AKP Banking & Finance Digest- June 03, 2024

1. Regulatory Updates

1.1. India

1.1.1. RBI finalises Framework for Self-Regulatory Organisation(s) in the FinTech Sector

The framework outlines the establishment and functioning of Self-Regulatory Organisations ("SROs") in the Fintech sector, focusing on promoting ethical conduct, ensuring market integrity, and fostering transparency and accountability among its members. It emphasises the need for balance in regulating the dynamic Fintech landscape and proposes self-regulation as a means to achieve this balance. The framework delineates the characteristics, operations, eligibility, membership criteria, functions, responsibilities, governance, and management of Fintech SROs. Any representative organisation for Fintechs may apply for recognition as an SRO to the Reserve Bank of India ("RBI"). RBI

1.1.2. RBI unveils Annual Report 2023-24

RBI Annual Report reveals a surge in net income to INR 2.11 Lakh Crore (Indian Rupees Two Lakh Eleven Thousand Crore only); highlights include significant gains from foreign exchange transactions and increased interest income from foreign securities, leading to a bolstered contingency fund. RBI's balance sheet size also saw a notable growth of 11.08 percent (eleven-point-zero-eight percent) during the fiscal year. RBI

1.1.3. RBI launches PRAVAAH, RBI Retail Direct mobile app, FinTech Repository

RBI has launched three major initiatives, namely, the PRAVAAH portal, the RBI Retail Direct mobile application, and the Fintech Repository. The Platform for Regulatory Application, Validation and Authorisation ("PRAVAAH") portal will make it convenient for any individual or entity to apply online for various regulatory approvals and enhance the efficiency of processes related to granting regulatory approvals and clearances by RBI. The Retail Direct Mobile App will provide retail investors seamless and convenient access to the retail direct platform and ease of transacting in government securities (G-Secs). The Fintech Repository will contain a rich repository of data on Indian Fintech firms for a better understanding of the sector from a regulatory perspective and facilitate designing appropriate policy approaches. Simultaneously, a corresponding repository for RBI-regulated entities (banks and NBFCs) and their adoption of emerging technologies (such as artificial intelligence, machine learning, cloud computing, distributed ledger technology, quantum, etc.), called EmTech Repository, was also launched. RBI

1.1.4. RBI puts business restrictions on ECL Finance and Edelweiss ARC

RBI has imposed restrictions on two Edelweiss group companies — ECL Finance Limited ("ECL") and Edelweiss Asset Reconstruction Company Limited ("EARCL") — due to their involvement in 'evergreening' stressed loans. RBI has instructed ECL to "cease and desist immediately from undertaking any structured transactions concerning its wholesale exposures, except for repayment and/or closure of accounts in its regular business operations." EARCL received similar directives, preventing it from acquiring new bad loans or restructuring security receipts. This action was triggered by the coordinated activities of Edelweiss group entities, which engaged in structured transactions to artificially enhance the financial health of ECL's stressed exposures. ECL also took over loans from non-lender entities within its group, ultimately selling them to the group's ARC, thereby circumventing regulations that restrict ARCs to acquiring financial assets only from banks and financial institutions. RBI

1.1.5. Monetary Penalties

RBI imposes monetary penalties on the following financial institutions:

1.2. Bangladesh

1.2.1. Dhaka Stock Exchange records 5-month low turnover amid market decline

Dhaka Stock Exchange ("DSE") witnessed a significant decline in turnover, reaching a five-month low of Tk 306 crore (Bangladeshi Taka Three Hundred Six Crores only), indicating decreased trading activity. The textiles sector dominated the turnover chart, while block trades constituted 10.9 percent (ten-point nine percent) of the turnover. Market indices, including the DSEX, DSES, and DS30, experienced declines, with the DSEX reaching its lowest point in over three years. Most sectors saw negative performance, with the non-banking financial institution (NBFI) sector experiencing the highest loss. The Daily Star

1.2.2. Fitch downgrades Bangladesh to 'B+' with stable outlook

Fitch Ratings has downgraded Bangladesh's long-term foreign-currency issuer default rating to 'B+' from 'BB-', citing sustained weakening of external buffers despite recent policy reforms. The stable outlook reflects the mitigation of external refinancing risks and program reforms. Key drivers include weak external buffers, high inflation, and low government revenues. However, favourable growth prospects and moderate government debt offer some stability. Factors for potential negative action include increased external vulnerability and higher fiscal deficits. Fitch Ratings

1.3. Philippines

1.3.1. FSCC assesses global risks for Philippine financial stability

Financial Stability Coordination Council (FSCC) recently convened to assess global market developments and their potential impact on the Philippines' financial system. Despite low global market volatility, concerns persist regarding fluctuating oil prices and persistent high inflation in the United States, which may lead to a prolonged high-interest-rate environment globally. However, the Philippines maintains robust economic growth and stable inflation rates, providing assurance for its macro-financial trajectory. Sun Star Davao Digital

2. Trends

2.1. Adani Group eyes digital payments expansion

Amidst its ongoing resurgence efforts, Adani Group is aggressively pursuing a stake in India's burgeoning digital payments landscape. Reports suggest that the conglomerate is poised to apply for a licence to operate on India's public digital payments network, Unified Payments Interface (UPI), while also exploring the launch of a co-branded credit card in collaboration with banks. Business World

2.2. Zomato explores merchant lending revival through NBFC partnerships

Zomato is reportedly in discussions with Non-Banking Financial Companies ("NBFCs") to offer working capital loans to its partner restaurants. Operating as a loan service provider (LSP), Zomato plans to facilitate loans from partners to borrowers, charging a fee for the service. This move marks a potential revival of Zomato's lending business after surrendering its payment aggregator licence earlier this year. Inc 42

2.3. European banks seek RBI approval for third-party transaction model

Four European banks, including Credit Agricole and Deutsche Bank, have approached RBI to approve a third-party transaction model. This move aims to address hurdles faced in trading Indian government bonds and derivatives, following the European Securities and Markets Authority's decision to de-recognise the Clearing Corp of India (CCIL). The proposed model seeks to establish an alternative clearing mechanism amid concerns over audit oversight rights. Additionally, discussions involve the potential role of a separate NBFC in custodial operations, addressing challenges related to client confidentiality. Business Standard

3. Sector Overview

3.1. Bank frauds spiked 300 percent, digital frauds 708 percent, per RBI

RBI in its Annual Report 2023-24 disclosed a staggering increase in bank frauds, with cases jumping nearly 300 percent (three hundred percent) in the last two years. Digital payment systems faced the biggest hit, with a whopping 708 percent (seven hundred eight percent) increase in fraud cases. Despite a surge in the number of cases, the total amount involved decreased by 46.7 percent (forty-six point seven percent), amounting to INR 13,930 crore (Indian Rupees Thirteen Thousand Nine Hundred Thirty Crores only) in FY24. Despite a surge in the number of cases, the total amount involved decreased by 46.7 percent (forty-six point seven percent), amounting to INR 13,930 crore (Indian Rupees Thirteen Thousand Nine Hundred Thirty Crores only) in FY24. Public sector banks notably contributed the most to the fraud amount, particularly in loan portfolios. Despite private sector banks reporting the highest number of frauds, public sector banks accounted for the majority of the fraud value. Economic Times

3.2. Crisil forecasts moderate credit growth for banks in FY25

Crisil, a leading rating agency, predicts a slowdown in banks' credit growth by 200 (two hundred) basis points in the current fiscal year, with an expected year-on-year growth of 14 percent (fourteen percent). This moderation is attributed to factors such as a high base effect, revised risk weights, and a slightly lower gross domestic product (GDP) growth. Despite this, retail loans are projected to be the fastest-growing segment at 16 percent (sixteen percent), while corporate credit growth is expected to remain steady at 13 percent (thirteen percent). Crisil emphasises the importance for banks to balance growth aspirations with margin protection, highlighting the significance of mobilizing cost-effective deposits amidst competition and elevated deposit rates. Crisil Rating

3.3. Fintech investments decline to USD 29 million in April

According to a report by The Digital Fifth, fintech investments witnessed a significant drop to USD 29 million (United States Dollars Twenty-Nine Million only) in April from USD 120 million (United States Dollars One Hundred Twenty Million only) in March, bringing the total investments in 2024 to USD 203 million (United States Dollars Two Hundred Three Million only). The funding was primarily in payments services and loan marketplace startups, with nine startups receiving funding, largely at the seed stage. BankBazaar emerged as the top-funded startup in April, followed by ClaimBuddy). Economic Times

4. Business Updates

4.1. BharatPe and PhonePe resolve trademark dispute over 'Pe' suffix

After a five-year legal battle across multiple courts, fintech unicorns BharatPe and PhonePe have reached a settlement regarding the use of the trademark suffix 'Pe' in their brand names. Under the agreement, both companies will withdraw oppositions against each other in the trademark registry and undertake necessary steps to comply with settlement obligations before the Delhi and Bombay High Courts. This resolution marks a positive development for the industry, allowing both parties to focus on building robust digital payment ecosystems. Moneycontrol

4.2. Tide launches Bill Payments feature to aid MSMEs in managing expenses

Tide, a business financial platform, has unveiled a Bill Payments feature in collaboration with Setu powered by Bharat BillPay, by National Payments Corporation of India (NPCI). This new feature aims to provide hassle-free bill payment services to Micro, Small, and Medium Enterprises ("MSMEs") across India, streamlining their expenses and enhancing financial visibility. Through Tide Billpay, MSMEs can now track and categorise their business-related payments, gaining deeper insights into their cash flow and overall business health. Economic Times

4.3. PhonePe launches secured loans in collaboration with NBFCs

PhonePe, in collaboration with several NBFCs, has launched secured loans on its app. Currently, the company is offering six credit products to its customers– loan against mutual funds, gold loan, two-wheeler and four-wheeler loans, home loan, loan against property, and education loan. Economic Times

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