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The Reserve Bank of India (RBI) has issued a draft circular on the <keyword id="22548614" type="General" weightage="20" keywordseo="Basel-III-framework" source="keywords">Basel III framework</keyword> regarding liquidity standards, as announced in the April monetary policy, inviting comments from <keyword id="19934118" type="General" weightage="20" keywordseo="banks" source="keywords">banks</keyword> and stakeholders on the draft by August 31, 2024. The central bank stated that banks under the <keyword id="20479869" type="General" weightage="20" keywordseo="liquidity-coverage-ratio" source="keywords">Liquidity Coverage Ratio</keyword> (LCR) framework must maintain a stock of high-quality liquid assets (<keyword id="20485904" type="General" weightage="20" keywordseo="HQLA" source="keywords">HQLA</keyword>) to cover expected net cash outflows over the next 30 days. After reviewing the <keyword id="22551976" type="General" weightage="20" keywordseo="LCR-framework" source="keywords">LCR framework</keyword> for banks in India, the RBI decided that banks should assign an additional five percent run-off factor for retail deposits enabled with <keyword id="22551977" type="General" weightage="20" keywordseo="internet-and-mobile-banking" source="keywords">internet and mobile banking</keyword> facilities (IMB). Notably, run-off rate is the percentage of outstanding balance the bank has against each type of liability, which can generate cash outflows over 30 days. This is important in situations when the bank's liquidity levels are in serious stress, or when people begin withdrawing their funds from the bank in significant numbers, adversely affecting the bank's total capital and its ability to finance such outflows. In essence, the banks have been asked to assign an additional 5% run-off rate to all less stable deposits that have been enabled via IMB. This takes their total run-off rate to 15%, while it stays at 10% for other stable retail deposits via IMB. The addition comes in line with the increased usage of online banking, where customers do not need to physically queue up in front of banks in order to make fund transfers. "Banking has undergone rapid transformation in recent years. While increased usage of technology has facilitated the ability to make instantaneous bank transfers and withdrawals, it has also led to a concomitant increase in risks, requiring proactive management," said RBI. The draft circular also stated that unsecured wholesale funding from non-financial small business customers should be treated like retail deposits. The draft also proposes the creation of Level 1 HQLA in the form of government securities, which should be valued at no more than their current market value, after being adjusted for applicable haircuts as mandated under Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) requirements. Recently, some incidents have shown the increased ability of depositors to quickly withdraw or transfer deposits during times of stress using digital banking channels. Such emerging risks may necessitate revisiting certain assumptions under the LCR framework. Therefore, the RBI has proposed modifications to the LCR framework to facilitate better management of liquidity risk by banks. Additionally, deposits previously excluded from LCR computation, such as non-callable fixed deposits, will be treated as callable if pledged as collateral for a credit facility or loan. The draft circular applies to all commercial banks, excluding payment banks, regional rural banks, and local area banks, and is proposed to take effect from April 1, 2025. Anil Gupta, Senior Vice President and Co-Group Head Financial Sector Ratings, ICRA Ltd notes that this move is likely to increase the outflows in the next 30 day bucket for banks, thereby posing higher requirements of HQLAs. Additionally, the applicability of haircuts on the government securities for inclusion in HQLA is likely to reduce the value of existing HQLAs for LCR computation. "Overall, this will pose requirements for higher liquid assets (G-secs) for the banks to shore up their LCRs, which will be adversely impacted by the guidelines. The proposed changes are positive for strengthening the liquidity position of the banks and banks are likely to build up the G-sec in run up to the implementation of these guidelines, which will further aid in achieving regulatory directives of moderating credit to deposit ratio of banks", he continued.

RBI proposes higher liquidity coverage ratio for retail deposits, creation of level-1 high quality assets

Mumbai, Jun 8 () The Reserve Bank of India on Monday proposed major changes in securitisation norms aimed at development of a strong and robust market for the same in the country. Securitisation involves transactions where credit risk in assets are redistributed by repackaging them into tradeable securities with different risk profiles which may give various investors access to exposures which they otherwise will be unable to access directly. The RBI said the revision in guidelines is an attempt to align the regulatory framework with the Basel guidelines on securitisation that have come into force effective January 1, 2018. One of the salient features of the draft securitisation guidelines as compared to the existing guidelines includes, "Only transactions that result in multiple tranches of securities being issued reflecting different credit risks will be treated as securitisation transactions." In line with the Basel-III guidelines, two capital measurement approaches have been proposed - Securitisation External Ratings Based Approach (SEC-ERBA) and Securitisation Standardised Approach (SEC-SA). The draft guidelines has prescribed a special case of securitisation, called Simple, Transparent and Comparable (STC) securitisations with clearly defined criteria and preferential capital treatment. The definition of securitisation has been modified to allow single asset securitisations. Securitisation of exposures purchased from other lenders has been allowed, according to the revised guidelines. "One of the key changes relates to differential treatment for Residential Mortgage Backed Securities (RMBS) compared to other securitisations in respect of prescriptions regarding minimum holding period (MHP), minimum retention requirements (MRR) and reset of credit enhancements," the draft document said. These guidelines are applicable to all banks; All India Financial Institutions (NABARD, NHB, EXIM Bank, and SIDBI); and, non-banking financial companies including housing finance companies. The revisions in guidelines also take into account the recommendations of the Committee on Development of Housing Finance Securitisation Market in India (chaired by Dr. Harsh Vardhan) and the Task Force on the Development of Secondary Market for Corporate Loans (chaired by T N Manoharan), which were set up by the RBI in May, 2019. The RBI said the comments on the draft frameworks can be submitted to it by the end of this month. HV MKJ

RBI proposes major changes in securitisation norms

In a new step, the central banking institution of India, <keyword id="6354335" type="CITY" weightage="100" keywordseo="reserve-bank-of-india">Reserve Bank of India</keyword> (<keyword id="30067" type="ORGANIZATION" weightage="100" keywordseo="RBI">RBI</keyword>), will be relaxing its regulations that would enable banks to adhere to higher provisioning in the coming quarters. This move will also help them shore up capital and win confidence of existing and potential investors. 
 
These regulations include the Basel norms that are more strictly followed here, and also allowing banks to revalue the real estate that they own. 
 These comments by <keyword id="64190" type="POSITION" weightage="100" keywordseo="RBI-Governor">RBI governor</keyword> Raghuram Rajan have come at a time when several government-owned banks are expected to either show losses or report lower earnings in the third and fourth quarters of this fiscal year. These banks are directed by RBI to make proactive provisions. 
 
As per the results that are already out, ICICI Bank has showed a marginal growth in profit, but its provisions for bad loans has tripled. Syndicate Bank, on the other hand, has reported a loss of Rs 120 crore in the third quarter on higher provisions. 
 
"On a number of dimensions, we have been stricter than Basel norms... We are looking if there is a possibility that while still remaining conservative, we can allow banks a little more room to use these. For example, you may have real estate assets that we allow only as a fraction of their value to count as capital," the governor said. 
 
As opposed to other countries, most branches, guest houses and residential apartments provided to employees are owned by public sector banks of India. Most of were acquired in the 1950s and 60s, and are still valued at nominal rates in the books of these banks. 
 
However, RBI has not yet stated how much of the revaluation can be included as capital for calculation of Basel III. 
 
<a href="http://i.huffpost.com/gen/2393270/images/o-RESERVE-BANK-OF-INDIA-facebook.jpg">Image source</a>

RBI relaxes regulations on bad loans for banks to attract investors

<ul><li>The central government has asked the <keyword id="30067" type="ORGANIZATION" weightage="20" keywordseo="RBI">RBI</keyword> to dilute its Prompt Corrective Action (<keyword id="6383105" type="UNKNOWN" weightage="20" keywordseo="pca">PCA</keyword>) framework to increase the flow of credit to small-and-medium-sized enterprises. </li><li>The RBI is reportedly mulling a plan to allow some state-run banks to leave the PCA programme ahead of time if they demonstrate a turnaround in their <keyword id="463915" type="PERSON" weightage="20" keywordseo="non-performing-asset">non-performing asset</keyword> ratios and profitability. </li><li>The <keyword id="6358156" type="ORGANIZATION" weightage="20" keywordseo="central-bank">central bank</keyword> is also expected to relax certain requirements imposed on all banks with regards to secured and unsecured loans to SMEs.</li></ul>The current <a href="https://www.businessinsider.in/the-spat-between-indias-central-bank-and-the-government-gets-more-heated-as-the-finance-minister-blames-it-for-not-doing-enough-to-prevent-the-countrys-bad-loan-problem/articleshow/66442846.cms">clash</a> between India’s central bank and the BJP-ruled government has roiled markets and stoked fears among investors. Thankfully, the two parties may reach a compromise as the board of the Reserve Bank of India (RBI) prepares to sit down on 19 November. In the wake of the recent IL&amp;FS crisis and the drying up of funds at the nation’s non-banking financial companies, the central government has asked the RBI <a href="https://www.businessinsider.in/indias-government-wants-to-dilute-an-important-corrective-programme-for-the-nations-struggling-lenders-and-the-central-bank-is-having-none-of-it/articleshow/66411552.cms">to dilute its Prompt Corrective Action (PCA) framework</a> so as to increase the flow of credit to small-and-medium-sized enterprises (SME). This framework is aimed at putting certain lending and operational restrictions on banks with high rates of non-performing assets. After initially refusing to loosen restrictions under the framework, it appears that the RBI might be open to meeting the central government halfway in this regard. BI is reportedly mulling a plan to allow some state-run banks to leave the PCA programme ahead of time in the event that they demonstrate a turnaround in their non-performing asset ratios and profitability, sources told <a href="https://indianexpress.com/article/india/restrictions-on-banks-rbi-and-govt-work-to-narrow-their-gap-5445145/">the Indian Express</a>. As per the RBI’s current norms, struggling banks are only taken off the watchlist after reporting a net profit for two consecutive years. The central government has not presented its proposal as a dilution, however. It has maintained that is asking the RBI to bring the PCA programme in line with the intervention programmes of global central banks and the international <keyword id="142572" type="PERSON" weightage="20" keywordseo="Basel-III">Basel III</keyword> risk framework. It has also argued that the PCA framework needs to be revised because a restriction on lending, a core operation, prevents a bank from increasing its profits. Around 11 of India’s 21 state-run banks are on the PCA watchlist, which places limits on the extension of loans, branch expansion and issue of dividends. As a result of restrictions on these banks, SMEs have suffered from <a href="https://www.businessinsider.in/indias-small-businesses-are-suffering-from-a-shortage-of-credit-options/articleshow/63683278.cms">a slowdown in financing.</a> In addition, the central government is also pushing for the RBI to reduce the capital-to-risk-weighted assets ratio, a key indicator of financial stability, that it imposes on the nation’s banks from 9% to the 8% prescribed by the Basel III framework. The move could give state-run banks an additional ₹550 billion of funds for lending purposes, Anil Gupta, the head of credit ratings agency ICRA, <a href="https://www.bloombergquint.com/business/government-pushing-to-relax-capital-requirement-norms-for-banks#gs.IM5s1ns">told BloombergQuint</a>. Finally, the RBI is also expected to relax certain requirements imposed on all banks with regards to secured and unsecured loans to SMEs. In line with international standards, India’s central bank could lower the risk weightage, which influences the amount of capital set aside, for SME loans to 75% from a current level of 150%. SME loans are considered more risky than loans to larger companies and hence require higher risk provisioning. While the RBI could accede the government’s requests keeping in view the dire <keyword id="6355375" type="DEFINITION" weightage="20" keywordseo="Liquidity">liquidity</keyword> situation in the short term, it will be wary of precipitating a further build-up in bad loans. The current risk requirements are a preventive measure that were implemented in response to the burgeoning bad loan problem in India’s banking sector. It’s a classic case of the conflict between a short term boost to the economy and long term stability. Given that we’re headed for general elections, it isn’t difficult to ascertain which one will win out. SEE ALSO: <a href="https://www.businessinsider.in/the-spat-between-indias-central-bank-and-the-government-gets-more-heated-as-the-finance-minister-blames-it-for-not-doing-enough-to-prevent-the-countrys-bad-loan-problem/articleshow/66442846.cms">The spat between India’s central bank and the government gets more heated as the finance minister blames the RBI for not doing enough to prevent the country’s bad loan problem</a> <a href="https://www.businessinsider.in/indias-government-wants-to-dilute-an-important-corrective-programme-for-the-nations-struggling-lenders-and-the-central-bank-is-having-none-of-it/articleshow/66411552.cms">India’s government wants to dilute an important corrective programme for the nation’s struggling lenders — and the central bank is having none of it</a> <a href="https://www.businessinsider.in/the-reserve-bank-of-india-is-trying-to-prevent-a-liquidity-crisis-at-banks-by-relaxing-an-important-risk-requirement/articleshow/65978953.cms">The Reserve Bank of India is trying to prevent a liquidity crisis at banks by relaxing an important risk requirement</a>

An end to the spat between the RBI and the government could be in sight as the board of the central bank prepares to meet next week

<ul><li>Following a nine-hour meeting, the board of the RBI and officials from the central <keyword id="26362" type="ORGANIZATION" weightage="20" keywordseo="Government">government</keyword> were able to reach a compromise on a number of issues. </li><li>The central bank agreed to implement measures to improve the flow of credit to the micro-small-and-medium enterprise (MSME) sector and to work towards easing restrictions on state-owned banks. </li><li>The RBI also decided to institute a panel that will decide upon the transfer of its surplus funds to government coffers and review the reserve <keyword id="36749" type="ORGANIZATION" weightage="20" keywordseo="capital">capital</keyword> requirements imposed on Indian banks. </li></ul>As <a href="https://www.businessinsider.in/a-compromise-between-the-rbi-and-the-central-government-could-be-in-the-offing-as-the-board-to-central-bank-prepares-to-meet-next-week/articleshow/66619722.cms">predicted</a>, the <keyword id="6354335" type="ORGANIZATION" weightage="20" keywordseo="reserve-bank-of-india">Reserve Bank of India</keyword> (RBI) and the central government were finally able to reach a truce following <a href="https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=45523">a marathon meeting</a> of the 18-member board of the central bank on Tuesday. Among the many concessions the RBI agreed upon, the main ones were to implement measures to improve the flow of credit to the micro-small-and-medium enterprise (MSME) sector and to work towards easing restrictions on state-owned banks. While the two parties will continue to differ over a number of issues, the central bank is expected to retain its autonomy when it comes to decision-making. Terms of the truce Given the ongoing liquidity crisis in the non-banking financial sector, the central government had been vocal about the slowdown in credit to small businesses around the country. The RBI had opposed the ask saying that easing credit could result in a further pile-up of bad loans. Over the course of the November 19 meeting, the board of the RBI decided to formulate a scheme to restructure the bad loans of SMEs to the tune of ₹250 million or less in lieu of access to additional financing. Secondly, the RBI agreed to review the restrictions imposed on banks under its Prompt Corrective Action (PCA) framework. Most of the banks on the PCA watchlist are state-run banks given their disproportionately large share of non-performing loans in the Indian banking sector and recent history of losses. Following the review, the RBI’s Board of Financial Supervision is expected to release some banks from the programme - something that the government has insisted upon. Speaking to media outlets on Monday, the principal economic advisor to the government, Sanjeev Sanyal, said that it was imperative for there to be <a href="https://www.livemint.com/Companies/Lv7U81nwl85rgaz1HjZiEL/Cant-have-Hotel-California-approach-towards-RBI-PCA-banks.html">an exit plan </a>in place for banks under the PCA framework. Thirdly, the board of the central bank decided to institute a panel primarily tasked with deciding upon the transfer of surplus funds to government coffers and review the reserve capital requirements imposed on Indian banks. The Indian government has recently raised demands that it should receive a larger share of RBI’s surplus funds as it struggles to meet its fiscal deficit target. The ask was strongly opposed by RBI, which said it needed stronger cash reserves in the event of a financial downturn. While the RBI decided to retain the capital adequacy ratio for banks at 9% of risk-weighted assets, which is one percentage point more than what is prescribed under <keyword id="142572" type="PERSON" weightage="20" keywordseo="Basel-III">Basel III</keyword> norms, it has given them an additional year to implement Basel III requirements by March 2020. The compromise came as a relief to market speculators as fears about the resignation of RBI governor <keyword id="6375119" type="PERSON" weightage="20" keywordseo="urjit-patel">Urjit Patel</keyword> were put to rest. Both the R<a href="https://www.livemint.com/Money/tKGf3TKkN0XeExXVhNO1TL/Rupee-bond-prices-gain-as-RBI-government-hint-truce.html">upee</a> and <a href="https://www.google.co.in/search?q=sensex&amp;rlz=1C1GCEU_enIN820IN820&amp;oq=sensex&amp;aqs=chrome..69i57j69i60j69i57j69i59j69i60j69i61.881j0j7&amp;sourceid=chrome&amp;ie=UTF-8">Sensex</a> index were up Monday, while prices on 10-year government bonds also increased. The truce, by no means, indicates an end to disagreements between the government and the central bank, which isn’t a bad thing. Given the difference in their goals and the timeline of their mandates, the two parties may butt heads again over a number of issues. However, the outcome of the board meeting of the RBI shows that when needed, a compromise can be reached and long-term stability can be reconciled with short-term boosts to the economy. SEE ALSO: <a href="https://www.businessinsider.in/a-compromise-between-the-rbi-and-the-central-government-could-be-in-the-offing-as-the-board-to-central-bank-prepares-to-meet-next-week/articleshow/66619722.cms">An end to the spat between the RBI and the government could be in sight as the board of the central bank prepares to meet next week</a> <a href="https://www.businessinsider.in/the-spat-between-indias-central-bank-and-the-government-gets-more-heated-as-the-finance-minister-blames-it-for-not-doing-enough-to-prevent-the-countrys-bad-loan-problem/articleshow/66442846.cms">The spat between India’s central bank and the government gets more heated as the finance minister blames the RBI for not doing enough to prevent the country’s bad loan problem</a> <a href="https://www.businessinsider.in/indias-government-wants-to-dilute-an-important-corrective-programme-for-the-nations-struggling-lenders-and-the-central-bank-is-having-none-of-it/articleshow/66411552.cms">India’s government wants to dilute an important corrective programme for the nation’s struggling lenders — and the central bank is having none of it</a>

After weeks of tension, the Reserve Bank of India gives in to some of the central government's demands while retaining its independence

<keyword id="6369970" type="UNKNOWN" weightage="20" keywordseo="PSU-Banks">PSU banks</keyword> have seen an unprecedented fall in share value since August 2015, recording a decline of more than 30 per cent in over five months. 
 
Of course, this has been contributed by the overall investor pessimism in equity markets, triggered by the rout across global markets as the once bellwether Chine stumbled, sending tremors across the globe, and the Federal Reserve raised interest rates after a prolonged gap of over 10 years, leading to capital outflow from emerging markets. 
 However, the larger trigger was an astronomical rise in non-performing assets (NPAs) or <keyword id="142154" type="UNKNOWN" weightage="20" keywordseo="bad-loans">bad loans</keyword>. 
 
The following numbers will give a perspective as to how big the bad loan conundrum is. 
 
As per the latest quarterly results, the cumulative gross NPAs of 24 listed public sector banks stood at Rs 3,93,035 crore as on 31 December 2015. 
 
This is nearly 1.5 times their total market value, which stands at Rs 2,62,955 crore. In comparison, the gross NPA of 16 listed private sector lenders stood at Rs 46,271 crore as on 31 December 2015 against their total market value of over Rs 7 lakh crore. Taken together, the cumulative gross NPAs of all listed banks—public and private—has risen to Rs 4.4 trillion, while their total market value stands at Rs 9.6 trillion. 
 A loan turns bad if the borrower fails to pay EMI consecutively for three months or 90 days. In other words, <keyword id="6370634" type="UNKNOWN" weightage="20" keywordseo="bad-debt">bad debt</keyword> is debt that cannot be recovered and therefore, worthless to the creditor. It can also be a loan wherein the cost of pursuing the debt is more than the amount a creditor can recover. Overall, till end if December, loans worth over Rs 7 lakh crore went under stress, which means borrowers have not repaid the principal or the interest on loans amounting to such a huge number. 
 
NPAs that have been rising over the years started raising the ugly head during the UPA regime whose inability to monitor and control bad loans contributed handsomely to the crisis, in addition to the spill-over effect of mounting corruption adding to banks’ woes as banks officials inspired by the increasing channels of kickbacks turned a blind eye to due diligence processes while allocating seeming big loans to sub-prime or less financially qualified borrowers. 
 
Rising bad loans that sent an alarm towards the fag end of the UPA regime made a much stronger come-back following an initiative by the Reserve Bank of India (RBI) wherein the central bank as part of an asset quality review shed light on several weak accounts, most of which have exposure to the infrastructure sector. 
 
RBI has set March 2017 as deadline for banks to clean up their balance sheets, forcing them to promptly disclose NPAs, take remedial measures and make adequate provisions in their financial statements. As banks started cleaning up their books, more unwelcome skeletons began to tumble out of their cupboards, revealing the hitherto hidden spectre of really bad debt. 
 
Banks’ latest quarterly results exposed the extent of damage: IDBI Bank recorded the next biggest loss at Rs 2,184 crore, followed by Bank of India at Rs 1,505 crore, UCO Bank at Rs 1,497 crore, Indian Overseas Bank at Rs 1,425 crore, Central Bank of India at Rs 837 crore and Dena Bank at 663 crore. 
 
Also, the Supreme Court recently directed RBI to provide a list of companies that have defaulted on bank loans of over Rs 500 crore, while expressing serious concern over the rise in bad loans. The apex court also asked the central bank to provide a list of companies whose loans have been restructured under corporate debt restructuring schemes. 
 
Surprisingly, shares of PSU banks started declining, reflecting increasing investor mistrust, after the Narendra Modi-led NDA government announced 'Indradhanush', a revamp plan, to infuse Rs 70,000 crore in public sector banks over four years, while banks on their part will have to raise a further Rs 1.1 lakh crore from the markets to meet their capital requirements in line with global risk norms Basel III. In fact, stocks of public sector banks have been one of the worst performers at the bourses over the past six months after Indradhanush was announced. 
 
Rising NPA levels are so huge that for every Rs 100 parked in shares of public sector banks, investors now carry the burden of Rs150 as bad loans. 
 
Eroding value of banking stocks has the potential of leaving a larger hole in confidence of global investors in the Indian economy which has already been tarnished by the government’s inability to push forward key reforms. 
 Also, despite assurances from those who matter—while <keyword id="1895647" type="ORGANIZATION" weightage="20" keywordseo="RBI-Governor-Raghuram-Rajan">RBI governor Raghuram Rajan</keyword> said the clean-up exercise will lead to stronger balance-sheets for banks, <keyword id="6391015" type="UNKNOWN" weightage="20" keywordseo="Finance-Minister-Arun-Jaitley">Finance Minister Arun Jaitley</keyword> said the NPA problem will soon come under control—rising volume of bad loans, especially that of PSU banks, is threatening to snowball into a larger crisis that can pose a clear systemic risk to the Indian economy, especially going by how the sub-prime debt build-up battered the bellwether banking firms in a mature market like the US a few years back. It is high time the finance ministry and RBI resorted to out-of-the-box measures to defuse the bad loan bomb that is ticking pretty fast. 
 
(Image: Thinkstock)

Why bad loans can pose a systemic threat

Mumbai, Jun 24 () Private sector lender Yes Bank on Wednesday said two domestic rating agencies have cut their ratings on its upper tier-II bonds, following the Reserve Bank restraining it from making coupon payments on them due to lack of adequate capital levels. Icra and Care Ratings have cut their ratings on the bonds to "D" possibly because any default in repayment by a company triggers the action. The city-headquartered bank, which got a Rs 10,000 crore bail out led by SBI in March, asserted that it has adequate liquidity to meet all its obligations. "The bank would like to stress that the coupon on these bonds (Basel II, upper tier-II bonds) is cumulative in nature and any unpaid sum will become payable once the bank meets minimum regulatory capital ratio subject to the required regulatory approvals," the bank informed the bourses. Care Ratings has cut its rating on outstanding bonds of Rs 940 crore to "D" from "C" as a result of the RBI refusing to accede to the bank's request of paying the coupon, a note from the agency shared by the bank said. "Any delay in payment of interest/principal following invocation of the lock-in-clause, would constitute as an event of default as per Care's definition of default and consequently the rating for the instrument has been revised," it said. Elaborating on the need for Yes Bank to seek RBI's approval, it said the upper tier-II bond has lock-in clause which mandates that the issuer bank cannot pay interest/principal without RBI's prior approval if it has reported loss for the year or the interest payment will lead to bank not meeting the capital adequacy norms. Domestic rating agency Icra has downgraded the ratings on six Basel-II compliant upper tier-II bonds totalling up to Rs 32,611 crore to "D", as per the Yes Bank communication to exchanges. The ratings take into account the reported net loss of Rs 16,418 crore in FY20 and the CRAR of 8.50 per cent as on March 31, despite the sizeable capital infusion by new shareholders and the write-down of the additional tier-I (AT-I) bonds in Q4 FY20, Icra said. It also acknowledged that Yes Bank is at "advanced stages" of raising the capital but the same is unlikely to be concluded before June 29. The ratings also factor in the likelihood of high credit costs owing to the weak operating environment coupled with the high overdue advances (Special Mention Accounts) that stood at 7 per cent of the standard advances as of March, it said. It counted on support from SBI and other lenders, who poured in Rs 10,000 crore for the bailout, as a key credit strength while ability to raise deposits, large capital requirements and likely pressures on operating profits were among the challenges. The Yes Bank scrip was trading at Rs 27.45 a piece, down 0.54 per cent, on the BSE at 1230 hrs, as against gains of 0.55 per cent on the benchmark. AA MKJ MKJ

Icra, Care cut ratings on Yes Bank's upper tier-II bonds

New Delhi, Jun 16 () The country's largest lender SBI on Tuesday said it will seek shareholders' approval in mid-July to raise up to Rs 20,000 crore equity capital through various means in the current fiscal. "We advise that a general Meeting of the shareholders of State Bank of lndia will be held on Tuesday, the 14th July, 2O2O at the State Bank Auditorium, State Bank Bhavan Complex, Madame Cama Road, Mumbai. "lf the conditions are not conducive and the local authorities do not permit to hold physical general meeting, the meeting will be held through Video Conferencing (VC)/ Other Audio Visual Means (OAVM) facility to transact business," SBI said in a regulatory filing. The lender said it will seek shareholders' nod in the meeting "to create, offer, issue and allot, such number of equity shares of Re 1 each, for an amount not exceeding Rs 20,000 crore or such amount as approved by government and RBI subject to the condition that the Government of India shareholding in equity share capital of the bank does not fall below 52 per cent at any point of time". The shares are to be allotted by way of public issue (follow-on-public offer) or private placement, including Qualified Institutional Placement (QIP) /Global Depository Receipt (GDRs) /American Depository Receipt (ADRs) and/or any other mode(s) or a combination(s) thereof, it said. On the explanation for the capital raise target, the bank said based on the assumptions of growth in Risk Weighted Assets (RWA) and plough back of profits, the bank may require to raise additional capital during FY 2020-21. "In an environment of heightened uncertainty caused by COVID-19, the RBI is of the view that the banks must conserve capital to retain their capacity to support the economy and to absorb losses. "Further, the bank requires adequate capital to match the anticipated growth in assets and comply with stipulated level of capital adequacy, especially on account of requirement of the Capital Conservation Buffer (CCB) i.e. additional 0.625 per cent by September 2020, twice deferred by RBI from March 2019 to March 2020 and March 2020 to September 2020," SBI said. Considering the business growth during the current year as well as that for the years to come, there is a need for higher capital, particularly, tier-I capital targeting the end state capital ratios, at the initial stage, to ensure smooth transition to FY21 capital requirements. The guidelines on implementation of Basel III capital requirements in India have become effective from April 1, 2013 in a phased manner. SBI's overall Capital Adequacy Ratio (CAR), as on March 31, 2020, stood at 13.06 per cent, with CET (common equity tier)-I capital at 9.77 per cent. "The Central Board of the bank has decided that the bank should maintain minimum Capital Adequacy Ratios in line with the RBI Basel III transitional arrangements," it added. In line with the central government reform agenda for responsive and responsible PSBs, SBI said it the had undertaken reform agenda to optimally raise equity capital during the 2018-19 and 2019-20 amounting to Rs 20,000 crore by issuance of common equity to investors other than the government. "However, the market conditions were not conducive for raising equity capital from market with lower share price to book value," it said. The RBI and government approval for raising further equity capital was in place till March 31, 2020 but shareholders' approval for raising equity capital expired on December 6, 2019, which was extended further till March 31, 2021. In view of the massive outbreak of the COVID-19 pandemic, social distancing is a norm to be followed and the members can attend and participate in the ensuing General Meeting through VC/OAVM, which may not require physical presence of members at a common venue, SBI said. NKD KPM BAL

SBI plans Rs 20,000cr capital mop-up by Mar 2021; to seek shareholders' nod in Jul

New Delhi, Jul 15 () Private lender IDBI Bank will raise up to Rs 11,000 crore equity capital through various modes, including a qualified institutional placement (QIP), in about a year to strengthen its capital base, the bank said on Wednesday. The lender will seek approval from shareholders for the proposal in the upcoming annual general meeting (AGM) on August 17, 2020, the bank said in a regulatory filing. IDBI Bank is required to maintain its Tier I capital in accordance with the relevant regulatory guidelines issued from time to time. In view of ongoing implementation of Basel III norms and consequential capital charge, there is a need to increase the capital to further strengthen the Capital Adequacy Ratio, it said. IDBI Bank said it will seek consent of shareholders in the AGM to offer, issue and allot such number of equity shares of the face value of Rs 10 each and aggregating up to Rs 11,000 crore, in one or more tranches. The issuance of shares will be including but not limited to one or more of the existing shareholders/members, employees of the bank, Qualified Institutional Buyers (QIBs) by way of public issue, rights issue or private placement, it added. The AGM will be held through audio/video means in view of the pandemic, the bank said. "The issue proceeds will enable the Bank to strengthen its Capital Adequacy Requirements as specified by RBI from time to time," it said. The bank said the board will decide the issue price and the date. The allotment of the equity shares will be completed within 12 months from the date of passing of the resolution in respect of a QIP, it added. IDBI Bank shares were trading at Rs 40.30 apiece on BSE, up 2.94 per cent from the previous close. KPM MR

IDBI Bank plans to raise Rs 11,000 cr equity capital

(Eds: Adding details) New Delhi, Apr 18 () HDFC Bank on Saturday posted a 15.4 per cent rise in consolidated net profit at Rs 7,280.22 crore for the March quarter on healthy interest income, even as it faced a hit towards the end of the fiscal due to the Covid-19 pandemic. The private sector lender had posted a consolidated net profit of Rs 6,300.81 crore in the corresponding January-March period of the preceding fiscal year 2018-19. Consolidated total income grew to Rs 38,287.17 crore in the reported quarter, Rs 33,260.48 crore in the year ago period, the bank said in a regulatory filing. On a standalone basis, the bank's net profit grew by 17.7 per cent to Rs 6,927.69 crore from Rs 5,885.12 crore. Income rose to Rs 35,917.63 crore as against Rs 31,204.46 crore earlier. Net interest income -- the key gauge of profitability which is interest earned minus interest expended -- for the March quarter rose to Rs 15,204.10 crore from Rs 13,089.50 crore a year ago, driven by growth in advances of 21.3 per cent and a growth in deposits of 24.3 per cent. The net interest margin for the quarter stood at 4.3 per cent. On the asset quality front, the gross non-performing assets (NPAs) as a percentage of gross advances as on March 31, 2020 improved to 1.26 per cent from 1.36 per cent at end of March 2019. In absolute terms, the gross NPAs or bad loans were worth Rs 12,649.57 crore, compared to Rs 11,224.16 crore a year ago. The net NPAs were at 0.36 per cent (Rs 3,542.36 crore), slightly lower from 0.39 per cent (Rs 3,214.52 crore). The provisions for bad loans and contingencies for March quarter of FY20 were raised to Rs 4,216.50 crore on a consolidated basis, more than double from Rs 2,063.52 crore for corresponding period of 2018-19. In line with RBI directions, the bank did not announce a dividend payout. The Reserve Bank on Friday asked banks not to make any further dividend payouts from profits pertaining to financial year 2019-20, until further instructions, with a view that lenders must conserve capital in an environment of heightened uncertainty caused by Covid-19. "Accordingly, the board of directors of the bank, at their meeting held on April 18, 2020, has not proposed any final dividend for the year ended March 2020," HDFC Bank said in the filing. Further, it said the extent to which the Covid-19 pandemic will impact the bank's results will depend on future developments, which are highly uncertain, including among other things, any new information concerning the severity of the disease and any action to contain its spread or mitigate its impact whether government-mandated or elected by the bank. The Mumbai-headquartered lender also said that it has extended the three month moratorium till May 2020, as per RBI instructions, to its borrowers for payment of installments or interest, as applicable. For all such accounts where the moratorium is granted, the asset classification shall remain at stand still during the moratorium period. HDFC Bank said it has also held provisions against the potential impact of Covid-19 in excess of prescribed RBI norms. "The total provisions for the current quarter included credit reserve relating to Covid-19 in the form of contingent provisions of approximately Rs 1,550 crore," it said. HDFC Bank said during the quarter, there was a considerable slowdown in economic activities following the outbreak of Covid-19. "Furthermore, with the government initiating lockdown in the latter half of March, and our strict adherence to social distancing, not only did we see an impact on business volumes -- in terms of loan originations, distribution of third party products, and payments product activities, but we also could not optimise our collection efforts, and as a result of which fees/other income were lower by Rs 450 crore," it said. On capital adequacy, bank said its total capital adequacy ratio (CAR) as per Basel III guidelines was at 18.5 per cent on March 31, 2020, as against a regulatory requirement of 11.075 per cent. Tier-1 CAR was at 17.2 per cent as of March 31, 2020, compared to 15.8 per cent on March 31, 2019. Risk weighted assets were at Rs 994,716 crore, as against Rs 931,930 crore earlier. KPM ABMABM

HDFC Bank Q4 net up 15 pc at Rs 7,280 cr; sees challenges ahead on Covid-19

New Delhi, Feb 7 () Public sector lender Corporation Bank on Friday said its consolidated net profit increased seven fold to Rs 420.83 crore in third quarter ended December 31, 2019 on higher interest income, albeit provisions for bad loans surged. The bank had posted a net profit of Rs 59.94 crore during the corresponding period a year ago. Income increased to Rs 6,051.93 crore, from Rs 4,112.29 crore, the lender said in a regulatory filing. On a standalone basis, the net profit increased to Rs 420.68 crore in third quarter ended December 31, 2019 from Rs 60.53 crore a year ago. Notwithstanding that the bank's bad loan ratio has come down from the year-ago level, still it continues to remain elevated, the filing said. In absolute terms, the gross NPAs stood at Rs 19,557.16 crore in the quarter under review, as against Rs 21,921.42 crore a year ago. Net NPAs were valued at Rs 6,321.81 crore, down from Rs 13,521.22 crore. Despite fall in bad loan provisions, the bank kept aside a higher provision of Rs 1,300.35 crore for the quarter, compared with Rs 842.27 crore reserved for the year-ago quarter, the filing said. During the quarter ended December 2019, the bank raised Basel III compliant tier II bonds amounting to Rs 1,000 crore, it added. For the accounts covered under the provisions of Insolvency and Bankruptcy code (IBC), the bank has made a total provision of Rs 7,404.96 crore (100 per cent of gross NPAs) including additional provision of Rs 905 crore in said accounts as on December 31, 2019, the filing said. For other accounts pending resolution, under the provisions of IBC, the bank is holding total provision of Rs 14,435.24 crore (96.35 per cent of gross NPAs), Corporation Bank said. As per RBI norms, the bank has restructured and retained advances of Rs 632.05 crore as standard assets as on December 31, 2019 and made provision of Rs 31.60 crore as on December 31, 2019 in respect of such borrowers. On migrating to the lower tax regime which was introduced by the government for the corporate sector in September, Corporation Bank said it is currently in the process of evaluating this option. Provision coverage ratio of the bank at end of December 31, 2019 was 84.58 per cent as compared to 66.13 per cent as on December 31, 2018. Also, Corporation Bank said it has accepted buy-back offer of its wholly owned subsidiary CorpBank Securities Ltd (an unlisted entity) to the extent of 25 per cent of its total paid-up equity share capital. Stock of Corporation Bank was trading at Rs 25.85 on BSE, up 11.18 per cent from previous close. KPM DRR

Corporation Bank Q3 net jumps to Rs 421 cr on higher interest income, NPA still high

Modi’s government has presented a development-friendly budget. Despite being sympathetic to the subsidy system, the 2015 Budget focus is on growth with investments channeled to capital investments and infrastructure. 
 <keyword id="6355261" type="POSITION" weightage="20" keywordseo="Finance-minister">Finance Minister</keyword> <keyword id="42575" type="PERSON" weightage="20" keywordseo="Arun-Jaitley">Arun Jaitley</keyword> aims to maintain the annual growth rate at 7%. Subsidies have been pruned and continuing pragmatic economics, underperforming banks will now come under the scanner. 
 
They will get a lower share of capital. The Government is offering only Rs 7,490 crores in 2015 to public sector banks. The budgeted amount can only cover 50% of the banks requirements. Most of this funding will go to the big banks like State Bank of India. The government will also reduce its capital holding in banks by up to 52%. 
 
It will adversely affect the smaller banks who are already burdened with bad loans and interlinked low growth. 
 Looking at the right perspective one should not forget that in a vast country like India it is the smaller banks which are the conduits for flow of funds to government projects. In addition, they are often forced to fund <keyword id="174148" type="ORGANIZATION" weightage="20" keywordseo="Central-and-state-government">Central and State government</keyword> projects. 
 
The cache of bad debts (approximately 13% of total bank loans as against 4.5% in the private sector) is largely due to loan waivers which all governments employ as political popular measures especially in the agriculture sector. 
 
Small and underperforming banks can expect no easy finance from the Government after this budget. They will have to opt for private financing (difficult since private financial institutions are vary of financing bad investments) or merge with larger banks. Banks will also have to pull up their socks and minimize their bad debts. The 2015 budget seems to have landed them in a catch 22 situation. 
 
In stark contrast, Government has increased the loan target for banks for ‘Farm Loans’ to Rs 8.5 lakh crores amounting to about 14% of total bank credit. Bankers are dismayed and despair when they cannot even maintain the funds required for meeting RBI requirements for providing for restructured and bad loans and BASEL III norms of 6% of common equity, how can they fund these loans. 
 
What is the role envisaged by Modi for banks? 
Banks are largely funded by the Government and have to toe the line. They are not in a mess due to inefficiency rather, they do not have the freedom to practice good fiscal methods. 
 
However, Modi is throwing them a few lifelines to stay afloat. 
 One, he is giving them a larger degree of autonomy. Setting up an autonomous <keyword id="2748088" type="UNKNOWN" weightage="20" keywordseo="Bank-Board-Bureau">Bank Board Bureau</keyword> will ensure merit appointments to key positions in ,anks. It is hoped this will increase efficiency and make the smaller banks viable. 
 
A Holding and Investment company is to be formed that can raise funds privately and in turn finance banks. Or else banks will have to scale down their operations to profitable levels. In the long run profitable downsizing is good for the economy. Failing which merger with larger banks will be the last best alternative. Taking a positive view of mergers the network built up by the smaller banks across the country will not go to waste. Merger will also bring in healthier economic criteria and improve banks fiscal position. 
 
But will larger banks be interested in merging with less profitable banks. A readymade set up can always be utilized and reshaped to make it a sound investment. 
 
<keyword id="6354335" type="CITY" weightage="20" keywordseo="reserve-bank-of-india">Reserve Bank of India</keyword> reforms 
The role of Reserve Bank of India and its discretionary and other powers are proposed to be reduced or brought under Government ambit. RBI had earlier mooted that instead of ‘ad hoc anti inflationary measures’ a definite target for inflation could be set by Parliament. It also recommended forming a <keyword id="6375120" type="ORGANIZATION" weightage="20" keywordseo="monetary-policy-committee">Monetary Policy Committee</keyword> to control interest rates. 
 
Finance Minister Jaitley has taken these recommendations into account and announced a ‘Monetary Policy Framework Agreement’ with the Reserve Bank of India to keep inflation below 6%. 
 The Government is also proposing to set up a ‘Monetary Policy Committee’ and a ‘<keyword id="686372" type="ORGANIZATION" weightage="20" keywordseo="Public-Debt-Management-Agency">Public Debt Management Agency</keyword>’. 
 
 Lop off the dead wood and the tree will flourish, perhaps is what Modi and Jaitley hope to achieve.

You Searched For "rbi Basel norms" and got 12 results

RBI proposes higher liquidity coverage ratio for retail deposits, creation of level-1 high quality assets

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RBI proposes major changes in securitisation norms

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RBI relaxes regulations on bad loans for banks to attract investors

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An end to the spat between the RBI and the government could be in sight as the board of the central bank prepares to meet next week

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After weeks of tension, the Reserve Bank of India gives in to some of the central government's demands while retaining its independence

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Why bad loans can pose a systemic threat

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Icra, Care cut ratings on Yes Bank's upper tier-II bonds

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SBI plans Rs 20,000cr capital mop-up by Mar 2021; to seek shareholders' nod in Jul

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IDBI Bank plans to raise Rs 11,000 cr equity capital

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HDFC Bank Q4 net up 15 pc at Rs 7,280 cr; sees challenges ahead on Covid-19

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Corporation Bank Q3 net jumps to Rs 421 cr on higher interest income, NPA still high

PTI

Modi makes banks toe the line

Preetam Kaushik

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