Newsletter 3-7 190519

Page 1
Volume III, Issue 7

Banker's Helpline May 19, 2019
INSIDE THIS
Weekly Newsletter ISSUE:
BANKING NEWS
Soon, non-banking companies may verify via e-
KYC
India's shadow banks must appoint risk officers
-RBI
Sebi, RBI examining business models of rating
agencies
Loan defaulters have no right to be represented
by lawyer in 'in-house' proceedings of banks: SC
Land, labour reforms to push economic growth:
N K Singh
UPI Beats Debit/Credit Cards In Transaction
Value; Breaches Rs 1.09 lakh cr Mark In 2019
RBI releases vision document to provide safe,
secure, accessible and affordable e-payment
systems.
After collapse of Jet Airways and IL&FS, PSBs
set aside Rs 50,000 crore provisions
Nasscom, Fintech want crypto in RBI’s sandbox
RBI asks payment system operators to pass on
cost benefits of digitisation to consumers
MCA-21 is on real-time basis, ghost cos get
ousted via KYC drive
NPA recoveries via IBC in 2018-19 at Rs 70,000
crore: Crisil
IBBI wants CoC to arrange liquidation expenses
upfront
NEWS IN BRIEF
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Page 2
ARTICLES ON BANKING
Bankruptcies- The good, the bad and the
ugly
Bankruptcies are a painful process for busi-
nesses, employees and business partners, but
are an inevitable consequence of business dy-
namics and competition. Read More
Inclusively Excluded : Story of India’s Finan-

cial Inclusion Journey
deliverables and objectives of the financial
inclusion have been changing rapidly with
technological advancements and its imple-
mentation. Read More
SC Verdict: A Blow to NPA Recovery the ray of

hope which had arisen for the debt laden PSBs with
the introduction of the Insolvency and Bankruptcy
Code seems to be eclipsed. Read More
Banks’ Annual Results announced this

week
Links to selected Articles on Banking appear-

ing in Newspapers / magazines this week
ATTENTION MOBILE USERS
For Best Reading Experience download the
Newsletter file into your mobile phone and
open using any PDF reader.
Editor : Mr. Arvind Mohan

Sales & Marketing : Mr K K Khanna
Page 3
Soon, non-banking companies may verify

via e-KYC
Digital finance companies could be allowed to
verify customer antecedents through the Aad-
haar database, according to a note that envis-
ages grant of the electronic KYC facility to non-
banking firms. It will be a significant gain for mo-
bile wallets, digital lending startups and others
struggling to comply with customer verification
banking guidelines. The note, circulated by the
Department of Revenue in the finance ministry,
indicates that if non-banking companies —
bound by the Prevention of Money Laundering
Act, 2002 — follow Aadhaar’s privacy and secu-
rity standards, the government will consider pro-
viding them access to the biometric-based data-
base. “Any reporting entity that desires to carry
out authentication of the client’s Aadhaar num-
ber using eKYC needs to be notified under these
provisions,” said the note, sent on May 9 to all
financial regulators, including Governor of the
Reserve Bank of India (RBI) and chairman of the
Securities and Exchange Board of India (Sebi).
“The regulator and UIDAI should be satisfied of
the credentials of the entity,” it said. The note
lays out a three-step process that ‘reporting enti-
ties’ — wallets, non-banking finance companies
and stockbrokers — need to follow to access the
Aadhaar database. Once the regulator grants
permission, these entities have to apply to the
Unique Identification Authority of India (UIDAI),
which manages Aadhaar, for a privacy and se-
curity examination.
TOP
Page 4
India's shadow banks must appoint risk

officers -RBI
Indian shadow banks with more than 50 billion
rupees ($714 million) in assets must appoint a
chief risk officer, the central bank said on Thurs-
day, as it tightens regulations after a series of de-
faults by a single lender last year. “With the in-
creasing role of NBFCs (non-banking financial
companies) in direct credit intermediation, there
is a need for NBFCs to augment risk management
practices,” RBI said in a statement. NBFCs must
now appoint an independently functioning chief
risk officer with clearly specified responsibilities
for a fixed tenure, and who cannot be removed
without board approval, the central bank said. It
did not give a deadline for firms to comply with
the regulation. Last year, the government took
control of Infrastructure Leasing & Financial Ser-
vices after its defaults triggered fears about con-
tagion in India’s financial sector. A series of rat-
ings downgrades of shadow banking companies
in India in the last two months has stoked further
fears of credit risk and increasing defaults by
firms in the sector. Last month, rating firm ICRA
downgraded some of Reliance Home Finance and
Reliance Commercial Finance’s short-term debt.
Concerns about the sector means raising funds
through commercial paper is becoming expensive
and difficult. The shadow banking sector, which
raises short-term funds through commercial pa-
per, and lends for long-term purposes such as
housing loans, may face an uphill task to redeem
up to 1 trillion rupees that come due in the
TOP
next 3-4 months, according to analysts.
Page 5
Sebi, RBI examining business models of

rating agencies
Instances of rubber-stamping the highest credit
rating without doing proper due diligence have
prompted regulators to review how rating agen-
cies and debt issuers conduct their business, said
two people familiar with the developments.
The Securities and Exchange Board of India
(Sebi) and the Reserve Bank of India (RBI) have
held discussions to examine the business model
of rating agencies. Under the proposals being
considered, issuers of high-value debt would
need to get mandatory dual ratings and invite
bids to select a rating agency, while the agencies
themselves must shield their rating committees
from the management, said the first of the two
people cited earlier, who is directly involved in
the discussions at the markets regulator.
The aim is to prevent so-called ratings shopping,
in which companies seek out the agency that
promises the highest rating.
Despite four changes to ratings rules in the last
three years for improving transparency and proc-
esses, agencies still make abrupt, multi-level
downgrades from top ratings to junk, rattling the
market. A case in point is the sudden downgrade
of bonds sold by Infrastructure Leasing and Fi-
nancial Services Ltd (IL&FS) and related entities
after they defaulted on payment obligations in
September. In another case, non-convertible de-
bentures of Dewan Housing Finance Corp. Ltd
were cut from Care A to Care BBB- on 14
TOP
May.
Page 6
Loan defaulters have no right to be rep-

resented by lawyer in 'in-house' pro-
ceedings of banks: SC
he Supreme Court has held that a person has no
"right" to be represented by a lawyer in "in-
house" proceedings initiated by banks or finan-
cial institutions to declare him willful defaulters
for non-payment of dues.A bench comprising
Justices R F Nariman and Vineet Saran was deal-
ing with the question whether a person is enti-
tled to be represented by a lawyer of his choice
in the process undertaken by banks to declare
him a "wilful defaulter" under a circular issued
by RBI. "We are of the view that there is no right
to be represented by a lawyer in the in-house
proceedings contained in...the Revised Circular
dated July 01, 2015, as it is clear that the events
of wilful default as mentioned...would only re-
late to the individual facts of each case.
"What has typically to be discovered is whether
a unit has defaulted in making its payment obli-
gations even when it has the capacity to honour
the said obligations; or that it has borrowed
funds which are diverted for other purposes, or
siphoned off funds so that the funds have not
been utilised for the specific purpose for which
the finance was made available," the top court
said in its verdict delivered on last Wednesday.
It said that the question whether a default was
"intentional, deliberate, and calculated" was the
question of fact which can be dealt by the bor-
rower or the lender and the assistance of lawyer
was not needed.
TOP
Page 7
Land, labour reforms to push economic

growth: N K Singh
Assocham & EGROW Foundation organized a Na-
tional Conference on Fiscal Policy Roadmap in Delhi
on 17th May’19. The event was chaired by Dr
Arvind Virmani former CEA. Speaking at the event
Mr. N K Singh, Chairman 15th Finance Commission
said that Macroeconomic stability is one of the
things that will guide India's high growth trajectory.
He expressed concern over muted private invest-
ments. He also noted that fiscal rectitude is an im-
portant intergradient in sustaining long term eco-
nomic growth and is the core of long term macro-
economic stability. On the reforms front, Singh said
"one single thing that we could not reform was fac-
tors of production -- labour, land and capital. We
were unable to achieve success on reforming fac-
tors of production."Labour laws remain extremely
complicated and there is need to bring reform by
revisiting some of the issues like long term con-
tracts and dispute resolution, processes of land ac-
quisition he said. He also noted that Cost of Capital
remains very high. Speaking on the occasion Mr. K
Subramaniam , CEA cautioned against extreme pes-
simism as well as extreme optimism and empha-
sized the need for taking a balanced view of the
present economic scenario. Dr. Bibek Debroy ,
Chairman Prime Minister’s Economic Advisory
Council stressed on the need for a relook on
The Seventh Schedule to the Constitution of India
relating to allocation of powers and functions be-
tween Union Govt. & State Govts. in view of the
changes that have taken place since 1950. Dr. Cha-
ran Singh CEO EGROW foundation informed that
the recommendations emerging out of these dis-
cussions would be conveyed to the New Govt.
TOP
which will take charge after the elections.

Page 8
UPI Beats Debit/Credit Cards In Transac-

tion Value; Breaches Rs 1.09 lakh cr Mark
In 2019
UPI, also known as the “Wallet Killer”, has been a
game changer for the Indian payment space by
revolutionizing the way people think about
money today. With the growing popularity of
digital payments, people are changing the way
they transact, many choosing Unified Payments
Interface (UPI) over other instruments. The result
can be seen with the booming growth of UPI be-
tween March 2018 and March 2019,
with monthly transaction volume growing from a
mere 4.5 times to 799.54 million over the year.
UPI has been steadily stealing market share from
cards as well as Net Banking. UPI has beaten
both debit and credit cards in India with
its aggregate value of transactions remaining
higher in the first three months of 2019.
The decrease in the penetration of credit card
can already be seen as the cost of a credit card
issued by a bank is quite high and mobile-
unfriendly compared to UPI where the transac-
tions are instant and mobile friendly. The prob-
lem for card giants further increases with many
companies such as Whatsapp Payment, Paytm,
PhonePe, Google Pay joining the list of digital
payment solutions and providing options to pay
through debit and credit card saved on its plat-
form.In January 2019, the value of UPI transac-
tions stood at Rs 1.09 lakh crore, higher com-
pared to that of Rs. 1.05 lakh crore worth of
transactions recorded by the cards. The numbers
in February were Rs. 1.07 lakh crore for UPI
TOP
and Rs. 93,998 crores for cards.

Page 9
RBI releases vision document to provide

safe, secure, accessible and affordable e-
payment systems.
With an aim to build a cashless society, the Re-
serve Bank of India (RBI) released a vision docu-
ment to provide safe, secure, accessible and af-
fordable e-payment systems. The RBI also pro-
poses to ensure minimal intervention in the pric-
ing of charges to customers for digital payments,
even as it proposed to facilitate efficient and
price-attractive operation of payment systems.
The central bank envisages a highly digital and
cashless society through entry of more players
and increased innovation. Between 2019 and
2021, the approach highlighted in the document
would be implemented, the RBI also said in its
vision document titled ‘Payment and Settlement
Systems in India: Vision 2019 – 2021’.
In December 2021, the number of transactions
may rise over four times to 8,707 crore as
against 2,069 crore in December 2018, the RBI
added. The payment systems including UPI or
IMPS may see an average annual growth of more
than 100 per cent, while National Electronic
Funds Transfer (NEFT) is likely to surge at 40 per
cent up to December 2021, it added. Aiming to
facilitate NEFT fund transfer service beyond the
banking hours, the RBI also evaluates the likeli-
hood of extending availability of NEFT on 24×7
basis in the document. The safety and security of
digital payment systems remain the highlight of
the vision document, as it holds a ‘no-
compromise’ approach in this regard, the
TOP
RBI added.
Page 10
After collapse of Jet Airways and IL&FS,

PSBs set aside Rs 50,000 crore provisions
public sector banks (PSBs) have become wary af-
ter the Infrastructure Leasing & Financial Ser-
vices (IL&FS) collapsed in September 2018,
and Jet Airways ceased operations in April.
Hence, they set aside a whopping Rs 50,000
crore in the March quarter for potential losses
from existing bad loans, The Financial Ex-
press reported.
The amount reflects the magnitude of the issue
of non-performing assets (NPAs) in the banking
sector. It is not clear what portion of this would
be written off and how much will be used.
The provision for loan loss by 13 PSBs at the end
of Q4FY19 was Rs 52,739 crore, which is signifi-
cantly higher than the provision in Q3FY19, at Rs
29,625 crore. A majority of these 13 banks made
losses in the March quarter.
SBI has the highest exposure to beleaguered Jet
Airways, amounting to nearly Rs 1,200 crore,
which has also been classified as an NPA. In
Q4FY19, SBI made loan loss provisions worth Rs
16,501 crore, nearly four times its provisions in
Q3FY19.
In eight of the 13 PSBs, these provisions were far
more than the net interest income (NII) at the
end of March. The total NII for the 13 lenders
was at Rs 43,304 crore as against the loan loss
provisions of nearly Rs 50,000 crore. Banking ex-
perts say it could still be a couple of quarters be-
fore the lenders' books are clean.
TOP
Page 11
Nasscom, Fintech want crypto in RBI’s

sandbox
Technology industry lobby groups and founders of
startups have asked India’s banking regulator to
include cryptocurrency and crypto assets in its
proposed regulatory sandbox framework for the
fintech industry. RBI’s ‘Draft Enabling Framework
for Regulatory Sandbox’, put out on April 18, had
excluded cryptocurrency, initial coin offerings,
credit registry and other related sectors. The
regulator had invited comments from stake-
holders on the guidelines by May 8. Distributed
ledger, the technology on which cryptocurrency
and blockchain is based, is considered the future
of finance, but applications under blockchain
technologies have been included for testing un-
der the proposed framework. “Since cryptocoins
and tokens are an important component of the
blockchain technology, the draft regulations ap-
pear to exclude testing of smart contracts and
other approved blockchain technology under the
sandbox,” said IT industry trade body Nasscom.
Nasscom said regulators in countries such as the
UK permit such innovations in their regulatory
sandbox, arguing that by including them the RBI
could develop a better understanding of the risks.
Blockchain has the potential to solve issues in-
volving governance, security and traceability, with
applications such as smart contracts and multi-
party financial transactions enabling digital iden-
tity, said Prashant Garg, Partner, Data and Ana-
lytics at EY India. “These have immense applica-
tions, especially for solving issues at a scale for a
country like India. The exclusion is aimed at just
one application of blockchain (crypto-
currency); clearly the regulator sees fiat
TOP
money being the way forward for India.

Page 12
RBI asks payment system operators to

pass on cost benefits of digitisation to
consumers
RBI has urged payment system operators (PSOs)
to move to a marginal cost method based on the
volume of transactions for better pricing of ser-
vices and pass on the benefits of lower costs
achieved through digitisation of payments to
customers. "The savings achieved at all levels on
account of digitisation of payments need to be
considered in the pricing of these services to the
end customers. PSOs need to consider the cost
of accessing and managing transactions and ac-
cordingly price their services," the RBI said, add-
ing that the aim is to reduce ‘per-transaction'
cost to customers keeping in view the marginal
cost advantage with an increase in the number
of transactions.
RBI's view holds significance these days as con-
sumers are charged a fee for digital payments for
some transactions. For instance, a hefty
"convenience fee" is charged on the purchase of
movie tickets through online channels.
TOP
Page 13
MCA-21 is on real-time basis, ghost cos

get ousted via KYC drive
As the government sets out to counter views of
its agency raising eligibility of MCA-21 data as
one of the tools to arrive at GDP numbers, the
Corporate Affairs Ministry has dismissed any bo-
gus data within the database saying MCA-21 is
on real time basis and if a company after enter-
ing the database is non-functional, it gets re-
moved at the time of KYC drive. "MCA 21 is on
real time basis. Shell, bogus companies are being
eradicated… If a company is incorporating, it will
enter the list of MCA-21. And once the company
becomes non-performing or non-functional,
then in the first or second drive, it gets removed.
The KYC of company is this only. Self-updation is
happening", an MCA source said, dismissing the
concerns of NSSO.
The NSSO in a recent report said that 36 per cent
of companies that were part of the MCA-21 da-
tabase were either untraceable or were wrongly
classified. It stirred a controversy over the au-
thenticity of the new series of GDP numbers that
takes corporate numbers using the MCA-21 da-
tabase. "Out of the 39 per cent out-of-survey
units in MCA, 21 per cent were found to be out
of coverage and another 12 per cent were non-
traceable (which in number is nearly 4000
units)", the NSSO had said in its report.
MCA sources said that know your customer or
KYCs details have already been verified for about
5 lakh corporates featuring on the MCA- 21 list.
They added that the system is working and the
versatility of MCA-21 is among the best in
TOP
the world.
Page 14
NPA recoveries via IBC in 2018-19 at Rs

70,000 crore: Crisil
Bad loan recoveries in the last fiscal effected
through the Insolvency and Bankruptcy Code
(IBC) route was at Rs 70,000 crore, posting a re-
covery rate of 43 per cent, and was twice the Rs
35,500 crore recovered through previous resolu-
tion mechanisms like the Debt Recovery Tribunal
and Lok Adalat, as per a report by ratings firm
Crisil.
"The recovery rate for the 94 cases resolved
through IBC by fiscal 2019 is 43%, compared
with 26.5% through earlier mechanisms. What's
more, the recovery rate is also twice the liquida-
tion value for these 94 cases, which underscores
the value maximisation possible through the IBC
process," said CRISIL Ratings President Gurpreet
Chhatwal.
Exactly three years since it was legislated, the
IBC has made material progress in addressing
the logjams it was supposed to - which is faster
recovery of stressed assets and quicker resolu-
tion timelines, Crisil said.
"Recovery through the IBC was Rs 70,000 crore
in fiscal 2019 - or twice the Rs 35,500 crore re-
covered through other resolution mechanisms
such as the Debt Recovery Tribunal, Securitisa-
tion and Reconstruction of Financial Assets and
Enforcement of Securities Interest Act and Lok
Adalat - in fiscal 2018", the report said. Though
keeping to the resolution timeline remains a
challenge, the implementation of the IBC
TOP
process is largely on track, it added.
Page 15
IBBI wants CoC to arrange liquidation ex-

penses upfront
Members of the committee of creditors, specifi-
cally secured institutional financial creditors, may
soon be required to arrange for liquidation ex-
penses upfront, as per a proposed amendment
by the Insolvency and Bankruptcy Board (IBBI) to
the Insolvency Resolution Process for Corporate
Persons regulations. “It is, therefore, proposed
that the regulations may require the CoC to con-
sider an agenda item, while rejecting a resolution
plan or deciding to liquidate the CD, providing for
liquidation expenses. It must consider the esti-
mated amount of liquidated costs, the availability
of liquid assets to meet liquidation costs, and bal-
ance amount required for meeting liquidation
costs and require the secured institutional finan-
cial creditors to bring in upfront balance amount
of liquidation cost, in an escrow account with a
scheduled bank, within seven days of the liquida-
tion order,” the paper read on the proposed
amendment. The proposal is based on sugges-
tions that the cost of liquidation may be borne by
financial creditors upfront and the same may be
recovered from sale of assets. This, however,
could prove burdensome for retail individual
creditor, the IBBI noted. The regulator hence pro-
poses requiring secured institutional financial
creditors to bring in interim finance to run as a
going concern or liquidate the corporate debtor,
if there are no liquid assets available to cover
these expenses. The funds brought in by these
financial creditors along with interest based on
bank rate could then be included to the liquida-
tion cost. The proposal is part of a discus-
TOP
sion paper published by the IBBI last week.

Page 16
NEWS IN BRIEF-1
Nandan Nilekani-led panel on digital pay-

ments submits report to RBI
An RBI-appointed committee headed by Aadhaar
architect Nandan Nilekani submitted its sugges-
tions on promoting digital payments to Governor
Shaktikanta Das May 17. The panel was tasked
with reviewing the existing status of digitisation
of payments in the country, identifying the cur-
rent gaps in the ecosystem and suggesting ways
to bridge them and assessing the current levels
of digital payments in financial inclusion.
Corporation Bank Q4 net loss widens to Rs.

6,581 crore as provisioning doubles
Corporation Bank on Friday said its loss widened
to Rs. 6,581.49 crore during the fourth quarter
ended March 31, mainly due to higher provision-
ing for bad loans. The bank, however reported
that GNPA percentage reduced from 17.35%
15.35% as compared to 17.35%.
Bank of India back in the black, posts Rs

252 crore profit in Q4
Bank of India Thursday posted a net profit of Rs
252 crore for the three months to March, helped
by higher growth in interest income, reduction in
bad loans and lower provisioning. The bank had
reported a net loss of Rs 3,969 crore in the same
quarter of last year. However, for the full year,
the bank’s net loss stood at Rs 5,547 crore as
against a net loss of Rs 6,044 crore in FY18.
Page 17
NEWS IN BRIEF-2
OBC posts 39% rise in Q4 profit, open to ac-

quire another bank.
OBC posted a net profit of Rs 202 crore for the last
quarter of 2018-19, an increase of 39.02% as com-
pared with the quarter ending December
2018. “We are now a strong bank, well capitalised
and poised for growth”, said OBC’s managing direc-
tor MK Jain adding that the bank has also identified
some candidates for possible acquisition.
Insolvency Professionals may require a

‘certificate of practice’
Insolvency professionals (IP) may soon have to obtain
a ‘certificate of practice’ (CoP) to be able to work as
resolution professionals, interim resolution profes-
sionals or liquidators. Insolvency regulator IBBI pro-
poses to amend the existing IP regulations so as to,
among other things, introduce the concept of CoP for
IPs. Every registered IP needs to have a CoP and get it
renewed every year from its Insolvency Professional
Agency (IPA), according to IBBI’s proposal.
Central Bank of India Q4 loss widens to Rs

2,477 crore
Central Bank of India has reported widening in
its losses to Rs 2,477.41 crore in the last quarter
of 2018-19 due to a spike in provisioning of bad
loans. Gross non-performing assets stood at
19.29 per cent of gross advances at end-March
2019, against 21.48 per cent in the year-ago pe-
riod. Net NPAs or bad loans stood at 7.73 per
cent from 11.10 per cent a year ago.
Page 18
NEWS IN BRIEF-3
Flood of money in short-term debt

schemes new headache for NBFCs
Mutual funds are facing a problem of plenty,
with an avalanche of money pouring into shorter
tenure debt funds in the past few months. The
situation is compelling borrowers such as non-
banking financial companies (NBFCs) to seek al-
ternative sources of funds and might pose a sys-
temic risk for MFs in case of large-scale redemp-
tions. Inflows into long-tenure debt funds have
stalled since August 2018.
Union Bank of India posts Rs. 3,369-cr loss

Union Bank of India has reported a net loss of Rs.
3,369 crore in the March quarter of FY19, owing
to higher operational expenses, and provisions
on account of bad loan divergences. The losses
in Q4 of FY19 was wider than the Rs. 2,583-crore
loss in the same period last year. The
bank expects to recover close to Rs. 3,000-3,500
crore from the three large accounts nearing reso-
lution under the IBC Code (IBC).
RBI appoints R. Gandhi on board of Yes

Bank
RBI has appointed former deputy governor R.
Gandhi as an additional director on the board of
Yes Bank for two years, from 14 May 2019 to 13
May 2021, the bank said in a notice to the stock
exchanges. The appointment has been made un-
der sub-section (1) of Section 36 AB of the Bank-
ing Regulation Act, 1949.
Page 19
NEWS IN BRIEF-4
SBI wrote off Rs. 1 trillion in last two years

to clean up its loan book
(SBI), India’s largest lender by assets, has written
off over Rs. 1 trillion worth of loans in the two
years ended 31 March as it purged its accounts
of legacy bad loans. It wrote off Rs. 61,663 crore
in the year ended 31 March and an additional Rs.
40,809 crore in the previous fiscal year, taking
the aggregate to Rs. 1.02 trillion. This is close to
double the Rs. 57,646 crore that the bank wrote
off in the preceding three financial years.
NCLT dismisses insolvency plea against Era

Infrastructure
The Delhi bench of NCLT has dismissed ICICI
Bank’s plea to initiate insolvency proceedings
against Era Infrastructure. The bench noted that
the bank has already raised similar claims against
parent company Era Infra Engineering, which is
currently undergoing resolution process.
CPI Inflation At Six-Month High As Food

Prices Start To Rise
Retail inflation accelerated to a six-month high as
food prices rose from unusually low levels. How-
ever, core inflation fell reflecting subdued de-
mand conditions in the economy. Consumer
Price Index inflation stood at 2.92% in April 2019
compared to 2.86% in March 2019, according to
data released by the Ministry of Statistics and
Program Implementation.
Page 20
NEWS IN BRIEF-5
Bank deposits growing, not slowing: RBI
At end-Mar’19, deposit growth at 10 per cent was,
in fact, marginally higher than its 15-year trend.
Moreover, the decomposition of year-on-year de-
posit growth shows that the recent acceleration is
driven by momentum, despite unfavourable base
effects,” said an RBI report on bank deposits. Out-
standing deposits of scheduled commercial banks
(SCBs) at Rs 125,72,600 crore as on March 31, 2019
accounted for 128.7 per cent of outstanding bank
credit (lower than 132.5 per cent a year ago), re-
flecting the tightening of financial conditions on
account of low deposit growth.
Universal debt relief scheme on cards for

small borrowers
Govt. has begun work on a universal debt relief
scheme for small borrowers aimed at micro enter-
prises, small farmers and artisans, which should be
ready for implementation when the next govern-
ment is in place. People with annual income upto
Rs 60,000 & outstanding loans of Rs 35,000 or less,
and assets worth Rs 20,000 or less may be eli gible.
NBFC sector faces imminent crisis, says

Corporate Affairs Secretary
In an interview to PTI, Corporate Affairs Secre-
tary Injeti Srinivas said the NBFC sector is facing
issues of credit squeeze, over-leveraging, mis-
match between assets and liabilities coupled
with some misadventures by some very large en-
tities, which is a perfect recipe for disaster,
"There is an imminent crisis in the NBFC sector.
Page 21
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Page 22
Bankruptcies- The good, the bad and the

ugly By Taponeel Mukherjee
Bankruptcies are a painful proc-
ess for businesses, employees
and business partners, but are an
inevitable consequence of busi-
ness dynamics and competition.
As industries, companies and economic trends

evolve, some companies will be left behind and
will have to comprehend the bankruptcy process
in some way or the other. Bankruptcies and re-
lated issues have a lot to teach us regarding a
speedier resolution of issues, acceptance of bank-
ruptcies as a result of business dynamics and
regulations that maximise recovery value.
While further economic growth and investment

impetus will be essential, the maturity of the busi-
ness ecosystem to accept bankruptcies as one of
the elements of business will be equally impor-
tant. For the overall economic system, the focus
must be on a structured, fair and quick bank-
ruptcy process. While there is short-term pain
around bankrupt businesses, a well-structured
and expedited resolution process leads to freeing
resources tied up in bankrupt companies for de-
ployment in higher growth projects elsewhere
and create employment.
With the bankruptcy regime in India evolving and
Page 23
improving, the focus must be on reducing, even

more, the time required to resolve bankruptcies
for improving the "time value of money". Given
the long-drawn process that bankruptcy pro-
ceedings are, even incremental reductions in the
time taken to resolve the issues results in signifi-
cant value addition for creditors and the busi-
ness ecosystem.
While the focus on Bankruptcies are
time-reduction in unavoidable residues of
the bankruptcy reso- the economy. If handled
lution process must well they help to cleanse
not be at the cost of the economy as
propriety, a renewed inefficient businesses fall
focus on this is es- behind and efficient
sential. ones race ahead. The
government's role is that
Not only will time- of a facilitator of the
reduction benefit overall ecosystem, rather
the creditors, but than a capital provider in
the flow of recov- situations of distress.
ered credit onto the
next viable projects in the economy will have a
significant impact on credit creation, invest-
ments and business sentiment.
One of the issues India has had to face in the
last five years has been the double whammy of
a slowdown in credit growth, and the opportu-
nity cost of lost income for banks as capital stuck
in bankrupt projects has not generated the addi-
tional revenue that was possible if it were recov-
ered and lent out elsewhere profitably.
Page 24
The slowdown in credit growth due to bankrupt-

cies has been driven by both a reluctance to
lend and a reduction in the availability of capital.
A lack of lending to both businesses and indi-
viduals has resulted in lower investment and
lower consumption, trends that will be gradually
reversed as bankruptcy resolutions come by.
As capital available to lend declined due to unre-

solved bankruptcies, income earned by banks
suffered not only due to non-performing assets
(NPAs) but also due to the opportunity cost of
not having access to
capital that would
Click in this Box to
have otherwise
earned income for
them. A robust
SUBSCRIBE
bankruptcy resolu- for receiving your
tion mechanism can
copy of Newsletter
help alleviate the
Regularly by email
problem. Most im-
portantly, avoiding
the vicious credit cycle of lower capital availabil-
ity leading to poor financial returns, which in
turns leads to further credit constraints can be
avoided through effective mechanisms.
Therefore, an effective bankruptcy redressal sys-

tem adds significant value to the banking system
by both the provision of capital and also addi-
tional income on the said capital that can be
utilised elsewhere.
Page 25
The recent bankruptcies such as Jet Airways and

credit issues that Non-Banking Financial Compa-
nies (NBFCs) faced has also brought to the fore
certain voices advocating for the government to
step in to rescue troubled businesses. The focus
for the government must be on continually im-
proving the bankruptcy mechanism by reducing
the time required for resolutions and addressing
issues that the credit ecosystem may face. How-
ever, it is not the government's role to bail out pri-
vate businesses, since we cannot have situations
whereby profits are private, and losses are passed
on to the exchequer and the taxpayer.
Bankruptcies are unavoidable residues of the

economy. If handled well they help to cleanse the
economy as inefficient businesses fall behind and
efficient ones race ahead. The government's role
is that of a facilitator of the overall ecosystem,
rather than a capital provider in situations of dis-
tress. If done well short-term pain can lead to sig-
nificant gains for the overall economy down the
road.
Taponeel is a Finance and Infrastructure expert running an
advisory and investment business in India as CEO, Develop-
ment Tracks . His interests are at the intersection of fi-
nance, infrastructure and consumption trends.
First Published in Economic Times dated 13th May’19.
Reprinted with permission from Author.
Readers are requested to send their feedback / comments
on this article to care@bankershelpline.com which will be
forwarded to The Author and also published in
TOP
our next issues.
Page 26
Inclusively Excluded : Story of India’s Fi-

nancial Inclusion Journey — Deep Shah
Financial Inclusion is a contex-

tual term; deliverables and ob-
jectives of the financial inclu-
sion have been changing rap-
idly with technological ad-
vancements and its implemen-
tation. This article talks about
stage of financial inclusion in India by retrospec-
tively scrutinizing the actions taken in the past &
steps needs to be taken in future. To understand
the whole landscape, it’s very much important to
understand what is financial inclusion, where we
were a decade ago, factors that acted as catalyst,
and where are we heading to & what are the
things we missing out on? Let’s start with under-
standing what Financial Inclusion is?
Financial Inclusion, in simple terms, means provid-
ing access of financial services to the population
outside its fold ,which is essential to the participa-
tion of each segment of society in modern econ-
omy . Primarily these services are Savings, Credit,
Insurance& Payments. From an economics per-
spective, these services become very much essen-
tial to the individuals’ growth and in turn contrib-
uting to the economy’s growth. In the India’s diver-
sity context where 68.84% of population stays in
rural parts, Financial Inclusion has a crucial role to
play. Country’s economic growth has higher de-
pendency over the financial inclusion of this popu-
Page 27
lation. Various studies have shown that exclusion

from the banking/financial services has led to 1%
GDP loss to economy y-o-y. *India’s GDP is $2.6
Trillion, 1% of it, is $26 Billion+. Let’s understand
how these services
Providing the DBT
impact the whole
without the leakages,
economy & indi-
bringing the unbanked
viduals.
under the formal
For- financial sector and
mal savings facilities providing the mech-
generate low-risk anism to access funds
interest income. brought us one step
Combined with for- closer to achieving the
mal credit facilities, dream of Financial
they can help re- Inclusion but Financial
duce fluctuations in Inclusion is also about
consumer spending inculcating the culture of
subdued by income savings, providing the
shocks. The poor access of credit & make
stand to gain most people self sufficient for
from increased in- contingency planning
come stability and [through retirement
access to credit. savings, insurable contin-
Credit allows re-
gencies etc].
sources to be used
more optimally over time. Credit from within
the formal financial sector is typically cheaper
and has better terms than informal credit, with
all the problems arising from lender oligopolies
and doubts about creditworthiness. Informal
market lenders often run as monopolies and
charge exorbitant interest rates. Informal mar-
Page 28
kets are also incapable of providing auxiliary

products (such as insurance), which can serve as
a cushion against shocks such as bad harvests,
illness, or the death of the principal wage earner.
Without access to efficient payment systems,
business grinds to a halt. A modern economy
cannot work without efficient, reliable and cost-
effective payments. This was the impact on
economy, understand a situation where a per-
son/farmer staying in rural area and having the
income less than 1 lac per annum but does not
have access to formalized financial sector. In this
case he/she is being
force to take credit Click in this Box to
from informal sector
at exorbitant rate of
30% and above
SUBSCRIBE
[Mortgaged loan]. In for receiving your
case of unforeseen copy of Newsletter
events of income
Regularly by email
shocks, this individ-
ual won’t be able to
pay interest [forget the principal amount]. Ulti-
mately it’s leading to loss of mortgage to lender.
This leads to two things, one it widens the gap
between rich and poor, two failure of such indi-
vidual will lead to downturn of economy growth.
Hence access to these services becomes critical.
Furthermore, financial inclusion fosters “social
inclusion”. For example, by depositing savings in
a current account, individuals are protected by
property rights. If they put their savings into jew-
Page 29
elry or just stash money under the mattress, they

may fall victim to theft or devaluations.
In India, every year central and state government
disburses 4% of GDP as subsidies and benefit
transfers. During last decade of 20th century &
early years of 21st century, almost 50% of the
transfers were lost in the system(due to leak-
ages) every year *Amount as huge as Bill Gates’s
net worth]. Ghost beneficiaries, ill targeting & in-
effective service delivery channels were the
prime causes of these leakage gaps. If these de-
liveries would have been reaching to intended
targets, they could have added more value to
economy. Financial inclusion can make the trans-
fer of welfare benefits faster, cheaper, and less
prone to leakage. This benefits the state as well
as the recipients. Overall, inclusion can help re-
duce poverty.
Accessibility & availability of these services can
be provided to poor people through banking
channels. For traditional Banks, to manage these
low CASA accounts become operationally unsus-
tainable. KYC cost in on boarding one customer
was in the range of INR 300-750. Servicing cost
for one customer through branches in Rural area
falls in the range of INR 50-85 per visit. To plug
the leakages and to liberate the poor/rural from
clutches of informalised financial sector, India
was in the dire need of a breakthrough which
came in form of “Aadhaar”. The name “Aadhar”
figured during an interview in a rural part of In-
Page 30
dia where one of the interviewees had said

“Meri Pehchan hi mera aadhar hai sahib”. And so
the name Aadhaar was decided upon for the
world’s largest unique identification programme.
Now question is how Aadhaar has revolutionized
the whole financial inclusion? Prerequisite for fi-
nancial inclusion was to open an account and
KYC cost was preliminary hurdle of onboarding.
Aadhaar based eKYC has reduced the cost of KYC
to INR 25-30(even lesser than that). Through
PMJDY scheme, banks have been mandated to
open aadhaar linked account through eKYC in
their SSAs. These account holders have been pro-
vided with debit cards (another significant in-
digenous development in payments space). Till
now 35.54 crore bank accounts have been
opened under the banner of PMJDY. Now using
the Aadhaar mapper, direct benefits are trans-
ferred to beneficiaries’ account. To access these
funds beneficiary needs an access point which
will be viable option for the banks as well. Mind
you these are the customers who have said that
my identity is my foundation. Then why not to
utilize the same as payment instrument? Hence a
payment product was designed under the cate-
gory of assisted model as aadhaar based pay-
ment product. Business correspondence (BC)
model was designed, where by approaching any
BC these beneficiaries of DBT can access the
fund lying the account through aadhaar based
payment product. The operational cost has been
plummeted for member banks through Aadhaar.
Page 31
For rural customer, who was investing almost full

day approaching nearest branch to access the
fund; can now utilize those productive hours in
economic activities as these funds are available
at door step through fingertip. & here we are to-
day standing tall by achieving the great degree of
satisfaction with respect to bringing unbanked to
formalize banking under a decade time. That’s
why Aadhaar become a classic case study for the
institutions across the globe.
But have we attained the stage of Financial Inclu-
sion? Providing the DBT without the leakages,
bringing the unbanked under the formal financial
sector and providing the mechanism to access
funds brought us one step closer to achieving the
dream of Financial Inclusion but is pertinent to
say that there are miles to go before that dream
is achieved. Financial Inclusion is also about in-
culcating the culture of savings, providing the ac-
cess of credit & make people sufficient for con-
tingency planning [through retirement savings,
insurable contingencies etc]. In the current sce-
nario also people have tendencies to withdraw
entire DBT amount and leaving the account nil.
Under the PMJDY, banks are providing the OD fa-
cility to develop the culture of credit from for-
malized sector but eligibility criteria are such that
people can get the OD in the range of INR 200-
500, which is not sufficient for small enterprise
and/or agriculture. Hence they are being forced
to take the credit from the same old channel by
paying the poverty premium. Why are people
Page 32
not doing savings in their account, many reasons;

lack of trust in formalized sector [due to the fail-
ure of banking ecosystem and associated loss of
hard-earned cash that people may have wit-
nessed.], routine expenditures (Cash led). To in-
culcate the culture, customers must be incentiv-
ized by one or the other means which can serve
multiple purposes. [i.e. providing the Crop insur-
ance if they keep a threshold of amount in their
savings account, life insurance, higher amount of
OD etc.]. Another, if the payment options will be
available at disposal to them for their major ex-
penditures, (i.e. at the PACS[Primary Agriculture
Co-operative Society] from where they buy agri-
culture inputs, utility bill payments and ticket
bookings at nearest shop (probably through Aad-
haar based merchant payment system or Card
etc.). In the hindsight, whatever was dreamt for
India’s financial inclusion journey; we have cov-
ered half way of the journey to attain this
dream….. So, the dream is not broken yet… It’s
still alive & we the people of India are going to
fulfill it….. :)
Deep Shah is a biking enthusiast. Being digital payments

evangelist, he closely observes the development in BFSI
& FinTech domain. You can find him at https://
www.linkedin.com/in/deepnshah/.
Readers are requested to send their feedback / com-

ments on this article to care@bankershelpline.com
which will be forwarded to The Author and also pub-
lished in our next issues.
TOP
Page 33
SC Verdict: A Blow to NPA Recovery

NPS Sohal
The recent SC Verdict which

has stopped RBI to issue in-
structions to the banks to act
under the insolvency code.
Now only possible if the government ap-
proves. So that way Finance Ministry will hold
the key against RBI. Thus the ray of hope
which had arisen for the debt laden public
sector banks with the introduction of the In-
solvency and Bankruptcy Code seems to be
eclipsed.
We had been listening that law is blind and
now when the government bodies like banks
are hit one has to believe that law is really
blind. I may recall some ‘wrong’ decisions
taken by SC had stopped mining work alto-
gether when coal scam had surfaced, result-
ing into stoppage of the metal exports
thereby increasing the value of USD.
International Monetary Fund ( IMF ) had
come out with this tool to help the Indian
banks.
The group of defaulting companies mainly of
the power sector owned and controlled by in-
fluential business families went to the court
and SC gave the verdict in their favour on the
Page 34
basis that RBI is not empowered to issue such

circulars.
Now as per the verdict the government will
decide and instruct the bank as to take action
against which party. It is worthwhile to add
that Sec 35A had given the powers to RBI to
act against the defaulters. Government added
two more articles viz 35AA and 35AB which
weakened the RBI. At first RBI did not resist
but when Urjit Patel resisted, was shown the
door. The acts were added after the ouster of
Rajan, the previous governor. SC should have
reserved the decision and instead in interest
of the banks asked RBI to amend the circular
and represent in a two month’s time. But
thought it altogether better to announce its
verdict to weaken the banks!
This clearly shows how weak the banks are
which are made to break their heads for mak-
ing the recoveries with no backing of law!
Shri NPS Sohal is a Retired AGM from Union Bank of In-
dia and has written Books for JAIIB, CAIIB and for Pro-
motion Exams in Banks.
Readers are requested to send their feedback / com-

ments on this article to care@bankershelpline.com
which will be forwarded to The Author and also pub-
lished in our next issues.
TOP
Page 35
Banks’ Annual Results announced

this week
Mr. K K Khanna, Retd. AGM, Union Bank
of India is author of ”Statistical data on
Key parameters of PSU & Pvt. Sector
Banks”. He has a passion for studying
performances of various Banks.
Page 36
Page 37
Page 38
Page 39
TOP
Page 40
Links to selected Articles on

Banking appearing in Newspa-
pers / magazines this week
Following are the links to our selection of Arti-
cles related to banking which appeared in differ-
ent Newspapers this week. You will require inter-
net access for reading these articles in full.
Rate cut transmission: Why RBI action is in-
effective
The issue with interest rates in India is that a ma-
jority of the deposits are at a fixed rate, which
means banks cannot change them at short no-
tice. SBI has taken the lead to change things by
linking some of its deposit rates to a market
benchmark but its whole impact is yet to be as-
certained. Read More
Jan Dhan Yojana’s triumph shows financial

inclusion gaining pace
A child is sometimes force-fed by its affectionate
mother, Govt. did something similar . Like a child
getting nutrition from force-feeding, those left
untouched by the banking habits got to savor the
fruits of banking services as evidenced by the av-
erage balance of Rs 2,000 in the Jan Dhan Ac-
counts. Read More
Punjab National Bank, Canara Bank Can Be

Merged With 9 Smaller Banks: Find The
Shocking Reason Why
Many financial experts, have been repeatedly
pressing that India has a surplus of large banks
and is in dire need of reducing this number from
18 to 6, by amalgamating smaller banks into lar-
ger ones, Read More
Page 41
Inside the ticking time bomb called Indian

shadow banking
At the heart of the ticking time bomb that is In-
dia’s financial market lies its shadow banking
sector. If the financial condition of these non-
bank lenders deteriorates, it will spark an eco-
nomic meltdown. Read More
With IIP Weak, GDP Slowing, MPC Must

Cut Rates By 0.5 Per Cent To Make Up For
Past Misses
The marginally negative growth in IIP in March (-0.1 per
cent), and the overall slowdown to 3.6 per cent in fiscal
2018-19 from the previous year’s 4.4 per cent, should
prompt the MPC to ignore the small uptick in retail infla-
tion to 2.92 per cent in April when it meets next in early
June. Read More
Is the NBFC crisis imminent?

Overleveraging, squeezed credit flow, asset-
liability mismatch and misadventures by a few
large entities are some causes serving a recipe
for this disaster. Can we make a systematic at-
tempt to understand the crisis? Read More
Page 42
Let’s redesign our economic model for sus-

tainable growth
It is time to ask if there is an Indian model of
growth. Or, to put it in other words, is there a
long-term vision of how the economy will go for-
ward? Read More
Explained: The Slowdown in India’s Con-

sumption Growth Story
The last six months have seen weak demand and
lower sales growth in key sectors such as the fast
-moving consumer goods (FMCG) and automo-
bile industries. Meanwhile, selective growth in
bank credit continues to cast a long shadow.
Read More
Chart of the Day | All four engines of the

economy are now sputtering
To the slowdown in domestic consumption and
investment we must now add a slowdown in ex-
ports. Consumption, investment, government
spending and now exports have all been hit.
Read More
US-China trade war: Why it is a double

whammy for Indian markets
As predicted by IMF, the threat to the global
economy seems real now. President Trump’s fo-
cus will also shift to target other countries for
such tariff hikes and India will be no exception.
President Trump has stated that “India is a high
tariff nation” and that he would consider impos-
ing a reciprocal tax. Read More
Page 43
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Page 1

Volume III, Issue 7

Inclusively Excluded : Story of India’s Finan-

SC Verdict: A Blow to NPA Recovery the ray of

Banks’ Annual Results announced this

Links to selected Articles on Banking appear-

Editor : Mr. Arvind Mohan

Soon, non-banking companies may verify

India's shadow banks must appoint risk

next 3-4 months, according to analysts.

Sebi, RBI examining business models of

Loan defaulters have no right to be rep-

Land, labour reforms to push economic

which will take charge after the elections.

UPI Beats Debit/Credit Cards In Transac-

and Rs. 93,998 crores for cards.

RBI releases vision document to provide

After collapse of Jet Airways and IL&FS,

Nasscom, Fintech want crypto in RBI’s

money being the way forward for India.

RBI asks payment system operators to

MCA-21 is on real-time basis, ghost cos

NPA recoveries via IBC in 2018-19 at Rs

process is largely on track, it added.

IBBI wants CoC to arrange liquidation ex-

sion paper published by the IBBI last week.

Nandan Nilekani-led panel on digital pay-

Corporation Bank Q4 net loss widens to Rs.

Bank of India back in the black, posts Rs

OBC posts 39% rise in Q4 profit, open to ac-

Insolvency Professionals may require a

Central Bank of India Q4 loss widens to Rs

Flood of money in short-term debt

Union Bank of India posts Rs. 3,369-cr loss

RBI appoints R. Gandhi on board of Yes

SBI wrote off Rs. 1 trillion in last two years

NCLT dismisses insolvency plea against Era

CPI Inflation At Six-Month High As Food

Universal debt relief scheme on cards for

NBFC sector faces imminent crisis, says

Actually, you stand a chance to get

DOWNLOAD INCENTIVE CLAIM FORM

*Download and read Incentive Claim Form for

Bankruptcies- The good, the bad and the

As industries, companies and economic trends

While further economic growth and investment

With the bankruptcy regime in India evolving and

improving, the focus must be on reducing, even

The slowdown in credit growth due to bankrupt-

As capital available to lend declined due to unre-

Therefore, an effective bankruptcy redressal sys-

The recent bankruptcies such as Jet Airways and

Bankruptcies are unavoidable residues of the

our next issues.

Inclusively Excluded : Story of India’s Fi-

Financial Inclusion is a contex-

lation. Various studies have shown that exclusion

kets are also incapable of providing auxiliary

elry or just stash money under the mattress, they

dia where one of the interviewees had said

For rural customer, who was investing almost full

not doing savings in their account, many reasons;

Deep Shah is a biking enthusiast. Being digital payments

Readers are requested to send their feedback / com-