulated for opting "plastic free folder and water bottle". To which the governor smiled and replied: "We've decided and we've in fact issued a circular internally for doing away with single-use plastic."

Fall in economic growth projection:

The Reserve Bank sharply cut its economic growth projection for this fiscal to 6.1 per cent from 6.9 per cent earlier, but expressed hope that the growth will recover in the second half of 2019-20.

The central bank's estimates come in the wake of GDP growth sliding to a six-year low of 5 per cent in the June quarter, on a massive slowdown in consumption and private sector investments.

Micro-lenders' borrowers:

On the regulation and supervision front, the RBI decided to increase the household limits for micro-lenders' borrowers, and also raise the cap to Rs 1.25 lakh per eligible borrower from the previous Rs 1 lakh.

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Customers of this multi-state cooperative bank can not withdraw more than ₹1,000 from their accounts, says RBI

Reserve Bank of India or RBI has put restrictions on the amount depositors of Mumbai-based Punjab and Maharashtra Cooperative Bank (PMC Bank) can withdraw from their accounts with the urban co-operative bank. "According to the Directions, depositors will be allowed to withdraw a sum not exceeding ₹1,000 of the total balance in every savings bank account or current account or any other deposit account by whatever name called, subject to conditions stipulated in the RBI Directions," the RBI said.

The RBI however said that the issue of the directions to PMC Bank should not be construed as cancellation of banking licence by the central bank. PMC Bank can continue to undertake banking business with restrictions till further notice/instructions from RBI. The Reserve Bank may consider modifications of these directions depending upon circumstances. The restriction will remain in force for a period of six months from the close of business of the bank on September 23, said RBI.

Further, according to the RBI's restrictions on the urban cooperative bank, PMC Bank will also not be able to grant or renew any loans and advances, make any investment, incur any liability including borrowal of funds and accept fresh deposits, disburse or agree to disburse any payment whether in discharge of its liabilities and obligations, without prior approval in writing from the central bank.

A copy of the new RBI directive should be forwarded to each depositor and will displayed on bank's website, said PMC Bank.

PMC Bank is a multi-state scheduled urban co-operative bank with its area of operation in the States of Maharashtra, Delhi, Karnataka, Goa, Gujarat, Andhra Pradesh and Madhya Pradesh.

Founded in 1984, PMC Bank has now grown to a network of 137 branches in six states and ranks among the top 10 cooperative banks in the country.

In a statement on Tuesday, the PMC Bank's Managing Director Joy Thomas said the bank had been put under regulatory restrictions by the RBI owing to irregularities disclosed to the apex bank.

"As the MD of the Bank, I take full responsibility and assure all the depositors that these irregularities will be rectified before the expiry of six months," Thomas told the banks' thousands of distressed customers.

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RBI tightens norms for banks, up penalties in failed ATM transactions

Reserve Bank of India(RBI) Friday prescribed a turnaround time (TAT) for banks to settle failed transactions for customers and also notified compensations payable for various types of customer complaints.

The financial compensation should be done suo motu by the bank, without waiting for a complaint or a claim by a customer, the RBI said.

The central bank had first announced a move to harmonise TAT this April for resolving customer complaints and compensation after observing that time taken for resolving customer complaint varies across payment systems.

"To have prompt and efficient customer service in all electronic payment systems, it is necessary to harmonise the TAT of resolution of customer complaints and charge-backs, and to have a compensation framework in place for the benefit of customers," the RBI had said.

The RBI has categorised eight different avenues of transaction in which the new guidelines will be applicable, including ATMs, card transactions, immediate payment system, unified payment interface and prepaid cards.

The timeline for auto-reversal has been set at between one day after the transaction to five days.

Most financial compensations have been set at ₹100 per day if the reversal does not happen within a specified timeline, the RBI said.

The move is aimed at upping customer confidence and bringing-in uniformity in processing of the failed transactions, it said.

Customers who do not get the benefit of redress of the failure as defined in the TAT, can register a complaint to the banking ombudsman, it said.

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NEFT to be available 24x7 from December 2019: RBI

In a move that gives a big thrust to online fund transfers, the Reserve Bank of India (RBI) today announced that the National Electronic Funds Transfer (NEFT) systems would be available on a 24x7 basis from December 2019.

At present, the NEFT payment system operated by the Reserve Bank as a retail payment system is available to customers from 8am to 7pm on all working days of the week (except 2nd and 4th Saturdays, and all Sundays of the month).

The Chief digital officer of a private bank, requesting anonymity, said, “These days 70-80 per cent of the bank’s customer transactions are taking place digitally. So, this is a positive step from the central bank to boost digital banking transactions as mentioned in the Payment System Vision 2021 document.”

In June, during the second monetary policy meeting, the Reserve Bank of India (RBI) announced the removal of charges levied by the Central Bank for transactions processed in the Real Time Gross Settlement System (RTGS) and National Electronic Funds Transfer (NEFT) systems. It became effective from July 1.

However, there was a misconception among customers that, effective July 1, there will be no charges on RTGS and NEFT based money transfers online. It boils down to there being two major cost components. First is what the RBI used to charge banks for the online transfer facility and the second being banks' own costs while offering the option to customers. RBI had waived the first component. It is up to the banks to decide if they wish to remove or retain the second cost component.

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RBI cuts repo rate by 35 basis points

Reserve Bank of India’s (RBI) monetary policy committee (MPC) on Wednesday lowered its repo rate by an unconventional 35 basis points to 5.4%. This is the fourth reduction in a row of its key policy rate since Shaktikanta Das took over as the governor of the central bank in December last year.

All members of the MPC unanimously voted to reduce the policy repo rate and to maintain the accommodative stance of monetary policy. Four members — Ravindra H. Dholakia, Michael Debabrata Patra, Bibhu Prasad Kanungo and Shaktikanta Das — voted to reduce the policy repo rate by 35 basis points, while two members — Chetan Ghate and Pami Dua — voted to reduce the policy repo rate by 25 basis points.

The path of CPI inflation is now projected at 3.1% for the second quarter of FY20 and 3.5-3.7% for second half of FY20, with risks evenly balanced. Consumer price index (CPI) inflation for the first quarter of FY21 is projected at 3.6%. The MPC also revised downwards GDP growth for FY20 from 7% in the June policy to 6.9% in August in the range of 5.8-6.6% for the first half of FY20 and 7.3-7.5% for the second half–with risks somewhat tilted to the downside. GDP growth for the first quarter of FY21 is projected at 7.4%.

The central bank also said that liquidity in the system was in large surplus in June-July 2019 due to return of currency to the banking system; drawdown of excess cash reserve ratio (CRR) balances by banks; open market operation (OMO) purchase auctions; and RBI’s foreign exchange market operations.

RBI said it absorbed liquidity of Rs.51,710 crore in June, Rs.1.30 trillion in July and ₹2.04 trillion in August (up to 6 August, 2019) on a daily net average basis under the LAF.

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RBI slaps fine on Nine banks due to violating norms

The RBI has imposed penalties on nine commercial banks, including SBI, PNB and BoB, for a host of violations, including delay on the reporting of fraud in the account of Kingfisher Airlines in case of two lenders.

The nine lenders in separate regulatory filings said that the penalties have been imposed on them for delay in reporting of frauds. Public sector lender Punjab National Bank (PNB) said the RBI has imposed a penalty of Rs 50 lakh on it for delay in reporting of fraud in the account of Kingfisher Airlines.

Another state-run lender Oriental Bank of Commerce said that the RBI has imposed a fine of Rs 1.5 crore on it for delay in reporting fraud in the account of Kingfisher Airlines. The aforesaid penalty is required to be paid within 14 days from the date of receipt of the RBI order, the bank added.

United Bank of India and Punjab & Sind Bank said they have been fined 1 crore each by the RBI. State Bank of India (SBI) said the RBI imposed a penalty of Rs 50 lakh on it for non-compliance relating to reporting of frauds. The RBI in exercise of the powers conferred under various sections of the Banking Regulations Act, has imposed a penalty of Rs 50 lakh on the bank for non-compliance with its directions relating to reporting of frauds, it said in a filing.

Bank of Baroda and Federal Bank reported a fine of Rs 50 lakh each on them for delay in reporting fraud in an account.

Corporation Bank and UCO Bank also reported imposition of fines by the RBI for delay in reporting of frauds.

The RBI in a release on Friday had said that it had imposed a fine of Rs 1 crore on Corporation Bank non-compliance with the directions on cyber security framework and frauds classification and reporting.

The central bank in another release on Friday had named seven banks that faced penalties of various amounts for violation of its direction on fraud classification and reporting and opening of current accounts. The RBI slapped a penalty of Rs 2 crore each on Allahabad Bank and Bank of Maharashtra, Rs 1.5 crore each on Bank of Baroda, Bank of India, Indian Overseas Bank and Union Bank of India, and Rs 1 crore penalty on Oriental Bank of Commerce.

A scrutiny was carried out by the RBI in the accounts of the companies of a Group and it was observed that the banks had failed to comply with provisions of one or more of the directions issued by the RBI, the release had said. Based on the findings of the scrutiny, notices were issued to the banks advising them to show cause as to why penalty should not be imposed for non-compliance with the directions.

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Four PSU Banks fined for violation of KYC norms by RBI

The Reserve Bank of India (RBI) has imposed a penalty of Rs 1.75 crore on four public-sector banks, including PNB and UCO Bank, for non-compliance with KYC requirement and norms for opening of current accounts. While PNB, Allahabad Bank and UCO Bank have been fined Rs 50 lakh each, a Rs 25-lakh penalty has been imposed on Corporation Bank.

Giving details, the RBI said the penalty has been imposed for non-compliance with certain provisions of directions issued by it on know your customer norms or anti-money laundering standards and opening of current accounts. The action, however, is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the banks with their customers, the RBI added.

In a stock exchange filing on Tuesday, UCO Bank said, “We inform that the RBI in exercise of powers conferred under Section 47 (A) (1) (c) read with Section section 51 and 46 (4) (1) of the Banking Regulation Act, 1949, has imposed a penalty of Rs 5 million (Rs 50 lakh) on UCO Bank for non-compliance of RBI directives on ‘KYC norms/AML standards/CFT/obligation of banks and financial institutions under PMLA 2002’ and also on ‘opening of current accounts by banks — need for discipline’.”

Similarly, Allahabad Bank, in a stock exchange filing, said the RBI has imposed a penalty of Rs 50 lakh on the bank for non-compliance of the directions issued the by RBI on “KYC norms/AML standards” and “opening of current accounts”.

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RBI Monetory policy 2019 - RBI cuts repo rate by 25 bps to 5.75%

The Reserve Bank of India (RBI) Monetary Police Committee Thursday unanimously cut repo rate — the rate at which it lends to banks — by 25 basis points from 6 per cent to 5.75 per cent. The bank also changed the monetary policy stance from neutral to accommodative. The reverse repo rate and bank rate have been adjusted at 5.50 and 6.0 per cent respectively. The bank also lowered the Gross Domestic Product (GDP) growth forecast for 2019-20 to 7 per cent from 7.2 per cent in earlier projection. On the other hand, inflation projection has been raised to 3-3.1 per cent for April-September and 3.4-3.7 per cent for the second half of the year.

RBI has decided to do away with charges levied on RTGS and NEFT transactions, banks will be required to pass this benefit to their customers.

This is the third straight interest-rate cut under RBI Governor Shaktikanta Das, who also heads the Monetary Policy Committee (MPC).

In its first meeting in FY’20, the MPC on April 4 had cut the key lending rate by 25 basis points from 6.25 per cent to 6 per cent. Reverse repo rate had been adjusted to 5.75 per cent and the committee had kept the monetary policy stance at ‘neutral’. The RBI had projected a GDP growth of 7.2 per cent for 2019-20, a revision from its February view of 7.4 per cent. It had also said that the consumer inflation was 2.57 per cent in February.

In February, the committee had cut repo rate by 25 basis points from 6.50 per cent to 6.25 per cent. The MPC had then shifted its stance to ‘neutral’ from ‘calibrated tightening’.

When the RBI cuts its benchmark lending rate, banks typically pass on the benefit to the customers. As and when the banks decide to pass on the rate cut, consumers could see home, auto and other loans getting cheaper. For retail consumers, a cut in rates could have a two-pronged impact. For depositors, new deposits will earn a lower rate and thereby lower returns. For borrowers, though, a downward movement of interest rate would bring down the interest outgo in the near future. For floating rate home loans, however, a new rate becomes effective on the reset date of the loan.

India is among central banks across Asia shifting to looser monetary policy to boost their economies amid risks from the US-China trade war.

As the country heads into an economic downturn, the new government’s focus would be on reviving consumption demand, pushing investments and exports, and resolving the liquidity issues in the financial sector to help India get back on the 7%-plus growth trajectory in the long term.


Bullet points -

➡ Repo rate Cut = 0.25%

➡ Reverse Repo Rate cut = 0.25%

➡ Prediction in Slow down in Inflation & Growth

➡ Lowered charges on ATM usage

➡ 6:0 voting for rate cut this Stance is saying next policy also have rate cut 

➡ RTGS & NEFT (Net banking) is now free. All banks should transfer this benefit to customers.

➡ Small Finance bank (NBFC) licenses will be given more

➡ GDP prediction reduced from 7.2% to 7.0%

➡ World most EM currency in Depreciate 


➡ US - China Trade war big Worry for World Economy..

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RBI moves to tighten current account operating norms to check fund diversion

In a move to tackle fund diversion, the Reserve Bank of India (RBI) has proposed sterner rules on opening and running of current accounts of corporate borrowers. 

Current accounts, according to a draft circular shared by the regulator with the banking industry, can “only be opened” with the lead bank in a lending consortium while other banks having collection accounts will have to transfer funds at the end of the day to the current account with the consortium leader. 

RBI has suggested that the rule would apply to accounts of corporates which have borrowed and availed credit facilities of Rs 50 crore or more from the banking system. 

“RBI suspects that many corporates run collection accounts (which are used for holding sale proceeds and other receipts) with other banks so that the consortium leader cannot impound the fund or push the borrower to fork out interest on loans. This is particularly true for stressed accounts...,” a senior banker told ET. 

However, once the proposed regulation is executed, many midsized and smaller banks, which do not lead consortia, fear a dip in CASA (current and saving accounts) numbers that enable banks to lower cost of fund. “On one hand RBI wants discipline in opening current accounts. On the other hand, a low CASA often does not go well with the regulator which occasionally points this out in the course of inspection,” said another banker. 

According to RBI, while there would be no restriction on the amount or number of ‘credits’ in collection accounts with other banks (which are not leading consortium), the ‘debits’ should be limited to remitting the proceeds to the current or escrow accounts maintained with the lead bank. 

The regulator has indicated that all such ‘existing’ current accounts where the account holding bank is not the consortium leader/ escrow managing bank would either have to be converted into collection account or closed, after giving due notice to the account holders, within three months from the date of the final circular. Accordingly, no debits would be permitted in such accounts after the stipulated period of three months other than for remittance to the lending bank(s). 

Such rules, said veteran banker PH Ravikumar, could impact many SMEs which have to deal with long delays in payments from their clients. “These customers open current or collection accounts with other banks to draw credits that could be used to continue production and meet order. But RBI and lead banks fear that allowing such customers to withdraw funds ostensibly for production, may be diverted by promoters for making preferred payments or to their relatives and associates. Also, there are inflows which are not from regular businesses but as new private borrowings by the stressed account to improve their production capabilities. Here, lending banks tend to impound those credits as well. It would help SMEs if the practice of unilaterally impounding credits at operating level in bank branches is stopped particularly for SME accounts,” said Ravikumar. 

The draft circular further suggests that while customers (with Rs 5-50 crore credit) may open current accounts with any lending bank (which is not a consortium leader), only collection accounts can be run with non-lending banks. The proposed regulation owes its origin to RBI’s 2004 directive to banks advising them to ensure that their branches do not open current accounts of entities which enjoy credit facilities (fund based or nonfund based) from the banking system without specifically obtaining a No-Objection Certificate (NOC) from the lending bank(s). Later, banks were allowed to open current accounts of prospective customers in case no response was received from existing bankers within a fortnight. 

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RBI introduces new note of Rs. 20, Know its features

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RBI categorises IDBI Bank as private sector Bank

IDBI Bank has been categorised as a private sector lender following acquisition of majority stake by Life Insurance Corporation, RBI said.

In January, LIC completed the process of picking up a controlling 51% stake in the nearly crippled IDBI Bank.

"IDBI Bank has been categorised as a 'private sector bank' for regulatory purposes by Reserve Bank of India with effect from 21 January 2019 consequent upon LIC acquiring 51% of the total paid-up equity share capital of the bank," RBI said in a statement.

IDBI Bank has been under the prompt corrective action framework of RBI that bans it from corporate lending and branch expansions, salary hikes and other regular activities.

However, the lender has charted out a revival strategy to bring banking and insurance under one roof, along with its new owner Life Insurance Corporation (LIC).

Last week, IDBI Bank informed about appointment of LIC as a corporate agent under bancassurance channel.

In the long term, the bank and LIC will have a common investment strategy, use each other's resources like real estate, commercial and residential space, bank branches, premises and ATMs and digital marketing, among others, the bank had said.

Both entities will also undertake rationalisation of the common subsidiaries in mutual funds and life insurance arms, as per the strategic plan.

For December quarter of this fiscal, IDBI Bank reported widening of loss to ₹4,185.48 crore as bad loans surged.

The bank's gross non-performing assets (NPAs) shot up to 29.67% of gross advances as at 31 December 2018 against 24.72% in the year-ago period.

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RBI rap: Yes Bank denies any wrong-doing

Days after RBI pulled up Yes Bank for making a report marked 'confidential' public, the private lender put up a stout defence, saying the NPA divergence information was in due compliance. 

"The bank in its assessment was of the view that the disclosure pertaining to divergence was a UPSI and required prompt dissemination to the Stock Exchanges in order to ensure compliance with Sebi (PIT) Regulations and the NSE & BSE circulars," Yes Bank said in a regulatory filing to the NSE. 

The bank said it divulged the RBI report to ensure information symmetry. 

"Immediately on receipt of the RAR report, to mitigate and to avoid any further speculation, misuse or leakage of the UPSI, it was decided to disseminate the information regarding "Divergence" to the stock exchanges, so as to ensure information parity, instead of withholding this information till finalization of the Annual Results," the bank further stated. 

The bank "has not made any undue advantage or benefit by disseminating the UPSI. Hence, we humbly submit that the bank has not misrepresented or misled the stock exchanges/ investors in terms of Regulation 4(1)(c) of Listing Regulations". 

UPSI stands for Unpublished Price Sensitive Information. 

YES Bank had earlier informed stock exchanges that the RBI has not found any divergence in the asset classification and provisioning done by the lender during 2017-18. 

But RBI has maintained that ‘nil’ divergence is not an achievement to be published and is only compliance with the extant Income Recognition and Asset Classification norms. 

The regulator also pointed out that its Risk Assessment Report (RAR) identified several other lapses and regulatory breaches in various areas of the bank's functioning and the disclosure of just one part of the RAR is viewed as a deliberate attempt to mislead the public. 

However, the RBI’s harsh view of Yes Bank’s move has confused lenders on whether it is a good practice to disclose NPA divergence, even though regulatory guidelines make it compulsory to disclose it in their notes to accounts.  

Source- Economic Times

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RBI imposes penalty on 7 banks

The Reserve Bank of India (RBI) has imposed monetary penalty on seven banks for non-compliance with various directions issued by the RBI, including monitoring of end use of funds.

The banks are: Allahabad Bank (Rs 1.5 crore), Andhra Bank (Rs 1 crore), Bank of Maharashtra (Rs 1.5 crore), Indian Overseas Bank (Rs 1.5 crore), HDFC Bank (Rs 20 lakh), IDBI Bank (Rs 20 lakh) and Kotak Mahindra Bank (Rs 20 lakh).

According to the RBI, these penalties have been imposed in exercise of powers vested in the Reserve Bank under the provisions of Section 47A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act, 1949, taking into account failure of the above banks to adhere to the directions issued by the RBI.

“This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the banks with their customers,” the RBI said.

With this, the RBI had slapped penalty on 11 banks in the last one week for violation of various norms.

However, the RBI has not spelt out the exact nature of the violations in its brief statements put on its website.

On February 7, the RBI slapped Rs 1 crore penalty on State Bank of India, the country’s largest lender, for violating norms. The penalty was levied on the bank for not monitoring the end use of funds in respect of one of its borrowers.

On February 5, the RBI had imposed a penalty of Rs 2.2 crore on private sector lender Axis Bank in two separate cases, Rs 2 crore on UCO Bank and Rs 1 crore on Syndicate Bank for violation of norms.

The Reserve Bank said a penalty of Rs 2 crore has been imposed each on Axis Bank and UCO Bank for non-compliance of norms related to payment through cheques.

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Home, auto loans set to be cheaper as RBI Governor Shaktikanta Das cuts interest rates by 0.25%

RBI Governor Shaktikanta Das cut the interest rate by 0.25 percent to 6.25 percent, a move that will lead to reduction of lending rate by banks leading to lower EMI for housing, car loan and corporate borrowers.

This is Das' first monetary policy review after taking charge as the RBI Governor, replacing Urjit Patel.

The 6-member Monetary Policy Committee (MPC), headed by Patel, reduced repo rate or the short term rate at which central bank lends to banks, to 6.25 percent. Consequently, the reverse repo rate has also come down by a similar percentage point to 6 percent. The MPC voted 4:2 in favour of the rate cut, while the decision to change policy stance was unanimous.

The central bank also changed its monetary policy stance to 'neutral' from the earlier 'calibrated tightening', signalling further softening on its approach towards interest rates.

The RBI cut its estimates on headline inflation which cooled off to a 18-month low of 2.2 per cent in December for the next year, and expects the number to come at 2.8 per cent in March quarter, 3.2-3.4 per cent in first half of next fiscal and 3.9 per cent in third quarter of FY20.

Deputy Governor Viral Acharya and another MPC member, Chetan Ghate, voted for status quo in interest rates, while Das and three others voted for a cut in interest rates.

The RBI had maintained status quo on the key lending rate (repo) in its last three bi-monthly policy reviews after raising the rate twice by 25 basis points each in the fiscal.

Das, in his maiden monetary policy review, has moved away from the usual practice of announcement 2:30 pm. Earlier, when Urjit Patel took charge as the RBI Governor, he shifted from the usual practice of announcement at 11 am and presented the fourth bi-monthly (his maiden) monetary policy review at 2:30 pm after the MPC meeting.

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First three PSU Banks which are removed from RBI's PCA list

A Reserve Bank of India (RBI) panel has decided to remove both Bank of India , Bank of Maharashtra and Oriental Bank of Commerce from its prompt corrective action plan (PCA) for state-owned banks that had high levels of bad debt and inadequate capital, a source directly aware of the development told Reuters on Thursday.

The source, who asked not to be named as the discussions are private, said the move follows improvements in the asset quality and capital ratios of both banks.

The RBI’s board for financial supervision took the decision at its meeting on Thursday after reviewing the December quarter performance of all banks on the PCA list, the source said.

In case of Oriental Bank of Commerce, it may also be removed from the list pending the outcome of a technical clarification from the bank, the source added. the net NPA has come down to less than 6 per cent as the government has infused sufficient capital, it said. Hence, it has been decided to remove the restrictions placed on Oriental Bank of Commerce (OBC) under PCA framework, subject to certain conditions and close monitoring, the apex bank added. 

The RBI put 11 state-owned lenders on the PCA list in the past few years. As a result, it barred them from issuing fresh big-ticket loans and expanding their operations, as well as putting their financial performance under close scrutiny.

RBI Press Release:-

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Large borrowers fall in line after RBI’s one-day default norm

A central bank rule mandating disclosure of loan default even if it is just by a day is putting the fear of god in big borrowers. Borrowers, who owe more than ₹5 crore, are gradually regularizing repayments following the Reserve Bank of India’s (RBI) 12 February circular asking banks to disclose any payment default.

Responding to a Right to Information (RTI) query from Mint, RBI said the total outstanding loans of borrowers, who defaulted on bank loans (under the one-day default norm), has declined more than 60% to ₹55,070 crore on 30 September 2018 from ₹1.53 trillion on 30 June. To be sure, these are not soured assets, but loans where borrowers did not pay instalments on time. However, the data also shows that one-day defaults dipped to a low of ₹50,306 crore on 31 August from ₹91,280 crore on 31 July and rose 9% in September.

"There is a clear change in borrowers’ behaviour and banks are also more alert in taking up these incidents. A message has been sent to errant borrowers that defaults would not be tolerated,” said Arijit Basu, managing director of the State Bank of India.

Large borrowers, experts say, have started paying up on time due to fears of their companies being referred to the bankruptcy court and eventually losing control of their assets.

In its circular, the central bank asked lenders to institute a board-approved policy for resolution of stressed assets. Banks were told to start the resolution process as soon as a borrower defaults on a term loan and were given 180 days to cure it, failing which the account would have to be referred to the National Company Law Tribunal (NCLT).

Under previous guidelines, lenders had the freedom to initiate the resolution process after 60 days of default.

“Earlier, only the NPA (non-performing asset) classification was taken seriously by borrowers, not defaults. That has changed as banks no longer want any stressed asset on their books and, subsequently, the amount of loans under special mention accounts (SMA) has also dropped,” said Basu. To some extent, the introduction of the Insolvency and Bankruptcy Code (IBC) had also helped, he added.

Asset quality of banks improved in Q2 FY19, with gross NPAs as a percentage of total loans declining from 11.5% in March 2018 to 10.8% in September 2018.

The one-day default norms were initially not received well by the industry and a section of lenders. So much so that in April last year, RBI deputy governor N.S. Vishwanathan explained in a speech that the revised framework tries to reduce the arbitrage borrowers are currently enjoying while raising funds through borrowing from banks, as against raising funds from the capital markets.

He had said that if a borrower delays coupon or principal payment on a corporate bond even for a day, the market would penalize the borrower heavily, but defaults in bank borrowings have not led to a similar reaction. “There is a need to change this and restore the sanctity of the debt contract, lest bank debt becomes subordinate even to equity,” he had said.

According to RBI data, the top 100 large borrowers accounted for 16% of gross loans and 21.2% of gross NPAs of banks at the end of the September quarter of FY19.

For large borrowers, the proportion of outstanding loans with any signs of stress (including SMA 0, 1, 2, restructured loans and NPAs) has come down from 30.4% in March 2018 to 25.4% in September 2018.

Some experts say the one-day default norms are hard on some borrowers, who default due to genuine business concerns.

Former RBI deputy governor S.S. Mundra said that while it is critical to keep strict timelines for monitoring credit quality, it has burdened bankers who are already pressed for time.

“In some cases, where the defaults occur owing to genuine cash flow issues, banks nonetheless have to start the resolution process, arrange meetings and look for revival plans,” Mundra said. “This has to be done each time a borrower defaults and it has to be stopped as soon as they repay, leading to an exercise that could have been avoided had there been a buffer period.”

However, the former RBI deputy governor added that not only has IBC changed the way a borrower looks at the system, but bankers also have begun timely stress assessment exercises.

Source- Livemint

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RBI enforces Rs 14-crore penalty on 7 banks for flouting norms

The Reserve Bank of India has undertaken enforcement action against seven banks (including a payments bank and a cooperative bank) and has imposed an aggregate penalty of Rs 14.20 crore for a wide range of contraventions in the period between July 1, 2018 and October 31, 2018, according to the latest Financial Stability Report.

The enforcement action was initiated for non-compliance with/contravention of directions on fraud classification and reporting, discipline to be maintained while opening current accounts and reporting to the Central Repository of Information on Large Credits platform and Risk-Based Supervision; and violations of directions/guidelines on KYC norms. The action was also initiated for violation of Income Recognition and Asset Classification norms; delay in resolution of ATM-related grievances; violation of all-inclusive directions and non-compliance with specific direction prohibiting opening of new accounts.

During the period between July 1, 2017, and June 30, 2018, the Enforcement Department undertook action against 14 banks (including a payments bank and a small finance bank) and imposed an aggregate penalty of Rs102.40 crore.

With a view to separating the function of identification of contravention of respective statutes/ guidelines and directives by the regulated entities from imposition of punitive action and to make this process endogenous, formal and structured, a separate Enforcement Department was created within the Reserve Bank in April 2017.

To begin with, the department focussed on the enforcement of penalty provisions in case of commercial banks, under section 47A of the Banking Regulation Act. Enforcement of regulations pertaining to cooperative banks and non-banking financial companies, too, has been brought under the Department with effect from October 3, 2018.

The core function of the department is to enforce regulations and improve compliance, with the overall objective of ensuring financial system stability and promoting public interest and consumer protection.

Foreign banks

Meanwhile, the RBI has observed some deficiencies during its thematic study on operations of service centres/business process outsourcing subsidiaries of major foreign banks. Some of the concerns/ risks observed were that employees in the outsourced agency had the same access rights to the bank’s core banking solution (CBS). Further, it was also observed that user control-related activities such as password re-setting, access rights to bank’s applications and change request were handled by the outsourced agency.

The report said banks’ Service Level Agreements (SLAs) with their outsourced agencies did not recognise the Reserve Bank’s right to inspect the service provider of the banks and their books and accounts by one or more officers or employees or other persons.

People-risk was elevated on account of a significant amount of cost being incurred on outsourced services, the report added.

The RBI said the deficiencies observed were taken up with the respective banks for rectification.

Source-the hindu business line

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Bank GNPAs & Net NPAs improved in September: RBI

The asset quality of banks showed improvement with gross non performing assets' (GNPAs) ratio declining to 10.8 per cent in September 2018 from 11.5 per cent in March 2018, a Reserve Bank of India (RBI) report said Monday. 

The net NPAs ratio also witnessed a fall at 5.3 per cent in September 2018 as against 6.2 per cent in March 2018, RBI said in its Financial Stability Report. 

"In a sign of possible recovery from the impaired asset load, the GNPA ratio of both public and private sector banks showed a half-yearly decline, for the first time since March 2015, the financial year-end prior to the launch of asset quality review (AQR)," the report said. 

GNPAs of state-run lenders improved to 14.8 per cent in September 2018 from 15.2 per cent in March 2018, the report said. Private sector banks saw gross NPAs falling to 3.8 per cent in September 2018 from 4 per cent in March 2018. 

The report also tested the resilience of the banking system against macroeconomic shocks through macro-stress tests for credit risk. Under the baseline scenario, the GNPA ratio of all banks may come down to 10.3 per cent by March 2019 from 10.8 per cent in September 2018, the report said. 

The GNPA ratio of state-run lenders may decline from 14.8 per cent in September 2018 to 14.6 per cent by March 2019 under baseline scenario, whereas private sector banks' GNPA ratio may decline from 3.8 per cent to 3.3 per cent in March 2019, the report said. 

Foreign banks' GNPA ratio under baseline scenario might decline to 3.1 per cent in March 2019 from 3.6 per cent in September 2018, it said. The report said the ratio of restructured standard advances (RSAs) steadily declined in September 2018 to 0.5 per cent following the withdrawal of various restructuring schemes in February 2018. 

"This suggested increasing shift of the restructured advances to NPA category," the report said. 

As of September 2018, provision coverage ratio (PCR) of all banks was higher as compared to 51 per cent in March 2018, with improvements noticed for both state-run banks and private sector banks, the report said. 

Distribution of banks GNPA ratio shows that the number of banks having GNPA ratio less than 10 per cent has gone down in September 2018 as compared to March 2018, the report said. 

The capital to risk-weighted assets ratio (CRAR) of banks declined marginally from 13.8 per cent in March 2018 to 13.7 per cent in September 2018, it said. The CRAR of state-run banks declined from 11.7 per cent to 11.3 per cent, the report said. 

The asset quality of the industry sector improved to 5 per cent in September 2018 compared to 13.6 per cent in March 2018, while that of agriculture and retail sectors declined to 6.3 per cent and 2.3 per cent respectively in September 2018, it said. 

The share of large borrowers in total loan portfolios of banks and their share in GNPAs was at 54.6 per cent and 83.4 per cent respectively at the end of September 2018, the report said.  The top 100 large borrowers accounted for 16 per cent of the gross advances and 21.2 per cent of GNPAs of banks, the report said. 

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