AKP Banking & Finance Digest- July 29, 2024

1. Regulatory Updates

1.1. India

1.1.1. Eight NBFCs surrender their Certificate of Registration to RBI

Eight Non-Banking Financial Companies (“NBFCs”) have surrendered their Certificate of Registration (CoR) granted to them by the Reserve Bank of India (“RBI”). In exercise of its powers under Section 45-IA (6) of the Reserve Bank of India Act, 1934, RBI has therefore cancelled their CoR. The reasons for surrendering their NBFC Certificate are: (a) Exit from Non-Banking Financial Institution (NBFI) business; and (b) NBFC ceasing to be a legal entity due to amalgamation/ merger/dissolution/ voluntary strike-off, etc. RBI

1.1.2. RBI imposes monetary penalty on three Payment System Operators

RBI has imposed monetary penalties on three payment system operators, namely Visa Worldwide, Ola Financial Services, and Manappuram Finance, for the companies' failure to adhere to regulatory guidelines. A penalty of INR 41.5 lakh (Indian Rupees Forty-One Lakh Fifty Thousand only) and INR 33.4 lakh (Indian Rupees Thirty-Three Lakh Forty Thousand only) was imposed on Manappuram Finance and Ola Financial Services, respectively, for non-compliance with RBI's Master Direction – Know Your Customer (KYC) Direction, 2016 dated February 25, 2016. Additionally, compounding orders of INR 54.15 lakh (Indian Rupees Fifty-Four Lakh Fifteen Thousand only) and INR 240.75 lakh (Indian Rupees Two Crore Forty Lakh Seventy-Five Thousand only) were also issued against Ola Financial Services Pvt. Ltd. and Visa Worldwide Pte. Limited, respectively, for contravention of certain provisions contained in the Master Directions on Prepaid Payment Instruments (PPIs) dated August 27, 2021. RBI

1.1.3. RBI issues prompt corrective action framework for urban cooperative banks

RBI has introduced a prompt corrective action (“PCA”) framework for urban cooperative banks (“UCBs”) aimed at enabling timely supervisory intervention. Effective from April 1, 2025, this new PCA framework will replace the existing Supervisory Action Framework (SAF) issued by the RBI. The PCA framework is largely principle-based, having fewer parameters than the SAF, yet maintaining rigorous supervisory standards. The revised framework is designed to focus more on larger UCBs that require intensive monitoring, through optimizing the use of supervisory resources. RBI

1.1.4. RBI issues master directions on Overseas Investment

RBI has issued an updated Master Direction on Overseas Investment, consolidating and clarifying rules for Indian entities and individuals investing abroad. Key changes include new definitions for foreign entities and overseas direct investment, revised reporting requirements, and updated guidelines on financial commitments and investments in financial services. The directive aims to streamline overseas investment processes while ensuring regulatory compliance. RBI

1.1.5. RBI releases draft circular on Basel III framework on liquidity standards

As per the draft circular on the BASEL III framework of liquidity standards recently released by RBI, banks will be required to keep a high amount of quality liquidity assets (LCR) or liquidity coverage ratio. The draft circular also stated that unsecured wholesale funding from non-financial small business customers should be treated like retail deposits, and Level 1 HQLA in the form of Government securities should be valued at no more than their current market value, adjusted for applicable haircuts in line with Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) requirements. RBI

1.1.6. 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. Vietnam

1.3.1. New credit regulations on related-party transactions proposed

The Ministry of Finance (MoF) of Vietnam has proposed new regulations to address related-party transactions between enterprises and credit institutions to combat transfer pricing. These changes, part of a draft decree amending Decree No. 132/2020/NĐ-CP, include requiring the State Bank of Vietnam to provide tax authorities with information on foreign loans, debt repayments, and related financial data. The amendments aim to align the decree with the newly-issued Law on Credit Institutions. Vietnam News

1.4. Philippines

1.4.1. BSP and BTr launch fully automated intraday settlement facility

The Bangko Sentral ng Pilipinas (“BSP”) and the Bureau of the Treasury (“BTr”) introduced a fully automated Intraday Settlement Facility (ISF) for financial institutions. This new facility, integrated with the BSP's PhilPaSSplus RTGS system and the BTr's enhanced National Registry of Scripless Securities, aims to streamline fund transfers and prevent settlement delays. The ISF supports a rapid, paperless process, enabling institutions to access funds quickly to settle queued transactions, thereby enhancing the efficiency and reliability of the national payment system. Bangko Sentral ng Pilipinas

1.4.2. BSP may pave the way for digital banking licenses in the country

BSP may reopen applications for digital banking licenses after a three-year pause, a move that aims to expand the emerging digital banking sector and foster greater competition as it moves toward profitability. The number of available digital banking slots for prospective players is still unknown, but BSP Governor Eli Remolona Jr. has announced that a circular with more details will be released "soon". This development is expected to bring new opportunities and growth to the digital banking industry in the country. Inquirer.net

2. Trends

2.1. Cashfree secures PA-CB licence for cross-border transactions

Bengaluru-based fintech startup Cashfree has become the first company to obtain RBI's Payment Aggregator Cross Border (“PA-CB”) licence. This export and import PA-CB licence allows Cashfree to process cross-border online transactions to import and export goods and services, providing Indian exporters and freelancers with enhanced payment solutions. Business Standard

3. Sector Overview

3.1. Digital payments budget slashed by 42 percent for FY25

The Union Budget for FY25 has reduced the allocation for promoting RuPay debit cards and low-value Bharat Interface for Money - Unified Payments Interface (“UPI”) transactions by over 42% (forty-two percent), down to INR 1,441 crores (Indian Rupees One Thousand Four Hundred Forty-One Crores only) from INR 2,485 crores (Indian Rupees Two Thousand Four Hundred Eighty-Five Crores only) in FY24. This cut reflects a 44.5% (forty-four point five percent) decrease from FY23's allocation.Inc42

3.2. India positioned as the third-largest growing fintech economy globally

According to the Economic Survey 2023-2024, India is rapidly emerging as the world's third-largest growing fintech economy, driven by government initiatives like Digital India Mission and Make-in-India. The survey highlights India's robust digital public infrastructure, including Aadhaar, UPI, and other initiatives, as pivotal in fostering digital transformation and transparent governance services. Money Control

3.3. 379 illegal loan websites shut in 8 months, per Minister of State for Home Affairs

The Indian Cyber Crime Coordination Centre (I4C) and the National Internet Exchange of India (NIXI) have dismantled 379 illegal loan and scam websites from October 2023 to May 2024. Additionally, I4C launched the Citizen Financial Cyber Fraud Reporting and Management System to enable immediate reporting of financial frauds and prevent fund siphoning. This action comes in response to the rise of illegal loan applications, which offer quick loans with minimal documentation and target financially vulnerable individuals. Economic Times

3.4. Economic Survey 2024 calls for identifying regulatory gaps in the fintech sector

As per the Economic Survey 2024, with the rapid evolution of the digital payments system, there is a need for continuous review to identify regulatory gaps/overlaps and benchmark them with the best global practices. The survey further highlighted that a move towards data-based lending instead of judgment-based lending, especially for small businesses, should be made. It also suggested steps to improve fintech adoption in the country further and pitched for the adoption of a common approach for using customer data across regulators. India Budget

4. Business Updates

4.1. Castler gets IFSCA green light for global escrow services

Escrow banking startup Castler has obtained in-principal approval from the International Financial Services Centres Authority (IFSCA) to offer global escrow and cross-border money transfer services. This approval will enable Castler to address gaps in secure and efficient financial transactions, which are vital for international trade. The company plans to leverage its partner banks at Gujarat International Finance Tech-City (GIFT City) to roll out a global platform for these services. Castler, which started in 2021, aims to set new industry standards for trust and reliability in international transactions. Inc 42

4.2. Paytm and Axis Bank partner to boost merchant POS solutions

Paytm, through its parent company, One97 Communications Limited, has partnered with Axis Bank to offer point-of-sale (POS) solutions and electronic data capture (EDC) devices to merchants. This collaboration aims to improve transaction efficiency and streamline merchant operations by integrating Paytm's technology with Axis Bank's extensive merchant network. The partnership will bolster both companies' capabilities, expanding Paytm's reach and enhancing Axis Bank's merchant acquiring portfolio. The Economic Times

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.