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AKP Banking & Finance Digest- January 16, 2023

1. INDIA


1.1 Reserve Bank of India (‘RBI’) Imposed penalties on the following four banks:


S. No.

Bank

Monetary penalty imposed

Reason for imposing a penalty

1

₹50,000/- (Rupees Fifty Thousand only)

​For contravention of/ non-compliance with the directions issued by RBI to Urban Co-operative Banks on Know Your Customer (KYC) by not carrying out periodic updation of KYC of its customers.[1]

2

​₹3 lakhs (Rupees Three lakh only)

According to the inspection report, the bank:

a. had not complied with Income Recognition and Asset Classification (IRAC) norms

b. had sanctioned advances to a group of borrowers beyond the permissible limit and

did not have robust software to identify and monitor suspicious transactions, in contravention of/non-compliance with the aforesaid directions issued by The Reserve Bank of India (RBI).[2]

3

​₹1 lakh (Rupees One lakh only)

​For non-compliance with directions issued by RBI on Income Recognition, Asset Classification, Provisioning and Other Related Matters – UCBs.[3]


4

​₹2 lakhs (Rupees Two lakh only)

​The bank had:

a. failed to transfer eligible unclaimed deposits to the Depositor Education and Awareness Fund within the prescribed timelines.

b. not reported/reported frauds to NABARD with delay in contravention of/non-compliance with the provisions of the Act and aforesaid directions issued by NABARD.[4]

5

​₹1 lakh (Rupees One lakh only)

​The penalty has been imposed since during the year 2018 to 2020, the bank had sanctioned jewel loans to Directors violating the extant instructions.[5]

6

​₹30 lakhs (Rupees Thirty lakh only)

​The penalty has been imposed due to the company’s failure to:

a. comply with the outsourcing directions by RBI,

b. appointment of Independent Director/Chief Information Officer (CIO)/Chief Technology Officer (CTO) on the IT Strategy Committee and

disclosure of components of Adjusted Net Worth (ANW) and other related information.[6]

1.2 Dr Michael Debabrata Patra has been re-appointed as RBI Deputy Governor

Dr Michael Debabrata Patra has been re-appointed as the Deputy Governor, RBI by the Central Government, for a further period of one year with effect from January 15, 2023, or until further orders, whichever is earlier.[7]


1.3 Ten NBFCs and One ARC surrender their Certificate of Registration to RBI

The following 10 Non-Banking Financial Companies (‘NBFC’) have surrendered the Certificate of Registration (‘CoR’) granted to them by RBI.

Due to exit from Non-Banking Financial Institution (NBFI) business:

  1. Parkin Marketing Pvt. Ltd.

  2. Bansal Fintrade Private Limited

  3. O3 Finance Private Limited

  4. Jacob Ballas Capital India Private Limited

  5. India Silica Magnesite Works Ltd

  6. Cougar Vyapaar Pvt. Ltd.

  7. Srinivasa Finance Corporation Private Limited

Due to NBFC ceasing to be a legal entity due to amalgamation/ merger/dissolution/ voluntary strike-off, etc.:

  1. Telecom Investments India Private Limited

  2. Jaykay Finholding (India) Private Limited

  3. UMT Investments Limited

Due to exit from securitisation/ asset reconstruction business:

  1. Lone Star India Asset Reconstruction Private Limited[8]

1.4 RBI Working Paper No. 02/2023: Tail Risks of Inflation in India

RBI placed a Working Paper titled, “Tail Risks of Inflation in India” under the Reserve Bank of India Working Paper Series 1, co-authored by Silu Muduli and Himani Shekhar. In this paper, trail risks in India are estimated, i.e with the help of a quantile regression framework. The impact of various domestic and global macroeconomic factors and the role of the flexible inflation targeting (‘FIT’) regime in influencing inflation tail risks are examined. The paper concludes that macroeconomic factors help in capturing the tail risks to India’s inflation target band of 2 to 6 per cent reasonably well. [9]


1.4 RBI Working Paper No. 01/2023: Measuring Contagion Effects of Crude Oil Prices on Sectoral Stock Price Indices in India

RBI released a Working Paper titled, “Measuring Contagion Effects of Crude Oil Prices on Sectoral Stock Price Indices in India,” which is co-authored by Madhuchhanda Sahoo, Arvind Kumar Shrivastava, Jessica Maria Anthony and Thangzason Sonna.

The paper defines the probability of co-exceedances as a contagion effect. The following are the major conclusions from the paper:

  1. There exists a significant likelihood of a contagion effect or simultaneous exceedances for the 10 sectoral stock returns when faced with extreme changes in global crude oil returns;

  2. The positive co-exceedances evidence is stronger;

  3. When relevant control variables are introduced – exchange rate returns (INR-USD), 10-year G-sec yield, and differential stock returns, (i.e., small firms minus big firms), the results are more robust;

  4. The contagion effect on all sectoral indices, regardless of their direct and indirect exposure to oil price dynamics, emphasizes the need for hedging by investors.[10]


1.6 Operational Risk Management: Price / Yield range setting in e-Kuber

RBI in its circular has advised the participants in the Government Securities (G-Sec) market about the “Price / Yield range setting” facility provided on the e-Kuber platform as a risk management measure. As per this facility, the market participants can define a maximum and minimum range for bids which they aim at submitting for auction. Because of the prevalent fat-finger errors, RBI has observed that some of the market participants are yet to put in place the “Price / Yield range setting” facility in their system.

Therefore, RBI has advised all the participants to use the e-Kuber platform before placing bids. It also mentioned that no request for cancellation of bids will be allowed post the closure of the auction window.[11]


1.7 Basel III Capital Regulations - Eligible Credit Rating Agencies

RBI, referring to the circular on Basel III Capital Regulations, has reviewed and advised the banks to use the following domestic credit rating agencies for risk weighting their claims for capital adequacy purposes:

  1. Credit Analysis and Research Limited (CARE);

  2. CRISIL Ratings Limited;

  3. ICRA Limited;

  4. India Ratings and Research Private Limited (India Ratings); and

  5. INFOMERICS Valuation and Rating Pvt Ltd. (INFOMERICS)

With reference to the Press Release: 2022-2023/1033 dated October 12, 2022, it stated that no such fresh ratings/evaluations shall be obtained from Brickwork Ratings India Private Limited. Apart from this, all other provisions with respect to external credit ratings shall remain unchanged. [12]


2. Bangladesh


2.1 Regarding fees/charges/commissions imposed by financial institutions.

Bangladesh Bank, through its recent circular, had laid down instructions regarding the fees/charges/commissions levied in providing various services and providing notice to the customer for changing the interest/profit rate of the financial institution.

  1. The financial institution may charge an early settlement fee of 1% of the outstanding balance of the loan/lease/investment, in cases of early repayment of the loan/lease/investment by the customer. Such fees will not be charged for pre-maturity adjustment of loans given to the Small and Medium Enterprises (‘CMS’) sector.

  2. If there is a need to revise the interest/profit rate under the loan agreement within the limits prescribed, the same shall be done by registered post at least one month in advance stating the rationale for the same.

  3. The reduced/excess amount payable shall be proportionately adjusted to the subsequent instalments and the customer shall be provided with the new repayment schedule.

  4. An early Settlement Fee cannot be collected. if a customer wants to terminate the contract by paying any loan/lease/investment in full within 01 (a) month from the date of re-fixation of interest or profit rate. [13]

2.2 Regarding repo interest rate issued on 29 September 2022 and MPD Circular No-05 regarding repo and reverse repo interest rate issued on 29 July 2020.

Bangladesh Bank, in its 57th meeting of the Monetary Policy Committee, held on January 11, 2023, decided that the repo rate of Bangladesh Bank has been increased by 25 basis points to 6.00 per cent from the existing 5.75 per cent per annum and the reverse repo rate has been established for the purpose of rationalizing the policy interest corridor which is, 4.00 per cent per annum increased by 25 basis points to 4.25 per cent per annum, effective from January 16th, 2023.[14]


[1] Press Release: 2022-2023/1519, Reserve Bank of India, January 09, 2023

[2] Press Release: 2022-2023/1518, Reserve Bank of India, January 09, 2023

[3] Press Release: 2022-2023/1521, Reserve Bank of India, January 09, 2023

[4]Press Release: 2022-2023/1517, Reserve Bank of India, January 09, 2023

[5] Press Release: 2022-2023/1520, Reserve Bank of India, January 09, 2023

[6] Press Release: 2022-2023/1520, Reserve Bank of India, January 09, 2023 [7] Press Release: 2022-2023/1549, Reserve Bank of India, January 13, 2023 [8] Press Release: 2022-2023/1535, Reserve Bank of India, January 11, 2023 [9] Press Release: 2022-2023/1539, Reserve Bank of India, January 12, 2023 [10] Press Release: 2022-2023/1538, Reserve Bank of India, January 12, 2023 [11] Notification: RBI/2022-23/163, Reserve Bank of India. January 11, 2023 [12] Notification: RBI/2022-23/162, Reserve Bank of India. January 11, 2023 [13] DOS Circular Letter No. 02: ‘Instruction to take necessary measures to facilitate the casting of vote by the voter employees of the related area on 12th January 2023 for the Mayor By-election of Durgapur Paurashava,’ Bangladesh Bank, January 11, 2023 [14] MPD Circular No. 01: ‘Refixation of Repo and Reverse Repo interest rates of Bangladesh Bank,’ Bangladesh Bank, January 15, 2023


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.

* Image credits: RBI


For further queries or details, you may contact:

Mr Anuroop Omkar,

Partner, AK & Partners

anuroop@akandpartners.in

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