AKP Banking & Finance Digest- May 06, 2024

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The Reserve Bank of India ("RBI") has highlighted concerns over unfair practices observed in interest charging by lenders during onsite examinations of Regulated Entities...
India Technology
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1. Regulatory Updates

1.1. India

1.1.1. RBI directs review of unfair interest charging practices by lenders

The Reserve Bank of India ("RBI") has highlighted concerns over unfair practices observed in interest charging by lenders during onsite examinations of Regulated Entities ("REs") up to March 31, 2023. These practices include charging interest from the date of loan sanction or agreement execution rather than actual fund disbursement, applying interest for the entire month irrespective of loan duration, and collecting advance instalments while applying interest to the full loan amount. Such practices undermine fairness and transparency in customer dealings. RBI has advised REs to refund excess interest and charges to affected customers and promote the use of online transfers for loan disbursals. To ensure fairness and transparency, all REs are directed to review their loan disbursal methods, interest applications, and other charges and implement necessary system-level changes accordingly. RBI

1.1.2. RBI issues guidance note on operational risk management and resilience for regulated entities

RBI has released a guidance note on 'Operational Risk Management and Resilience for REs', including Non-Banking Finance Companies (NBFCs) and cooperative banks. The guidelines emphasise three lines of defence model, highlighting the threat operational disruptions pose due to various factors like IT threats, frauds, and natural disasters. REs are urged to assess risks comprehensively, monitor exposures, and implement robust internal controls to ensure operational resilience, especially given the growing reliance on third-party providers and virtual working arrangements amid the Covid-19 pandemic. Effective risk management not only strengthens an entity's viability but also supports financial system stability by ensuring continuous critical operations during disruptions. Business Standard

1.1.3. RBI proposes revised framework for electronic trading platforms in response to market integration

RBI has proposed a revised regulatory framework for Electronic Trading Platforms ("ETPs") in response to the growing integration of the onshore forex market with offshore markets. Market makers have been urging the RBI to grant access to offshore ETPs offering Indian Rupee (INR) products. According to the 'Draft Master Direction - Reserve Bank of India (Electronic Trading Platform Directions, 2024)', entities seeking authorisation as ETP operators must maintain a minimum net worth of INR 5 crore (Indian Rupees Five Crore only) and uphold this requirement at all times. The draft specifies that ETP operators authorised by or registered with the RBI must transact only in instruments approved by the central bank. It also mandates that no entity, whether resident or non-resident, can operate an ETP without prior authorisation from or registration with the RBI. RBI

1.1.4. Monetary Penalties

RBI imposes monetary penalties on the following financial institutions:

Name of the Financial Institution

Penalty Imposed


Indira Mahila Saharika Bank Ltd., Malegaon

INR 75,000/- (Indian Rupees Seventy-Five Thousand only)

Contravention of/non-adherence with directions issued by RBI on 'Policy and Practice regarding Nominal Membership' & 'Exposure Norms & Statutory/Other Restrictions - Urban Co-operative Banks ("UCBs").'

Chitragdurga District Co-Operative Central Bank Ltd., Chitradurga

INR 50,000/- (Indian Rupees Fifty Thousand only)

Contravention of/non-adherence with the directions issued by the National Bank for Agriculture and Rural Development ("NABARD") on 'Frauds - Guidelines for Classification, Reporting and Monitoring'.

Samarth Sahakari Bank Ltd., Solapur

INR 50,000/- (Indian Rupees Fifty Thousand only)

Contravention of/non-adherence with directions issued by RBI on 'Exposure Norms and Statutory/Other Restrictions -UCBs'.

Central Co-operative Bank Ltd., Bikaner

INR 2,00,000/- (Indian Rupees Two Lakhs only)

Contravention of/non-adherence with directions issued by NABARD on 'Frauds - Guidelines for Classification, Reporting and Monitoring'.

Vaish Co-operative Adarsh Bank Ltd., New Delhi

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

Contravention of/non-adherence with directions issued by RBI on 'Know Your Customer ("KYC") Directions, 2016.

Lokmangal Co-operative Bank Ltd., Solapur

INR 5,00,000/- (Indian Rupees Five Lakhs only)

Contravention of/non-adherence with directions issued by RBI on KYC Directions, 2016.

Udgir Urban Co-operative Bank Ltd., Udgir

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

Contravention of/non-adherence with directions issued by RBI on 'Exposure Norms & Statutory/Other Restrictions – UCBs and 'Board of Directors – UCBs'.

Satara Sahakari Bank Limited, Mumbai

INR 2,00,000/- (Indian Rupees Two Lakhs only)

Contravention of/non-adherence with certain provisions of section 12(2) read with section 56 of the Banking Regulation Act, 1949 and directions issued by RBI on 'Prudential Norms on Capital Adequacy - Primary UCBs'.

1.2. Bangladesh

1.2.1. Moody's predicts persistent stress in Bangladesh's banking sector despite tightened NPL rules

Moody's Investors Service expects high levels of stressed loans in Bangladesh's banking sector despite the Bangladesh Bank's recent tightening of rules for non-performing loans ("NPLs"). They anticipate a 50 (fifty) basis point increase in NPLs until September 2024. This projection is based on the expectation that banks will intensify collection efforts on overdue loans and use lenient guidelines to restructure them. Last month, the central bank revised its definition of overdue installments for fixed-term loans, reversing relaxed classification and provisioning rules in place since April 2019. Effective September 30, a loan will be deemed overdue if an instalment on a term loan remains unpaid three months after its due date. Furthermore, starting March 2025, even a one-day late instalment payment will be considered overdue. Dhaka Tribune

1.3. Philippines

1.3.1. Plug and Play collaborates with Philippine government to launch National Startup Accelerator Program

Plug and Play, a venture capital firm based in Silicon Valley, has joined forces with the Philippines' Department of Trade and Industry to launch the National Startup Accelerator Program. This initiative aims to bolster the country's startup ecosystem by supporting emerging enterprises in developing innovative products and solutions. The program offers mentorship and access to equity funding opportunities. Jojo Flores, co-founder of Plug and Play, emphasised the importance of crafting a unique narrative for the Philippines' tech startup scene during a discussion with journalists. He highlighted the program's goal to assist 50 (fifty) startups initially, providing them with connections to funding opportunities within Plug and Play's global network. Fintech Philippines

2. Trends

2.1. Concerns mount over RBI's proposed physical KYC requirements for payment aggregators

After RBI proposed new regulations for payment aggregators, concerns have arisen among fintech companies and industry groups regarding the mandatory physical KYC verification for merchants. Decentro and other players like PhonePe, BharatPe, and Mobikwik are urging the RBI to reconsider this requirement, arguing it will prolong merchant onboarding and increase operational costs. Previously, payment aggregators conducted e-KYC, but the new guidelines mandate physical verification for existing merchants and bank-grade KYC for new ones. Aggregators fear that smaller businesses, especially those emerging on social media, might opt out due to additional KYC charges. Some suggest limiting physical verification to high-risk merchants, such as those in gaming or crypto industries, while others propose digital contact point verification (CPV) using advanced technologies like geo-tagging and facial recognition to control costs and improve verification accuracy. Inc 42

2.2. PB Fintech to expand presence in UAE insurance market with strategic stake acquisitions and subsidiary sales

PB Fintech, the parent company of Policybazaar.com, has gained board approval to sell stakes in two subsidiaries and acquire a shareholding in a UAE-based insurance broker. This move aims to expand its offerings in the UAE market. Additionally, the company has approved the sale of its entire shareholding in another subsidiary, VISPL, for INR 2 Crore (Indian Rupees Two Crore only). Furthermore, PB Fintech's plan to acquire a 100 percent (one hundred percent) stake in the UAE-based Genesis Group, which owns a significant share in Dubai's Genesis Insurance Brokers, has been given the green light. Economic Times

2.3. BHIM to Enter ONDC, Challenging Digital Payment Dominance

The BHIM app, or Bharat Interface for Money, is set to join the Open Network for Digital Commerce ("ONDC"), a government-supported nonprofit initiative. This move aims to challenge the current dominance of Google Pay and PhonePe in India's digital payments market. Developed by NPCI, BHIM will expand into e-commerce within ONDC through a separate division. BHIM's entry into ONDC is anticipated to enhance its prospects in the sector. Economic Times

2.4. Claypond Capital and Axis Bank in talks to invest in Gold Loan Startup Rupeek

Investment discussions are underway between Manipal Group chairman Ranjan Pai's Claypond Capital and Axis Bank regarding a potential investment in the gold loan startup Rupeek. This investment round may result in a reduction in the startup's valuation, with some existing investors partially exiting. While the exact investment amount from Pai's office is yet to be finalized, it's expected to play a significant role in the deal. Axis Bank's involvement is seen as crucial, with the deal expected to be valued between USD 200 million (United States Dollar Two Hundred Million only) to USD 250 million (United States Dollar Two Hundred Fifty Million only). Sources suggest that this investment could also be part of Rupeek's partnership with Axis Bank for gold lending. Inc 42

3. Sector Overview

3.1. The impact of generative AI on banking productivity and revenue: Accenture

3.2. Reserve bank data highlights trends in bank credit growth across sectors: RBI

4. Business Updates

4.1. Yes Bank and ANQ collaborate to introduce innovative co-branded credit cards

Yes Bank has partnered with ANQ, a Bengaluru-based fintech company specialising in Decentralised Finance (DeFi) solutions, to launch two co-branded credit cards named Pi and Phi. The Pi card distinguishes itself with its unique feature of offering seamless credit on Unified Payments Interface ("UPI") transactions, eliminating the need for physical cards and ensuring secure payment options for users. Conversely, the Phi card caters to both domestic and international spending requirements, providing users with a physical card for versatile usage. The Pi credit card, operating under the Rupay network, is free from joining or annual fees, offering users financial flexibility without additional costs. Meanwhile, the Phi credit card, operating under the Mastercard network, offers rewards across various categories, such as dining and travel, enabling users to maximise benefits with each expenditure. Times of India

4.2. Groww diversifies financial services portfolio with PA licence for Groww Pay

Groww, a brokerage firm, has obtained an online payment aggregator (PA) licence from RBI for its UPI platform, Groww Pay. This licence enables Groww Pay to facilitate online transactions through its UPI app, expanding Groww's services beyond its traditional investment and broking offerings. Groww had already been providing UPI payment services through Groww Pay Private Limited in partnership with YES Bank since the previous year. The platform primarily focuses on bill payments such as electricity and water bills, DTH recharges, as well as loan and credit card repayments. With backing from Tiger Global, Groww is venturing into credit and payments to retain its current customer base and attract new ones, having previously introduced lending on its platform and obtaining an NBFC licence. CNBC

4.3. Worldline's India arm authorised as online payment aggregator by RBI

Worldline ePayments India Pvt. Ltd., a subsidiary of French digital payments giant Worldline, has received approval from RBI to operate as an online payment aggregator. This authorisation enables the company to onboard merchants and offer digital payment solutions across India. Worldline entered the Indian market in 2017 through the acquisition of Chennai-based payment platform MRL PosNet and has since provided various services, including PoS terminals and online payment solutions. The authorisation comes amid increased regulatory scrutiny in the digital payments sector, with the RBI directing platforms to monitor merchant transaction activities for compliance with anti-money laundering laws. Inc 42

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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