Banking sector wrap: Jaitley promises help to banks; P2P lenders to be NBFCs

Ahmedabad: Finance Minister Arun Jaitley addresses a round table conference on Global Growth Through Indian Economy in Ahmedabad on Tuesday. PTI Photo(PTI5_23_2017_000170B)

The banking sector saw some big developments this week in the form of Reserve Bank of India (RBI) releasing final guidelines for peer to peer lenders, microfinance institutions adopting a code of conduct, and banks meeting to resolve bad loans of Air India.

Customers would be happy to know that banks are sprucing up their festive offers to give discounts on loans and waive off charges to avail loans in the Diwali season.

Corporates, on the other hand, would be welcoming banking regulator RBI's decision to categorise masala bonds -- rupee-denominated bonds issued overseas -- as part of external commercial borrowings and not of the overall limit of corporate bonds, as was the case earlier.

The move is intended to allow about Rs 44,000 crore more funds under corporate debt. In effect, the amount pertaining to such bonds would be separately allocated to investors, and it would essentially increase the corporate bond investment limit for foreigners.

The issuance of such bonds overseas will now be within the aggregate current limit of Rs 2.44 lakh crore for foreign investment in corporate debt.

Jaitley to lend helping hand to banks

Finance Minister Jaitley said the government will take steps to find adequate resources to support debt-laden banks in order to help them participate in India's economic growth.

In another major development, Union transport minister Nitin Gadkari said he was contemplating an IPO of NHAI (National Highways Authority of India) and will be seeking the finance ministry’s approval for the same.

Gadkari also pulled up banks for delaying funding to road projects and assured that banks should not fear further bad loans in the sector as all stalled projects from the previous government’s regime have been kick-started again.

Banks ready to lend

However, a day later, bankers said they are willing to fund the selective hybrid annuity mode (HAM) road projects but are skeptical on the toll-operate models even as they grapple with large non-performing assets (NPAs) in the sector.

On Wednesday, bankers to the financially troubled Air India met government officials including the aviation minister and the ministerial group to decide the fate of further loans to the financially-troubled national air carrier.

Though the details of the meeting are yet to be confirmed, banks may look at giving additional funding to support the government’s efforts to revive Air India.

P2P lending

The Reserve Bank of India (RBI) will treat all peer-to-peer lending (P2P) platforms as non-banking financial companies (NBFCs), the government said in a gazette notification on Wednesday. The RBI will soon release the final guidelines for P2P lenders.

Read here to know what P2P lending is and why RBI wants to regulate it.

Cyber Security

To tighten cyber security in the country, the government is working to come up with cyber security standards for mobile devices and a regulation to tackle ransomware, according to Ajay Kumar, Additional Secretary at the Ministry of Electronics and Information Technology (MeitY).

Payments Banks

Payments banks, the newest entrants in the country's banking sector, are facing a problem that hinders the purpose for which they were created — easing transactions for customers. Players in the payments bank space say they are more like "restricted banks" as the challenge is to get customers to transact.

Opening up on the challenges in the sector, the CEOs of the four active payments banks said they will need to work on growing scale before they generate revenues.

Microfinance

With the microfinance sector being the most coveted space among lenders over the last few years, Ratna Vishwanathan, CEO, Microfinance Institutions Network (MFIN), a self-regulatory body for microfinance institutions, said the sector requires more structural changes in order to reduce risk.

MFIN also released a Mutually Agreed Code of Conduct (MACC) stating that MFIs will not lend more than Rs 60,000 per customer and the number of lenders will be restricted to three under the Joint Liability Group model.