UPI vs. NEFT vs. IMPS: Which is Preferred?

India has many ways to transfer money supported by the Reserve Bank of India (RBI) and National Payment Corporation of India (NPCI) using banking platforms, BHIM app, payment banks as well as payment wallets. These methods are Unified Payment Interface (UPI), Real Time Gross Settlement (RTGS), National Electronic Funds Transfer (NEFT), Immediate Payment Service (IMPS), Electronic Clearing System (ECS), Mobile Wallets, Prepaid Cards, Debit Cards, Credit Cards, Unstructured Supplementary Service Data (USSD), and AADHAAR Enabled Payment System (APES). At present, of all these ways, three ways of payment have turned out to be the most popular and those are UPI, NEFT and IMPS.

Disinvestment of PSBs is not a Solution

The government of India for decades has been pursuing the policy of disinvestment and was able to privatize many non-performing public sector undertakings (PSUs) since the implementation of liberalization, privatization and globalization (LPG). It has disinvested many non-performing firms from the manufacturing sector to services sector which are now healthy and growing. Such disinvestments have not only brought down the cost to the public exchequers but are contributing towards economic growth too. So as a whole disinvestment efforts should be termed successful. However, there had always been strong resistance to every single effort to privatize any PSU from the employees and political class citing many reasons.

IDBI out of PCA Framework

In its recent notification, the Reserve Bank of India (RBI) has taken IDBI bank out of the Prompt Corrective Action (PCA) framework. This is good news for the banking sector in general. It clearly means that the financial position of IDBI bank has improved enough to be taken out of the PCA framework. A bank is put under the PCA framework of RBI on the basis of three parameters namely capital to risk weighted assets ratio (CRAR), net non-performing assets (NPA) and Return on Assets (RoA). When these key ratios fall below the trigger points As per the RBI press release, for the quarter ending on 31st December 2020, the bank has been found to be not in breach of the PCA parameters on regulatory capital, net NPA and leverage ratio.

Banking Licenses to Corporate May be a Bad Idea

As per the suggestions of the Internal Working Group of the Reserve Bank of India, the big business groups may be allowed to promote banks in India. The government must consult experts and follow due diligence before it takes the final decision as this decision may cut deeply than the benefits.

It is certain that the entry of big business houses in the banking sector's will increase the lending capacity of the banking sector as whole and accelerate the development of financial services and its penetration but at the same time the risk in the banking sector will surely increase substantially. It is quite possible that this single decision may jeopardize the whole banking sector in particular and the economy in general.

The Risk of Banking Licences to Big Business Houses

An internal working group of the Reserve Bank of India has suggested that large business groups including NBFC (with an asset size of ₹ 50,000 crores or more) should be allowed to promote banks in India. The reasons for such a suggestion has been cited as international practices and possible ‘management expertise, and strategic direction’ that these groups may bring into the banking sector. For a capital starved economy like India, it may prove to be a good decision to bring in more capital (which economy needs at this point of time post COVID havoc). However for four decades (last round of nationalization of banks in 1980), business groups haven’t been allowed to promote banks in India. Such a sweeping decision by the RBI would be revolutionary as it has earned a distinction of an extremely cautious and conservative banking sector regulator!

Lakshmi Vilas Bank and DBS Bank India Merger

Lakshmi Vilas Bank has been facing problems for more than three years. The financial position of the bank had undergone a steady decline in the last three years.The losses have been increasing. Non-performing assets (NPAs) and provisions have been increasing with gross NPA of ₹4,233.31 crores and ₹16,622 crores of advances and ₹20,973 crores of deposits at the end of September 2020 quarter. As a result the networth of the bank has been eroding. The tier I capital has slipped into negative to -0.88% and capital adequacy ratio has fallen to 1.12%.

Lakshmi Vilas Bank: Next in the List of Failing Banks?

As usual, Lakshmi Vilas Bank, one of the oldest banks in India, is in the mode of denial that the bank is under huge pressure because of many key financial indicators of the bank sliding towards extreme negative side. However Reserve Bank of India (RBI) has already put it under Prompt Corrective Action (PCA) framework in Sept 2019 on account of high net NPA, insufficient Capital to Risk (Weighted) Assets Ratio (CRAR) and Common Equity Tier 1 (CET 1) and negative return on assets (RoA) for two consecutive years and high leverage.

Yes Bank Failure: A Collective Failure of Regulators

The arrest of Rana Kapoor by Enforcement Directorate (ED) after hours of questioning and the problems arising at Yes Bank are not something that are related to the problems at Yes Bank only. It is part of a bigger story and is result of collective regulatory failure. News are not talking that ED is expected to question Rana Kapoor’s wife too in the same case. These incidents at Yes Bank are not just related to Yes Bank only and stray events but also have direct links to scams and ongoing high profile investigation in DHFL case. In case of DHFL many financial institutions and individuals (celebrities and professionals) are said to be involved to varying degrees.

ICICI Board Allowed Bank to Fail: ICICI-Videocon Matter

It is matter of grave concern that neither ICICI Board didn't take strong actions against Chanda Kochhar until Srikrishna Panel found her violating lenders code of conduct nor did Reserve Bank take cognizance of the matter. Although from day one there were enough prima-facie evidences suggesting that everything was not as per the norms in ICICI dealings with Videocon. The charges of nepotism, conflict of interest, violation in the lender’s code of conduct and other irregularities were evident and loud from day one. 

Since Chanda Kochhar’s husband was directly involved with the borrowing firm Videocon, anyone can assume that the possibility of some undue favours cannot be written-off. Though for ICICI it was not a cause of concern at all. Rather they gave her clean chit in this matter on first instance. However such a hasty decision by board was not expected but board was busy in the process of damage control to its brand image. While doing so board forgot it was its responsibility to ensure that bank followed all the codes and regulations. From day one it was clear that ICICI had failed on issue of banking governance. Even Reserve Bank did not find this matter that important. And in this way ICICI Board and RBI allowed bank to fail.