FinMin wants banks to be exempt from CSR spend-Business Standard
Letter to corporate affairs ministry cites slowing economy, capital challenges
Indian banks, particularly those owned by the government and facing an urgent need to raise capital, could get some relief.
The finance ministry has written to the corporate affairs ministry, asking the latter to exempt banks from the corporate-social responsibility (CSR) spending mandated by the Companies Act.
The Act, which came into effect from the current financial year, mandates companies to spend at least two per cent of their average net profit for the immediately preceding three financial years on CSR activities.
The CSR provisions within the Act are applicable to companies that have annual turnover of Rs 1,000 crore or more, or net worth of Rs 500 crore or more, or net profit of Rs 5 crore or more.
Almost all commercial banks have made profits of more than Rs 5 crore in the past three financial years. The Act also requires companies to set up CSR committees comprising their board members, including at least one independent director.
Profitability growth of bank groups differed significantly last financial year. The new private banks were able to maintain a healthy growth rate of 19.7 per cent in their profit after tax during 2013-14, compared to a contraction of 30.7 per cent in the net profits of public-sector banks during the year.
According to the finance ministry, since the country is considered a bank-led economy and as the economy is not doing well, banks should be exempted from spending on CSR activities till the economic conditions improve.
The finance ministry has written to the corporate affairs ministry, asking the latter to exempt banks from the corporate-social responsibility (CSR) spending mandated by the Companies Act.
The Act, which came into effect from the current financial year, mandates companies to spend at least two per cent of their average net profit for the immediately preceding three financial years on CSR activities.
The CSR provisions within the Act are applicable to companies that have annual turnover of Rs 1,000 crore or more, or net worth of Rs 500 crore or more, or net profit of Rs 5 crore or more.
Almost all commercial banks have made profits of more than Rs 5 crore in the past three financial years. The Act also requires companies to set up CSR committees comprising their board members, including at least one independent director.
Profitability growth of bank groups differed significantly last financial year. The new private banks were able to maintain a healthy growth rate of 19.7 per cent in their profit after tax during 2013-14, compared to a contraction of 30.7 per cent in the net profits of public-sector banks during the year.
According to the finance ministry, since the country is considered a bank-led economy and as the economy is not doing well, banks should be exempted from spending on CSR activities till the economic conditions improve.
All private-sector banks, both old- and new-generation ones, are incorporated under the Companies Act, and so are foreign banks' branches.
Nationalised banks are incorporated under the Nationalised Bank Act. Though it is not clear if public-sector banks also need to spend on CSR activities - Reserve Bank of India laws allow them to make donations - the finance ministry wants all banks to be exempted from the stipulation for now. If the corporate affairs ministry agrees to the request, it will be a big relief for banks, particularly the public-sector ones.
The move comes at a time when the government is constrained in infusing capital into state-run banks. According to the government's own estimates, public-sector banks will need Rs 2.4 lakh crore of capital infusion over the next five years, mainly to meet the Basel-III norms and to fund their business growth. Banks' capital positions are under pressure due to mounting non-performing assets (NPAs) and this is putting pressure on profitability. Also, from April 1 next year, banks will have to treat restructured assets as NPAs, for which provisioning requirement will go up sharply. At present, standard restructured assets require a provisioning of five per cent, while sub-standard assets need provisioning of 15-20 per cent, depending on whether a loan is secured or not.
Nationalised banks are incorporated under the Nationalised Bank Act. Though it is not clear if public-sector banks also need to spend on CSR activities - Reserve Bank of India laws allow them to make donations - the finance ministry wants all banks to be exempted from the stipulation for now. If the corporate affairs ministry agrees to the request, it will be a big relief for banks, particularly the public-sector ones.
The move comes at a time when the government is constrained in infusing capital into state-run banks. According to the government's own estimates, public-sector banks will need Rs 2.4 lakh crore of capital infusion over the next five years, mainly to meet the Basel-III norms and to fund their business growth. Banks' capital positions are under pressure due to mounting non-performing assets (NPAs) and this is putting pressure on profitability. Also, from April 1 next year, banks will have to treat restructured assets as NPAs, for which provisioning requirement will go up sharply. At present, standard restructured assets require a provisioning of five per cent, while sub-standard assets need provisioning of 15-20 per cent, depending on whether a loan is secured or not.
Banks to set ceiling for loans against gold for non-agri use
The Reserve Bank of India (RBI) on Tuesday allowed banks to decide upon the ceiling regarding the quantum of loans that might be granted against gold for non-agricultural end uses. However, the regulator said banks would continue to maintain a loan-to-value (LTV) ratio of 75 per cent against the pledged gold.
"Banks, as per their board approved policy, may decide upon the ceiling with regard to the quantum of loans that may be granted against the pledge of gold jewellery and ornaments for non-agricultural end uses," said RBI Tuesday.
RBI also said the tenor of the loans shall not exceed 12 months from the date of sanction. Besides, RBI asked banks to charge interest to the account at monthly rests. "Interest will be charged to the account at monthly rests and may be recognised on accrual basis provided the account is classified as 'standard' account. This will also apply to existing loans," said RBI.
"Banks, as per their board approved policy, may decide upon the ceiling with regard to the quantum of loans that may be granted against the pledge of gold jewellery and ornaments for non-agricultural end uses," said RBI Tuesday.
RBI also said the tenor of the loans shall not exceed 12 months from the date of sanction. Besides, RBI asked banks to charge interest to the account at monthly rests. "Interest will be charged to the account at monthly rests and may be recognised on accrual basis provided the account is classified as 'standard' account. This will also apply to existing loans," said RBI.
RBI announces new regulatory framework for big banks
Due to their size, cross-jurisdictional activities, complexity, lack of substitutability and interconnectedness, such banks become systemically important
The Reserve Bank of India (RBI) announced a new framework on Tuesday for identifying and dealing with large banks in the country, termed domestic systemically important banks (D-SIB).
Due to their size, cross-jurisdictional activities, complexity, lack of substitutability and interconnectedness, such banks become systemically important. These big lenders, perceived as “too big to fail”, will be publicly identified as such by the regulator from August 2015.
The move comes as remedial measures to the problems faced during the global financial crisis of 2008, when certain large and highly interconnected financial institutions hampered the orderly functioning of the financial system, which in turn, negatively impacted the real economy.
RBI said from data it had compiled as of March 31, 2013, four to six domestic banks would qualify under the D-SIB category.
It also said four sub-categories of D-SIB lenders would be created, each with different requirements for additional common equity tier-1 capital requirements that would range from 0.2-0.8 per cent of risk-weighted assets.
“The banks designated as D-SIBs will be subjected to more intensive supervision in the form of higher frequency and higher intensity of on- and offsite monitoring. It is also important that these banks adopt sound corporate governance of risk and risk management culture,” it said.
Based on the sample of banks chosen for computation of their systemic importance, a relative composite systemic importance score of the banks will be computed and then RBI will determine a cut-off score beyond which banks will be considered D-SIBs.
The amount of additional capital requirements for D-SIBs is based on a mix of quantitative calibration and consideration of country-specific factors. D-SIBs will also be subjected to differentiated supervisory requirements and a higher intensity of supervision, based on the risks they pose to the financial system.
On foreign banks with a branch presence in India, those with a parent which is not a global-SIB but is a D-SIB in India will have to maintain a D-SIB additional capital surcharge here.
“In case a foreign bank having branch presence in India is both a G-SIB and a DSIB in India, it has to maintain a capital surcharge in India at a rate which is the higher of the two,” the central bank added.
According to RBI such loans shall be governed by extant norms pertaining to income recognition, asset classification and provisioning which shall be applicable once the principal and interest become overdue.
Regarding calculation of LTV, RBI said it should be computed against the total outstanding in the account, including accrued interest, and current value of gold jewellery accepted as security/collateral.
In the past, RBI had received representations from banks requesting to increase the prescribed ceiling and to review other conditions applicable for non-agricultural loans against pledge of gold ornaments and jewellery, where both interest and principal are payable at maturity of the loan.
Due to their size, cross-jurisdictional activities, complexity, lack of substitutability and interconnectedness, such banks become systemically important. These big lenders, perceived as “too big to fail”, will be publicly identified as such by the regulator from August 2015.
The move comes as remedial measures to the problems faced during the global financial crisis of 2008, when certain large and highly interconnected financial institutions hampered the orderly functioning of the financial system, which in turn, negatively impacted the real economy.
RBI said from data it had compiled as of March 31, 2013, four to six domestic banks would qualify under the D-SIB category.
It also said four sub-categories of D-SIB lenders would be created, each with different requirements for additional common equity tier-1 capital requirements that would range from 0.2-0.8 per cent of risk-weighted assets.
“The banks designated as D-SIBs will be subjected to more intensive supervision in the form of higher frequency and higher intensity of on- and offsite monitoring. It is also important that these banks adopt sound corporate governance of risk and risk management culture,” it said.
Based on the sample of banks chosen for computation of their systemic importance, a relative composite systemic importance score of the banks will be computed and then RBI will determine a cut-off score beyond which banks will be considered D-SIBs.
The amount of additional capital requirements for D-SIBs is based on a mix of quantitative calibration and consideration of country-specific factors. D-SIBs will also be subjected to differentiated supervisory requirements and a higher intensity of supervision, based on the risks they pose to the financial system.
On foreign banks with a branch presence in India, those with a parent which is not a global-SIB but is a D-SIB in India will have to maintain a D-SIB additional capital surcharge here.
“In case a foreign bank having branch presence in India is both a G-SIB and a DSIB in India, it has to maintain a capital surcharge in India at a rate which is the higher of the two,” the central bank added.
According to RBI such loans shall be governed by extant norms pertaining to income recognition, asset classification and provisioning which shall be applicable once the principal and interest become overdue.
Regarding calculation of LTV, RBI said it should be computed against the total outstanding in the account, including accrued interest, and current value of gold jewellery accepted as security/collateral.
In the past, RBI had received representations from banks requesting to increase the prescribed ceiling and to review other conditions applicable for non-agricultural loans against pledge of gold ornaments and jewellery, where both interest and principal are payable at maturity of the loan.
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