AKP Banking & Finance Digest- July 22, 2024

1. Regulatory Updates

1.1. India

1.1.1. RBI introduces stringent fraud risk management directions for NBFCs

Reserve Bank of India ("RBI") has issued directions titled "Reserve Bank of India (Fraud Risk Management in Non-Banking Financial Companies (NBFCs) Directions, 2024", aimed at enhancing fraud prevention and management in Non-Banking Financial Companies ("NBFCs"). These directions mandate robust governance structures, early warning systems, and stringent reporting mechanisms to combat fraudulent activities. They require NBFCs to establish clear policies, conduct regular audits, promptly report fraud incidents to regulatory authorities and law enforcement agencies, and further outline penalties and accountability measures for entities involved in fraudulent activities. RBI

1.1.2. RBI issues directions for fraud risk management in commercial banks

RBI has issued directions titled "Reserve Bank of India (Fraud Risk Management in Commercial Banks and All India Financial Institutions) Directions, 2024" to strengthen fraud risk management in commercial banks. These directions provide a structured framework for prevention, early detection, and timely reporting of fraud incidents. Key provisions include governance structures, early warning systems, reporting mechanisms to Law Enforcement Agencies (LEAs) and RBI, staff accountability, and penalties for fraud perpetrators. RBI

1.1.3. RBI issues directions for fraud risk management in cooperative banks

RBI has issued directions titled "Reserve Bank of India (Fraud Risk Management in Urban Cooperative Banks (UCBs) / State Cooperative Banks (StCBs) / Central Cooperative Banks (CCBs)) Directions, 2024" aimed at enhancing fraud risk management in Cooperative Banks. These guidelines mandate the establishment of robust governance structures, early warning signal frameworks, and stringent reporting mechanisms to combat fraudulent activities effectively. The directives emphasise proactive prevention, timely detection, and reporting of fraud incidents to law enforcement agencies and RBI, ensuring transparency and accountability across all levels of Cooperative Banks. RBI

1.1.4. FATF updates on high-risk and monitored jurisdictions

Financial Action Task Force ("FATF") has issued updated public statements on jurisdictions with strategic deficiencies in anti-money laundering and combating the financing of terrorism (AML/CFT). Myanmar remains on the High-Risk Jurisdictions list, with enhanced due diligence measures recommended. Monaco and Venezuela are newly added to the Increased Monitoring list, while Jamaica and Türkiye have been removed. FATF emphasises maintaining legitimate trade amidst enhanced scrutiny. RBI

1.1.5. Monetary Penalties

RBI imposes monetary penalties on the following financial institutions:

1.2. Bangladesh

1.2.1. Bangladesh Bank maintains tight monetary policy

Bangladesh Bank ("BB"), has released a new monetary policy to curb inflation and stabilise the economy. The policy includes measures to halt the printing of money for government expenditures, aiming to reduce inflation to around 6.5% (six point five percent) by FY 2025. BB has maintained its tight monetary stance, keeping policy rates unchanged for the first half of FY 2025, including the repo rate at 8.50% (eight point five percent), the standing deposit facility rate at 7% (seven percent), and the standing lending facility rate at 10% (ten percent). The Business Standard

1.3. Philippines

1.3.1. BSP introduces stricter reporting rules and penalties for FX transactions

The Bangko Sentral ng Pilipinas ("BSP") has announced amendments to Foreign Exchange (FX) regulations aimed at enhancing the accuracy and timeliness of reporting by BSP-Supervised Financial Institutions (BSFIs). These amendments, approved by the Monetary Board, are designed to ensure price stability, financial system supervision, and effective policy monitoring. Bangko Sentral ng Pilipinas

1.3.2. BSP tightens merchant payment rules

BSP, vide Circular No. 1198 dated July 19, has approved a new regulatory framework, providing minimum standards that operators of payment systems (OPS) must follow if they want to engage in the business of accepting and processing payment transactions on behalf of their partner sellers. The framework outlines a standardized approach for merchant payment acceptance activities (MPAA), encompassing the process for businesses to accept digital payments securely and efficiently. Bangko Sentral ng Pilipinas

2. Trends

2.1. NBFCs seek more funds to improve liquidity and regulatory reforms in the upcoming budget

As the Union Budget approaches, the NBFC sector is calling for enhanced financial inclusion and strengthened digitalisation efforts to support its growth. The Finance Industry Development Council (FIDC), representing the industry, has proposed creating a special refinancing body similar to the National Housing Bank (NHB) for housing finance companies. NBFCs are also hopeful for budget provisions that will boost consumption, such as tax relief and initiatives to support the growth of NBFCs serving priority sector clients. Additionally, they are advocating for widespread campaigns to promote good credit behaviour among the country's expanding borrower base. The Hindu

2.2. PM Modi aims to make Mumbai the fintech capital of the world

During the launch of an INR 29,000 crore (Indian Rupees Twenty-Nine Thousand Crores only) investment initiative in Mumbai, targeting vital infrastructure projects in roads, railways, and ports, Prime Minister Narendra Modi expressed his ambition to harness Maharashtra's strengths to transform it into a global economic powerhouse and make Mumbai the fintech capital of the world. Highlighting Maharashtra's critical role in India's development, PM Modi stated, "Maharashtra has the power of industry, agriculture, and the finance sector." He also emphasised Mumbai's central role as the nation's financial hub. The Print

3. Sector Overview

3.1. Fintech industry is set to reach USD 420 billion by 2029, per NPCI chairman

Shri Ajay Kumar Choudhary, non-executive chairman and independent director at National Payments Corporation of India ("NPCI"), projects significant growth for India's fintech industry, estimating it to reach USD 420 billion (United States Dollar Four Hundred Twenty Billion only) by 2029 from USD 110 billion (United States Dollar One Hundred Ten Billion only) in 2024. India ranks third globally in fintech entities and attracts 14% (fourteen percent) of startup funding in the country. This growth includes supportive government policies, digital public infrastructures, and technological innovations.Business Standard

3.2. RBI governor reaffirms stance against allowing business houses entry into the banking sector

In an interview with the Financial Express, the RBI Governor, Shri Shaktikanta Das, stated that the RBI is not considering granting banking licenses to corporate houses. He pointed out that global experience has shown that when companies from the real sector enter banking, it can lead to potential conflicts of interest and significant issues with related-party transactions. He stressed the need for India to have sound, healthy, and well-governed banks that can effectively mobilize savings and meet credit demands nationwide through technology. However, the Governor mentioned that the RBI is open to new applications for setting up universal banks and will evaluate any suitable and proper applications as they come. Economic Times

4. Business Updates

4.1. TechFini secures NPCI certification for UPI payment solutions

Mumbai-based FinTech startup TechFini has received certification from the NPCI for Unified Payments Interface ("UPI") based payment solutions and Unified Dispute and Issue Resolution ("UDIR"). This certification positions TechFini as one of the select platforms offering UDIR, streamlining dispute resolution processes for UPI transactions amid a significant surge in transaction volumes.IBS Intelligence

4.2. SoftBank exits Paytm with USD 150 million loss

SoftBank has reportedly exited its investment in Paytm at a loss of USD 150 million (United States Dollar One Hundred Fifty Million only), reflecting a decline of 10-12% (ten to twelve percent) on its initial investment of nearly USD 1.5 Billion (United States Dollar One Billion Five Hundred Million only) made in 2017. This move aligns with SoftBank's strategy to divest from Paytm within twenty-four months of its Initial Public Offer ("IPO"). Before the IPO, SoftBank held about 18.5% (eighteen-point five percent) stake in Paytm through two entities, which has since decreased significantly. Inc42

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