ETBFSI’s Post

#fintech| #lending | #NBFCs | #digitallending : Reserve Bank of India (RBI) Deputy Governor, Shri Swaminathan J on 'Embracing meaningful assurance for sustainable growth of the NBFC Sector' (1) Credit risks from rule-based credit models Many NBFCs are increasingly turning to rule-based credit engines to accelerate the growth of their lending portfolios. While automation can enhance efficiency and scalability, NBFCs should not allow themselves to be blinded by these models. It is crucial to recognize that rule-based credit engines are only as effective as the data and criteria upon which they are built. Overreliance on historical data or algorithms may lead to oversights or inaccuracies in credit assessment, particularly in dynamic or evolving market conditions. Therefore, NBFCs must maintain a clear-eyed perspective on their capabilities and limitations, supplemented by continuous monitoring and validation of credit scoring models. It is incumbent upon the supervised entities to keep the rule engines and models calibrated from time to time taking into account real time learnings and emerging scenarios. It is also imperative to have these models validated periodically, either internally or externally, as the case may be, to ensure that the models stay relevant at all times. I would like to call upon the heads of Risk and Internal Audit here to pay special attention to this requirement. (2) Liquidity Risks One of the key risks is liquidity risks arising from concentration of funding sources and maturity mismatches. Reliance on a limited number of funding sources can amplify liquidity vulnerabilities, especially during periods of market stress or disruptions in funding channels. Moreover, maturity mismatches between assets and liabilities can exacerbate liquidity risk, making NBFCs susceptible to funding squeezes or rollover difficulties. Prudent liquidity management practices, including diversification of funding sources, maintaining adequate liquidity buffers, monitoring maturity profiles and putting contingency lines in place are essential to mitigate liquidity risks and ensure uninterrupted operations. Additionally, stress testing and scenario analysis can help NBFCs assess their resilience to adverse liquidity shocks and proactively manage liquidity risks.

KVK has made a broad sweep in this interview (below). He is justifying the RBI action saying F&O trading and losses was funnelled by unsecured lending and then adding that these financial technology companies were lending at CB score of 550, while banks lend at 750 or 700. He should have made a remark that he is talking about NBFCs/Fintechs not NBFC-MFIs, as RBI action is also on 2 NBFC-MFIs. Someone else's problem is shifted to MFIs back https://lnkd.in/gAzzTdCz #banking #microfinance #finance #financialinclusion

TIERING OF BANK CATEGORIES Stringent capital requirements for G-SIBs and other internationally active banks including the new credit risk and operational risk requirements, and the revised frameworks for market risk and CVA frameworks. Simpler capital requirements for large banks that are not G-SIB's. Firms with assets between $250 bn to $700 bn that are NOT G-SIB's or internationally active will be subject to simpler definition of capital, new credit and operational risk applicable. Market risk applicable only to firms with significant trading activity! For large banks with assets between $100bn to 250bn - maintain a simpler capital framework. Credit and Operational risk frameworks of the expanded risk-based approach would not be applicable to these firms G-SIB Surcharge - Re-proposal would calculate G-SIB surcharge in 0.1% increments (instead of 0.5%) to limit "window dressing" and minimise "cliff effects" DERIVATIVES CLEARING - capital requirements for client clearing of derivatives involve reducing the capital required for the client-facing leg of a client-cleared derivative. This change aims to better reflect the risks of these transactions, which are highly collateralized and subject to netting and daily margin requirements.  MARKET RISK - introduce a multiyear implementation period for the profit and loss attribution (PLAT) tests Single obligor treatment of uniform mortgage-backed securities positions regardless of whether they were issued by Freddie Mac or Fannie Mae OPERATIONAL RISK - Ops risk charge no longer adjusted based on its operational loss history! calculation of fee income on a net basis as opposed to gross revenues by netting noninterest income and expenses (except for operational losses) enhances the consistency in how ops risk is measured across bank activities as interest and trading income and expenses are already measured on a net basis! reduction of ops risk capital requirements for investment management activities to reflect the smaller historical operational losses for these activities relative to income CREDIT RISK - reduced risk weights for residential real estate and retail exposures and elimination of minimum haircut for securities financing transactions (SFT) TREATMENT OF TAX CREDIT EQUITY FINANCING EXPOSURES - Significantly lower risk weight for tax credit equity funding structures #baseliii #banking #regulatorychange #riskmanagement #creditrisk #marketrisk #derivatives #financialmarkets

Are Transfer Policies Eroding Bank Autonomy? A Closer Look at the DFS Recommendations The Department of Financial Services (DFS) has proposed changes aimed at improving transparency in the transfer policies of Public Sector Banks (PSBs). But these recommendations have sparked a heated debate within the banking community. While the DFS circular urges automation, local postings for women, and the elimination of mid-year transfers, banking associations argue these measures could undermine management autonomy. Key Highlights: 👉 Banks already automate transfers via vacancy portals and prioritize local-level recruitment. 👉 Officers’ associations claim micromanagement by DFS infringes on banks' decision-making capabilities. 👉 Critics highlight the impracticality of certain mandates, such as avoiding mid-year transfers and concentrating employees in specific regions. 👉 Calls for allowing PSB boards to address unique, region-specific transfer challenges independently. #BFSI #FEBFSI #ModernBFSI #LeadershipInFocus #BankingChallenges #BankingTransparency #PSBPolicy #BankingSector #PolicyReforms #BankingInnovation #DigitalTransformation #BankingInsights #PublicSectorBanks #FinancialInclusion Reserve Bank of India (RBI)| State Bank of India| Bank of India| Bank of Maharashtra| Indian Bank| Canara Bank| Central Bank of India| INDIAN OVERSEAS BANK| Punjab National Bank| PUNJAB & SIND BANK| UCO Bank| Union Bank of India| Bank of Baroda| Sachin Kumar| Tanya Krishna| Sumana Sarkar| Sakshi Kuchroo| E Kumar Sharma| Roshun Povaiah| Financial Express (India)

Banking industry getting impacted

New LCR guidelines soon: RBI “Financial sector players, by and large, operate with public money – be it of depositors in banks and select NBFCs or investors in bonds and other financial instruments. They should always be mindful of this,” he said. Partners with us 👉 https://lnkd.in/dNeURtcR #financekaart #fintech #nbfcs #neobank #banking #lending #insurance #khata #financialinclusion #rbi #lcr #guidelines

Downward credit to deposit ratio boosts liquidity, augurs well for banks The overall liquidity environment is easing, suggesting a positive outlook for the banking sector's ability to manage its liability and asset portfolios effectively. #ETBFSI #BFSI #Liquidity #BankingSector #CreditDepositRatio #FinancialGrowth #BankingNews #AssetManagement #IndianEconomy #BankingInsights https://lnkd.in/gkKeKFp4

Hello Everyone, The Securities and Exchange Board of India (SEBI) has barred Axis Capital Limited (ACL) from acting as merchant banker, arranger or underwriter for any new debt issues. The interim order is applicable immediately till further order. The restriction comes as an interim measure after the market regulator found that Axis Capital had extended itself beyond activities permitted to a merchant banker in the matter of listed non-convertible debentures (NCDs) of Sojo Infotel – the holding company floated by the promoters of Lava Group. ACL provided guarantee/indemnity towards redemption of NCDs in the guise of underwriting, which it was not permitted to do under the existing regulatory framework. Such activity poses risk to the financial system as it can potentially disrupt the orderly functioning of the market. ACL has 21 days to file its reply/objections, if any, to the order and can also avail an opportunity of personal hearing on any fixed date and time. Further, given that ACL is a subsidiary of a scheduled commercial bank (Axis Bank), the guarantee / indemnity provided by ACL to NCD holders also exposed the bank to credit risks. The market regulator has also sent the findings of its preliminary investigation to India’s central bank, saying that the guarantee Axis Capital provided to its bondholders exposed its parent Axis Bank to default. SEBI said that the role played by ACL in the transaction went beyond the permissible activities as a merchant banker, and that there is a potential risk of ACL continuing to undertake activities as a registered merchant banker beyond the realm of permitted activities. According to market regulator, Axis Capital was taking credit risk exposure, rather than market risk, thereby entering the ‘realm of banking’. While a merchant banker is allowed to take market risk while underwriting an issue, by charging a fee, the fees received for underwriting activity to be a one-time payment and not a recurring payment received over the tenure of the NCDs. “The fees received by ACL for its services was apparently a recurring fee and not a one-time payment, reflecting a continuing nature of its assurance in the form of guarantee/ indemnity for the NCDs. The regulatory action started after a report by a SEBI-registered analyst Hemindra Kishen Hazari highlighted concerns about Axis Capital’s high-risk transactions earlier this year.

#RBI moves to drain liquidity as banking surplus persists On Wednesday, the RBI held two VRRR auctions aimed at absorbing excess liquidity. #LiquidityManagement #VRRRAuctions #BankingSurplus #MonetaryPolicy #IndianEconomy #CentralBankActions #FinancialStability #BankingSector #RBIUpdate #ETBFSI https://lnkd.in/gr9kwWAg

Banks use liquid assets to fund credit growth as deposit growth lags; face NIM hit Credit growth has continued to be around 16% YTDFY24 while deposit growth is 13%; Liquidity Coverage Ratio trends down, but remains comfortable. #banking #liquidity #assets #nim #creditgrowth #coverageratio https://lnkd.in/g8XWbRPK