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AKP Banking & Finance Digest- January 01, 2024

1. Regulatory Updates


1.1. India


1.1.1. RBI permits lending and borrowing in government securities

The Reserve Bank of India (“RBI”) has permitted lending and borrowing of Government Securities (“G-Secs”). It will add depth and liquidity to the G-Secs market. RBI said G-Secs issued by the Central government, excluding treasury bills, will be eligible for lending/borrowing under a Government Security Lending (GSL) transaction. RBI had come out with the draft RBI (Government Securities Lending) Directions, 2023 and based on the comments received on the draft, the directions have been finalised. The system is expected to facilitate wider participation in the securities lending market by providing investors an avenue to deploy idle securities and enhance portfolio returns. RBI

 

1.1.2. RBI instructed NBFCs to strengthen governance standards, assurance mechanisms

RBI in its latest report on the trends and progress of banking in India, has stated that Non-Banking Financial Companies (“NBFCs”) must further strengthen governance and internal audit standards, in-line with the implementation of scale-based regulations. Acknowledging the important role played by the sector in delivering credit to the unbanked and underserved areas, RBI Governor advised that NBFCs and Housing Finance Companies (HFCs) need to remain alert to avoid any complacency during good times. RBI


1.1.3. RBI notifies draft licensing framework for Authorised Persons

RBI has notified the draft Licensing Framework for Authorised Persons (APs) under the Foreign Exchange Management Act, 1999 (“FEMA”). Keeping in view the progressive liberalisation under FEMA, increasing integration of the Indian economy with the global economy, digitisation of payment systems, evolving institutional structure, etc. over the last two decades, it has been decided to rationalise and simplify the licensing framework for APs. RBI has proposed to introduce a new category of money changers who may conduct business through an agency model by becoming Forex Correspondent of Authorised Dealers. The review aims to meet the emerging requirements of the rapidly growing Indian economy and achieve operational efficiency. RBI


1.1.4. RBI cancels the license of four cooperative banks


RBI, vide order dated December 29, 2023, has cancelled the license of the following banks:

Name of the bank

Grounds for Cancellation

Inadequate capital and earning prospects as per Sections 11(1) and 22(3)(d) read with Section 56 of the Baking Regulation Act, 1949 (“BR Act”), non-compliance with requirements under Section 22(3)(a), 22(3)(b), 22(3)(c), 22(3)(d) and 22(3)(e) of the BR Act, prejudicial conduct affecting interest of the depositors and public, including inability to pay to the present depositors in full.

Inadequate capital and earning prospects as per Sections 11(1) and 22(3)(d) read with Section 56 of the BR Act, non-compliance with requirements under Section 22(3)(a), 22(3)(b), 22(3)(c), 22(3)(d) and 22(3)(e) of the BR Act, prejudicial conduct affecting interest of the depositors and public, including inability to pay to the present depositors in full.

Inadequate capital and earning prospects as per Sections 11(1) and 22(3)(d) read with Section 56 of the BR Act, non-compliance with requirements under Section 22(3)(a), 22(3)(b), 22(3)(c), 22(3)(d) and 22(3)(e) of the BR Act, prejudicial conduct affecting interest of the depositors and public, including inability to pay to the present depositors in full.

RBI has allowed the bank to carry on the business of NBFC in India under Section 22 read with Section 56 of BR Act with effect from the close of business on December 29, 2023. Subsequently, RBI has cancelled the banking licence dated February 17, 1998.


1.1.5. Monetary Penalties


RBI imposes monetary penalties on the following financial institutions:

Name of the financial institution

Penalty Imposed

Reason

INR 1,00,000 (Indian Rupees One Lakh Only)

Contravention of/non-adherence with certain provisions of the directions issued by RBI on ‘Exposure Norms & Statutory/Other Restrictions - (Urban) Co-operative Banks (“UCBs”)’ read with RBI directions on ‘Placement of Deposits with Other Banks by Primary UCBs’ and ‘Investments by Primary UCBs’.

INR 5,000 (Indian Rupees Five Thousand Only)

Contravention of/non-adherence with certain provisions of the directions issued by RBI on ‘Membership of Credit Information Companies (CICs)’.

INR 50,000 (Indian Rupees Fifty Thousand Only)

Contravention of/non-adherence with certain provisions of the directions issued by RBI on ‘Placement of Deposits with Other Banks by Primary UCBs’.

INR 2,00,000 (Indian Rupees Two Lakh Only)

Contravention of/non-adherence with certain provisions of the directions issued by RBI on ‘Placement of Deposits with Other Banks by Primary UCBs’.

INR 1,00,000 (Indian Rupees One Lakh Only)

Contravention of/non-adherence with certain provisions of the directions issued by RBI on ‘Placement of Deposits with Other Banks by Primary UCBs’.


1.2. Bangladesh


1.2.1.  Bangladesh Bank lends Taka 1 lakh crore to banks in five days

The Bangladesh Bank (BB) has provided about Taka 1 lakh crore (Taka One Lakh Crore Only) to banks in the past five days, as the financial entities were suffering from a severe liquidity stress. This funding was provided through various mechanisms such as repo, liquidity support, standing lending facilities and Islamic Banks Liquidity Facility (IBLF) for Shariah-based banks. The funds were extended at high-interest rates, reflecting the urgency of the liquidity situation. The interest rates for these facilities ranged from 6.75 per cent (six point seven five per cent) to 9.75 per cent (nine point seven five per cent) per annum. New Age

 

1.3.  Indonesia


1.3.1. Indonesia’s economy to grow 5.2 per cent in 2024

Indonesian President expressed confidence that South-east Asia’s largest economy will see growth of 5.2 per cent (five point two per cent) in 2024, higher than what the IMF and World Bank (“WB”) have predicted. IMF expects Indonesia’s GDP to grow by 5 per cent (five per cent) next year, a shade higher than WB’s 4.9 per cent (four point nine per cent) forecast. Indonesia’s central bank has given a range of 4.7 per cent (four point seven per cent) and 5.5 per cent (five point five per cent). The Business Times

 

2.  Trends


2.1.   Bandhan bank to sell INR 775 crore home loans to Arcil

Bandhan Bank is selling its INR 775 crore (Indian Rupees Seven Hundred Seventy-Five Crore Only) affordable home loan portfolio to Avenue Capital backed Asset Reconstruction Company India (Arcil) for INR 280 crore (Indian Rupees Two Hundred Eighty Crore Only) in an all-cash deal. This transaction highlights the emerging stress in lower-income groups, where customers are unable to pay home loans between INR 10-12 lakh (Indian Rupees Ten to Twelve Lakh Only). The Economic Times 

 

2.2. EnKash plans to grow spends by 3x-5x by FY25

EnKash, a Business to Business (B2B) fintech, which received the RBI payment aggregator (PA) license recently for its Olympus product, plans to expand overall spends by 3x-5x (three to five times) by Financial Year 2024-25 (FY25) from USD 3 billion (United States Dollar Three Billion Only) in FY23. The company is set to introduce an expense management solution infused with advanced Artificial Intelligence (AI)/ Machine Learning (ML) capabilities, aiming to simplify and automate the expense management procedures for businesses across various scales. The Financial Express

 

2.3.  Struggling fintech startup ZestMoney faces firesale as NBFCs seek acquisition

NBFCs DMI Finance and Aditya Birla Finance are aiming to acquire the struggling fintech lending startup ZestMoney in a distressed sale. ZestMoney, known for providing buy-now-pay-later (BNPL) loans, recently informed its employees of its plan to shut down by the end of the month. Facing financial challenges, the startup's existing investors have opted to sell its remaining assets. ZestMoney, which primarily served as a sourcing platform for partner NBFCs rather than building its own loan book, holds an outstanding loan portfolio of approximately INR 400 crore (Indian Rupees Four Hundred Crore Only). Aditya Birla Finance and DMI Finance, with established partnerships with fintech startups, are interested in acquiring ZestMoney's technology assets amid the startup's downturn. The Economic Times

 

3.  Sector Overview


 

4.  Business Updates

 

4.1.  RBI approves IDFC-IDFC First Bank merger

RBI has given its nod for the reverse merger of Infrastructure Development Finance Company Ltd (IDFC Ltd) with its banking subsidiary IDFC First Bank. The scheme remains subject to other statutory and regulatory approvals inter alia including from the National Company Law Tribunal (NCLT) and the respective shareholders and creditors of the companies involved in the scheme, under applicable laws, IDFC Ltd. had on Novembers 13, 2023 received observation letter with ‘no adverse observations’ from the Bombay Stock Exchange Limited and observation letter with ‘no objection’ from the National Stock Exchange of India Limited. Zee News

 

4.2. IndusInd Bank becomes the first bank in India to launch a corporate credit card on RuPay network

IndusInd Bank has launched ‘IndusInd Bank eSvarna’, India’s first corporate credit card on RuPay network. This launch positions IndusInd Bank as the first in the country to integrate Unified Payments Interface (“UPI”) functionality with a corporate credit card. The card facilitates smooth transactions at merchant outlets and allows users the flexibility to make UPI payments by linking the card with UPI-enabled apps. eSvarna RuPay credit card can be used to link with any supporting UPI app and payments can be made through it as well. The Economic Times

 

4.3.  CCI clears IndusInd International Holdings Ltd-Reliance Capital deal

The Competition Commission of India (CCI) has approved the acquisition of control/stake in Reliance Capital Ltd by IndusInd International Holdings Ltd, IIHL BFSI (India) Ltd, and Aasia Enterprises LLP. Post the completion of the transaction, IndusInd International Holdings, along with other entities, will have a controlling stake in Reliance Capital. The board of IIHL also decided to raise its holding in Reliance Capital from 15 per cent (fifteen per cent) to 26 per cent (twenty six per cent). In June, lenders of Reliance Capital accepted the revised INR 9,661 crore (Indian Rupees Nine Thousand Six Hundred Sixty-One Crore Only) bid by IndusInd Bank. The Economic Times

 

4.4.  InCred becomes second unicorn of 2023 after raising USD 60 million in funding round

Fintech firm InCred has become a unicorn after raising USD 60 million (United States Dollar Sixty Million Only) in a funding round from new and existing investors. After this fresh capital infusion, InCred has been valued at USD 1.04 billion (United States Dollar One Billion Forty Million Only) and has become the second company to gain unicorn status in 2023. It raised USD 60 million (United States Dollar Sixty Million Only) in a Series D round led by Ranjan Pai of Manipal Education and Medical Group (MEMG), Ravi Pillai, Chairman at RP Group of Companies, and Ram Nayak, Global Co-Head of the Investment Bank and Head of Fixed Income and Currencies at Deutsche Bank. Inc 42


Disclaimer


The note is prepared for knowledge dissemination and does not constitute legal, financial or commercial advice. AK & Partners or its associates are not responsible for any action taken based on its contents.


For further queries or details, you may contact:


Mr Anuroop Omkar

Partner, AK & Partners


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