AKP Banking & Finance Digest- May 27, 2024

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The article "Decentralised Finance: Implications for Financial System" in the May 2024 RBI Bulletin analyses Decentralised Finance's ("DeFi") impact on traditional finance, highlighting its volatile returns and global.
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1. Regulatory Updates

1.1. India

1.1.1. RBI Bulletin explores DeFi's impact on fintech landscape

The article "Decentralised Finance: Implications for Financial System" in the May 2024 RBI Bulletin analyses Decentralised Finance's ("DeFi") impact on traditional finance, highlighting its volatile returns and global financial institutions' exposure to the cryptosystem. With insights from empirical analysis, it emphasises the speculative nature of DeFi returns and the risks of liquidity spillover across countries due to its borderless nature. This analysis provides valuable insights for fintech companies navigating the evolving DeFi ecosystem. RBI

1.1.2. Monetary Penalties

RBI imposes monetary penalties on the following financial institutions:

Etc ...
Article Description of the Provision
Article 8 – Electronic Trust Services Member States must recognise the legal validity, effect or admissibility of electronic documents as well as electronic trust services, including electronic signatures, electronic seals, electronic time stamps, or other electronic transactions such as electronic registered delivery services, among others.

Name of the Financial Institution

Penalty Imposed


Hero FinCorp Limited

INR 3,10,000/- (Indian Rupees Three Lakh Ten Thousand only)

Contravention of/ non-adherence with certain provisions of Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016' issued by RBI, relating to Fair Practices Code.

The Urban Co-operative Bank Limited, Budaun

INR 7,00,000/- (Indian Rupees Seven Lakh only)

Contravention of/non-adherence with certain provisions of the Banking Regulation Act 1949, RBI Directions under Supervisory Action Framework ("SAF"), and RBI Directions on 'Investments by Primary (Urban) Co-operative Banks'.

The Bhadohi Urban Co-operative Bank Limited, Bhadohi, Uttar Pradesh

INR 2,00,000/- (Indian Rupees Two Lakhs only)

Contravention of/non-adherence with certain provisions of the Banking Regulation Act 1949.

Noida Commercial Co-operative Bank Limited, Ghaziabad, Uttar Pradesh

INR 2,50,000/- (Indian Rupees Two Lakhs Fifty Thousand only)

Contravention of/non-adherence with certain provisions of the Banking Regulation Act 1949 and for non-compliance with the directions issued by RBI on 'Loans and advances to directors, their relatives, and firms/ concerns in which they are interested' and 'Master Circular on Frauds - Classification and Reporting'.

Karnataka Bank Limited

INR 59,10,000/- (Indian Rupees Fifty-Nine Lakh Ten Thousand only)

Contravention of/non-adherence with the directions issued by RBI on 'Interest Rate on Deposits' and 'Prudential Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances'.

1.2. Bangladesh

1.2.1. Bangladesh Bank directs banks and NBFIs to report wilful defaulters

Bangladesh Bank has instructed banks and non-bank financial institutions ("NBFIs") to promptly inform the Credit Information Bureau ("CIB") of any identified wilful defaulters. The directive mandates real-time reporting of defaulters' information starting July this year. Earlier guidelines outlined procedures for identifying wilful defaulters, emphasising the formation of dedicated units within banks for this purpose. Once identified, appropriate measures against defaulters are to be determined by the institutions. The Daily Star

1.3. Indonesia

1.3.1. Danai.id and Boost partner to empower Indonesian MSMEs

Fintech lending platform Danai.id has teamed up with Boost, Axiata's fintech arm, to empower Micro, Small, and Medium-Enterprises ("MSMEs") in Indonesia. This collaboration aims to provide innovative financial solutions leveraging Boost's digital expertise and Danai.id's market understanding. By bridging financing gaps, they will support Indonesian MSMEs, crucial for economic recovery post-pandemic. The partnership also facilitates cross-border investment opportunities, underscoring fintech's role in fostering financial inclusion and regional economic growth. Jakarta Globe

1.3.2. Indonesian fintech users favour BNPL services, survey reveals

A recent survey conducted by research firm Jakpat sheds light on the preferences and behaviours of Indonesian fintech users. The report highlights Buy-Now-Pay-Later ("BNPL") services as a popular choice among users, with 25 percent (twenty-five percent) utilising them alongside e-wallets and mobile banking. Key factors influencing platform choice include registration with the Financial Services Authority, ease of payment, and user-friendly apps. Additionally, the survey indicates a growing financial literacy among Indonesian users, with two-thirds understanding the importance of financial planning. E27

1.4. Vietnam

1.4.1. Central Bank proposes credit scoring framework

The State Bank of Vietnam ("SBV") is working on a draft decree to introduce credit scoring in the banking sector, aiming to enhance financial management and foster fintech development. Credit scoring, a statistical analysis of creditworthiness, is crucial for lenders to assess loan risks and make informed decisions. While the Vietnam National Credit Information Centre ("CIC") introduced the first credit scoring model in 2015, its adoption remains low among domestic users. Implementing a credit scoring framework could streamline credit analysis, reduce decision-making time, and minimise bad debts, benefiting both lenders and borrowers. Vietnam News

1.5. Philippines

1.5.1. BSP requires compliance reports for Peso RTGS participants

The Bangko Sentral ng Pilipinas ("BSP") mandates all participants in its peso real-time gross settlement ("RTGS") payment system to submit attestation reports, confirming compliance with regulations. The first report, due on June 28, 2024, covers January 01 to December 31, 2023. This aligns with the Peso RTGS Rules on reporting requirements. The report encompasses various areas, including payment system laws, operational and financial requisites, risk management, and sponsorship arrangements. Monthly monitoring reports for sponsored participants aim to manage risks. RTGS participants include BSP, financial institutions, Financial Market Infrastructures ("FMIs"), and clearing switch operators. BSP's RTGS system ensures smooth fund flow, aiding financial market transactions. Bangko Sentral Ng Pilipinas

1.5.2. Wise launches new account and prepaid card in Philippines

Wise, a global fintech company, has entered the Philippines market with the introduction of the Wise Account and Wise Prepaid Card. These solutions allow users to receive, hold, and spend money internationally without foreign transaction fees or exchange rate mark-ups. The Wise Account offers features like free international money transfers, multi-currency holding, and seamless fund transfers to local banks or e-wallets. The Wise Prepaid Card enables international spending in over 160 (one hundred sixty) countries with low fees and enhanced security features. Fintech Philippines

2. Trends

2.1. IFSCA considers allowing NBFCs as risk aggregators in GIFT City

As trading in offshore interest rate derivatives gains momentum within Gujarat International Finance Tec-City ("GIFT City"), the International Financial Services Centres Authority ("IFSCA") is working on a proposal to allow non-bank financial entities to operate as risk aggregators for small customers. These entities would establish a market, tailored for smaller clients, who are typically underserved by traditional banks as counterparties, facilitating their FX transactions. Subsequently, these transactions would be consolidated and settled with a bank on a net basis ET

2.2. US payments giant Stripe set to enter Indian market with SBI payments investment

Reports suggest that Stripe, a leading US payments company, is gearing up to enter India through a strategic partnership with State Bank of India ("SBI") Payments Ltd., a subsidiary of SBI. The move involves acquiring a substantial stake in SBI Payments, currently a joint venture between SBI and Hitachi Payments. With discussions ongoing and regulatory approvals in progress, Stripe is eyeing to acquire a 30 percent (thirty percent) – 40 percent (forty percent) stake from SBI, with discussions ongoing with the RBI regarding regulatory approval. Inc 42

2.3. Pine Labs receives approval to relocate base to India

Fintech giant Pine Labs has been granted approval by a Singapore Court to move its headquarters to India, merging its Singapore and Indian entities. This strategic decision aims to streamline operations, reduce overhead costs, and optimise resource allocation. Pine Labs operates as a merchant commerce platform, offering a range of services such as Point-of-Sale ("PoS") solutions, Buy-Now-Pay-Later ("BNPL") options, and e-commerce enablement. While Pine Labs has yet to make an official announcement, the relocation is anticipated to bolster operational efficiency and capitalise on India's thriving fintech market. Business Standard

3. Sector Overview

3.1. Despite UPI growth, cash remains dominant in India

Despite the rapid growth of transactions through UPI, cash continues to maintain its stronghold in India's payment ecosystem. The average cash withdrawal value from ATMs has risen by 6 percent (six percent) year-on-year, with monthly withdrawals surpassing previous averages. This trend persists even as UPI transactions surge, indicating that cash usage remains prevalent across various consumer segments. Factors such as risk perception with digital payments, control over spending behaviour, and inclusion of vulnerable consumer groups contribute to the enduring preference for cash. Financial Express

3.2. FY24 witnessed slowest PoS growth since demonetisation

In FY24, PoS terminal deployment saw its slowest growth since demonetisation, rising by 14 percent (fourteen percent). However, QR code payments for Unified Payments Interface ("UPI") surged, doubling over two years. Debit card transactions at merchants decreased by 32 percent (thirty-two percent), while UPI merchant transactions rose by 72 percent (seventy-two percent). The RBI issued draft rules to regulate PoS payment service providers, aiming to bring them under regulatory cover by May 31, 2025. Inc42

3.3. Indian banking sector achieves historic INR 3 lakh crore annual profit milestone

India's banking industry has reached a significant milestone in 2023-2024, with combined net profits exceeding INR 3 lakh crore (Indian Rupees Three Lakh Crores only) for the first time. This achievement, a 39 percent (thirty-nine percent) increase from the previous fiscal year, highlights the sector's robust performance. Notably, public sector banks saw a record net profit of INR 1.4 lakh crore (Indian Rupees One Lakh Forty Thousand Crores only), marking a 34 percent (thirty-four percent) rise, while private sector banks recorded a 42 percent (forty-two percent) increase to nearly INR 1.7 lakh crore (Indian Rupees One Lakh Seventy Thousand Crore only). Economic Times

4. Business Updates

4.1. Decentro launches Flow 2.0, a next-generation payment aggregator stack

Decentro, India's leading finance infrastructure platform, introduced its latest payment stack, Flow 2.0, designed to meet enterprises' extensive payment needs with enhanced performance, compliance, and security. The new stack promises a 30 percent (thirty percent) reduction in operational costs and a 3X (three times) decrease in time to market for merchants. With features like rapid transaction processing, RBI compliance, and top-tier security measures, Flow 2.0 aims to elevate operational efficiency and minimise disruptions for businesses. Economic Times

4.2. RBI approves surplus transfer of INR 2.11 lakh crore to Government for FY24

RBI's board has greenlit the transfer of INR 2.11 lakh crore crore as surplus to the government for the fiscal year ending in March. This surplus transfer surpasses the interim budget estimates for the fiscal year 2024-2025, indicating a significant contribution to the government's financial resources. Additionally, the RBI board has decided to increase the contingency risk buffer to 6.5 percent (six-point five percent) from the previous 6 percent (six percent). Economic Times

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