Banking sector during the week continued to be embroiled in the Punjab National Bank fraud.
Banking sector during the week continued to be embroiled in the Punjab National Bank fraud. However, a significant change that the sector witnessed was the increase in interest rates on loans by country’s biggest lender State Bank of India.
State Bank of India (SBI), the country’s largest lender, on Thursday raised marginal cost-based lending rates (MCLR) by 10-25 basis points across most maturities, with immediate effect. This indicates a likelihood of a rise in the EMIs (equated monthly instalments) of home, auto and other loan borrowers.
ICICI Bank also raised its MCLR, which is now at 7.95 percent for the overnight rate against the earlier 7.8 percent, a hike of 15 bps. The one-year MCLR rose by 10 bps from 8.2 percent to 8.30 percent with effect from March 1, 2018.
Its 3-month MCLR has risen to 8 percent (from 7.85 percent) and 6-month MCLR was raised to 8.25 percent from 8.15 percent.
Other banks are likely to follow suit as typically, a deposit rate hike is followed by a lending rate hike. This indicates that the interest in the economy has moved up even as the Reserve Bank of India (RBI) in February kept its policy rates unchanged for the third time.
A day before the lending rate hike, on Wednesday, SBI had hiked its retail deposit rates by 10-50 basis points (bps) across various maturity baskets, a move that is likely to be followed by other banks.
KYC on wallets
In other news, almost Rs 12,000 crore, or 80 percent of online wallet transactions in the country are at risk of going back to cash, as online wallet players fear losing customers because of the Reserve Bank of India’s KYC rule.
An RBI directive requires wallet companies like Paytm, Mobikwik, Ola Money, Amazon Pay and Sodexo to meet full KYC (know your customer) norms for all their customers on or before February 28.
Fugitive Economic Offenders Bill
To avoid a repeat of Nirav Modi and Vijay Mallya cases, the Union Cabinet on Thursday approved the Fugitive Economic Offenders Bill, 2017 that particularly seeks to protect the interest of lenders left high and dry by absconding corporate defaulters. Once voted into law, the new legislation will empower investigating agencies to confiscate, and vest with themselves, any property of the absconding offenders without encumbrances.
PNB fraud developments
In the latest on the Rs 12,700 crore (previously Rs 11,400 crore) fraud at PNB, estimates suggest that the scam could negatively impact around 10,000 people working in the gems and jewellery sector as business woes of Gitanjali Group and Nirav Modi firms continue.
On Monday late night, PNB revealed that the quantum of the fraud it reported a couple of weeks ago could increase by Rs 1,330 crore.
The banking sector’s non-performing assets (NPAs) in the gems and jewellery sector may surge to 30 percent from the current 11 percent of loans disbursed in the troubled segment.
Further, as a fallout of the scam, PNB said it had transferred around 1,400 employees.
Bank unions have questioned this sudden mass transfer of its employees amid the 'NiMoNia' fraud blaming the senior management for the transfer decisions taken so far.
Additionally, the final bill of the PNB fraud to the Indian banking system could well be in the vicinity of Rs 21,000 crore, if one were to account for the secured loans to the Nirav Modi group and the Gitanjali group of companies. With investigative agencies cracking down on both groups and attaching their assets, many other banks, in addition to PNB, may struggle to recover the money loaned to these groups.
Chanda Kochhar-led ICICI Bank has informed that it has no exposure to Nirav Modi group of companies, but have given working capital loans along with a consortium to Gitanjali group. It has added that no LoUs have been issued to both the companies.Along with previous Managing Director and other general managers of PNB, ICICI Bank's Executive Director NS Kannan was questioned by the Central Bureau of Investigation (CBI) on Tuesday, in connection with the PNB scam.