Financial Awareness-March(11-20) 2017

  1. Public sector banks rush to get cyber insurance policies (Source: ET)
  • Public sector banks are pulling up their socks in cyber insurance. Many state-owned commercial banks are rushing to buy insurance for threats such as hacking, including data loss and associated liabilities.
  • This comes in the wake of the Reserve Bank of India tightening reporting for banks, which for long ignored cyber threats, as well as a greater realisation among banks about the potential dangers of living in a digital world without cover. Banks are seeking more cover for first-party costs related to forensics and cyber experts in case of a claim. This will pay for costs of post-breach investigations as well. Insurers said that in many cases, the cost of external experts was higher than the financial loss caused by a cyber breach. The RBI has issued guidelines to banks to ensure cyber security for addressing risks emerging from new technology.

2. ICICI Bank, SBI, StanChart top bank frauds list: RBI (Source: ET)

  • ICICI Bank topped the list of banks that witnessed the most number of frauds during April-December period of 2016 with stateowned SBI taking the second spot, RBI data said.
  • During the first nine months of the current fiscal, as many as 455 fraud cases involving Rs 1 lakh and above were detected in ICICI Bank, closely followed by SBI (429), Standard Chartered (244) and HDFC Bank (237).
  • The other banks which reported large numbers of frauds to the apex bank during the period include Axis Bank (189), Bank of Baroda (176) and Citibank (150).

3. SBI creates wholly-owned subsidiary to manage real estate (Source: ET)

  • State Bank of India has incorporated a specialised firm — SBI Infra Management Solutions Pvt Ltd (SBIIMS) — that will manage its premises and real estate property across the country. The move is seen as public sector banks’ efforts to exit non-core activities to improve balance sheet as they have piled up huge bad assets over the past few years.

4. Govt allows 5 PSU banks to raise Rs950 crore from market (Source: MINT)

  • The government has permitted five public sector banks i.e. Allahabad Bank, Bank of India, United Bank of India, Central Bank of India and UCO Bank, to raise Rs949.27 crore from markets via preferential shares.

5. Finance ministry looking at options to deal with bad loans: Arun Jaitley (Source: MINT)

  • The finance ministry is looking at various options to deal with bad loans in the Indian banking system, finance minister Arun Jaitley said.
  • The options include increasing the number of oversight committees set up by the central bank to deal with bad loans. On the issue of setting-up a ‘bad bank’ to take over the bad loan, several alternatives exist and the issue is being debated on public platforms, a finance ministry statement cited him as saying.

6. SBI to raise up to Rs15,000 crore via equity capital next fiscal (Source: MINT)

  • State Bank of India (SBI) said its board has approved a plan to raise up to Rs15,000 crore in equity capital in the next fiscal year. The funds could be raised through various means including a public offer, employee stock purchase scheme and overseas issuance of shares, the lender told stock exchanges. The mode of fund raising would be decided at the “opportune time” subject to approval of the government and the Reserve Bank of India, it added.

7. HDFC Bank launches loan against shares in minutes: How it works (Source: BS)

  • HDFC Bank Ltd is offering loans against shares in about two-three minutes by completely digitising the loan mechanism. For this, the bank has tied up with National Securities Depository Ltd (NSDL). Shares dematerialised by NSDL and executed through HDFC Bank Demat account could be used for pledging.

8. FIMMDA urges RBI to allow banks move some securities under AFS to HTM category (Source: FE)

  • As rising bond yields erode banks’ treasury income, the Fixed Income Money Market and Derivatives Association of India (FIMMDA) has requested the Reserve Bank of India (RBI) to allow lenders to move some of their securities held under the available-for-sale (AFS) category to the held-to-maturity (HTM) category.
  • Banks are required to adjust securities held by them under the AFS category to reflect their value as per prevailing market rates. This is not the case for HTM securities, which bear the yield set at the time of issuance right up to the time of maturity. If accepted, the representation could result in banks salvaging their January-March bottom lines to some extent.

9. Modi government, RBI may look at penal action, one-time settlement to fix bank defaulters (Source: ET)

  • The Narendra Modi government and RBI are readying a strategy to deal with the bad loan problem, including a one-time settlement scheme for weak sectors and penal action against siphoning of funds.
  • PMO, Finance Ministry and RBI are together working out a comprehensive strategy to nab top 50 defaulters. Government and the central bank are awaiting the report from banks post completion of the forensic audit on big defaulters.
  • The department of financial services made a presentation to RBI last week at a high-level meeting on NPAs and has asked the central bank to overhaul the existing tools such as Joint Lenders Forum. Sources indicate that 3-4 banks with the highest exposure in JLF will be asked to make a decision for bad loans instead of the existing 60% voting requirement.

10. Govt approves the second tranche of capital infusion in PSU banks (Source: MINT)

  • The government has approved the second tranche of capital infusion in public sector banks to enhance their capital base.
  • Kolkata-based United Bank of India too said it has received a communication from the central government regarding the capital allocation of Rs418 crore as part of turnaround linked capital infusion plan.
  • The second round of funding entailing about Rs8,000 crore is based on strict parameters. The government has already announced fund infusion of Rs22,915 crore, out of the Rs25,000 crore earmarked for 13 PSBs for the current fiscal. Of this, 75% has already been released to them.

11. Credit demand will stay low if balance sheets of the rural households are not repaired: SBI chief Arundhati Bhattacharya (Source: FE)

  • Calling for focusing on farm sector growth to sustain higher overall growth, the State Bank of India said revival in credit demand will stay low until the balance sheets of the rural households are repaired.
  • Banks are facing two challenges-growth capital and asset quality concerns. The asset quality concerns are due to lack of demand and loans given during the boom years and we don’t see both improving in the medium term. Therefore, the need for focusing on farm sector growth,” SBI chairman Arundhati Bhattacharya told.
  • Agriculture sector would need to be added thrust to drive the economy as it has been badly hit by two successive bad monsoons, she noted. Referring to the impact of demonetization on farming sector, the SBI chief said those segments like vegetable growers, who could not store produce and had to sell at cheap rates, were hit badly. Similarly, luxury sector has also been hit badly. But the cotton and cane farmers could manage the situation by bartering.

12. Low credit demand due to corp de-leveraging, debt funds: Deepak Parekh (Source: ET)

  • With commercial banks frowning at the low 5 percent credit and blaming it on weak industrial activity, HDFC chairman Deepak Parekh said this should not be viewed negatively as corporates are de-leveraging on one hand and are raising money from the debt market on the other.
  • Citing the examples of Essar selling its refinery to Rosneft of Russia, DLF selling its assets to GIC of Singapore, or GVK sale to Fairfax as the clear example of deleveraging, Parekh said in the last one year alone, nearly USD 40 billion worth of deleveraging has happened in the domestic industry.
  • Parekh said another reason for lower credit growth is that industries are accessing the bond markets in an unprecedented manner where the rates are much cheaper than what bank loans, to meet their fund working capital requirements.

13. Banks scrambling to get books in order as deadline for resolution of bad loans looms (Source: MINT)

  • Banks are scrambling to get their books in order to meet a 31 March deadline set by former central bank governor Raghuram Rajan to clean up their balance sheets but the scale of the problem means a resolution is unlikely in a matter of days.
  • The number of meetings of joint lender forums (JLF) are increasing and banks are hawking around Rs15,000 crore of bad loans to asset reconstruction companies (ARCs). Indian banks are carrying about Rs 7 trillion of bad loans on their books, as of 31 December 2016.
  • Banks were asked to form JLFs in cases where multiple banks were involved and the delay in repayment had crossed 60 days. These forums were expected to work within a definite period of time to resolve cases of distress and allow for more control by banks in cases before they turned into NPAs.
  • The conversation at these meetings has been focussed on the resolution or sale of stressed cases. Avenues such as the insolvency and bankruptcy code are still in the initial stages of application and bankers have made use of them only in select cases.

14. Government swaps chief executives of IDBI Bank, Indian Bank (Source: BL)

  • In an unprecedented move, the Central Government has swapped the Chief Executive Officers (CEOs) of state-owned Indian Bank and IDBI Bank. Mahesh Kumar Jain, who was Managing Director & CEO at Indian Bank, has been appointed as Managing Director & CEO of IDBI Bank, which is now in some financial trouble and faced with several legacy issues.
  • Till now, one could mostly see chief executives of smaller public sector banks getting elevated to larger public sector banks. This is the first time a swap of CEOs between almost equal sized banks is being undertaken, say banking industry observers.

15. Govt proposes subsidy for MSMEs deploying cloud computing (Source: MINT)

  • The government has proposed subsidy up to Rs1 lakh for micro, small and medium enterprises (MSMEs) to encourage them to use cloud computing for information and communications technology applications.
  • The subsidy will be provided on user charges for 2 years. The proposals are part of the modified guidelines of the scheme for ‘Promotion of Information and Communication Technology in MSME Sector’. It centres around cloud computing which is emerging as a cost-effective and viable alternative compared to in-house IT infrastructure.


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