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  • Writer's pictureAK & Partners

AKP Banking & Finance Digest- September 25, 2023

1. Regulatory Updates


1.1. India


1.1.1. RBI issues Draft Master Direction on Treatment of Wilful Defaulters and Large Defaulters

The Reserve Bank of India (“RBI”) has issued a ‘Draft Master Direction on Treatment of Wilful Defaulters and Large Defaulters’, expanding the scope for Regulated Entities (RE). The draft Master Direction broadens the definition of wilful default, improves the methods for identifying such cases, and requires a thorough assessment and resolution of wilful default cases within six months of an account being labelled as a non-performing asset. Additionally, it outlines how wilful default loans that are sold to Assets Reconstruction Companies (ARC) should be handled and clarifies their legal status under the Insolvency and Bankruptcy Code. RBI


1.1.2. RBI issues direction for All India Financial Institutions

RBI has issued ‘Prudential Regulations on Basel III Capital Framework, Exposure Norms, Significant Investments, Classification, Valuation and Operation of Investment Portfolio Norms and Resource Raising Norms for India Financial Institutions Directions, 2023’. These directions shall be applicable to all five All India Financial Institutions (AIFIs) viz. EXIM Bank, NABARD, NaBFID, NHB, and SIDBI. The directions shall be applicable from April 01, 2024. RBI


1.1.3. RBI directs CICs to establish a data quality index for commercial and microfinance segment

RBI has issued directions instructing Credit Information Companies (“CICs”) to establish a standardised Data Quality Index (“DQI”) for both commercial and microfinance sectors. The purpose of this move is to evaluate the accuracy and reliability of data provided by Credit Institutions (“CIs”) to CICs and to enhance data quality over time. Currently, the DQI is utilised for data submissions in the consumer segment. Furthermore, each CI is required to submit a report on these issues to their top management for review within two months following the end of each half-year period. RBI


1.1.4. RBI cancels licenses of various financial institutions

RBI, under Section 56 read with Section 22 of the Reserve Bank of India Act (RBI Act), has cancelled the license of the following financial institutions:

Name of the bank

Ground for Cancellation

​RBI is satisfied that the banking company has repaid all deposits accepted by the banking company, either in full or to the maximum extent possible and cancelled the banking business license under Section 36A (2) read with Section 56 of the Banking Regulation Act,1949 (“BRI Act”).

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

1.1.5. Monetary Penalties


RBI imposes monetary penalties on the following financial institutions:

Name of the entity

Penalty Imposed

Reason

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

​Contravention of / non-adherence with directions issued by RBI on Maintenance of Deposit Accounts - Primary Urban Co-operative Banks (“UCB”).

INR 3,00,000 (Indian Rupees Three Lakh only)

Contravention of / non-adherence with directions issued by RBI on Maintenance of Cash Reserve Ratio (“CRR”), Placement of Deposits with Other Banks by Primary UCB, and Interest Rate on Deposits - Directions, 2016.

INR 3,50,000 (Indian Rupees Three Lakh Fifty Thousand only)

Contravention of/ non-adherence with Directions by RBI on ‘Loans and Advances to directors, relatives and firms/concerns in which they are Interested’ read with ‘Loans and Advances to Directors etc. - Directors as surety/guarantors – Clarification’ and ‘Placement of Deposits with Other Banks by Primary UCB.

INR 5,00,000 (Indian Rupees Five Lakh only)

Contravention of/ non-adherence with ‘Placement of Deposits with Other Banks by Primary UCB and RBI (Co-operative Banks-Interest Rate on Deposit) Directions, 2016.

INR 6,00,000 (Indian Rupees Six Lakh only)

Contravention of/ non-adherence with ‘Supervisory Action Framework’ (“SAF”) and directions issued under ‘Exposure norms and Statutory/ Other Restrictions - UCBs’.

INR 11,00,000 (Indian Rupees Eleven Lakh only)

Contravention of/ non-adherence with ‘Loans and Advances to Directors, their Relatives, and Firms / Concerns in which they are Interested’ and specific directions issued by RBI under the SAF.

​INR 1,00,000 (Indian Rupees One Lakh only)

Contravention of/ non-adherence with ‘Maintenance of Deposit Accounts- Primary UCB.

​INR 2,00,000 (Indian Rupees Two Lakh only)

Contravention of/ non-adherence with ‘The Depositor Education and Awareness Fund Scheme, 2014’.

1.2. Bangladesh


1.2.1. Bangladesh Bank introduces TakaPay Card scheme as a pilot program

The Bangladesh Bank (“BB”) has introduced the TakaPay Card scheme to lower annual fees for debit card users and reduce the constant foreign currency spending by local banks on international institutions such as Visa, MasterCard, and UnionPay. In November, the central bank will officially launch this domestic debit card program in partnership with eight selected banks. Currently, banks in Bangladesh heavily rely on International Payment Schemes (IPS) like Visa, Mastercard, Amex, JCB, Discover, and Union Pay to provide essential customer services. This has led to substantial fees in foreign currency that Bangladeshi banks must pay to foreign institutions, ultimately passed on to customers as annual card charges. Dhaka Tribune


1.2.2. Bangladesh Bank allows recognised payment service providers to facilitate inward remittance

BB has allowed licensed payment service providers (“PSPs”) to facilitate inward wage remittance. As per the circular issued by BB, PSPs are required to establish formal agreements with foreign PSPs to receive foreign currency into their accounts, with an equivalent value in Bangladeshi Taka being credited to the accounts of wage earners' PSPs. Subsequently, foreign PSPs will credit the designated authorised dealer's (AD's) nostro account. Once the Taka amount is received, wage earners can utilise the PSPs' accounts abroad for all transactions in Taka. BB


1.2.3. Bangladesh Bank to take disciplinary actions against financial institutions for selling dollars at inflated price

BB issues show cause notices to 10 (Ten) financial institutions asking them to furnish reasons as to why they should not be penalised for selling dollars at inflated rates. BB has taken this step as a measure to maintain stability in the financial sector. Investing.com


1.3. Sri Lanka


1.3.1. Central Bank of Sri Lanka releases the publication for Financial Soundness Indicators

The Central Bank of Sri Lanka (“CBSL”) has issued a ‘Financial Soundness Indicator’ for assessing the performance of banks and finance companies under its supervision. This index includes information regarding the banking sector and the Licensed Finance Companies (LFC) sector that could help concerned stakeholders understand the performance of major financial institutions in Sri Lanka. CBSL


2. Trends


2.1. Banks can only request look-out-circulars in exceptional cases: Delhi High Court

The Delhi High Court in the case of Apurve Goel V. Bureau of Immigration & Anr. W.P.(C) 5674/2023 has expressed its concern towards the issuance of the Look Out Circular (‘LOC”) by authorities without application of mind. Banks have been seen to have adopted the tactic of requesting LOC as a method of debt recovery without initiating criminal proceedings for the same. Issuance of LOC not only restrains a person’s right to travel but is also derogatory in nature. Economic Times


2.2. SEBI relaxes framework for Large Corporates to meet incremental financial needs

The Securities and Exchange Board of India (“SEBI”) has introduced certain incentives and moderated disincentives in light of the ease of doing business for Large Corporates (“LCs”) in India. Currently, LCs have to mandatorily raise a certain percentage from the debt market to meet their financial needs, and on failing to comply with the same, they are subject to a monetary penalty. SEBI has decided to remove such penalties for LCs. Additionally, the monetary threshold required to be recognised as an LC has been increased to reduce the number of entities qualifying as LC. SEBI


3. Sector Overview



4. Business Updates


4.1. HDFC Bank launches three digital payment products based on UPI technology

HDFC Bank has launched three digital payment products on Unified Payment Interface (“UPI”) named UPI123Pay: Payment via IVR (Interactive Voice Response), UPI Plug-In Service for Merchant Transactions and Auto Pay on QR codes. UPI 123Pay facilitates payments via phone calls without requiring internet connectivity, and UPI Plug-In Service helps customers to switch between merchant and payment apps while making a payment through UPI technology. With regard to Auto Pay on QR, it enables users to make recurring payments while subscribing to digital services such as over-the-top (OTT) platforms, audio subscriptions, newsletters, etc. Financial Express


4.2. Global fintech player ‘EBANX’ is set to enter the Indian market

EBANX, a global fintech player with operations in 18 (Eighteen) countries in Latin America and Africa, is set to enter in the Indian market by enabling global merchants to facilitate their Indian customers to make real-time payments through UPI. This expansion aims to provide secure, user-friendly, and tailored payment solutions in various sectors, such as SaaS, Digital Gaming, Social Media, Digital Advertising, Streaming, and E-commerce. Economic Times


4.3. Payment gateway PayU announces its partnership with WhatsApp

PayU has partnered with WhatsApp to enhance the online payment process for businesses using the WhatsApp Business platform. This collaboration aims to revolutionise how businesses interact with their customers on WhatsApp, offering a seamless and user-friendly in-app payment experience. Through PayU's checkout solution, businesses can now offer their customers over 150 (one hundred fifty) payment choices, including cards, UPI, and net banking, all directly within the WhatsApp platform, eliminating the need for redirection. This feature is available to all PayU-affiliated merchants on WhatsApp without any extra setup or maintenance fees. PRNewswire




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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