India: AKP Banking & Finance Digest- February 05, 2024

1. Regulatory Updates

1.1. India

1.1.1. RBI imposes stringent measures on Paytm Payments Bank Limited due to non-compliance

In response to persistent non-compliance and material supervisory concerns identified during a comprehensive System Audit, the Reserve Bank of India ("RBI") directed Paytm Payments Bank Limited ("PPBL") to cease onboarding new customers immediately. Following the audit reports revealing continued non-compliance, RBI issued directives to PPBL, prohibiting further deposits or credit transactions after February 29, 2024, except for interest, cashback, or refunds. Customers are allowed unrestricted withdrawal or utilisation of balances up to their available amounts, but all other banking services, including fund transfers and Unified Payments Interface ("UPI") facilities, are to be discontinued after the specified date. Further, the termination of nodal accounts for One97 Communications Ltd and Paytm Payments Services Ltd. is mandated by February 29, 2024. RBI

1.1.2. RBI calls for enhanced automation in compliance monitoring systems

RBI recently evaluated the internal compliance monitoring systems in selected supervised entities (SEs) and found varying levels of automation, ranging from spreadsheet use to workflow-based software solutions. These tools should facilitate communication and collaboration among stakeholders, identify, assess, and monitor compliance requirements, escalate non-compliance issues, record approvals for deviations, and offer a unified dashboard view to senior management on the overall compliance position of the Regulated Entity ("RE"). RBI advises REs to thoroughly review their existing internal compliance tracking processes and implement necessary changes or new systems by June 30, 2024. Additionally, an effective monitoring mechanism should be established to review the implementation progress. RBI

1.1.3. Monetary Penalties

RBI imposes monetary penalties on the following financial institutions:

1.2. Bangladesh

1.2.1. Brac Bank secures Bancassurance approval from Bangladesh Bank

Brac Bank PLC has received approval from Bangladesh Bank for its Bancassurance Business. Following regulatory clearance, Brac Bank is set to commence the sale of insurance products to its customers. The bank plans to conduct training courses on Bancassurance for its officials in collaboration with the Insurance Development and Regulatory Authority and Bangladesh Insurance Academy. Dhaka Tribune

1.3. Philippines

1.3.1. Philippines plans unified AI regulatory framework for ASEAN

The Philippines has announced plans to establish a regulatory framework for Artificial Intelligence ("AI") within the Association of Southeast Asian Nations ("ASEAN"). Leveraging initial legislation from the Philippines, the initiative aims to standardise AI regulations across ASEAN member states. This move signifies the country's commitment to prioritising digitisation and cybersecurity in its economic policy. The proposed unified AI framework represents a departure from the current laissez-faire approach within ASEAN, which has favoured a voluntary guide to encourage innovation by minimising regulatory burdens. Fintech Philippines

2. Trends

2.1. SEBI considers measures to curb proprietary trading misuse and discusses trading hour extension

The Securities and Exchange Board of India ("SEBI") is considering measures to prevent the misuse of proprietary trading by potentially segregating settlements for proprietary and retail trades, according to SEBI Chairperson Madhabi Puri Buch. Proprietary trading involves financial firms trading on stock exchanges using their own funds to generate profits. He mentioned that the stock broking industry has made representations to SEBI, stating that brokers have various revenue models, and some practices may seem like misuse but are not. Regarding the extension of trading hours, he noted diverse views among stakeholders, and discussions on the matter are ongoing. Last year, the National Stock Exchange (NSE) had proposed extending trading hours for index derivatives in the evening. Indian Express

2.2. Meesho diversifies into financial services and expands grocery delivery business

Meesho, an e-commerce company backed by SoftBank, plans to establish a financial services platform and expand its grocery delivery business in the upcoming fiscal year, shifting focus after efforts to reduce losses. Emulating industry trends, Meesho aims to initiate a credit marketplace, acting as an intermediary for lending partners such as banks and non-banking financial companies (NBFCs), earning commissions on disbursals. The company intends to go beyond lead generation by developing its credit underwriting models, decision-making systems, and fraud detection capabilities, aspiring to create a comprehensive range of credit products. Initially concentrating on merchant loans, Meesho also envisions extending lending services to consumers, particularly in non-metro areas with an average product selling price below INR 500 (Indian Rupees Five Hundred Only). Economic Times

2.3. PayPal plans workforce reduction amid restructuring efforts

PayPal Holdings, a leading payments company, is set to cut approximately 2,500 (two thousand five hundred) jobs, constituting 9 per cent (nine per cent) of its global workforce, according to a letter from CEO Alex Chriss. The decision aims to 'right-size' the company by implementing direct cuts and eliminating open positions throughout the year. Newly appointed CEO Chriss emphasised the move's necessity to enhance business efficiency, enabling quicker responses to customer needs and driving profitable growth. Affected staff members are expected to receive notifications by the week's end. This decision aligns with Chriss's previous commitment in November to increase revenue beyond transaction-related volume and streamline the fintech firm by reducing its cost base. Economic Times

3. Sector Overview

3.1. RBI deputy governor urges caution in technology adoption by financial entities: RBI

3.2. Asset management companies witness increased fund mobilisation in 2023: Morningstar India

3.3. Banks face continued challenges with declining CASA ratios amid high FD interest rates: Financial Express

4. Business Updates

4.1. SalarySe secures USD 5.25 million seed funding for Credit-on-UPI system

Financial management app SalarySe has secured USD 5.25 million (United States Dollar Five Million Two Hundred Fifty Thousand Only) in seed funding, with Surge, Peak XV's rapid scale-up program, and Pravega Ventures leading the investment. The funds will be utilised to enhance SalarySe's technology stack for the Credit-on-UPI system and promote product adoption in India. SalarySe aims to assist over 100 million (hundred million) salaried employees in the country with intelligent spending, saving, investing, and salary planning, ultimately alleviating financial stress. The company plans to launch the Credit-on-UPI system for salaried employees in the coming months, collaborating with banks, HR SaaS platforms, and employers for the rollout. BFSI

4.2. Temasek and SoftBank divest stakes in Policybazaar's parent PB Fintech

Singapore's sovereign wealth fund, Temasek Holdings, has divested its entire 5.42 per cent stake (five point four two per cent) in insurtech platform Policybazaar's parent company PB Fintech through open market transactions. This comes after SoftBank sold 2.53 per cent (two point five three per cent) of its stake in PB Fintech. Despite these sales, PB Fintech reported a profit in Q3 2023-24, attributed to growth in its insurance broking business and cost reduction. PolicyBazaar is expected to receive INR 350 crore (Indian Rupees Three Hundred Fifty Crore Only) from PB Fintech, with the transaction involving the allotment of around 58 lakh (fifty eight lakh) shares across the financial years 2023-24 and 2024-25. Inc 42

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