Banking Regulation Amendment Bill, 2020 passed. What it means for banks, customers

Source:, Sept 17, 2020

Lok Sabha on Wednesday passed Banking Regulation Amendment Bill, 2020 to bring the cooperative banks under the supervision of the Reserve Bank of India. In the wake of deteriorating condition of cooperative banks in the country, the central government amended the Banking Regulation Act, 1949.

“For the last two years, depositors of cooperative banks and small banks are facing problems. We are trying to bring this amendment in order to protect the depositors,” finance minister Nirmala Sitharaman said on Thursday in the Lok Sabha.

Commenting on the new Bill, Mandar Agashe, founder, managing director & vice chairman, Sarvatra Technologies said, “RBI can now leverage the existing and deep entrenched network of co-operative banks instead of creating a new one which will help offer services to the last mile in an efficient manner.”

The Bill will replace the the Banking Regulation (Amendment) Ordinance, 2020. In June, the union cabinet approved the ordinance to bring 1,482 urban and 58 multi-state cooperative banks under the supervision of the central bank.

All you need to know about the new Banking Regulation (Amendment) Bill, 2020:

1) The Bill allows the central bank to initiate a scheme for reconstruction or amalgamation of a bank without placing it under moratorium.

2) If the central bank imposes moratorium on a bank, the lender can not grant any loans or make investments in any credit instruments during the moratorium tenure, according to the Bill.

3) The co-operative banks will be allowed to issue equity, preference, or special shares on face value or at a premium to its members, or to any other person residing within their area of operations. The banks may also issue unsecured debentures or bonds or similar securities with maturity of ten or more years to such persons. However, a prior approval from RBI is mandatory for such issuance.

4) No person will be entitled to demand payment towards surrender of shares issued to him by a co-operative bank, the Bill states.

5) The Bill mentions that RBI may exempt a cooperative bank or a class of cooperative banks from certain provisions of the Act through notification. These provisions are related to employment, the qualification of the board of directors and, the appointment of a chairman.

6) RBI may supersede the board of directors of a multi-state co-operative bank for up to five years under certain conditions. These conditions include cases where it is in the public interest for RBI to supersede the Board, and to protect depositors.

7) The Bill discards the provision of Banking Regulation Act, 1949 that cooperative banks cannot open a new place of business or change the location of the banks outside of the village, town, or city in which it is currently located without permission from RBI.

8) The changes will not affect the existing powers of the state registrars of co-operative societies under state laws. “This Bill does not regulate cooperative banks. The amendment is not for central govt to take over the cooperative banks,” Sitharaman said.

Exclusion: The Banking Regulation Amendment Bill, 2020 will not be applicable to a) Primary agricultural credit societies, b) Cooperative societies whose principal business is long term financing for agricultural development.

These two societies must not: a) use the term ‘bank’, ‘banker’ or ‘banking’ in their name or in connection with their business, b) Act as an entity that clears cheque.

Govt moves to tighten regulation of co-op banks

Source: The Hindu Business Line, Sept 14, 2020

New Delhi: The Banking Regulation (Amendment) Bill 2020 to empower the Reserve Bank of India (RBI) to effectively handle the mishaps in private banks without allowing any loss of public confidence and disruption in the financial system was introduced in the Lok Sabha on Monday.

The Bill, which seeks to replace an ordinance issued by the Government in last week of June, will allow the RBI to prepare a reconstruction scheme (for failed banks) without having to first make an order of moratorium on barring deposit withdrawals. This will enable the RBI to find suitors for a stressed bank. It is understood that the recent YES Bank debacle and its subsequent rescue episode had prompted the Government to strengthen the hands of the RBI on this front.

Besides, the Bill also brings certain cooperative banks — urban cooperative banks (UCBs) and multi-state cooperative banks (MSCBs) — under the RBI supervision process applicable to commercial banks as part of efforts to protect the depositors of such cooperative banks.

Replying to objections raised to the introduction of the Bill in the Lower House on Monday, Finance Minister Nirmala Sitharaman said the Bill is primarily aimed at protecting depositors of cooperative banks and is focused only on those cooperatives that use the word ‘bank’ and therefore receiving and dealing with deposits.

Congress’ objection

On the issue of Congress MP Shashi Tharoor’s point that there has been a legal challenge in some court and therefore the Lok Sabha cannot go ahead with the introduction of the Bill, Sitharaman said there is no interlocutory relief that has been provided in the court and also there are no directions given by the court in the matter against the operation of the ordinance.

She highlighted that cooperative banks in the country have been regulated by the RBI since 1965 and the Bill only seeks to extend the applicability so that some of the banking regulation laws are also going to be applicable to them.

She asserted that State Cooperative laws are not being proposed to be amended. “State cooperative laws are not being touched in this proposed amendment”, she said.

This is being necessitated because cooperative banks are in a weak financial position and depositors are suffering. As many as 277 Urban cooperative banks are reporting losses; 105 UCBs are unable to meet minimum regulatory capital requirements; 47 are having negative net worth and 328 UCB having more than 15 per cent Gross NPA ratio as of March 2019.

“To protect depositors and in public interest, early legislation is required”, she said.

Two other Bills

In a separate move, the Finance Minister also introduced in the Lok Sabha the Factoring Regulation (Amendment) Bill 2020, which will pave the way for certain non-banking finance companies to undertake factoring business as well and also participate as a financier in the TReDS platform. The Bill will also pave the way for the RBI to frame regulations on ‘factoring’ business.

The Bilateral Netting of Qualified Financial Contracts Bill 2020 to help further develop the financial markets was also introduced. The proposed law on bilateral netting will be a significant enabler for efficient margining and the capital saving would enable banks to provide efficiency in offering hedging instruments to businesses in India. It would also help catalyse the corporate bond market through developing the credit default swap market.

Netting enables two counter parties in a bilateral financial contract to offset claims against each other to determine a single net payment obligation due from one counter party to other in the event of default.

From 1 Oct, 5% tax on foreign fund transfer

Source:, Sept 10, 2020

Any amount sent abroad to buy foreign tour packages, and every other foreign remittance made above ₹7 lakh, will attract a tax-collected-at source (TCS) beginning 1 October unless tax is already deducted at source (TDS) on that amount.

While the tax on foreign tour packages will be 5% for any amount, for other foreign remittances the tax will kick in only for the amount spent above ₹7 lakh.

For education-related foreign remittances funded by loans, though, the tax will be just 0.5% for the amount above ₹7 lakh, considering many Indian students take loans to pursue education abroad.

Under the Reserve Bank of India’s liberalized remittances scheme, individuals can remit a maximum of $250,000 abroad every year. The provision to collect tax on remittances was introduced in the Finance Act of 2020 subject to riders and notified on 27 March to take effect from 1 October.

Many financial institutions have communicated the applicability of tax-collected-at source on remittances from October to customers. The Union finance ministry has been extending the scope of both tax-deducted at source and tax-collected at source, and encouraging electronic payments in order to have a better idea of transactions in the Indian economy and to be able to match the spending pattern of assessees with their reported taxable income.

Fiscal deficit likely to touch 7% in FY21 against 3.5% budget estimate

Source: Financial Express, Aug 30, 2020

India’s fiscal deficit is expected to touch 7 per cent of GDP in 2020-21 fiscal as against budget estimate of 3.5 per cent, with revenue collections being hit amid disruptions in economic activities due to lockdowns, according to Brickwork Ratings.

“The impact of the lockdown on economic activity shows up starkly in the trends in the central government revenue collection during the first three months of fiscal 2020-21,” the agency said in a report.

As per data released by the Controller General of Accounts (CGA), the central government’s revenue in Q1 (April-June) of the current fiscal year is much lower than collections for the corresponding period last year. Revenue from income taxes (personal income tax and corporate income taxes) was lower by 30.5 per cent, and the GST by almost 34 per cent during the period.

On the other hand, there is a sharp increase in expenditure (by 13.1 per cent) due to additional spending incurred to save lives and livelihoods and to provide stimulus under the ‘Aatmanirbhar Bharat’ programme. “This has resulted in the fiscal deficit widening to 83.2 per cent of the budgeted target in the first quarter itself,” the agency said.

Brickwork Ratings expects the economy to gradually pick up from the third quarter of this fiscal. “Given early signs of resumption in business activity, we expect revenue collections to reach pre-Covid levels towards the end of the third quarter, hoping that festive season demand induces consumption and spending.

“However, if the current situation prolongs further, the government may face acute burden of fund shortage to fulfil the budgeted expenditure even after considering the announced higher borrowing of Rs 12 lakh crore,” it said.

This, it said, could cause a huge cut in capital expenditure as well as centrally sponsored schemes, except MNREGA and the National Health Mission. The government has already increased the allocation of Rs 40,000 crore to the MNREGA scheme in the Aatmanirbar scheme, and the funds are expected to be utilised fully in the current year.

“Given the expected shortfall in revenue, the fiscal deficit of the central government could reach approximately 7 per cent of the GDP in 2020-21, assuming the nominal GDP at last year’s level,” it said. Borrowings may further increase if the contraction in the economy is more severe than early estimates. As states too have been allowed additional borrowings amounting to 2 per cent of the GDP, the consolidated fiscal deficit could reach 12 per cent of the GDP. Among the major economies, only the United States has a higher deficit than this, it added.

Government debt set to hit historic high of 91% of GDP in FY21, according to report

Source: The Economic Times, Aug 26, 2020

Mumbai: General government debt — which is the combined liabilities of the Centre and states — is likely to hit a record 91 per cent of GDP this fiscal, a brokerage report said on Wednesday. This will be the highest in record since data began to be maintained in 1980.

General government debt-to-GDP ratio stood at 75 per cent in FY20, as per the report by economists of Motilal Oswal Financial Services.

The debt ratio is likely to be at a high 80 per cent by FY30 and is unlikely to fall to the targeted 60 per cent even by FY40 without further hurting growth, it added.

The government’s capital outlays have been playing a bigger role in the overall economic growth for the past many years.

At the same time, since FY16, government debt has also been rising continuously.

Government debt stood at 66.4 per cent of GDP in FY 2000 and 66.6 per cent in FY15. Since then, it has been heading north at a faster pace, reaching 75 per cent in FY20.
The report says unless private spending picks up strongly, real GDP growth over the next decade will be slower, averaging at 5-6 per cent as against 7 per cent in the 2010s.

“The combined general government debt rose to 75 per cent of GDP in FY20 from 70 per cent in FY18. It is likely to reach 91 per cent of GDP in FY21, which is the highest since 1980 when data was made available and will stay at above 90 per cent of GDP up to FY23, before moderating slowly to 80 per cent by FY30,” the report said.

A surge in public debt will restrict the government’s ability to spend significantly in the current decade, as it has done in the past few years, it said.

While real GDP growth averaged at 6.8 per cent between FY14 and FY20, real fiscal spending grew at an average of 9 per cent during the period.

“Since a large part of non-interest revenue spending like defence, salaries and pensions is fixed, there is a high possibility fiscal investment will grow at an even slower rate in the current decade,” it added.

Digital payments market in India likely to grow 3-folds to Rs 7,092 trillion by 2025: Report

Source: The Economic Times, Aug 23, 2020

New Delhi: Digital payments in India are expected to grow over three-folds to Rs 7,092 trillion by 2025 on account of government policies around financial inclusion and growing digitisation of merchants, according to a research report. The country’s digital payment market was worth around Rs 2,162 trillion in 2019-20, RedSeer Consulting said in its report.

“The current 160 million unique mobile payment users will multiply by 5 times to reach nearly 800 million by 2025. This growth will be driven by a number of demand and supply-side drivers,” the Bengaluru-based management consultancy said.

“Mobile payments will drive around 3.5 per cent of total digital payments of Rs 7,092 trillion by financial year 2025, up from the current 1 per cent. The total mobile payment users who currently stand at about 162 million would reach around 800 million during this period,” the report said.

According to the report, wallets will continue to play a key role in its growth with the continuous increase in both frequency and user base.

By 2025, wallets are expected to have a higher penetration and lower-income would eventually drive multiple small-ticket transactions, it said.

RedSeer, which serves various e-commerce companies and venture capitalists including Tiger Global, estimates that the growth of digital payments specifically will come out by increasing penetration with offline merchants and the penetration with the unorganised retail sector will grow on the back of increased merchant digitisation in cities beyond tier II.
Redseer sees COVID-19 as a catalyst to digital payments across India.

“COVID-19 seems like another demonetisation-like catalyst for the industry. Digital payment providers have been quite hands-on in terms of responding to this situation, by offering enhanced support on essentials such as offering groceries, masks, sanitisers, COVID-19 insurance, offering integration with donations to PM fund and other essential product and services,” RedSeer Consulting founder and CEO Anil Kumar said.

According to RedSeer, digital payments share of grocery stores increased to 75 per cent due to COVID-19 as people preferred paying through mobile phone due to safety concerns.

“There is significant headroom for growth of EDC (electronics data capture) terminals in the small retailer universe. Large and mid-sized retailers use more than 2 EDC terminals. Today we have around 5 million terminals, which is almost 5 times that in financial year 2015,” the report said.

According to the report, the payment gateway aggregator market in India, which is currently estimated to be at Rs 9.5 trillion, is expected to grow by 2.4 times driven by large value transactions. It is expected to grow at a compounded annual growth rate of 19 per cent in the next 5 years to reach Rs 22.6 trillion by FY 2025.

“The payment gateway market today is very competitive, and all leading players are fighting for the market share. Paytm leads this pack and has grown the fastest followed by BillDesk with marquee government clients,” the report said.

Govt eases credit guarantee scheme norms for stressed NBFCs, HFCs liquidity

Source: Business Standard, Aug 17, 2020

Mumbai: With a view to provide additional liquidity to crisis-ridden NBFCs and housing finance companies (HFCs), the government on Monday relaxed norms for Partial Credit Guarantee Scheme (PCGS) for purchase of bonds and commercial papers by public sector banks and extended its period by three months.

Keeping in view the progress under the Scheme and the fact that the stipulated limit for AA/AA- rated bonds/CPs (commercial papers) has been nearly reached, while the appetite for lower rated papers is nearing saturation considering their lower ticket size, the government has now decided to modify PCGS 2.0.

“Additional 3 months have been granted to build up the portfolio. At the end of six months, i.e. by November 19, 2020, the portfolio shall be crystallised based on actual amount disbursed, for the Guarantee to come into effect,” a finance ministry statement said.

At the portfolio level, AA and AA- investment sub-portfolio under the Scheme should not exceed 50 per cent of the total portfolio of bonds/CPs purchased by public sector banks (PSBs) under the Scheme as against 25 per cent stipulated earlier.

“It is expected that the above modification will provide greater flexibility to PSBs in purchasing bonds/CPs under PCGS 2.0,” it said.

As part of Rs 20.97 trillion ‘Aatmanirbhar Bharat Abhiyan’, announced by the government, PCGS 2.0 was launched on May 20 to provide portfolio guarantee for purchase of papers with a rating of AA and below, issued by NBFCs/HFCs/micro finance institutions (MFIs), by PSBs.

It was envisaged to purchase bonds or CPs of Rs 45,000 crore under PCGS 2.0 of which the maximum headroom permissible for purchase of papers rated AA/AA- was 25 per cent of the total portfolio i.e. Rs 11,250 crore, the statement said.

In addition, the government had separately announced the Special Liquidity Scheme (SLS) for purchase of CPs and non-convertible debentures (NCDs) issued by NBFCs/HFCs with a residual maturity of up to 3 months, which could be extended for a further period of upto 3 months, of a total value not exceeding Rs 30,000 crore to be extended by the amount required as per need.

Under PCGS 2.0, PSBs have approved purchase of bonds/CPs rated AA/AA- issued by 28 entities and bonds/CPs rated below AA- issued by 62 entities, amounting to Rs 21,262 crore overall.

The average ticket size of bonds/CPs rated below AA- is significantly lower than the average ticket size of bonds/CPs rated AA/AA-.

Under SLS, proposals of Rs 7,464 crore have been approved for purchase so far, it said.

Any NBFC, including MFIs registered with RBI under the RBI Act, 1934 (excluding those registered as Core Investment Companies) and any HFC registered with the National Housing Bank under the National Housing Bank Act, 1987 which is complying with certain specified conditions, is eligible to raise funding from this facility.

Earlier this month, the government widened the scope of the Rs 3-lakh crore MSME credit guarantee scheme by doubling the upper ceiling of loans outstanding to Rs 50 crore and including certain individual loans given to professionals like doctors, lawyers and chartered accountants for business purposes under its ambit.

Briefing the media about the changes made, Finance Minister Nirmala Sitharaman had said the scheme will now include individual loans given for business purposes within the ambit of the Emergency Credit Line Guarantee Scheme (ECLGS), subject to the eligibility criteria of the scheme.

To include more companies to take benefit of the scheme, the upper ceiling of loans outstanding as on February 29 for being eligible under the scheme was increased from Rs 25 crore to Rs 50 crore.

The maximum amount of guaranteed emergency credit line (GECL) funding under the scheme would also correspondingly increase from Rs 5 crore at present to Rs 10 crore, she said.

Announced as part of the government’s economic package to tackle the impact of COVID-19, the scheme is now applicable for companies with an annual turnover of Rs 250 crore as against the earlier Rs 100 crore. The finance minister had said that the intended changes are likely to expand the ambit of ECLGS to make an additional amount of more than Rs 1 lakh crore eligible under the scheme.

Forex reserves climb to record $538.191 bn, gold reserves up at $39.785 bn

Source: Business Standard, Aug 14, 2020

The country’s foreign exchange reserves swelled by $3.623 billion to a record high of $538.191 billion in the week ended August 7, RBI data showed on Friday.

In the previous week ended July 31, the reserves had increased by $11.938 billion to reach $534.568 billion.

The reserves had crossed the half-a-trillion mark for the first time in the week ended June 5, 2020, after it had jumped by $8.223 billion to $501.703 billion.

In the week ended August 7, the forex kitty rose on the back of gains in foreign currency assets (FCAs), a major component of the overall reserves.

FCAs rose by $1.464 billion to $492.293 billion in the reporting week, the RBI data showed.

Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

Gold reserves were up by $2.160 billion to $39.785 billion.

The special drawing rights with the International Monetary Fund (IMF) increased $6 million to $1.481 billion. However, the country’s reserve position with the IMF declined by $7 million to $4.632 billion during the reporting week, the data showed.

India announces USD 500 million assistance for major connectivity project in Maldives

Source: The Economic Times, Aug 13, 2020

NEW DELHI: India will fund the implementation of a major connectivity project in Maldives through a USD 400 million line of credit and USD 100 million grant, External Affairs Minister S Jaishankar said on Thursday after holding wide-ranging talks with his Maldivian counterpart Abdulla Shahid. The 6.7 km Greater Male Connectivity Project (GMCP) will be the largest civilian infrastructure project in Maldives, connecting Male with three neighbouring islands – Villingili, Gulhifahu and Thilafushi, officials said.

People familiar with the GMCP said it was a key election promise of the ruling MDP for which the President of Maldives Ibrahim Mohamed Solih sought India’s assistance during his meeting with Jaishankar in September last year.

“India will fund the implementation of Greater Male Connectivity Project through a USD 400 mn LOC & USD 100 mn grant. This 6.7 km bridge project connecting Male with Gulhifalhu Port & Thilafushi industrial zone will help revitalise and transform Maldivian economy,” Jaishankar tweeted.

He also announced the start of regular cargo ferry service between India and Maldives to boost trade and commerce between the two countries.

“We’re also starting an air travel bubble with Maldives to sustain and promote the dynamic people-to-people ties between the two countries,” he added.

The GMCP project will include construction of a bridge-and-causeway link spanning 6.7 kms.
“Once completed, this landmark project will streamline connectivity between the four islands, thereby boosting economic activity, generating employment and promoting holistic urban development in the Male region,” the Ministry of External Affairs (MEA) said.

India is also extending financial support for construction of a port in Gulhifahu.

On the ferry service, Jaishankar underscored its significance in enhancing bilateral trade and connectivity and in further boosting the economic partnership between the two countries.

“The cargo ferry service will enhance sea connectivity and provide predictability in supplies for importers in Maldives and exporters in India. It will also reduce logistics costs and times for traders,” the MEA said.

Referring to creation of an air bubble, it said Maldives is the first neighboring country with which an air bubble is being operationalized.

“The air bubble symbolises India’s support to shore up tourism arrivals and revenues in the Maldives. Health protocols in both countries will be strictly followed. The first flight under the Air Bubble is expected to commence on August 18,” the MEA said.

In the meeting, Jaishankar also conveyed to Shahid India’s decision to renew quotas for supply of essential commodities to Maldives for the year 2020-21.

“The commodities include food items like potatoes, onions, rice, wheat, flour, sugar, dal and eggs as well as river sand and stone aggregates. The quotas assure food security, and the supply of essential construction items, and thereby provide certainty and price stability for such essential items in the Maldives,” the MEA said.

Japan to provide financial assistance to 10 Japan-India tech tie-ups

Source: The Hindu Business Line, Aug 12, 2020

In a move to step up Indo-Japanese digital partnership, the Japanese government has decided to grant financial assistance to around 10 of its companies, including automobile major Suzuki Motor Corp and optical device manufacturer Olympus Corp, for investing in innovative solutions in India in tie-ups with Indian IT firms, an official has said.

The subsidy totalling around ¥ 100 million (about $1 million), is part of Japan’s Covid-19 economic recovery measure, an official told BusinessLine.

The collaborations that have been approved are in areas ranging from health and transport to agriculture and equipment, most of them aimed at enhancing the welfare of common people and serve the social agenda, the official said.

“Right now it is too early to disclose the names of the companies involved but the project plans are all ready which was a necessary condition to apply to this subsidy scheme,” the official.

Two of the Japanese companies involved are Suzuki Motor and Olympus while one of the Indian companies is IT major HCL, another source said.

The projects short-listed for financial assistance all use technology to solve daily problems being faced by people.

Three of the collaborations are in the area of health. One is for development of an online ‘Doctor to Doctor’ communication platform. A medical equipment will be developed to detect digestive system disorder at lower cost by utilising cloud and Artificial Intelligence (AI) system.

The second collaboration on health is between an Indian textile company and a Japanese IoT (internet of things) company that will develop a wearable device and an app to enable a remote health monitoring solution to hospitals taking care of Covid-19 patients.

Another collaboration is in the area of mental health where technology will be used for analysing voices and for tele-diagnosis to provide psychiatric care, the official said.

To provide safe and cheap transportation in rural areas, a collaboration between an Indian IT company and a Japanese auto company to develop a smart phone app matching passengers and buses, will also be financed.

The other collaborations short-listed for financing include analysing agriculture and satellite image, providing digital advertisement for three-wheelers, utilising drone technology, using robotics for photovoltaic cleaning, working on surveillance camera using AI analysis and aggregating the demand of machineries for prototypes.

“Although, as of now, it is a Japanese government initiative, but, case by case, the Indian government’s support too is likely to be sought. For example, when a new service or product is successfully developed, the companies may need to get approval from Central government or related organisations,” the official said.

In 2018, India and Japan had established a digital partnership, and the recent initiative of Japan is being seen as a move to strengthen it.

Japan was the fourth largest investor in India, after Mauritius, Singapore and The Netherlands, accounting for cumulative Foreign Direct Investments (FDI) of $33.5 billion in 2000-20 period accounting for 7.2 per cent of India’s total inflows.