AKP Banking & Finance Digest- August 26, 2024

1. Regulatory Updates

1.1. India

1.1.1. RBI unveils new SRO framework for financial markets

The Reserve Bank of India ("RBI") has unveiled a comprehensive framework for recognising Self-Regulatory Organizations ("SROs") within financial markets. This initiative aims to enhance market participants' integrity, professionalism, and compliance by establishing clear SRO governance and responsibilities guidelines. Under this framework, SROs will develop and enforce industry standards, promote ethical conduct, and support regulatory compliance. The RBI's framework outlines eligibility criteria, governance standards, and the application process for entities seeking SRO status. This move is expected to bolster financial market stability and foster innovation while ensuring fair practices and effective self-regulation. RBI

1.1.2. RBI updates e-mandate framework

RBI has revised its e-mandate framework to include auto-replenishment for FASTag and National Common Mobility Card (NCMC) balances. These recurring transactions lack fixed periodicity and will no longer require a pre-debit notification. Presently, the RBI's framework for the processing of e-mandate for recurring transactions enabled recurring payments with fixed periodicity such as daily, weekly, or monthly. This change aligns with recent policy updates and aims to streamline automatic balance replenishment while maintaining other e-mandate requirements. RBI

1.1.3. Monetary Penalties

RBI imposes monetary penalties on the following financial institutions:

1.2. Bangladesh

1.2.1. Bangladesh Bank to raise rates as inflation soars

Bangladesh Bank has announced plans to raise the key interest rate from 8.5 per cent (eight point five per cent) to 9 per cent (nine per cent) in the coming days, with further increases potentially pushing rates to 10 per cent (ten per cent) or higher in the months ahead. This decision addresses the country's rising inflation, which hit 11.66 per cent (eleven point six six per cent) in July. Mansur, a former International Monetary Fund (IMF) economist, also indicated that the bank is seeking additional support from the IMF to stabilise the economy. His appointment followed the resignation of Abdur Rouf Talukder. Central Banking

1.3. Indonesia

1.3.1. Indonesia launches Digital Resilience Guide

Indonesia's Financial Services Authority ("OJK") has unveiled a Digital Resilience Guide to enhance the banking industry's ability to handle digital disruptions. The guide, announced by OJK's Chief Executive of Banking Supervision Dian Ediana Rae, provides strategies for banks to manage technological challenges and cyber risks while ensuring operational stability. This initiative supports the 2022 Banking Digital Transformation Blueprint and will be followed by new AI-related guidelines to align with global regulatory standards. Fintech Indonesia

2. Trends

2.1. India to integrate UPI with Malaysia's PayNet

Announcements have been made regarding plans for India to integrate its Unified Payments Interface ("UPI") with Malaysia's PayNet during a bilateral meeting with Malaysian Prime Minister Anwar Ibrahim. This initiative includes establishing an India-Malaysia startup alliance and a Digital Council to enhance cooperation in tech sectors such as fintech, AI, and quantum computing. The move follows India's recent agreements to expand UPI's reach, including a new pact with the Maldives and partnerships in Qatar and the UAE. Outlook Business

2.2. CCI approves Warburg Pincus' INR 4,630 crore acquisition of Shriram Housing

Competition Commission of India (CCI) has approved Warburg Pincus's INR 4,630 crore (Indian Rupees Four Thousand Six Hundred Thirty Crores only) deal to acquire Shriram Housing Finance Ltd. ("SHF") through its affiliate, Mango Crest Investment Ltd. This acquisition will allow Warburg Pincus to expand its presence in the Indian housing finance market. The transaction includes equity and convertible instruments, and Warburg Pincus has committed an additional INR 1,000 crore (Indian Rupees One Thousand Crore only) investment in SHF post-deal, which is expected to close by March 2025. This strategic move comes as Shriram Finance shifts its focus towards vehicle finance and small business lending. Business Standard

3. Sector Overview

3.1. NBFCs sector to slow down in Fiscal Year 2025, per ICRA report

Investment Information and Credit Rating Agency (ICRA) reports that Non-Banking Financial Companies ("NBFCs") could face a profitability dip in FY25, with asset growth slowing to 13–15 per cent (thirteen to fifteen per cent), down from 18 per cent (eighteen per cent) in FY24. Asset quality is expected to decline by 30–50 (thirty to fifty) basis points, driven by funding constraints, higher costs, and competition from banks. Profit margins may decrease by 25–45 (twenty-five to forty-five) basis points. Tight funding conditions and stricter regulations are likely to impact the sector's growth and financial performance. ICRA

3.2. India's economy strong despite monsoon woes

India's economic growth remains robust, with a projected real Gross Domestic Product (GDP) growth of 6.5-7 per cent (six point five to seven per cent) for Fiscal Year (FY) 2025, according to the finance ministry's Monthly Economic Review for July. Despite a somewhat erratic monsoon, the economy has shown resilience with strong Goods and Services Tax (GST) collections, expanding manufacturing and services sectors, and moderating inflation at 3.5 per cent (three point five per cent). Business Standard

4. Business Updates

4.1. ONDC launches quick digital lending initiative

The Open Network for Digital Commerce ("ONDC") has launched a digital lending initiative, marking its entry into the financial services sector. This program will offer paperless loans within six minutes and will be available through nine buyer applications, including Easypay, Paisabazaar, Tata Digital, and Paynearby. Three lenders, Aditya Birla Finance, DMI Finance, and Karnataka Bank, will facilitate these loans. ONDC is also working with prospective lenders such as HDFC Bank, Kotak Mahindra Bank, and Axis Finance to further expand its reach. This initiative aims to simplify borrowing and enhance financial inclusion, particularly in underserved regions, by integrating multiple digital systems into a streamlined process. Financial Express

4.2. PhonePe launches credit line on UPI

PhonePe has launched a "Credit Line on UPI" feature, allowing users to link bank-provided credit lines to UPI for easy merchant payments. This innovation allows users to manage their monthly expenses more effectively by providing short-term credit across millions of merchants. RBI's recent expansion of UPI to include pre-approved credit lines has facilitated this development, enhancing digital payments in India and reducing cart abandonment for merchants using PhonePe's payment gateway. ANI News

4.3. HDFC Bank rejects Mitsubishi Financials' proposal to buy its NBFC arm

HDFC Bank has declined Mitsubishi UFJ Financial Group's (MUFG) USD 2 billion (United States Dollar Two Billion only) proposal to acquire a 20 per cent (twenty per cent) stake in its NBFC arm, HDB Financial Services. Instead, the bank's board has decided to pursue a listing of the NBFC unit, aligning with the RBI's regulatory requirements. This decision is expected to impact the strategic economic relationship between India and Japan, as Japan had shown support for the deal to strengthen ties between the two nations. Money Control

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