Reserve Bank of India issues final guidelines for tri-party repo transactions

The Reserve Bank on Thursday issued the final guidelines on tri-party repo transactions as part of its attempt to energise the corporate bond market and generate more liquidity in the segment. A tri-party repo is a contract between a buyer and a seller of a security along with a third party agent. In most cases, the third-party agent may be a custodian bank, which will facilitate services like collateral selection, payment and settlement, custody and management during the life of the transaction.

Such repos can be traded over-the-counter (OTC) including on electronic platforms, or, on stock exchanges, and should reported within 15 minutes of the trade for public dissemination to CCIL or to exchanges or any other reporting platform authorised for the purpose by the Reserve Bank, it said in a notification.

The RBI had issued the draft guidelines on April 11, 2017 and had promised on the August 2 policy that it would issue the final guideline shortly and said “tri-party repos will enable market participants to use underlying collateral more efficiently and facilitate development of the term repo market.”

The draft guidelines were issued after recommendations from a committee headed by former deputy governor HR Khan in August 2016.

The RBI on Thursday allowed commercial banks, entities regulated by it or the Sebi, and those who have prior RBI approval to act as agents for tri-party repo.

The applicant should have at least five years of experience in the financial sector, preferably in offering custodial services. They will have to maintain minimum of Rs 25 crore in the form of net-owned funds has also been mandated.

reserve bank of india news, banking and finance news, business news, indian express newsTri-party repos may be traded using any trading process authorised under RBI directions,including bilateral/multilateral, anonymous or otherwise, quote driven or order driven.

On settlement, RBI said all settlements will be on delivery vs payment (DvP) basis, with or without netting of securities and/or cash. Settlement can also be guaranteed or non-guaranteed bilateral/ multilateral, through clearing houses of exchanges or any other clearing arrangement approved under the Payment and Settlement Systems Act of 2007.

On the tenor, haircut and disclosures, it said these will be identical to those applicable to normal repos, in terms of the Reserve Bank directions.

Repo is an instrument for borrowing funds by selling securities with an agreement to repurchase the same on a mutually agreed future date at an agreed price including interest for the funds borrowed, while reverse repo is an instrument for lending by purchasing securities with an agreement to resell the same on a mutually agreed future date at an agreed price including interest.

Interview: Equity exposure for govt, non-govt employees should be uniform, says PFRDA chairman Hemant Contractor

Hemant Contractor, chairman of the Pension Fund Regulatory and Development Authority (PFRDA), which regulates the National Pension System (NPS) with a corpus of close to Rs 2 lakh crore, says that it has managed to get over 10 per cent returns for its 1.67 crore subscribers in the past 8 years. In an interview with GEORGE MATHEW, Contractor, who was earlier the managing director of State Bank of India (SBI), spoke about the new plans and initiatives of the regulator. Edited excerpts:

What are your plans to expand the pension scheme? Have you worked out the auto-enrolment system?

Auto-enrolment is a concept which is popular in the UK and New Zealand, among other countries. These are voluntary schemes. What happens is that if a sector is covered under auto-enrolment, all the people working in that sector will automatically get covered under the pension scheme unless they chose to opt out. This has been tried out successfully in some countries. We feel that in India also there is a scope. This proposal is now with the government. This is mostly for the unorganised sector.

Are you planning to rework or review mandatory annuity under NPS?

Mandatory annuity is there to the extent of 40 per cent of the corpus of NPS. We have been discussing with the government some alternatives like systematic withdrawal plan. This is still under discussion with the government. We do feel that some choices should be given to the subscribers in addition to annuity.

Is PFRDA working on a plan to provide housing for members?

We had set up a committee. They had sent the final report last week. We will look into that. In many countries, people who join the pension scheme do have the facility of using some of the funds for the housing needs. Even the EPFO (Employees’ Provident Fund Organisation) is doing it.

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What has been the response of the private sector to the pension scheme?

The private sector has grown very well. The All Citizens Scheme has grown by almost 100 per cent. The Atal Pension Scheme has also grown by 100 per cent. We have 60 lakh subscribers in Atal schemes. These schemes are doing well.

Employee provident fund (EPF) has more tax advantages when compared to NPS. Are you satisfied with this system?

We should keep it at par with EPF. Both are pension schemes. Treatment should be alike. That’s the stand we have taken.

Bill to merge subsidiary banks with SBI clears LS, govt says boost to parent bank

Lok Sabha passed bills Thursday clearing the merger of subsidiary banks of State Bank of India with the parent bank. The government said this consolidation would not only lead to cutting of losses but also increase capital base and the bank’s ability to give loan. Lok Sabha passed the bill to repeal the SBI (Subsidiary Banks) Act 1959 and State Bank of Hyderabad Act 1956, and to amend the State Bank of India Act 1955, following the merger of five associates with SBI.

MoS (Finance) Santosh Gangwar said with this merger, SBI enters the list of top 50 banks globally, at 45th place. “The merger will bring about increased capital base and increased ability to give loans. Also, small banks will get access to products like mutual funds,” he said.

Allaying apprehensions that the consolidation would lead to closing of branches wherever both the main SBI and the subsidiary had branches, thus leading to poorer access for customers, Gangwar said, “We want every person to have access to banking services . No bank branches will be closed down; rather wherever required, we will open branches.” He said the merger will help increase SBI’s scope of operation and will pose a challenge to private banks as it will work as per the requirements of the people. “The merger has been planned keeping in mind the benefit of people and going forward its benefits will be seen,” he added.

According to the statement of object and reasons of the State Banks (Repeal and Amendment) Bill 2017, after the acquisition of the subsidiary banks by SBI, the subsidiary banks have ceased to exist and, therefore, it is necessary to repeal the SBI India (Subsidiary Banks) Act and the State Bank of Hyderabad Act.

Five associates and the Bharatiya Mahila Bank became part of SBI from April 1, catapulting the country’s largest lender into the list of top 50 banks in the world. The five associates are the State Banks of Bikaner & Jaipur, Hyderabad, Mysore, Patiala and Travancore. SBI had 90% shareholding in State Bank of Mysore, 75% in State Bank of Bikaner & Jaipur and 79% in State Bank of Travancore.

demonetisation, rs 200 notes, note ban, SBI, reserve bank of india, indian express news, buisness news, economyFollowing the merger, the total customer base of SBI increased to 37 crore with a branch network of around 24,000 and nearly 59,000 ATMs. The merged entity began operation with a deposit base of more than Rs 26 lakh crore and advances level of Rs 18.50 lakh crore.

As per the bill, after the acquisition of all the subsidiary banks, it is no longer necessary to retain such provisions in the State Bank of India Act 1955. “Therefore, certain amendments are necessary in the said Act in so far as they relate to the subsidiary banks. The amendments are consequential in nature,” it says. During discussion on the bill, the Opposition argued that it was a way to gloss over rising nonperforming assets of banks which in SBI’s case had risen to close to 1.4 lakh crore.

Bill for sports university tabled MoS (Parliamentary Affairs) S S Ahluwalia introduced a bill seeking to establish India’s first exclusive sports university of international standards. Ahluwalia introduced the bill after question hour in the absence of MoS for Sports Vijay Goel, who is indisposed. The National Sports University Bill 2017 will facilitate the establishment of the university in Manipur. There are several sports institutes in the country but the university will have a wider canvas, encompassing disciplines like sports science, sports technology and high performance training.

RBI’s dividend to Government falls by almost half to Rs 30,659 crore

The Reserve Bank of India (RBI) on Thursday announced that it will transfer Rs 30,659 crore as surplus to the government for the year ended June 2017, less than half the amount transferred last year.

While the move could upset the Finance Ministry’s Budget arithmetic, a lower surplus also dents the broad premise that scrapping of currency notes that failed to return to the banking system post demonetisation would extinguish the RBI’s liabilities to an equivalent measure and, thus, open the possibility of transfer of these gains to the Centre in the form of higher dividends.

Technically, the transfer of profits is provided in Section 47 of the RBI Act, which states that after making provisions for bad and doubtful debts, depreciation in assets, contribution to staff and superannuation fund and for all matters for which provisions are to be made by or under the Act or that are usually provided by bankers, the balance of the profits of the bank is required to be paid to the Central government.

The RBI’s profits essentially represents the difference of income over expenditure. The key source of income for the Central bank is interest arising from its foreign assets and domestic assets.

For the year 2015-16, the RBI board had approved the transfer of surplus amounting to Rs 65,876 crore to the government. In the previous year, the Central bank had paid Rs 65,896 crore to the government, which came as a boon to the government in covering the deficit. The surplus transferred to the government was Rs 52,679 crore in 2013-14. The RBI did not give reasons of the sharp fall in the surplus income for the year ended June 2017.

The government had, in December last year, issued an ordinance for scrapped currency notes, paving the way for potential surplus transfer from the RBI on account of demonetisation.

As per the Specified Bank Notes (Cessation of Liabilities) Act, 2017, the scrapped currency notes of Rs 500 and Rs 1,000 (as announced on November 8 last year) “shall cease to be liabilities of the RBI under section 34 of the Reserve Bank of India Act, 1934 and shall cease to have the guarantee of the Central Government under sub-section (1) of section 26 of the said Act”.

A month earlier, in November, the then Attorney General for India Mukul Rohatgi, while replying in the Supreme Court on the demonetisation issue, had said that out of the total estimated money in circulation of Rs 15-16 lakh crore, the government expected people to deposit Rs 10-11 lakh crore in banks. “The rest, Rs 4-5 lakh crore, were being used in northeast and Jammu and Kashmir to fuel trouble in India. That will be neutralised,” he had said.

RBI, reserve bank of India, Demonetisation, note ban, RBI notes, currencies, budget, Finance ministry, RBi board, Mukul Rohatgi,Incidentally, the YH Malegam committee had suggested in 2014 that the Central bank can transfer its entire surplus to the government, without allocating anything to its various reserve funds, for three years because it had adequate reserve funds.

The lower amount will be a concern since the government’s non-tax receipts will be affected. “In the Budget it was assumed that around Rs 75,000 crore would come from the RBI, public sector banks and financial institutions compared with a little over Rs 76,000 cr in FY17,” rating firm Care Ratings said.

“As public sector banks are unlikely to do better than last year and the RBI will be transferring a smaller amount, this will impact the fiscal deficit numbers. If other conditions remain unchanged, the fiscal deficit can increase from 3.2 per cent to 3.4 per cent this year,” it said.

The RBI’s main source of income is interest earned on bond holdings through open market operations or purchase and sale of government securities. Following the recommendations of the Malegam committee, the RBI stopped transfers to internal reserves since its accounting year 2013-14 which is now a part of expenditure.

SBI posts big rise in Q1 profit despite NPA spike

State Bank of India, the country’s largest, on Friday posted a 436 per cent rise in consolidated net profit to Rs 2,006 crore for the June quarter of the current fiscal as against Rs 374 crore in the same period of last year.
However, the bank reported a sharp rise in non-performing assets (NPAs), or bad loans, with gross NPAs rising to 9.97 per cent of the gross advances as on June 30, 2017, from 7.40 per cent as at end-June 2016.

SBI group’s net profit (after minority interest) rose from Rs 1,046 crore in the June quarter of 2016 to Rs 3,032 crore in June 2018 a rise of 189.85 per cent. The bank said the figures, ratios and other information are based on the merged audited numbers. “Historical data has been arrived at by aggregating the audited numbers of the erstwhile associate banks, Bharatiya Mahila Bank and SBI for comparison purposes,” the lender said.

The bank’s asset quality slipped substantially because of higher accruals of bad loans from the books of associates. Gross NPAs increased from Rs 1,37,662 crore as on June 2016 to Rs 1,88,068 crore as on June 2017. The bank has put Rs 32,427 crore in corporate advances in the ‘watch list’ of loans that could be at risk of going bad. The power sector accounts for a third of this exposure.

In addition, the bank disclosed that it has invoked strategic debt restructuring (SDR) in loans worth Rs 12,807 crore, and the Scheme For Sustainable Structuring of Stressed Assets (S4A) for Rs 8,124 crore worth of loans. SBI also reported a jump in bad loans in its agricultural lending portfolio. NPAs in this portfolio jumped to 9.51 percent at the end of the June quarter, compared to 6.37 percent at the end of the March quarter. Bad loans in the retail segment also jumped during the quarter.

State Bank of India, SBI, Rate cut, interest rates, SBI Banking, Indian Express Banking, Indian express business news, business newsSBI shares fell by 5.36 per cent to end at Rs 280.65 on the BSE. During the day, it plummeted as much as 6.17 per cent to Rs 278.25. SBI had merged its five associate banks — State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Hyderabad and State Bank of Patiala, besides the BMBL — with itself from April 1. On a non-comparable basis, SBI said, its consolidated net profit during April-June, 2017-18, stood at Rs 3,105.35 crore. It was at Rs 867.32 crore in the same period year ago. The non-comparable standalone net profit in April-June of 2017-18 stood at Rs 2,005.53 crore. The net profit was at Rs 2,520.96 crore year ago.

The operating income of the bank fell by 5.17 per cent to Rs 25,612 crore during April-June quarter of 2017-18, as against Rs 27,007 crore in the same period a year ago. Of the other key metrics, bank’s fee income increased to Rs 4,870 crore during first quarter of 2017-18, up 16.21 per cent from Rs 4,190 crore in same period year ago.
However, net interest income decreased by 3.51 per cent to Rs 17,606 crore from Rs 18,246 crore year earlier. Non-interest income also fell by 8.62 per cent to Rs 8,006 crore from Rs 8,761 crore.

Deposits of the bank, as on June 2017 rose by 13.28 per cent to Rs 26,02,534 crore from Rs 22,97,426 crore. Gross advances were up 1.46 per cent from a year ago to Rs 18,86,666 crore by June-end against Rs 18,59,513 crore as on June 2016.

Stressed assets have economic value: Arun Jaitley

In a meeting with representatives of asset reconstruction companies and private equity firms on Saturday, finance minister Arun Jaitley said that stressed assets in the banking system have inherent economic value, which can be turned around to raise national output. “…Accounts classified as impaired/stressed still have inherent value. These were essentially productive assets which if turned around would not only create additional jobs but also contribute to national output. For this to happen, timely interventions, transparent price discovery and right management were required,” Jaitley said in the meeting, according to a statement issued by the finance ministry on Saturday.

He said that opportunities presented by the Insolvency and Bankruptcy Code (IBC) framework and the government’s emphasis on resolution represent a unique opportunity for ARCs and PE firms. The government last year enacted the IBC and earlier this year empowered the Reserve Bank of India to direct banks to initiate insolvency proceedings against large loan defaulters. The Gross NPA of banks has risen to 9.6 per cent in March 2017 from 9.2 per cent in September 2016, as per the RBI data. The stressed advances ratio declined marginally from 12.3 per cent to 12.0 per cent due to fall in restructured standard advances, especially in agriculture, services and retail sectors, the data showed.

To resolve non-performing loans, the RBI has recently directed banks to refer 12 large NPA cases for resolution under the Insolvency and Bankruptcy Code. The 12 troubled companies being referred to NCLT under the RBI directive — including Jyoti Structures, Bhushan Steel, Monnet Ispat and Electrosteel Steels, Amtek Auto and Era Infra Engineering among others — account for a combined debt of around Rs 2.5 lakh crore.

Arun Jaitley, stressed assets, Banking system assets, NPAs, insovency, bankruptcy code, Business news, Indian ExpressAs regards the non-performing accounts other than the large 12 cases, an RBI committee suggested that banks should be required to file for insolvency proceedings under the IBC for these accounts in case banks are unable to agree upon a viable resolution plan within six months.

Jaitley noted that the government has taken a series of steps to promote asset recast firms and resolve stressed loans. These include 100 per cent foreign direct investment in ARCs, allowing trading of security receipts issued by such companies, pass through status to ARC trusts for income tax and exemption from stamp duty among other. He said a number of new ARCs have sought and obtained registration during recent months.

“The increasing number of players in the market was indicative of an increasing interest in the sector but also presented an opportunity for banks to offload stressed assets before fully provisioning for them. The ratio of cost of acquisition to book value of assets acquired by ARCs has been rising. Within this overall context, the ARCs and PE funds were well placed to step up their activity levels as all the building blocks were there,” he said.

SBI cuts saving account rate by 0.5% on balance upto Rs 1 cr

Country’s largest lender State Bank of India has slashed interest on savings account deposits by 50 basis points to 3.5 per cent on balance up to Rs 1 crore, ahead of RBI’s policy review this week.

However, the bank will continue to offer 4 per cent interest on savings account balance of Rs 1 crore and above.

“The bank is introducing two-tier saving bank interest rate with effect from July 31. While balance above Rs 1 crore will continue to earn interest at 4 per cent per annum, interest at 3.5 per cent will be offered on balance of Rs 1 crore and below,” SBI said in a regulatory filing.

demonetisation, rs 200 notes, note ban, SBI, reserve bank of india, indian express news, buisness news, economyIt further said: “the decline in rate of inflation and high real interest rates are primary considerations warranting a revision in rates of interest on savings bank deposits.”

SBI said revision of saving bank rate will enable the bank to maintain marginal cost of fund based lending rate (MCLR) at existing rates.

RBI asks banks to enable account number portability

RBI Deputy Governor S S Mundra has asked banks to work towards account number portability as it will be a far-reaching step towards enhancing competition and improving customer service. Speaking at the annual conference of banking ombudsmen in Mumbai recently, he said banks should look forward to providing more choices to the new generation of customers who are more technology savvy.

“A scenario was thus emerging wherein customers would be able to silently walk out from one institution to another, in case of any dissatisfaction with the services,” RBI said in a release on Monday, quoting Mundra. Mundra said this will be further accentuated with the possibility of portability of accounts and urged the banks to work towards account number portability.

RBI, account number portability, ss mundra, s s mumdra, cheque drop box, online banking, mobile banking, indian express news, india news, bankingMundra also referred to issue of the rising trend of loss of cheques from drop boxes and the lack of alacrity shown by banks in redressing such complaints.

In such cases, the Deputy Governor suggested that the customer “must be compensated immediately”. He asked the banks to look at the the possibility of setting up a common account and compensate the customers immediately from the pool, without waiting for recovery of the amount from insurance.

Referring to the tenets of the Charter of ‘Customer Rights’, Mundra asked the lenders and the Indian Banks’ Association (IBA) to work towards evolving a common platform to provide a comparative and transparent view of various products and services.

S S Mundra retires; NS Vishwanathan to head supervisory depts at RBI

With the retirement of S S Mundra on Monday, the Reserve Bank redistributed portfolios among the remaining three deputy governors, under which NS Vishwanathan will be handling the crucial supervision departments. Vishwanathan will be in-charge of the department of banking supervision, the department of non-banking supervision and the department of cooperative banking supervision, which were earlier handled by Mundra, the central bank said.

Mundra, who was heading the state-run Bank of Baroda before his superannuation, had a three-year term as deputy governor and his tenure ended today. The consumer education and protection department, financial inclusion and development department and the right to information division will be overseen by BP Kanungo, the central bank said.

NS Vishwanathan, S S Mundra retires, S S Mundra, RBI, RBI supervisory department, indian express news, business news, bankingDeputy governor Viral Acharya will be handling the central security cell, the Rajbhasha department and the humanresources function, it said. The government is yet to appoint Mundra’s successor at the Mint Street. The post has been traditionally held by a commercial banker who has served state-run banks but speculation is rife that the list of shortlisted applicants are serving the private or foreign lenders as well.

The current deputy governors will continue to hold their previously assigned departments and today’s allocations are temporary in nature, it said.