Page 9 - Banking Finance January 2020

RBI CORNER

Asset quality of commer- RBI introduces new prepaid payment instrument
cial banks can be worsen The RBI has recently introduced a new semi-closed prepaid payment instrument
(PPI) which can be used for transaction of goods
in 2020: RBI and services up to a limit of Rs 10,000. The load-

Mainly due to the economic slow- ing facility of the instrument will be linked only
down, asset from a bank account.
quality of com- "To give impetus to small value digital payments
mercial banks and for enhanced user experience, it has been
can be worsen decided to introduce a new type of semi-closed PPI," RBI said in a notification.
in 2020 as well The main features of these instruments are: such PPIs will be issued by bank
as due to increase in slippages and and non-bank PPI issuers after obtaining minimum details of the PPI holder. The
declining credit growth, warned the minimum details will necessarily include a mobile number verified with one time
RBI. The gross non-performing assets pin (OTP) and a self-declaration of name and unique identity/identification num-
(GNPA) ratio may increase to 9.9% ber, among others.
by September 2020 from 9.3%.
"These PPIs shall be reloadable in nature and issued in card or electronic form.
“The RBI’s macro-stress tests for Loading/reloading shall be only from a bank account. The amount loaded in such
credit risk show that under the PPIs during any month shall not exceed Rs 10,000 and the total amount loaded
baseline scenario, schedule commer- during the financial year shall not exceed Rs 1,20,000. The amount outstanding
cial banks GNPA ratio may increase at any point of time in such PPIs should not exceed Rs 10,000,” RBI said, adding
from 9.3% in September 2019 to these PPIs will be used only for purchase of goods and services and not for funds
9.9% by September 2020 primarily transfer. “The instrument issuers will provide an option to close the PPI at any
due to change in macroeconomic time and also allow to transfer the funds back to source (payment source from
scenario, marginal increase in slip- where the PPI was loaded) at the time of closure,” it added.
pages and the denominator effect of
declining credit growth,” said the RBI red-flags banks’ reliance on retail loans
RBI in the 20th issue of the Financial
The RBI has warned banks for its reliance of retail loans over slowing economic
Stabillity Report.
activity and negative consumer sentiment. The cen-
Among the bank groups, state- tral bank called for a granular lending strategy to
owned banks GNPA ratios may in- offset risk concentration in its annual publication on
crease to 13.2% by September 2020 trends and progress of banking in India.
from 12.7% in September 2019
whereas for private banks it may in- “Lenders have been shifting their focus away from
crease to 4.2% from 3.9%; and for large industrial loans towards retail loans, as bad
foreign banks, to 3.1% from 2.9%. loans of the latter have traditionally been low,” RBI
noted in the report. “This diversification strategy, while helpful as a risk mitiga-
“Continuing the trend witnessed in
tion tool, has its own limitations: the slowdown in consumption and overall eco-
the previous half-year, the banking nomic growth may affect the demand for and the quality of retail loans.”
sector has shown signs of
stabilisation. That said the perfor- “Household leverage and indebtedness need to be kept in focus in the context
mance of public sector banks (PSBs) of overall financial stability,” it further said. With corporate loans rigidly at multi-
needs to improve and they need ef- year lows, risk-averse banks lapped up retail credit.
forts to build buffers against dispro- “Some sector-specific pockets of stress will need policy attention. Proper risk
portionate operational risk losses. pricing in lending is of prime importance so that the health of the banking sec-
Private sector banking space also tor is not compromised while ensuring adequate credit to the productive sec-
needs to focus on aspects of corpo- tors of the economy,” it said. The RBI said that slowing credit growth was an
rate governance,” wrote Shaktikanta area of concern. Banks’ credit grew 8.07% to Rs 98.47 lakh crore in the fort-
Das, governor of RBI, in the fore- night-ended Nov 6. In the previous fortnight ended Oct 25, bank credit had grown
word to the report. by 8.90% to Rs 98.39 lakh crore.

BANKING FINANCE | JANUARY | 2020 | 9