Financial Awareness-March(1-10) 2017

  1. Bank loan market could revive soon as bonds become costly (Source: BS)
  • Bank loans are becoming attractive for companies that had shifted to the bond market. Banks recently lowered their interest rates and are expected to hold on to current levels for some time, considering not all the monetary easing has been passed on to customers.
  • But bond yields have started rising in anticipation of a rate-hike scenario. Banks are clear that lending rates are not going to fall further.

2. Finance ministry advises state-owned banks (Source: BS)

  • As part of capital raising exercise, the Finance Ministry has advised state-owned banks to prepare a list of their non-core assets and look at disposing them at an opportune time. They have been asked to move forward on the idea based on deliberations at the Gyan Sangam last year, sources said.
  • Some of the banks have started the process while others are gearing up, the sources said, adding that the move will not only help them raise the much-needed capital for growth but also sharpen their focus on the core business.
  • Most public sector banks (PSBs) have insurance ventures or capital advisory firms, besides holding the stake in financial institutions such as stock exchanges. For instance, State Bank of India holds a stake in various companies including National Stock Exchange, UTI, ARCIL and so on.
  • SBI has expressed intention to pare its stake in some of the subsidiaries including life insurance firm

3. Fear of investigation forces banks to defer Essar Steel debt recast, to take Rs 44,000-crore hit (Source: ET)

  • Banks are set to take a hit of hundreds of crores in the March quarter as the biggest loan restructuring of Essar Steel would be pushed to next fiscal year since none of the bankers want to risk the prospect of being questioned by investigative authorities few years down the line.
  • In January, bankers led by the State Bank of India informally agreed to recast the Rs 44,000 crore loans of Essar Steel that has been struggling to repay for over a year now. However, within days of this development, the Central Bureau of Investigation arrested five IDBI Bank officials, including former CMD Yogesh Agarwal, for lending to the now-defunct Kingfisher Airlines.

4. SBI, associate banks merger: Share swap record date set as 17 March (Source: MINT)

  • State Bank of India has fixed 17 March as the record date of share swap for the merger of its 5 associate banks with itself.
  • The merger process of the associates banks—State Bank of Bikaner and Jaipur (SBBJ), State Bank of Mysore (SBM), State Bank of Travancore (SBT), State Bank of Patiala (SBP) and State Bank of Hyderabad (SBH)—will take effect from 1 April. The shares of the listed associates will be delisted from stock exchanges following the merger.

5. PNB raises Rs 1,500 cr tier-I capital via bonds (Source: BL)

  • Public sector Punjab National Bank (PNB) has raised Rs 1,500 crore additional tier-I capital by issuing bonds on private placement basis. The bond holders will get yield of 8.95 per cent per annum, payable semi-annually.
  • The bonds in the nature of unsecured, subordinated, fully paid-up, non-convertible are Basel III compliant. These are perpetual debt instruments which neither carry maturity date nor are they redeemable, which means these bonds are eligible to be treated as equity than debt.

6. Centre sets up credit registry to help banks tackle stressed assets (Source: BL)

  • To enable the banking sector tackle the problem of stressed assets, which now stands at about Rs. 12 lakh crore, the Centre has set up an information utility (IU) called National E-Governance Services.
  • An information utility is a credit registry, maintaining data on borrowing, default, and security interest of lending/borrowing transactions with banks and financial institutions. It provides data to authorised users on the present status of a borrower.

7. FDI via overseas direct investment channel posing a challenge: RBI (Source: BL)

  • The Reserve Bank of India said some of the business models adopted by companies, resulting in foreign direct investment (FDI) through entities established abroad under overseas direct investment (ODI), are posing major policy challenges.
  • The challenges include those pertaining to possible tax evasion, money laundering and round tripping, said R Gandhi, Deputy Governor, RBI. The increased ODI has also resulted in greater macroeconomic cooperation between India and other countries, transfer of technology and skill, sharing of R&D, and promotion of brand India, he added.

8. Most-traded bonds vanish from repo market as banks hoard them (Source: MINT)

  • The most-traded bonds in India have virtually become unavailable in the repurchase market as banks looking to maximize treasury gains before closing books for the year ending 31 March refuse to part with the securities.
  • The situation, referred to as ‘repo squeeze,’ means participants running overnight naked short positions in sovereign debt using repurchase agreements are unable to borrow the bonds to finance these positions. They are instead turning to the secondary market for the securities, causing yields on two notes maturing in 2026 to slide.
  • Banks in India are the biggest holders of sovereign debt. Investors such as banks and primary dealers borrow and lend fixedincome securities in the repo market. Repurchase agreements, or repos, are vital because they allow traders to finance positions in the broader fixed-income market.

9. ICICI Bank raises $300 million through bond sale (Source: FE)

  • ICICI Bank has raised $300 million through a international bond issue. The 5.5 year fixed rate notes were issued by the bank’s branch in Dubai International Finance Centre (DIFC) and carry a coupon of 3.25 per cent. The notes were sold under the RegS format and were offered at an issue price of 99.447.
  • The bank had given a pricing guidance of up to 155 bps over the US treasury which is around 2 per cent, and the 3.25 per cent coupon reflects an ability to compress the pricing.

10. FinMin gives in-principle nod to ESOPs by PSU banks (Source: BS/BL)

  • Finance Ministry has agreed in-principle to allow public sector banks to offer stock options to their employees from next financial year — a move aimed at retaining experienced hands with better incentives.
  • Employee Stock Option plans (ESOPs) could be given by those banks which have not only earned substantial profit but also made remarkable improvement in managing NPAs.
  • One of the proposals is to issue shares equivalent to a certain percentage of banks’ net profit to employees which is being examined. For large banks, the ESOPs could be as much as 5 per cent of profit after tax while for the smaller ones, it could be about 3 per cent but no decision has been taken yet.

11. NPAs at record high: PAC for naming and shaming defaulters (Source: FE)

  • As NPAs of public sector banks soared to a staggering Rs 6.8 lakh crore, the chairman of Public Accounts Committee (PAC), K V Thomas hopes “naming and shaming” such corporate houses may help financial institutions get back their money.
  • Out of the Rs 6.8 lakh crore of Non-Performing Assets of public sector banks, a whopping 70 per cent are those of big corporate houses, Thomas said, adding hardly one per cent of it constitutes loans to farmers.
  • “In case of farmers or small traders, banks act strong and they go to their houses to recover money. They even get published their name and photograph in newspapers. But when it comes to corporate houses, they don’t reveal the names. We intend to give names of such big defaulters who owe money to banks in our reports to be submitted in Lok Sabha before the end of budget session,” he said.

12. Increased focus on rural India: For first time, loans to weaker sections surpass credit to companies (Source: ET)

  • Bank loans to the weaker and deprived sections surpassed credit to the corporate sector for the first time, in part due to the government’s increased focus on rural India and also as a result of a slowdown in demand and the cautious approach of banks towards lending to companies.
  • The priority sector lending comprised 34% of total loans compared with 32% for corporates at the end of January, Reserve Bank of India data on sectoral deployment of bank credit showed. Outstanding loans to large industries amounted to Rs 21.3 lakh crore as of end January, compared with Rs 22.7 lakh crore to the priority sector.

13. HDFC Bank launches chatbot Eva for customer services (Source: MINT)

  • HDFC Bank announced the launch of an electronic virtual assistant (EVA), an artificial intelligence-driven chatbot, for customer services. HDFC Bank says Eva will be able to handle real banking transactions as well in future, which would enable the bank to offer the true power of conversational banking to its customers.

14. IDFC Bank takes the lead, launches Aadhaar Pay (Source: BL).

  • IDFC Aadhaar Pay, the country’s first Aadhaar-linked cashless merchant solution, was officially launched on Tuesday, following successful pilots across 16 States.
  • Speaking at the launch event, Amitabh Kant, Chief Executive Officer, NITI Aayog, said IDFC Bank had set the trend and all other banks should now roll out a similar facility.
  • “You will not need micro-ATMs anymore in the country. Anybody with a mobile phone and small dongle can turn into a merchant for everyone else and start accepting payments,” he said.
  • Kant highlighted that the IDFC Aadhaar Pay was significant as it was not charging any merchant discount rate, which was a pain-point for merchants.
  • “IDFC Bank will have winner’s advantage. Other banks should follow IDFC in on-boarding merchants throughout the country. If they do not follow the lead that IDFC has set, technology will make them redundant,” Kant said.
  • He said the IDFC Aadhaar Pay launch was significant as it would “enable us to reach the bottom of the pyramid” where people do not have either GSM or mobile phone.
  • Given the slew of innovative measures taken in the last few months, India is poised to take a major leap towards financial inclusion and revolution in the coming days, Kant added.

15. Now, you can work from home with SBI (Source: BS)

  • The Board of the bank has recently approved the ‘Work from Home’ policy to enable its employees to work while at home using mobile devices to address any urgent requirement they may have, that prevents their travelling to work.
  • The lender will be using mobile computing technologies and shall have continuous control over all the enabled devices centrally to manage and secure the data and applications on the mobile devices, the bank said in a statement.
  • The use of technology and services shall be monitored through carefully designed MIS and dashboard to enable improvements and refinements, it said.
  • The bank said going forward cross-sell, marketing, CRM, social media management, settlement & reconciliation, complaints management applications will also be enabled to make the work from home services comprehensive and increase the employee productivity multi-fold.

16. Govt unveils draft security rules for e-wallet firms (Source: BS)

  • The Centre has released a set of draft guidelines for digital wallet companies as part of its efforts to promote electronic payments while ensuring the security of transactions.
  • The draft rules underline security parameters that digital wallet companies, such as Paytm, FreeCharge and Mobikwik, will have to follow. They also stipulate standards for data protection and customer grievance redressal.
  • Every prepaid payment instrument (PPI), or digital wallet, has been asked to develop a security policy based on the rules and standards set by the government.
  • Besides, the rules also mandate that digital wallets identify and authenticate every customer at the time of issuance, and adopt two-factor authentication for transactions. The government may by notification “exempt” digital wallets from requiring two-factor authentication in specific use cases.

17. NBFCs cannot issue more than Rs20,000 in cash against gold loans: RBI (Source: MINT)

  • The Reserve Bank of India (RBI) on Thursday said non-banking finance companies (NBFCs) cannot issue more than Rs20,000 in cash against gold loans.
  • Earlier, gold loans above Rs1 lakh were made mandatory to be disbursed though cheques.

18. Indian banks at risk of skipping coupon payments on bonds, says Fitch (Source: MINT)

  • Indian banks are still at risk of defaulting on their interest payments on certain capital instruments in the next couple of years, as a large number of them are under-capitalised, global rating agency Fitch Ratings said in a note.
  • Distributable reserves at small- to mid-sized state banks were down by one-third in the first nine months of financial year 2016-17, compared with financial year 2014-15, reflecting persistent losses and weak internal capital generation, Fitch said.
  • Five state-owned banks suffered losses that were equivalent to more than 30% of distributable reserves in April-December in the current financial year alone. Some banks are also at risk of missing coupon payments on capital instruments as a result of breaching minimum capital requirements, the rating agency said.
  • There were 11 banks with common equity tier-1 ratios at or below the 8% minimum that will be required to make coupon payments on AT1 instruments by March 2019.

19. World Bank CEO lauds demonetization, says economy will see positive impact (Source: Mint)

  • The government’s decision to ban high-value banknotes as part of efforts to stamp out corruption will have a profound and positive impact on India’s economy, World Bank chief executive Kristalina Georgieva said.
  • Demonetization may have caused some hardship to people living in the cash economy but in the long run the move will help foster a clean and digitized economy, Georgieva said.
  • “What India has done will be studied (by other countries). There hasn’t been such demonetisation in a country so big,” Georgieva told Hindustan Times in an interview.


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