Excellence by Saikat Sir: 01/03/24

RBI Reports Indian Banks Achieve Decadal High in Asset Quality Improvement

The Reserve Bank of India (RBI) released a report titled ‘Trend and Progress of Banking in India’.

Key Highlights :

As per the report, the Indian scheduled commercial banks (SCBs) Gross Non-Performing Assets (GNPA) ratio improved in the second quarter of this financial year.
According to the report, the consolidated balance sheet of SCBs grew by 12.2% in 2022–23.
The improvement in asset quality is measured by GNPA ratios.
The GNPA ratio for Scheduled Commercial Banks (SCBs) dropped to 3.9% at the end of March 2023 and further decreased to 3.2% at the end of September 2023.
The agricultural sector had the highest GNPA ratio, while retail loans had the lowest.
About a 45% reduction in the GNPAs of SCBs is due to recoveries and upgrades.
The combined balance sheet of urban cooperative banks has increased by 2.3% in 2022–23.
The consolidated balance sheet of non-banking financial companies increased by 14.8% in 2022–23.
The capital to risk weighted assets ratio (CRAR) of SCBs was 16.8 per cent at end-September 2023, with all bank groups meeting the regulatory minimum requirement and the common equity tier 1 (CET1) ratio requirement.

RBI Prolongs Payments Infrastructure Development Fund Scheme By 2 Years Till December 2025

The Reserve Bank of India (RBI) announced its decision to extend the Payments Infrastructure Development Fund (PIDF) for two years up to December 31, 2025.
The Scheme was operationalized by the RBI in 2021 for three years (extendable up to 2 years) to encourage deployment of payment acceptance infrastructure in India.
It includes physical Point of Sale (PoS) terminals, Quick Response (QR) codes, in tier-3 to tier-6 centers, North Eastern states and Union Territories (UTs) of Jammu & Kashmir and Ladakh.
Purpose: To strengthen the payment acceptance infra by including 30 lakh touch points, which includes 10 lakh physical and 20 lakh digital payment devices every year.

Key Highlights :

Inclusion of PM Vishwakarma Scheme Beneficiaries: Merchants benefiting from the PM Vishwakarma Scheme are now included as eligible participants in the PIDF scheme.
Eligibility of Devices for Subsidy: Soundbox devices and Aadhaar-enabled biometric devices are recognized as eligible devices to claim subsidies under the PIDF scheme.
Standardised Subsidy for Special Focus Areas: The subsidy for special focus areas, including North Eastern states, Jammu and Kashmir, and Ladakh, has been standardised at 90% of the device cost, up from the previous 75%, regardless of the device type.
PIDF Corpus: As of November 30, 2023, the PIDF corpus is reported to be Rs 1,026.37 crore, according to an RBI release.
Acceptance Device Expansion Goal: The scheme aims to enhance the country’s acceptance device landscape by adding 30 lakh touch points annually.

About RBI :

Established : 1 April 1935
Headquarters : Mumbai, Maharashtra, India
Governor : Shaktikanta Das
Deputy Governors : Swaminathan Janakiraman, Michael Patra, M. Rajeshwar Rao, T Rabi Sankar

RBI Grants Extension for the Implementation of Penalty Charge Norms on Loan Accounts

The Reserve Bank of India (RBI) has decided to extend the timeline for implementation of guidelines for lenders on penal charges in loan accounts by three months.
In August,2023 the RBI had issued fresh guidelines for lenders on penal charges in loan accounts to ensure that penal interest/ charges is not used as a revenue enhancement tool by them, over and above the contracted rate of interest.
The central bank’s instructions were supposed to come into effect from January 1, 2024.
Accordingly, REs shall ensure that the instructions are implemented in respect of all the fresh loans availed from April 1, 2024 onwards.
Under the new rules, penalties, if charged, for non-compliance with the material terms and conditions of the loan contract by the borrower should be treated as ‘penal charges.’
These guidelines apply to a range of financial institutions, including commercial banks, Small Finance Banks, Local Area Banks, Regional Rural Banks, Primary (Urban) Co-operative Banks, Non-Banking Financial Companies (NBFCs), and All India Financial Institutions.

RBI Designates SBI, HDFC Bank, and ICICI Bank as Domestic Systemically Important Banks (D-SIBs)

State Bank of India (SBI) and HDFC Bank, both domestic systemically important banks (D-SIBs), will be required to set aside higher capital for the loans they make with effect from April 1, 2025, in the backdrop of their balance sheets growing bigger.

Key Highlights :

The central bank has prescribed higher additional Common Equity Tier (CET) 1 requirement for SBI (bucket 3 to bucket 4 ) and HDFC Bank (bucket 1 to bucket 2) at 0.80 per cent (against 0.60 per cent up to March-end 2025) and 0.40 per cent (0.20 per cent), respectively, as a percentage of their Risk Weighted Assets (RWAs).
For ICICI Bank, the additional CET 1 requirement continues at 0.20%.
SBI, HDFC Bank and ICICI Bank continue to be identified as D-SIBs.
While ICICI Bank continues to be in the same bucketing structure as last year, SBI and HDFC Bank move to higher buckets.
RBI’s latest D-SIB update is based on the data collected from banks as on March 31, 2023 and factoring in the increased systemic importance of HDFC Bank post the merger of erstwhile HDFC Limited into HDFC Bank on July 1, 2023.
Within the CRAR (capital to risk-weighted assets ratio) of 11.5% for banks, the CET-1 is at 5.5%.
Beginning FY26, if SBI wants to make a loan, it will have to back it up with 12.3% of the loan amount as capital against 12.1% now, going by the D-SIB prescription.
If HDFC Bank wants to make a loan, it will have to back it up with 11.9% of the loan amount as capital against 11.7% now, going by the D-SIB prescription
RBI stated that SIBs are perceived as banks that are ‘Too Big To Fail (TBTF)’.
This perception of TBTF creates an expectation of government support for these banks at the time of distress.

RBI permits ICICI Pru Mutual Fund to acquire 10% stake in Federal, RBL Bank

Federal Bank stated that the Reserve Bank of India (RBI) has accorded approval to ICICI Prudential Asset Management Company Limited (ICICI AMC) for acquiring up to 9.95 per cent stake in the bank.
The approval granted by the Reserve Bank of India (RBI) is subject to the compliance with the relevant provisions of the Banking Regulation Act, 1949, RBI’s Master Direction and Guidelines on Acquisition and Holding of Shares or Voting Rights in Banking Companies dated January 16, 2023.
Meanwhile, RBI also accorded approval to ICICI AMC to acquire 9.95 per cent stake in RBL Bank and Equitas Small Finance Bank.

About Federal Bank :

About RBL Bank :

About Equitas Small Finance Bank :

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