CURRENT AFFAIRS : BANKING & FINANCE
RBI Directs Banks to Conduct Annual Review of Accounts Inoperative for Over a Year
- The Reserve Bank of India (RBI) has asked banks to annually review accounts that have not seen customer-induced transactions for over a year, and term deposit accounts where there is no explicit renewal mandate and the funds have not been withdrawn after maturity.
Key Highlights :
- Penalty Waiver for Inoperative Accounts : It also barred banks from levying penal charges for non-maintenance of minimum balance in any account classified as inoperative or for activation of inoperative accounts.
- The instructions are part of fresh guidelines for inoperative accounts and unclaimed deposits to reduce the quantum of unclaimed deposits and frauds and improve grievance redressal.
- Comprehensive Framework Guidelines : The revised framework follows a review by the central bank and includes measures to be put in place by banks on classification of such accounts, their periodic review, ways to prevent fraud, expedite grievance redress, trace account holders or their nominees/heirs, claims settlement, and the account closure process.
- Applicability and Effective Date : The guidelines are applicable to all commercial and co-operative banks and will come into effect from April 1, 2024.
- However, they will not be applicable for zero-balance accounts opened for credit of scholarship amount or Direct Benefit Transfer under Central and State government schemes.
- Communication Requirements : Under the new framework, banks will be required to inform account and deposit holders through letters, email or on their registered number that there has been no activity in the last one year, and caution them that the account will become ‘inoperative’ if no operations are carried out during the ‘extended period’ of the next one year.
- Public Disclosure of Unclaimed Deposits : Banks will also need to display details of unclaimed deposits, which have been transferred to the RBI-maintained Depositor Education and Awareness Fund(DEA), on a monthly basis on their website or branches.
- Activation Process Information : Banks are obligated to provide information on the activation process for inoperative accounts and claiming balances in unclaimed deposits.
- Long-Term Unclaimed Balance Transfer : Currently, the credit balance in any deposit account that has been inoperative for at least 10 years, or any amount that has been unclaimed for 10 years, is required to be transferred by banks to the DEA Fund.
- Regulatory Authority : These instructions are issued in exercise of the powers conferred by Sections 35A of the Banking Regulation Act, 1949.
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
Small Finance Banks Launch “Small Banks: Empowering Big Dreams” Initiative
- While each small finance bank (SFB) has a different tagline to capture customers’ attention, they will also have a common one-“Small Banks: Empowering Big Dreams” to highlight the success of their business model to all stakeholders.
- Uma Shankar Paliwal, CEO, Association of Small Finance Banks of India (ASFBI), observed that over the last 7 years, SFBs have given a good account of themselves, fulfilling the purpose, of meeting the financial needs of the marginalised sections of society for which they were allowed to be set up by RBI.
Key Highlights :
- SFBs are mandated to lend at least 75% of their total advances to priority sectors such as agriculture, micro, small and medium enterprises (MSMEs), education, housing, and others.
- Further, at least 50 per cent of their loan portfolio should comprise loans and advances of up to ₹25 lakh.
- 10 SFBs commenced operations in the 2016-2017.
- In 2021, Shivalik Mercantile Co-operative Bank transitioned to become an SFB.
- In 2021, Unity SFB was given a license on the condition that it take over the fraud-hit Punjab & Maharashtra Co-operative Bank.
- The tagline “Small Banks: Empowering Big Dreams” reflects the philosophy of all 12 SFBs.
- Each SFB has its own tagline. For example, Equitas SFB has “Beyond Banking” as its tagline, ESAF SFB (Joy of Banking), Jana SFB (‘Likho Apni Kahani’/‘Write Your Destiny’) and Suryoday SFB (A Bank of Smiles).
- As of March-end 2023, high-cost term deposits constituted about 68 per cent of SFBs’ total deposits of ₹1,91,372 crore.
- The balance of 32 per cent were CASA deposits.
- In its latest “Report on Trend and Progress of Banking in India”, RBI noted that SFBs serve a critical role in delivering credit to under-banked segments.
- However, many SFBs have low CASA deposits and a greater reliance on bulk term deposits, often acquired at higher rates, especially from cooperative banks.
RBI Broadens Coverage of Card-on-file Tokenization to Include Banks Issuing Debit Cards
- In order to make digital payments more secure, safe and sound the Reserve Bank of India (RBI) has now enabled card-on-file tokenization (CoFT) through card-issuing banks and institutions.
About Card-on-File Tokenization :
- Tokenization refers to the replacement of actual credit and debit card details with an alternate code called the “token”.
- It is a combination of card, token requestor and device.
- The card detail when stored with a merchant is known as card-on-file (CoF).
- This token is a randomly generated string of characters that has no intrinsic value and is meaningless outside of the context of a specific transaction.
- The token is used as a surrogate for the actual card details, making it more secure to store and transmit.
Requirements for enabling CoFT through card issuers :
- Generation of CoFT tokens for a card can be enabled through mobile banking and internet banking channels.
- The token can be generated only on explicit customer consent and with AFA (additional factor authentication) validation.
- The cardholder may tokenize the card at any time of their convenience, either on receipt of the new card or at a later stage.
- The cardholder can select the merchants with whom he/she wishes to maintain tokens.
- The card token so issued may be either by the card network or the issuer or both.
Advantages :
- Tokenization replaces a debit or credit card’s 16-digit number with a unique token that is specific to just your card and is valid for one merchant at a time.
- The token masks the true details of your card, so in case there is a data leak from the merchant website, the fraudster cannot misuse the card.
Muthoot FinCorp Secures ₹200 Crore through Private Placement of NCDs from SBI
- Muthoot FinCorp, the flagship company of Muthoot Pappachan Group (Muthoot Blue), has announced ₹200 crore investment by State Bank of India (SBI) in the non-convertible debentures (NCDs) under private placement with a face value of ₹1 lakh for each NCD.
- The maturity/tenure options of this issue is 5 years with half yearly being the frequency of the interest payment.
- The secured issued NCDs is rated as AA-/stable by CRISIL and listed on the debt market segment of BSE.
- CEO of Muthoot FinCorp : Shaji Varghese
What are Non-Convertible Debentures (NCD)?
- Non-Convertible debentures are long-term debt instruments issued by companies that carry a fixed interest rate for the investment tenor.
- The issuer redeems these at maturity and is not eligible for conversion into equity shares at maturity.
- Typically, NCDs are less risky than equity investments since they provide a fixed rate of return.
- NCDs benefit investors with increased returns, low risk, liquidity, and tax benefits.
- Some Non-Convertible Debentures in India also offer additional benefits, such as a higher interest rate for senior citizens or those who apply during the initial subscription period.
Types of Non-Convertible Debentures:
- Secured NCDs
- Company assets are collateral for secured NCDs, and the risk is relatively lower. Consequently, interest rates on secured NCDs also tend to be lower.
- Non-Secured NCDs
- Non-secured non-convertible debentures do not have any underlying collateral.
- Hence, it tends to be high-risk and offers attractive interest rates.
- Usually, companies with strong creditworthiness issue non-secured NCDs
RBI Increases Bulk Deposit Limit for Large Urban Cooperative Banks 6.66 Times to ₹1 Crore and Above
- The Reserve Bank of India (RBI) has decided to increase the bulk deposit limit for large urban co-operative banks (UCBs).
- The earlier limit was ₹15 lakh and above.
- The new bulk deposit limit is ₹1 crore and above.
Key Highlights :
- Applicability to Tier 3 and Tier 4 UCBs : The new bulk deposit limit of ₹1 crore and above is applicable to UCBs in Tier 3 (with deposits more than ₹1,000 crore and up to ₹10,000 crore) category.
- It is also applicable to UCBs in Tier 4 (with deposits more than ₹10,000 crore) category.
- Exception for Other UCBs : According to RBI, all other UCBs (other than scheduled UCBs in Tiers 3 and 4) will continue to have a bulk deposit limit as “single rupee term deposits of ₹15 lakh and above.”
- Uniform Rate of Interest for Lower Deposits : As per Co-operative banking experts, with the increased bulk limit, customers’ placing deposits below this threshold of ₹1 crore and above will get a uniform rate of interest.
- Earlier, customers could negotiate the rate of interest since a deposit of ₹15 lakh and above was taken as a bulk deposit by all UCBs till now.
