Financial Awareness-November(1-10) 2016

  1. PNB plans to raise Rs6,000 crore via bonds (Source: Mint)
  • Punjab National Bank said it plans to raise Rs 6,000 crore in tranches from bonds to fund business expansion.
  • The board will be considering issuance of Basel III compliant debt instruments — Perpetual Additional Tier I capital bonds worth Rs 3,000 crore and Tier-II bonds of up to Rs 3,000 crore, PNB said in a regulatory filing to stock exchanges. The fund raising is subject to availability of headroom in one or more tranches, it said.
  • The board meeting will be held on 14 November, it added. Under the Basel-III norms, AT-1 bonds come with loss absorbency features, meaning that in case of stress, banks can write off such investments or convert them into common equity if approved by the RBI. AT-1 bonds qualify as core or equity capital.

2. Banks to report frauds of Rs 1 crore and above to CVC (Source: ET)

  • With several high-ticket alleged frauds like Vijay Mallya loan default case coming to fore, Central Vigilance Commission has now made it mandatory for the public sector banks to report to it all such matters involving funds over Rs one crore.
  • Based on reports, the anti-corruption watchdog, which has hired four General Manager ranked officers from bank as advisors, will recommend whether CBI probe can be ordered. According to CBI data, in 2015, the agency had probed 171 cases of bank frauds involving funds of Rs 20,646 crore. In addition, CBI is also investigating the Ponzi schemes involving funds of over Rs 1.20 lakh crore.

3. Banks seek changes to model agreement for road projects (Source: FE)

  • With fewer than ten hybrid annuity model (HAM) road projects having achieved financial closure so far, banks have proposed several changes to the model concession agreement (MCA).
  • Lenders that FE spoke to said the interest payable by National Highways Authority of India (NHAI) on loans taken by the developers, is too low. The rules stipulate the interest be fixed based on the bank rate plus a spread of 3%. Bankers have suggested to MoRTH, the interest be bench-marked to the base rate of State Bank of India (SBI) or the average base rate of five banks plus a 3% spread.
  • Moreover, banks also believe the compensation or termination charges, in the event of the concessionaire’s inability to complete a project, should be 100% of the debt due, since, on CoD, the entire debt would have been drawn, except the operations and maintenance (O&M) payment. Currently, the rules for hydrid annuity projects stipulate a far lower level of compensation to the lenders which is worrying them.

4. Banking infra being mapped to expand direct benefit transfer. (Source: BL)

  • The Centre has embarked on an ambitious plan to map the banking infrastructure across the country as part of its financial inclusion initiative. Known as the DBT-Geographical Information System for financial inclusion, the facility provides data not only at the State/district levels, but also at the village level. Lead banks in each area have been asked to update details on a regular basis.
  • The exercise, which aims to map not only all the brick-and-mortar bank branches but also clearing houses, post offices, banking correspondents and ATMs across the country, is expected to help in the expansion of the direct benefit transfer (DBT) programme for routing cash subsidies directly into the bank accounts of beneficiaries.
  • At present, DBT-GIS is available only for government-to-government use, but the eventual objective is to open it to the public as well.
  • Such a proposal was originally mooted by the Deepak Mohanty Committee on the medium-term path for financial inclusion to the Reserve Bank of India in December 2015, but it gained currency with the Centre’s focus on expanding the scope of DBT to all subsidies, scholarships and schemes and also roping in State governments.

5. RBI sets up second Banking Ombudsman office in New Delhi. (Source: ET)

  • RBI is looking to improve its dealing with customers coming to it with complaints against banks. It has just set up the second Banking Ombudsman office in New Delhi.
  • Banking network has increased manifold over the last few years with the financial inclusion push. Setting up of small finance banks and payments banks is expected to improve penetration further.
  • RBI said the second office in New Delhi is set up “considering the significant increase in. banking network during the recent past and the large jurisdiction being covered by the present office of the Banking Ombudsman, New Delhi.” This is the 16th Ombudsmen with specific state-wise jurisdiction covering all the 29 states and seven union territories

6. SEBI enhances disclosure rules for credit rating agencies (Source: ET)

  • The Securities and Exchange Board of India has tightened rules for Credit Rating Agencies, in an attempt to arrest rating shopping by companies.
  • The regulator has asked rating agencies to disclose how they rate a company, the rating history, and responsibility of analysts and also ask the rating committee to explain if there is a sudden downgrade among other things.
  • SEBI has asked Credit Rating Agencies (CRAs) not to suspend the rating of an instrument abruptly but continue with the rating process till the instrument’s perpetuity even if the issuer is non-cooperating.

7. US Fed holds interest rates, sets up possible December rate hike (Source: FE)

  • US Federal Reserve policymakers left interest rates unchanged while saying the argument for higher borrowing costs strengthened further amid accelerating inflation, reinforcing expectations for a rate hike next month.
  • US Fed officials revealed growing confidence that inflation is on track to reach their 2% target. The central bank said Wednesday that the pace of price gains “has increased somewhat since earlier this year” and that market-based measures of inflation compensation “have moved up”. The committee also omitted previous language saying inflation would probably “remain low in the near term”.
  • The decision to forgo a rate increase had been widely expected owing to the proximity of next week’s US presidential election and the lack of a scheduled press briefing after this meeting. Now the focus will shift to the FOMC’s gathering in December, provided the outlook for the economy and inflation isn’t thrown into doubt over the next six weeks.

8. RBI issues guidelines for forex hedging by foreign companies (Source: BS)

  • RBI issued draft guidelines on how Indian subsidiaries of multinational companies can hedge their currency exposure risk in the country.
  • Subsidiaries looking to hedge their exposure outside of exports and imports could do so through all foreign currency-rupee derivatives, over-the-counter, and exchange-traded products.
  • It also said profits and losses arising from hedging transactions in India must be reflected in the books of the domestic subsidiaries of multinational companies, among other guidelines.
  • Previously, multinational companies could only hedge currency risk arising out of transactions involving imports and exports.

9. Digital transactions: India ‘much safer than most destinations (Source: BL)

  • Despite the report of the ATM fraud/cyber attack on a couple of Indian banks a fortnight ago, India is still safer, compared to many other destinations, said an industry expert.
  • Even the US — the largest and most advanced economy in the world — still does not have two-factor authentication for credit card usage — a standard that has now become common in India.
  • Globally, fraud levels are around 4.76 basis points (100 basis points equals one percentage point) of total transactions while in India it is still a fraction — at just around 0.25 basis points, said Deepak Chandnani, CEO, Worldline (South Asia and Middle East). Worldline is a leading player in the digital payments and transaction services space in India. A significant portion of card swipes in the country goes through its IT networks. “Fraud at ATMs in India have hitherto been extremely low, though this should not make us complacent,” he said.
  • Following the complaints from 641 customers about their card being misused/hacked, a forensic probe by SISA, a private information security auditor, is on and a report is expected in the next few days. The exact nature of data compromise is not known yet. Given that fraudulent transactions have been conducted, at least the card-holder names, card numbers, validity dates, CVVs and/or ATM PINs could have been compromised.

.10. Restructuring of debt: banks seek exemption from open offer under S4A (Source: BL)

  • The feasibility of granting banks exemption from making an open offer when they convert borrowers’ debt into equity, as well as allowing them more time for converting optionally convertible debentures into equity, are being actively examined by the banking and market regulators.
  • This is aimed at nursing troubled assets back to health under the scheme for sustainable structuring of stressed assets (S4A). While in the case of listed companies, the acquiring lender – on account of conversion of debt into equity under the Strategic Debt Restructuring (SDR) mechanism – has been exempted from the obligation to make an open offer, this key clause has not been incorporated under the S4A.
  • Now, banks want an exemption from making an open offer for additional shares of stressed listed companies over and above the equity they will acquire upon conversion of debt, as they neither want to stump up more cash nor want to control and run them. Under the Securities and Exchange Board of India regulations, one of the conditions that will trigger an open offer to acquire at least 26 per cent more of the voting capital of a target company, is when an acquirer intends to acquire shares, which along with his existing shareholding, would entitle him to exercise 25 per cent or more voting rights.
  • S4A envisages determination of the sustainable debt level for a stressed borrower, and bifurcation of the outstanding debt into sustainable debt (Part A) and equity/quasi-equity instruments (Part B), which are expected to provide upside to the lenders when the borrower turns around.
  • In cases where Part B (unsustainable) debt under S4A is converted into optionally convertible debentures (with a provision for the allotment of equity shares at a future date through conversion), banks want the time limitation of 18 months for conversion into equity to be relaxed.

 

 

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