CA Sarthak Gupta’s Post

𝐒𝐄𝐁𝐈 𝐅𝐥𝐚𝐠𝐬 𝐀𝐱𝐢𝐬 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐟𝐨𝐫 𝐕𝐢𝐨𝐥𝐚𝐭𝐢𝐧𝐠 𝐃𝐞𝐛𝐭 𝐈𝐬𝐬𝐮𝐞 𝐑𝐞𝐠𝐮𝐥𝐚𝐭𝐢𝐨𝐧𝐬, 𝐈𝐦𝐩𝐨𝐬𝐞𝐬 𝐁𝐚𝐧 ⚠ India’s markets regulator SEBI has barred Axis Capital from acting as a merchant banker for new debt issues due to alleged violations of regulations related to bond repayment guarantees. This interim ban will remain in effect until further notice. ⚠ Axis Capital has been given 21 days to present its defence before SEBI, allowing the firm to respond to the allegations and provide explanations. ⚠ SEBI's investigation revealed that in March 2021, Axis Capital provided a repayment guarantee for Rs 2.6 billion ($31.09 million) bonds issued by Sojo Infotel, a holding company of Lava Group. Sojo Infotel was unable to pay the bondholders in March 2024, resulting in Axis Capital stepping in to cover the payments. ⚠ SEBI noted that Axis Capital’s repayment guarantee for Sojo Infotel's bonds was not allowed under current regulations, as merchant bankers are only permitted to take on market risk, not the credit risk of repayment in case of a default. ⚠ Axis Bank clarified that the ban on Axis Capital does not impact its financials and that no SEBI order has been passed against Axis Bank itself. Axis Capital can continue operating in other segments like equity capital markets. ⚠ During its investigation, SEBI found that Axis Capital had made similar repayment guarantee agreements with five other bond issuers, which further violated the permissible underwriting regulations. ⚠ SEBI raised concerns that Axis Capital’s guarantee agreements exposed its parent company, Axis Bank, to the risk of default, which should not have occurred since merchant bankers are restricted from engaging in banking activities such as taking on credit risk. ⚠ The regulatory action against Axis Capital underscores SEBI's strict enforcement of merchant banking rules, highlighting the need for financial institutions to adhere to established guidelines and avoid overstepping into banking activities, such as taking on credit risk, which could have broader implications for their operations and parent companies. Follow Us(Investeem India) for more Market Updates SAPTARSHI PANDEY #Finance #AxisBank #SEBI

Why The Banking Regulator Is Not Comfortable In Allowing More Banks To Open Non-bank Arms? Very recently, the Reserve Bank of India rejected the application of Canara Bank to open subsidiary in the form of NBFC for its credit card business. Over the past two decades, the growth of the capital market, listing of companies on stock exchange and the expansion of the realty industry have fuelled demand for loans against pledge of shares to bet on initial public offerings, carry out creeping acquisition, or simply trade in the secondary market, while developers, heavily dependent on usurious private lenders, tapped banks for institutional finance. Banks, which have severe restrictions on exposures to share brokers, builders and stock investors, overcame the regulatory hurdles by incorporating NBFCs, primarily as wholly-owned subsidiaries, to do the businesses, which, though in some cases risky, have been lucrative. Some banks are sidestepping the rules to offer a bouquet of services (through the NBFC) to preserve and thicken relationships with corporate groups. However, at times, this has encouraged sharp practices like evergreening of loans-deals where the NBFC or the life insurance or asset management arm of the bank subscribing to debentures to let a corporate repay a bank loan to escape default and before the loan became a non-performing asset. When the RBI comes to know such practices in some banks, it has refused permission for forming non-bank arms in order to avoid regulatory arbitrage by such banks. RBI’s main worry is that if the non-bank gets into trouble, the shock is transmitted to the depositors of the parent bank. Regulatory arbitrage refers to the practice whereby the firms capitalise on loopholes in regulatory systems to circumvent unfavourable regulations. Thanks for reading..

Reserve Bank of India (RBI) has imposed, today monetary penalty on Five of its leading Banks & NBFC separately including two of HFC on finding “Deficiencies in regulatory compliance” by way of non-compliance of certain directions under different Circulars issued by RBI. The sum and substances of directions/Circulars and regulatory deficiencies are mentioned below for information and learning: DIRECTIONS/CIRCULARS: 1) 'Co-Lending by Banks and NBFCs to Priority Sector’. 2) ‘Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks’. 3) 'Master Circular on Branch Authorisation’ 4) 'Non-Banking Financial Company - Housing Finance Company (Reserve Bank) Directions, 2021' 5) ‘Creation of a Central Repository of Large Common Exposures-Across Banks’. 6) ‘Know Your Customer (KYC)’. 7) ‘Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016’ REGULATORY DEFICIENCIES: RBI specified/highlighted following regulatory deficiency by Bank & NBFC: (i)           Failed to ensure the loan agreements with the borrowers clearly contained the features of the co-lending arrangement and the roles and responsibilities of the company and co-lending bank and (ii)          Failed to ensure all the details of the arrangement were disclosed to the customers upfront, and their explicit consent was taken. (iii)         paid remuneration in the form of commission to its certain employees under a scheme for incentivizing recoveries of Non-Performing Assets, (iv)         Failed to inform IBA regarding the termination of service providers and (v)          Paid commission/fee to certain business correspondents which did not have a variable component. (vi)         Failed to take prior written permission of the RBI for change in management resulting in change of more than 30 per cent of its directors, excluding independent directors, warranting imposition of monetary penalty. (vii)        Failed to ensure data accuracy and integrity in CRILC reporting and (viii)       Failed to carry out risk categorisation of certain customers. Being compliance professional, it is high time to be more vigilant and ensure that the direction/instructions issued by RBI from time to time is complied in letter and spirit so as to remove the chances of non-compliance as well as of attracting monetary penalty. Copies of all five-press release issued today by RBI are attached herewith for ready reference of all.

#MarketsWithMC | Securities and Exchange Board of India (SEBI) has warned merchant bankers against being callous over disclosures or repeating omissions in DRHPs. Here's more ⬇ #Sebi #Banks #Banking

Why The Banking Regulator Is Not Comfortable In Allowing More Banks To Open Non-bank Arms? Over the past two decades, the growth of the capital market, listing of companies on stock exchange and the expansion of the realty industry have fuelled demand for loans against pledge of shares to bet on initial public offerings, carry out creeping acquisition, or simply trade in the secondary market, while developers, heavily dependent on usurious private lenders, tapped banks for institutional finance. Banks, which have severe restrictions on exposures to share brokers, builders and stock investors, overcame the regulatory hurdles by incorporating NBFCs, primarily as wholly-owned subsidiaries, to do the businesses, which, though in some cases risky, have been lucrative. Some banks are sidestepping the rules to offer a bouquet of services (through the NBFC) to preserve and thicken relationships with corporate groups. However, at times, this has encouraged sharp practices like evergreening of loans-deals where the NBFC or the life insurance or asset management arm of the bank subscribing to debentures to let a corporate repay a bank loan to escape default and before the loan became a non-performing asset. When the RBI comes to know such practices in some banks, it has refused permission for forming non-bank arms in order to avoid regulatory arbitrage by such banks. RBI’s main worry is that if the non-bank gets into trouble, the shock is transmitted to the depositors of the parent bank. Regulatory arbitrage refers to the practice whereby the firms capitalise on loopholes in regulatory systems to circumvent unfavourable regulations. Thanks for reading..

Funds set aside to protect insured bank deposits in the EU have soared, raising the total by nearly 15 per cent to €73bn by the end of 2023. The increase is feeding banks’ and watchdogs’ worries about crashes caused by en masse deposit withdrawals. It comes after the failures of Silicon Valley Bank and Credit Suisse highlighted deposit flight risk. Deposit guarantees may stop withdrawals pitching a bank towards failure. The European Banking Authority (EBA) has revealed that insured bank deposits covered by EU deposit guarantee schemes reached €8.5tn between 2022 and 2023, marking a 1.7 per cent increase from the previous year. Fernando Restoy Lozano, chair of the Financial Stability Institute, emphasised last year that recent bank failures have “shone a spotlight on the significant increase in non-covered deposits and the structural risks posed by banks’ reliance on them”. While the EU strengthens its safeguards, uninsured deposits continue to rise in the US. Federal Deposit Insurance Corporation (FDIC) data from the end of May showed an estimated growth of $63bn for that quarter, or 0.9 per cent, representing the first reported increase since the fourth quarter of 2021. This trend raises questions about the potential for future bank runs. https://lnkd.in/eDbibV3p

📢 𝐍𝐨𝐧-𝐝𝐞𝐩𝐨𝐬𝐢𝐭𝐨𝐫𝐲 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐈𝐧𝐬𝐭𝐢𝐭𝐮𝐭𝐢𝐨𝐧𝐬 The OCC (Office of the Comptroller of the Currency), the Board of Governors of the Federal Reserve System, and (Federal Deposit Insurance Corporation (FDIC) are proposing to update the Call Report, i.e., FFIEC 031, 041, and 051, and FFIEC 002, forms increasing the granularity of exposures to non-depository financial institutions (“NDFIs”) and to improve reporting consistency. 📑 The purpose is to enhance the understanding of NDFI #exposure, #risks, and #performance_trends, and would enable grouping #loan_exposures that “exhibit similar underlying risk characteristics while addressing the diversity in practice on the reporting of these loans” that exists today. For the FFIEC 031 and FFIEC 041, Memorandum item 10 (currently “not applicable”) would be renamed “Loans to non-depository financial institutions” and would include the following subitems to capture direct lending exposures to NDFIs: ◾ 10.a, “Loans to mortgage credit intermediaries;” ◾ 10.b, “Loans to business credit intermediaries;” ◾ 10.c, “Loans to private equity funds;” ◾ 10.d, “Loans to consumer credit intermediaries;” and ◾ 10.e, “Other loans to non-depository financial institutions.” The proposed revisions to the FFIEC 002 are intended to align with similar changes proposed to the Call Report, Schedule RC–C, Part I, as applicable. The proposed granular reporting would allow for more accurate analysis of bank financial statements for applicable institutions and performance metrics. These revisions and clarifications are proposed to be effective as of the June 30, 2024, report date. #RegulatoryReporting #RegTech #VERMEG

Important Update: LEI Guidelines Extended to UCBs and NBFCs The Reserve Bank of India (RBI) has announced an extension of LEI (Legal Entity Identifier) guidelines to Primary (Urban) Co-operative Banks (UCBs) and Non-Banking Financial Companies (NBFCs). This update requires non-individual borrowers with an aggregate exposure of ₹5 crore and above from banks and financial institutions to obtain LEI codes in accordance with the specified timeline. "Exposure" includes both fund-based and non-fund-based (credit and investment) exposure from banks and financial institutions to the borrower. The aggregate sanctioned limit or outstanding balance (whichever is higher) will be considered for this purpose.Non-compliant borrowers who do not obtain LEI codes from an authorized Local Operating Unit (LOU) will face restrictions on accessing new exposures and renewals/enhancements of existing exposures. However, Central and State Government Departments/Agencies (excluding Public Sector Undertakings) are exempt from this provision. Stay informed and ensure compliance to avoid disruptions in your financial activities. Key Timeline for Borrowers to Obtain LEI Attention to all non-individual borrowers with exposure from banks and financial institutions! Here's a crucial timeline for obtaining your Legal Entity Identifier (LEI): Above ₹25 crore: Obtain your LEI by April 30, 2023. Above ₹10 crore, up to ₹25 crore: Obtain your LEI by April 30, 2024. ₹5 crore and above, up to ₹10 crore: Obtain your LEI by April 30, 2025. Make sure to adhere to these deadlines to ensure smooth financial transactions and compliance with regulatory requirements. Stay on top of your obligations and secure your LEI ahead of these deadlines! For more information, please refer to the official guidelines from the Reserve Bank of India (RBI). Let’s work together for a transparent and secure financial system.

The #mastercircular of Reserve Bank of India (RBI) referred by the #NBFCs, does not give a direct answer to what is the acceptable #rateofinterest to be charged to #consumers. Instead of that, it puts the onus onto the #Boards of its #regulatedentities. With the regulatory action of last week on certain regulated entities, I write in BW Businessworld that “ishaara kaafi nahin hai.” It is better if the #regulators spell out their #expectations. Clearly. With no ambiguity. There lies the opportunity for the regulator to offer ‘informal guidance’ to entities with operational queries. This recent - interest rate - query is only one of the many angst of the sector with so many other queries. Until industry doubts are resolved, the #perception of regulatory ‘#overreach’ might persist. https://lnkd.in/du7Djvwh

On October 10, 2024, the Reserve Bank of India (RBI) has introduced a framework for Credit Institutions (CIs) whose licenses or Certificates of Registration (CoR) have been cancelled, addressing gaps in credit reporting for affected borrowers. Under the Credit Information Companies (Regulation) Act, 2005 (CICRA), only registered CIs can provide credit information to Credit Information Companies (CICs). When a CI’s license is revoked, it can no longer report borrower repayment histories, potentially harming borrowers who continue to repay their loans. To mitigate this, the RBI allows these CIs to report credit information for borrowers onboarded prior to cancellation, ensuring accurate repayment histories are maintained. This framework will be implemented within six months and applies retroactively to prior cancellations. Applicability This mechanism is applicable to all Commercial Banks (including Small Finance Banks and Regional Rural Banks), Primary (Urban) Co-operative Banks, State and Central Co-operative Banks, Non-Banking Financial Companies (NBFCs), Asset Reconstruction Companies, and Credit Information Companies that have had their licenses or CoRs cancelled by the RBI. Key Points 1. CIs can continue reporting borrower credit information until loans are fully repaid or the entity is wound up. 2. Access to Credit Information Reports will be limited to previously reported borrowers. 3. CICs will waive annual and membership fees for these entities, tagging them as "Licence Cancelled Entities." 4. All other reporting instructions remain unchanged. This initiative underscores the RBI's commitment to maintaining credit information integrity and protecting borrower rights. #commercialbanks #smallfinancebanks #regionalruralbanks #cooperativebanks #ARCs #compliance #compliancematters #compliancemanagement #complianceprofessionals #compliancesupport #complianceautomation #complianceservices #compliancejobs #compliancedigital #compliancetech #nbfcs #fintech #fintechinnovation #fintechindustry #corporategovernance #corporatecompliance #automation