Kotak Mahindra Bank gets RBI nod for trimming promoters' stake

New Delhi: Private sector Kotak Mahindra Bank on Wednesday said the Reserve Bank has
granted its final approval for reducing promoters' stake in the bank to 26 per cent.

On January 30, the bank had informed about RBI's in-principle acceptance for reducing
promoters' shareholding to 26 per cent of the paid-up voting equity share capital (PUVESC) of
the bank within six months from the date of final approval of the regulator.

The RBI had asked the bank to cut promoters' shareholding to 20 per cent of paid-up capital by
December 31, 2018, and 15 per cent by March 31, 2020.

RBI may push back rollout of new accounting norms to FY23

Mumbai: The Reserve Bank of India could push the implementation of Ind-AS — the Indian
version of global accounting standards — to fiscal 2023, seeing poor preparedness of banks to
make the transition. The new rules are expected to add to the burden of higher capital requirement
for banks, especially loanloss provisions.

It is estimated that PSU banks would require an additional Rs 1.1 lakh crore to immediately
adhere to the accounting rules if implemented.

“Balance sheets of Indian banks, especially public sector ones, are not robust to deal with the
impact of implementation of the new accounting norms,” said PwC partner and financial risk &
regulation leader Kuntal Sur.

“Also, the proposed merger of public sector banks is expected to create more complications on
the calculations of expected loss accounting, so it’s practical if this implementation is pushed for
a few years.”

While the RBI conducted an impact assessment on the implementation of Ind-AS in 2016, banks
already submit parallel accounting based on the new system. In March 2019, the RBI announced
deferral of IndAS till further notice.

The RBI did not respond to ET’s queries.

Ind Accounting Standard is on par with the International Financial Reporting Standard (IFRS) 9,
under which banks are required to undertake early recognition of provision for losses on loans
and off-balance sheet exposures based on an expected credit loss (ECL) model. Currently, Indian
banks follow the Generally Accepted Accounting Principles (GAAP), which requires banks to
recognise mark-tomarket losses.

Ind-AS is expected to increase transparency and comparability of the financial statements of

Indian banks with their global counterparts.

It will also impact key function areas like regulatory reporting and capital adequacy ratios.
Globally, banks have adopted the new accounting standards in 2018 and saw a slight uptick in
their loan loss provisions.

"The IFRS 9 moves away from the incurred credit loss model to expected credit loss model,
which would mean that the timing of recognition of loss could be preponed. Due to this, the
provisioning have to be increased and could in turn impact the capital adequacy ratio," said
Sandip Khetan, partner, EY India.

The incurred credit loss model used by the banks is based on RBI guidelines where it considers
by how many days the loan is delayed before classifying it as a stressed asset. On the other hand,
under the new model, banks would be expected to factor in economic cycles and whether there is
a potential bubble while arriving at the health of a loan under the expected credit loss model. This
would mean that banks would have to calculate probability of a loan getting bad, before there are
any indication of it going bad.

Last year, the government announced the merger of 10 public sector banks to create four big
banks, but is yet to notify this move. This proposed merger is expected to further add to banks’
capital requirements, but the government tap is shut for now.

Over the last five years the government has infused nearly Rs 3.5 lakh crore into public sector
banks, but the return to its largest shareholder has been negative. In the latest Union budget, the
finance minister did not announce any capital infusion for stateowned banks as it front loaded Rs
68,855 crore, out of Rs 70,000 crore earmarked for capital infusion for the current fiscal, to take
care of the mega-merger plan announced in August 2019.

Indian banks are sitting on a bad loan pile of Rs 9.5 lakh crore which is likely to rise further. And
if IFRS is implemented, high incremental provisioning requirement will result in higher capital
necessity and banks’ capital buffers will dwindle.

RBI keeps repo rate unchanged at 5.15%, stance remains

accommodative
NEW DELHI: The Reserve Bank of India (RBI) Governor Shaktikanta Das-headed monetary
policy committee (MPC) on Thursday maintained status quo on policy rates in its fifth bi-monthly
monetary policy review of the financial year.

This halt came after five consecutive cuts. The short-term lending rate, or repo rate, was
unchanged at 5.15 per cent. All six committee members voted against the rate cut.

The RBI said its monetary stance will remain accommodative as long as it necessary. The central
bank raised October-March CPI projection from 4.7 per cent to 5.1 per cent.

FY20 real GDP growth projection cut to 5 per cent from 6.1 per cent.

“GDP growth for Q2 turned out to be significantly lower than projected. Various high frequency
indicators suggest that domestic and external demand conditions have remained weak. Based on
the early results, the business expectations index of the Reserve Bank’s industrial outlook survey
indicates a marginal pickup in business sentiments in Q4,” RBI said in a statement.

Key highlights

MPC unanimously votes for status quo on repo rate

Stance to remain accomodative as long as required: MPC

FY20 real GDP growth projection lowered to 5% from 6.1%

MPC sees scope for rate easing in the future

MPC expects inflation to rise in the near term

Delay in demand revival is a key downside risk to GDP

MPC sees need to address impediments holding back investments

October CPI print was much higher than expected

Fall in deposit rate augurs well for loan rate transmission

October-March 2020 CPI inflation seen at 4.7-5.1%

April-Sept 2020 CPI inflation seen 3.8-4%

Oct-March GDP growth seen at 4.9-5.5%

Fall in deposit rate augurs well for rate transmission

On the positive side, however, monetary policy easing since February 2019 and the measures
initiated by the government over the last few months are expected to revive sentiment and spur
domestic demand. Taking into consideration these factors, real GDP growth for 2019-20 is
revised downwards from 6.1 per cent in the October policy to 5.0 per cent – 4.9-5.5 per cent in
H2 and 5.9-6.3 per cent for H1:2020-21,” it added.

The RBI said that while improved monetary transmission and a quick resolution of global trade
tensions are possible upsides to growth projections, a delay in revival of domestic demand, a
further slowdown in global economic activity and geo-political tensions are downside risks, it
said.

The MPC said that the actual inflation outcome for Q2 evolved broadly in line with projections –
averaging 3.5 per cent. "The inflation print for October, however, was much higher than
expected," it said.

While the RBI committee members recognises that there is monetary policy space for future
action, given the evolving growth-inflation dynamics, they felt it appropriate to take a pause at
this juncture.

“Inflation is rising in the near-term, but it is likely to moderate below target by Q2 of FY21. It is,
therefore, prudent to carefully monitor incoming data to gain clarity on the inflation outlook.
Similarly, the forthcoming union budget will provide better insight into further measures o be
undertaken by the Government and their impact on growth,” RBI said.
Benchmark equity index BSE Sensex lost more than 150 points from day’s high after RBI move.

The decision was made even as GDP fell to a 6-year low of 4.5 per cent in the September quarter.
A few economists said that an aggressive rate cut was unlikely as the headline inflation now
stands at around 4.6 per cent, above the RBI’s target, mainly on account of higher food inflation.

Real interest rates continued to be high compared to history and also by international standards,
said Edelweiss Professional Investor Research.

This is even as RBI has cut the policy rate by 135 basis points basis points so far this calendar.

Brokerage Nomura said that while weaker global growth is a common thread across economies,
India’s sharper-than-expected growth slump, despite being a relatively closed economy, suggests
that domestic factors have played a bigger role.

It added that while the slowdown reflects a painful convergence of tight domestic credit
conditions amid the triple balance sheet impairment of corporates, banks and shadow banks, the
forward-looking data do not suggest much room for optimism.

“October activity data released so far remain weak. Despite the expected festive boost in October,
vehicle sales growth has been largely lacklustre, particularly among commercial vehicles and
two-wheelers. The credit slump is still ongoing, with bank non-food credit growth slowing further
to 7.9 per cent YoY in the first week of November from 8.9 per cent in October,” it said.

RBI to release Digital Payment Index by July 2020

The Reserve Bank of India announced that it will create a Digital Payment Index by July 2020.
The main aim of the index creation is to capture the extent of digitization of monetary payments
in the country

Highlights

With the launch of Digital India and the GoI’s push towards Digital Economy, the digital
payments in the country has been growing fast. In order to monitor the digital payments, the
Central Bank is to release Digital Payment Index. The index will reflect the penetration of digital
payment in the country. RBI has planned to introduce classification in the index. The
classification will include rural, urban and semi-urban geographies.
Significance

The Index will help to study the impact of policy interventions that are being taken by the GoI.
Factors influencing digital growth in India The five factors that are influencing digital growth in
India includes low data tariffs, rise in videos, widespread use of OTT (Over-the-top) platforms.
Today India ranks the highest in video making platform.