Some foreign branches of state-owned banks in red

Nearly 25 per cent of the overseas branches of the public sector banks (PSBs) suffered losses in 2016-17, the government informed Parliament on Friday.

"As per data reported by PSBs, 159 branches of PSBs are operating in foreign countries, of which 41 branches were in loss in the financial year 2016-17," Minister of State for Finance Shiv Pratap Shukla said in a written reply to the Lok Sabha.

The country's largest lender State Bank of India (SBI) led the pack with nine of its overseas branches in the red. It was followed by Bank of India and Bank of Baroda with eight and seven branches, respectively. Shukla further said that a reforms agenda based on recommendations made by Whole Time Directors and senior management of PSBs has been referred by the government to lenders for appropriate action, as per approval of bank boards.

"The agenda covers, inter alia, rationalisation of overseas operations for cost efficiencies and synergies in overseas markets, based on competitive strength and viability,and a differentiated banking strategy to leverage bank's competitive advantage, which may include branch network rationalisation for a strong regional connect," he said.

All PSBs having foreign branches namely Allahabad Bank, Bank of Baroda, Bank of India, Canara Bank, IDBI Bank, Indian Bank, Indian Overseas Bank, Punjab National Bank, State Bank of India, Syndicate Bank, UCO Bank and Union Bank of India have jointly taken the initiative to prepare a note in mutual consultation for rationalisation of their foreign branches.

"Action on closure of branches identified by banks is at various stages. Banks take a view on branch operations, including their revival, based on commercial considerations," he said.

In reply to another question, Shukla said, as per data reported by PSBs, the total number of wilful defaulters has grown from 6,336 as on March 31 2014, to 9,063 as on December 31, 2017. 

As per RBI's instructions, wilful defaulters are not sanctioned any additional loans by banks or financial institutions, he said. A number of steps have been taken to reduce incidence of default on account of wilful defaulters, he said.

"To deal with wilful defaulters, as per RBI's instructions, they are not sanctioned any additional facilities by banks or financial institutions, their unit is debarred from floating new ventures for five years, and lenders may initiate criminal proceedings against them, wherever necessary," he said.

As per SEBI Regulations, wilful defaulters and companies with wilful defaulters as promoters or directors are debarred from accessing capital markets to raise funds, he said, adding, the Insolvency and Bankruptcy Code has been amended to debar wilful defaulters from participating in the insolvency resolution process.

Source- Times of India

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Government’s plan for PSU banks: Stability first, consolidation later

The government wants state-run banks to stabilise by resolving their bad loans before embarking on a plan to consolidate them. A senior finance ministry official said it is also not the right time to privatise IDBI Bank. 

“Most banks are adhering to the new guidelines under the reforms agenda. The bad loans are being identified and dealt with. Once this cleansing happens, public sector banks will emerge as much stronger entities and then we will look at consolidation,”the official said, adding that the current reform process includes measures for prudential and clean lending, enhanced credit availability and better governance. 

The government is not keen to privatise IDBI Bank at current valuations. “The bank is under the Reserve Bank of India’s prompt corrective action plan. We have allocated a substantial part to strengthen the bank under the bank capitalisation programme. Besides, the bank is looking to sell its non-core assets to raise capital,” the finance ministry official said. 

IDBI Bank is the biggest beneficiary of the Rs 2.1 lakh crore bank recaptialisation plan as it stands to get Rs 10,610 crore. 

Another finance ministry official said banks had made some initial presentations but nothing has been yet formalised or brought to the panel of ministers that will steer the mergers. Last year, the cabinet had given in-principle approval to delegate a select group of ministers to oversee bank mergers but left it to bank boards to come with such proposals. 

However, some experts said it is the right time for the government to speed up the consolidation process. “Banks can resolve their bad loans through the bankruptcy code. The government should force them to look at viable options among themselves and merge,” said MP Shorawala, a former independent director with Central Bank of India.

Eleven state-run lenders – Dena Bank, Central Bank of India, Bank of Maharashtra, UCO Bank, IDBI Bank, Oriental Bank of Commerce, Indian Overseas Bank, Corporation Bank, Bank of India, Allahabad Bank and United Bank of India – are under the RBI’s PCA framework. 

The PCA framework is aimed at encouraging banks to shun certain riskier activities and focus on conserving capital to strengthen their balance sheets. 

In January, the government announced Enhanced Access and Service Excellence agenda under which banks will need to set up monitoring agencies for loans above Rs 250 crore and a vertical for nonperforming assets, apart from selling non-core assets. 

Banks Say Steps Taken to Strengthen System 

Public sector banks on said that they have checked all outstanding Letters of Undertaking and Letter of Comfort issued by them, and there are no other unauthorised instruments except for those issued earlier. They further resolved to implement a series of steps in the next six months for a more robust and secure risk management mechanism. MM Sastry, chief risk officer for State Bank of India, said that all PSBs have taken additional steps to strengthen the system which include integrating SWIFT with core banking system by April 30. 

“In some banks it was not there but they will get this implemented before the deadline,” he said. Sastry was speaking after a three day workshop of PSBS on the issues of operational and technological risk management. 

PSBs said that they are committed to providing Enhanced Access and Service Excellence (EASE) to all customers in a safe and secured environment.

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How to secure online transactions: tips to follow

Every now and then, we keep hearing about a new online security hack being discovered and while the world is moving towards complete digitisation, it is also true that there is a long way ahead of us, when it comes to optimum online security. That said, online transactions is one area where most cyber attacks are focused and while, we as consumers, have made online transactions popular since they make life much easier with several options it offers, it is also true that everything in life comes with a risk and with online transactions, it’s bigger than we think.

The online economy is nothing but billions of dollars being exchanged almost every single day, moreover, online transactions/shopping has resulted in lower prices, unmatched ease of buying as well as incredibly diverse choices for consumers. Being confident due to the millions of transactions taking place, many of us regularly shop and bank online with any second thought. From ordering pizzas to literally buying a house and from transferring money to booking tickets online, these online transactions are the need of the hour which is also looking to practically eliminate the worry of standing in a queue or waiting, to say the least.

However, as unfortunate as it might sound, online fraud and identity theft sort of come complimentary with the popularity and ease of online transactions, thanks to clever cyber thieves as well as sloppy consumers with precarious Internet shopping habits.

When it comes to ‘how to secure your online transactions’, while there is no guarantee that you will always be safe from a cyber threat including viruses, hackers, malware and other scams, it’s more of a habitual change that you need. On that note, here we are listing six tips that you can follow to secure your online transactions.

Tips for secure online transactions

1. Choose your password wisely: While choosing a password, strictly follow the given instructions by banks, mutual funds, etc for choosing the same while making an online transaction (keep it complex and change it regularly). Also using anniversaries or names and a date of birth, of people who are close to you is strictly discouraged since all this could easily be guessed. Moreover, neither share a password with an outsider nor communicate it via social media.

2. Avoid phishing emails: Always Be careful about emails asking about your personal/confidential financial information. The government, SEBI, RBI or even any other regulated entities never ask for password or card numbers.

3. Beware of public Wi-Fi: Never ever resort to making an online transaction from a cyber cafe or through a public Wi-Fi or a shared system. Always prefer your home computer and also install adequate firewalls and anti-virus software. It’s also a good habit to keep your computers/laptops updated with new security patches and operating systems, always.

4. Secure Socket Layer (SSL): Always check for Secure Socket Layer (SSL) or https security on the login page of any particular bank’s website. Here, the ‘s’ after the ‘http’ indicates that a particular site is secure. Similarly, look for identity verified-signs as well as SSL security of an online shopping portal in order to protect your debit/credit card number along with your personal information. Also, check for the padlock icon in the browser window.

5. Autocomplete: Always disable Autocomplete/Password storage in your browser since they have a tendency to keep caches of sites you visit, and on prompting, could offer to save passwords for you. However, if you opt for this, you will have to enter all the passwords and URLs every time to come online, but the inconvenience is worth it as your data will be safe in case of a data theft attempt or if your system gets stolen.

6. Web browser privacy mode: This is said to be the best tool in order to keep your online transactions safe, moreover, every new browser comes with this feature. This option sets up a separate browser window that deletes all the data on the moment a particular browser window is closed while clearing caches as well as keeping your private data out of public domain.

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RBI Governor bears out what is behind PSU bank frauds

In a scathing reaction to the intensifying charge of regulatory lapse in preventing large banking frauds, RBI Governor Urjit Patel has released a very elaborate response. 

The essence of Patel’s lecture titled 'Banking Regulatory Powers Should Be Ownership Neutral' is an official acknowledgement of a deeper malaise in public sector banks (PSBs) pertaining to their governance, lack of proper deterrence and incentive mechanism to check frauds and malpractices and the legal limitations for the RBI to initiate actions against PSBs indulging in malpractices. 

In the specific context of frauds that have surfaced recently -- Nirav Modi and Mehul Choksi cases and others -- the RBI has squarely put the onus on the government, which owns all the PSBs. The pivotal theme of the RBI governor’s address is the “non-neutral regulatory powers” of the apex bank in regulating PSBs. There exists a deep fissure in the landscape of banking regulation in India: a system of dual regulation, by the finance ministry over and above the RBI. 

Weak deterrence to plug frauds in PSBs: Relating to the banking frauds, Patel has openly admitted that the framework of deterrent and incentives to prevent frauds and mis-governance is poor in the case of PSBs. Over the past five years, only a handful of cases have been properly dealt with. Cases of substantive economic significance have not been resolved. The moral hazard problem emanates from the implicit sovereign guarantee for all creditors of PSBs, and the principal shareholder – the government – has not so far been interested in fundamentally and comprehensively altering the ownership structure of nationalised banks. 

On the other hand, private sector banks (PSBs) have a better governance mechanism. There, the real deterrence against any kind of misconduct arises from market as well as regulatory discipline, and their confluence. 

No banking regulator can catch or prevent all frauds: The key point made by Patel in this regard is the PSB managements have to be held responsible for frauds and other types of financial impropriety. Regular occurrence of frauds even after the RBI bringing them to the notice of PSB management is a case of operational lapse on the part of PSB management. Lack of deterrence within the PSBs results in perpetual incentives to indulge in frauds. 

In the particular instance of the PNB fraud, which is essentially a technological lapse arising from lack of integration between the Core Banking System and SWIFT, the RBI governor reiterates that the banking regulator had issued three circulars in 2016, warning all banks of plugging this loophole. That these frauds have still occurred indicates that the PSBs have not acted on the RBI’s warning in spite of clear instructions. 

The RBI governor also links the persistence of stressed assets in the banking system to repeated perpetration of banking frauds: More importantly, Patel hints at the linkage between the Rs 8.5 lakh crore-plus stressed assets and bank frauds. In a number of large frauds, serious gaps in credit underwriting standards have been evident. These are exemplified by inflated cash flow projections, lack of continuous monitoring of cash flows, lack of security perfection and overvaluation, gold plating of projects, diversion of funds, double financing and general credit governance issues in banks. 

While the RBI governor has enumerated some of the serious measures taken recently by the apex bank and the government to address stressed assets (e.g. the Rs 2.11 lakh crore PSB recapitalisation programme, Insolvency & Bankruptcy Code 2016, nullifying the earlier forbearance on restructured assets etc), he adds that these may still be inadequate in the absence of fundamental reforms and amendments in the Banking Regulation Act. 

PSBs are still a hazardous junkyard for minority shareholders: The overbearing message from Patel is simple - the finance ministry cannot blame the RBI for regular occurrence of banking frauds in the PSBs if the government is unable to relinquish its hold on PSBs and initiate comprehensive banking sector reforms that enable effective regulatory oversight by the RBI. 

Taking into consideration the warnings sent to the banks and the government regarding the frauds in 2016, the persistence of technological lapses that allowed a few PSB officials to indulge in frauds and the latest notification by the RBI suddenly stopping banks from issues LoUs, the indications are quite clear. The PNB fraud may not be the last one to have surfaced. The RBI governor’s address clearly highlights that the PSBs persistently ignored early RBI warnings and lack of deterrence in the functioning of the PSBs possibly may have encouraged such frauds. 

So, I maintain my view that unless we know the final outcome, it will be difficult to hazard a guess on the true book value of the PSBs. The possible linkage between fraud cases and stressed assets of banks (over Rs 8.5 lakh crore) supports our assumption of 75 per cent haircut for unprovided stressed assets of the PSBs. In addition, it is worth reiterating that we consider the Rs 2.11 lakh crore PSB recapitalisation programme woefully inadequate. As per our estimate, the shortfall is Rs 2.60 lakh crore, assuming that 75 per cent loss is due to default on unprovided stressed assets for the PSBs. 

Therefore, it will be imprudent in my view, to scavenge for deep value in the plummeting PSB stocks. The uncertainty and risk elements are still fairly high. Over the past 10 years, they have yielded much worse than even 10-year risk free returns. And, they may turn out to be classic value traps. The shift of market share in favour of private lenders in the recent years, including banks, small private banks, NBFCs, MFIs and the like, is a structural phenomenon, which is still at a nascent stage in my view. So, look for opportunities in this space. 

Source- Economictimes

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News about Gratuity Part-3

The Lok Sabha today passed the Payment of Gratuity (Amendment) bill which seeks to empower the government to fix period of maternity leave and tax-free gratuity amount with an executive order. 

After the passage of the Payment of Gratuity (Amendment) Bill in the Rajya Sabha, the government would be able to enhance the ceiling of tax-free gratuity to Rs 20 lakh from existing Rs 10 lakh for employee under the Payment of Gratuity Act. 

After implementation of the seventh Central Pay Commission, the ceiling of gratuity amount for central government employees was increased from Rs 10 lakh to Rs 20 lakh. The unions are demanding for inclusion of the change into the Act. 

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RBI governor Urjit Patel breaks his silence on PNB scam

RBI governor Urjit Patel defended the regulator role, saying it is difficult for it to be present everywhere to contain such instances. 

The RBI has been facing severe criticism over the Rs 13,000-crore scam at PNB, which is being billed as India's biggest banking scandal. Patel said the system of dual regulation -- by finance ministry and the RBI -- has led to fissures in the landscape of regulatory terrain. 

Patel was speaking Gujarat National Law University. He was responding to the attack that the RBI was not prompt enough on recent cases of fraud. 

On the prevention of frauds in the banking system, Patel said that investigations and penalities will serve as deterrance for future. 

Patel also said that banks can keep large buffers in their capital structure to bear the losses which occur due to such frauds. Patel said that the RBI is working to break the nexus of some banks and businesses cleary hinting at the PNB scam where diamantaire Nirav Modi colluded with some bank employees to pull off the massive scam. 

RBI Governor Urjit Patel also said that like the 'Neelakantha', the central bank will consume poison and face brickbats, but will persist with endeavour to become better with each trial. 

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Another PSU Bank fruad of Rs 5000 Cr loan

The investigative agency Enforcement Directorate filed a charge sheet against the former Andhra Bank director in an alleged Rs 5,000 crore fraud. The alleged Rs 5,000 crore bank fraud involves a Gujarat-based pharmaceutical firm Sterling Biotech Pvt Ltd, PTI said in a report. Following the blow, a knee-jerk reaction was witnessed in the shares of Andhra Bank on Monday.

Rs 428 crore was wiped off from the market capitalisation of Andhra Bank. At the day’s low of Rs 33.6 (BSE), Andhra Bank held a market capitalisation of Rs 2,937 crore as against Rs 3,365 as on Friday, 9 March 2018.

Meanwhile, shares of the pharma firm Sterling Biotech allegedly involved in the fraud shed as much as 3.51%. The CBI had booked the Sterling Biotech, its directors Chetan Jayantilal Sandesara, Dipti Chetan Sandesara, Rajbhushan Omprakash Dixit, Nitin Jayantilal Sandesara and Vilas Joshi, chartered accountant Hemant Hathi, Garg and some unidentified persons in connection with the case.

Anup Prakash Garg, ex-Director, Andhra Bank, was paid about Rs 1.52 crore by Chetan Jayantilal Sandesaraand Nitin Jayantilal Sandesara, directors, Sterling Biotech, between 2008 and 2009, PTI reported. Sterling Biotech took loans more than Rs 5,000 crore from a consortium led by Andhra Bank, which turned into NPAs (non-performing assets).

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RBI discontinues Letter of Undertaking, Letter of Comfort as instruments of trade credit

The Reserve Bank of India has scrapped quasi bank guarantee instruments such as the Letter of Undertaking and Letter of Comfort that blew a Rs. 14,000 crore hole in the books of Punjab National Bank as the regulator attempts to plug a loophole and improve banks’ due diligence in trade credit. 

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