AKP Banking & Finance Digest- July 01, 2024

1. Regulatory Updates

1.1. India

1.1.1. RBI releases June 2024 Financial Stability Report

Reserve Bank of India ("RBI") has published its 29th Financial Stability Report dated June 27, 2024, assessing the resilience of India's financial system amidst global and domestic challenges. The global financial system remains stable despite heightened global risks, such as geopolitical tensions and high public debt. India's economy and financial system are robust, supported by improved bank balance sheets and sustained credit expansion. RBI

1.1.2. RBI introduces revised SAARC Currency Swap Framework for 2024-2027

RBI has announced a revised Currency Swap Framework for SAARC countries for the period 2024 to 2027. This framework includes bilateral swap agreements between the RBI and SAARC central banks to support foreign exchange liquidity. A new INR Swap Window has been introduced with INR 250 billion (Indian Rupees Two Hundred Fifty Billion Only) corpus, alongside separate United States Dollar/Euro Swap Windows with a total corpus of USD 2 billion (United States Dollar Two Billion only). RBI

1.1.3. Monetary Penalties

RBI imposes monetary penalties on the following financial institutions:

1.2. Sri Lanka

1.2.1. Central Bank of Sri Lanka implements amendment to Banking Act

The Central Bank of Sri Lanka ("CBSL") announced that the Banking (Amendment) Act No. 24 of 2024 is now in effect from June 15. This amendment aims to strengthen the legal and regulatory framework for licensed commercial and specialised banks, enhancing the banking sector's resilience. Key areas addressed include stricter licensing requirements, shareholder suitability criteria, measures for foreign bank subsidiarisation, enhanced bank ownership regulations, consolidated supervision, proportionality in supervision, provisions on significant exposures and related party transactions, improved governance requirements for bank officials, and stronger capital and liquidity frameworks. Central Bank of Sri Lanka

1.3. Thailand

1.3.1. Bank of Thailand launches enhanced regulatory sandbox

The Bank of Thailand ("BOT") has introduced an 'enhanced' regulatory sandbox, focusing initially on programmable payments. Regulatory sandboxes allow private firms to test innovative financial products and services in a controlled environment. The enhanced sandbox expands the existing framework to include financial innovations not yet authorised by BOT but within a limited scope and timeframe. The BOT will collaborate closely with the Securities and Exchange Commission, the Office of Insurance Commission, and the Fiscal Policy Office to evaluate the benefits and risks of these innovations and establish suitable supervisory policies. Global Government Fintech

2. Trends

2.1. Hitachi Payment Services receives RBI's final approval for payment aggregator licence

Hitachi Payment Services has obtained final authorisation from the RBI to operate as an Online Payment Aggregator under the Payments and Settlement Systems Act, 2007. This approval enables Hitachi to enhance its digital payment solutions, including Unified Payments Interface ("UPI"), Net Banking, Cards, Wallets, Pay Later, Buy Now Pay Later, and loyalty programs. Economic Times

2.2. Paytm and PhonePe expand travel services amid surging market demand

Paytm and PhonePe are expanding their travel booking services amidst growing market demand in India. Paytm has partnered with Skyscanner, Google Flights, and Wego to enhance flight bookings and has seen notable growth in domestic and international travel. PhonePe has extended its partnership with ixigo to include flights and bus bookings, aiming to cater to the increasing travel aspirations in Tier 2 (two) and Tier 3 (three) cities. Medianama

2.3. NBFCs executive payouts under lens as RBI layout new compensation rules

RBI has started scrutinising payouts to key management personnel at Non-Banking Financial Companies ("NBFCs") in the 'middle' and 'upper' layers of the Scale-Based Regulatory ("SBR") framework. This initiative aims to enforce a board-approved compensation policy, including creating a remuneration committee and guidelines for fixed-variable pay structures and claw-back provisions. This follows the RBI's annual report for FY24, which outlines its forthcoming regulatory objectives, emphasising the specific roles of key committees such as the audit committee, nomination and remuneration committee, and risk management committee within NBFCs, as per the SBR framework introduced on October 22, 2021, according to top industry officials. Moneycontrol

2.4. RBI red flags NBFC consumer credit for close monitoring

RBI's Financial Stability Report raises concerns about NBFCs and their consumer loans. It highlights high delinquency rates among borrowers with small retail loans below INR 50,000 (Indian Rupees Fifty Thousand only) and significant vintage delinquency in personal loans at 8.2%. Additionally, the report notes that many borrowers initiate loans with multiple existing debts, signaling potential strain. RBI calls for vigilant oversight of rapidly expanding NBFCs with low capital buffers, citing risks to systemic stability. As per the report, despite robust inquiry volumes, increased risk weights on specific consumer credit segments have moderated overall growth, particularly impacting personal loans and credit cards. Business Standard

3. Sector Overview

3.1. India's digital lending market soars, per Praxis Global Alliance report

The digital lending market in India grew at a 33% CAGR from FY19 to FY23, reaching INR 2,905 thousand crore, according to a Praxis Global Alliance report. Digital transactions surged by 44% year-on-year, from INR 46,616 crore to INR 92,267 crore. Fintech disbursements grew at 41% to FY23, driven by AI/ML technologies for advanced credit assessments. The report highlights a new roadmap for fintech, focusing on untapped sectors, partnerships with traditional financial institutions, and governance. The report further noted that the rapid adoption of UPI has also revolutionised peer-to-peer payments, indicating significant changes ahead for the financial services industry. Silicon India

3.2. India leads fintech innovation as global market expands, as per BCG-QED Report

The global fintech industry has seen robust growth, with revenues increasing by 14% annually from 2021 to 2023 despite shifts in funding and valuations. A joint report by Boston Consulting Group (BCG) and QED Investors highlights India's leadership in digital payments and fintech innovation, driven by investments in digital public infrastructure (DPI). India's UPI processed 13.115 billion (thirteen billion one hundred fifteen million) transactions in FY24, significantly from the previous fiscal year, showcasing the widespread adoption of digital payments. BCG

4. Business Updates

4.1. LazyPay and Blinkit partner for seamless mobile payments

LazyPay, owned by Prosus's PayU India, has integrated with Blinkit to offer one-tap mobile payments. This collaboration allows Blinkit users to access a credit line without additional merchant costs. Merchants gain access to LazyPay's payment mode and dashboard for enhanced business monitoring. The partnership focuses on swift, secure 'Pay Later' services. PayU India, competing with Razorpay and Cashfree, offers diverse payment modes and ventured into consumer credit with LazyPay in 2017. PayU India recently received RBI approval as a payment aggregator amid preparations for a potential IPO. Inc42

4.2. Flipkart Ventures into Fintech with the launch of the 'super.money' app

Flipkart has introduced a beta version of its fintech app, 'super.money', on the Play Store to enter India's burgeoning digital financial services sector. Besides supporting UPI payments, the app offers features like credit, deposits, and credit cards. The beta launch highlights the plan for additional services based on user feedback. 'Super.money's' goal is to democratise financial services through UPI infrastructure. This move follows PhonePe's separation from Flipkart, with PhonePe currently leading UPI transactions. The launch coincides with concerns over the dominance of PhonePe and Google Pay in India's UPI market. Business Standards

4.3. Kerala and Karnataka Gramin bank to embrace NPST banking SuperApp

Network People Services Technologies Ltd. ("NPST"), a fintech firm in India specialising in banking and payment technology solutions, has secured contracts from Kerala Gramin Bank and Karnataka Gramin Bank for its banking SuperApp. This initiative aims to drive digital transformation by providing enhanced banking experiences tailored for customers in rural and semi-urban areas. The SuperApp integrates services such as onboarding, everyday banking, payments, credit products, and customer engagement, all accessible in regional languages. NPST emphasises facilitating deeper customer connections beyond transactions, supporting banks' competitiveness in the digital-first payments economy. IBS Intelligence

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