Banking Regulation (Amendment) Bill, 2017
11-Aug-2017: Rajya Sabha passes Banking Regulation (Amendment) Bill, 2017
Rajya Sabha passed the Banking Regulation (Amendment) Bill, 2017. The Bill replaces the Banking Regulation (Amendment) Ordinance, that was passed in May 2017, after the Budget session of the Parliament.
The Banking Regulation (Amendment) Bill, 2017 was introduced in Lok Sabha by the Minister of Finance, Mr. Arun Jaitley, on July 24, 2017. It seeks to amend the Banking Regulation Act, 1949 to insert provisions for handling cases related to stressed assets. Stressed assets are loans where the borrower has defaulted in repayment or where the loan has been restructured (such as by changing the repayment schedule). It will replace the Banking Regulation (Amendment) Ordinance, 2017.
Initiating insolvency proceedings: The central government may authorise the Reserve Bank of India (RBI) to issue directions to banks for initiating proceedings in case of a default in loan repayment. These proceedings would be under the Insolvency and Bankruptcy Code, 2016.
Issuing directions on stressed assets: The RBI may, from time to time, issue directions to banks for resolution of stressed assets.
Committee to advise banks: The RBI may specify authorities or committees to advise banks on resolution of stressed assets. The members on such committees will be appointed or approved by the RBI.
Applicability to State Bank of India: The Bill inserts a provision to state that it will also be applicable to the State Bank of India, its subsidiaries, and Regional Rural Banks.
The Bill basically empowers the Reserve Bank of India (RBI) to give directions to banks to act against loan defaulters. The Bill seeks to amend the Banking Regulation Act, 1949 by inserting provisions for handling cases related to stressed assets. Stressed assets are loans on which the borrower has defaulted or it has been restructured. The RBI may, from time to time, issue directions to banks for resolution of stressed assets. The Central Government can authorise the RBI to issue directions to banks for initiating proceedings in case of a default in loan repayment. These proceedings would be under the Insolvency and Bankruptcy Code, 2016.
The RBI may also form committees to advise banks on the resolution of stressed assets. The members will be appointed or approved by the RBI.
The Banking Regulation (Amendment) Ordinance was promoted on May 4 to address the reportedly high levels of stress faced by the banking sector at the time. The RBI had, in June, identified 12 'defaulters' who account for around 25% of India's non-performing assets (NPA) and informed banks to take up insolvency proceedings against them. A NPA is a loan or advance for which the borrower has failed to repay the principle or interest for a period of 90 days.
Union Finance Minister Arun Jaitley said that the NPAs had begun during the UPA regime and that the sectors that had the most NPAs were Steel, Infrastructure, Power and Textiles. Public sector banks were hit the most as big industrial and infrastructure programmes were supported by them in the hope that there would be further expansion.
24-Jul-2017: Banking Regulation (Amendment) Bill, 2017 was introduced in Lok Sabha.
The Banking Regulation (Amendment) Bill, 2017 was introduced in Lok Sabha by the Minister of Finance, Mr. Arun Jaitley. It seeks to amend the Banking Regulation Act, 1949 to insert provisions for handling cases related to stressed assets. Stressed assets are loans where the borrower has defaulted in repayment or where the loan has been restructured (such as by changing the repayment schedule). It will replace the Banking Regulation (Amendment) Ordinance, 2017.
Initiating insolvency proceedings: The central government may authorise the Reserve Bank of India (RBI) to issue directions to banks for initiating proceedings in case of a default in loan repayment. These proceedings would be under the Insolvency and Bankruptcy Code, 2016.
Issuing directions on stressed assets: The RBI may, from time to time, issue directions to banks for resolution of stressed assets.
Committee to advise banks: The RBI may specify authorities or committees to advise banks on resolution of stressed assets. The members on such committees will be appointed or approved by the RBI.
Applicability to State Bank of India: The Bill inserts a provision to state that it will also be applicable to the State Bank of India, its subsidiaries, and Regional Rural Banks.
Source: PrsIndia
4-May-2017: Ordinance has been promulgated authorizing RBI to issue directions to any banking company to initiate insolvency resolution process in respect of a default
An Ordinance {Banking Regulation (Amendment) Ordinance, 2017} has been promulgated on 4th May 2017 authorising RBI to issue directions to any banking company to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC). It also enables the Reserve Bank to issue directions with respect to stressed assets and specify one or more authorities or committees with such members as the Bank may appoint or approve for appointment to advise banking companies on resolution of stressed assets.
The Overseeing Committee (OC) has been brought under the aegis of the Reserve Bank and the membership of the same has been enlarged to five. The reconstituted OC has been mandated to review resolution of cases where the aggregate exposure of the banking sector to the borrowing entity is greater than Rs.500 crore.
An Internal Advisory Committee (IAC) was constituted by Reserve Bank of India, which arrived at an objective, non-discretionary criterion for referring accounts for resolution under IBC. In particular, the IAC recommended for IBC reference of all accounts with fund and non-fund based outstanding amount greater than Rs.5000 crore, with 60% or more classified as non-performing by banks as of March 31, 2016. Accordingly, Reserve Bank of India has issued directions to certain banks for referring 12 accounts, qualifying under the aforesaid criteria, to initiate insolvency process under the Insolvency and Bankruptcy Code, 2016. As regards the other non-performing accounts which do not qualify under the above criteria, the IAC recommended that banks should finalize a resolution plan within six months. In cases where a viable resolution plan is not agreed upon within six months, banks should be required to file for insolvency proceedings under the IBC.
Financial Data Management Centre (FDMC)
10-Aug-2017: Law Ministry approves revised Cabinet proposal on the creation of the Financial Data Management Centre (FDMC)
The Law Ministry has approved a revised Cabinet proposal on the creation of the Financial Data Management Centre (FDMC) that would subsequently collect raw data directly. FDMC will now collect data in electronic format from the (financial) regulators. Over time, it will gradually build capacity to collect data from the regulated entities i.e. Financial Service Providers. FDMC and the regulators can also “enter into agreement” for flow of data, “stringent confidentiality norms”. This ensures the same level of protection as provided by various acts applicable to the regulators and guarantees that the “data centre is at all times kept secure and effectively protected”. In order to facilitate FDMC functioning, “consequential amendments” have been sought in the RBI Act, Banking Regulation Act and the Payment and Settlement Systems Act as their confidentiality clauses do not allow access to raw data.
FDMC will be set up through an Act. Initially, FDMC was to be a non-statutory body to collect data from financial sector regulators, standardise and analyse them on issues relating to financial stability for onward decisions by the Financial Stability and Development Council (FSDC). It was also to provide regular access to the data. However, the Department of Legal Affairs turned down the initial Cabinet proposal saying that a non-statutory FMDC would find it difficult to acquire data from the regulators, majority of which were statutory.
Moreover, it said that any levy of penalty through a gazette notification for violation of data management scheme would neither be legally tenable nor withstand judicial scrutiny. Besides, courts may not take cognizance of any such offence and compounding of the same under the Code of Criminal Procedure is also not feasible.
The Reserve Bank of India (RBI) would now no longer be the sole collector and custodian of financial data. The RBI is also against sharing raw data that it gets from banks and other market sources with FDMC as it is not obliged to share confidential client information of banks with anybody. The only exception is when a law enforcement agency has to get specifics on an individual company for investigation purpose. But it has to then approach the courts first to get an order to request the data from the regulators.
Payments Bank
23-May-2017: Paytm launches its Payments Bank
Paytm has finally rolled out its Payments Bank, which is an almost-complete banking solution offered by the company. The digital wallet and e-commerce service provider received the final license from RBI for the bank last week. With the launch, Paytm is transferring all wallets to the new Paytm Payments Bank. Under the new banking system, wallets and accounts will be two separate entities. In order to be a part of the banking system, the user will have to open a bank account with Paytm.
A Payments bank is similar to any other bank except it operates on a smaller scale. The Reserve Bank of India (RBI) introduced it in 2014 to increase the scope of financial inclusion to small savings account holders, low income households, small businesses, unorganised sector entities and migrant labour force.
Customers can deposit only up to Rs 1,00,000. Payments bank can issue ATM/debit cards but not credit cards. Payments and remittance services through various channels can be done. Customers will be able to buy insurance and mutual funds. Bank would not carry out lending activities. With this, the network of 1,54,000 post offices (including 1,30,000 rural post offices) will be offering banking services to the masses in the country.
Payments banks are targeting migrant labourers, low income households, small businesses, and other unorganised sector entities. Initial capital required for a Payments bank is Rs 100 crore.
Eligibility: Existing pre-paid payment instrument issuers, individuals, professionals, NBFCs, corporate business correspondents, telecom companies, super-market chains, real estate sector cooperatives that are owned and controlled by residents and public sector entities may apply. Promoter’s contribution initially must be 40% for the first 5 years. For foreign holding, it is up to 74% of paid-up capital, on a par with private banks.
The banks must maintain CRR, minimum 75% of demand deposits in government bonds of up to one year and maximum 25% in current and fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.
29-Jan-2017: India Post gets payments bank license from RBI
India Post has received payments bank license from the Reserve Bank of India to start rollout of banking operations commercially under the permit.
In 2015, RBI had granted ‘in-principle’ approval to 11 entities, including Department of Posts, to set up payments banks and proposed to give such licenses ‘on tap’ basis in future.
3-Jan-2017: Paytm gets RBI approval for payments bank
Paytm has received final approval of the RBI to formally launch its payments bank and it expects to start operations next month. Payments banks can accept deposits from individuals and small businesses of up to Rs 1 lakh per account.
Paytm was earlier slated to begin operations around Diwali last year. In 2015, RBI had awarded 'in-principle' approval to Vijay Shekhar Sharma, the founder of One97 Communications, to set up a Payments Bank along with 10 others.
With the objective of deepening financial inclusion, RBI kicked off an era of differentiated banking by allowing SFBs (small finance banks) and PBs (payments banks) to start services. A total of 21 entities were given in-principle nod last year, including 11 for payments banks.
Later, three entities -- Tech Mahindra, Cholamandalam Investment and Finance Company and a consortium of Dilip Shanghvi, IDFC Bank and Telenor Financial Services -- backed out of the payments bank licensing.
Currently, Airtel is the only player that has commenced Payments Bank operations. Aditya Birla Idea Payments Bank is expected to launch services in the first half of 2017.
Sharma will hold the majority share in Paytm Payments Bank, with the rest being held by One97 Communications. Last month, One97 Communications had restructured its business ahead of the launch of the Payments Bank, merging the wallet business with payments bank operation.
Alibaba Group and its affiliate Ant Financial pumped in USD 680 million into Paytm's parent One97 Communications last year, taking its total shareholding to over 40 per cent in the country's largest mobile wallet operator, Paytm. However, the Chinese entity will not have a direct shareholding in the payments bank.