As 2019 draws to a close, we look back at some of the top developments in the financial sector and summarise the dominant trends that have emerged from the year gone by.
Amendment to Insolvency and Bankruptcy Code
On 18th November 2019, the cabinet approved the amendments to the Insolvency and Bankruptcy Code (IBC) 2016 which brought financial services companies under the purview of IBC for the first time. This amendment allows resolution of NBFCs, including housing finance companies with asset size greater than Rs. 500, through the IBC. Prior to this amendment, the only resolution framework for NBFCs was through liquidation. Therefore, the inclusion of NBFCs within the ambit of IBC is a positive sign as they provide orderly resolution of the stressed companies.
Under this amended law, only the Reserve Bank of India (regulator) can initiate the resolution process. This marks a departure from one of the core aspects of the IBC where creditors to a company can initiate a resolution process if they can prove that the company has defaulted.
Consolidation of 10 public sector banks
On 30th August 2019 Indian Finance Minister Nirmala Sitharaman announced the consolidation of 10 public sector banks into four big banks. Post this merger, the number of public sector banks within the Indian financial sector reduced to 12 from 27 in 2017. Further, she also announced the capital infusion of Rs. 55,250 crores into the PSBs for smooth functioning.
The set of four mergers comprised Punjab National Bank with Oriental Bank of Commerce and United Bank of India, making it the second-largest public sector bank in the country, Canara Bank with Syndicate Bank, Union Bank with Andhra Bank and Corporation Bank, and Indian bank with Allahabad Bank.
Personal Data Protection Bill, 2019
On 11th December 2019, the Personal Data Protection Bill 2019 was introduced in the Indian parliament by the Minister of Electronics and Information Technology, and it was referred to the joint committee of parliamentarians for fine-tuning through consultation with various stakeholders.
The objective and reason for enacting this bill dates to 24th August 2017 when Supreme Court of India delivered its judgement on Justice K.S Puttaswami and others vs. Union of India, declaring Privacy as a fundamental right under Article 21 of Indian Constitution. Further in its final judgment over the same case, the Supreme Court of India directed the Government of India to bring in a robust data protection regime for the country. Subsequently, the Government of India constituted a Committee of Experts on Data Protection under Justice B.N. Srikrishna to deliberate the issues on data protection. This committee submitted its Report (our response to the white paper) and the draft bill on 27th July 2018. Based on recommendations made by the report and suggestions received from various stakeholders on the draft bill (our comments on the draft bill), the Personal Data Protection Bill, 2019 was drafted.
A closer look at the bill in contrast to the report and draft bill submitted by Justice Srikrishna committee leaves questions that need to be deliberated upon thoughtfully. One of the significant changes in the bill, which caused many to question the health of this bill is the exception of the government agencies from the bill. Justice Srikrishna has said that the exception of government agencies from the oversight of this bill is dangerous and would potentially turn India into an Orwellian State.
‘On-tap’ Licensing for Small Finance Bank
On 13th September, after reviewing the current performance of the Small Finance Banks (SFBs), RBI released Draft Guidelines for On-tap Licensing of Small Finance Bank in the Private Sector. Following this on 5th December RBI released its final guidelines which opened doors for on-tap licensing of Small Finance Bank.
RBI had earlier issued guidelines for licensing SFBs in November 2014 that granted in-principle approval to 10-applicants to set up banks in under-banked states/districts to further financial inclusion. Under the new guidelines payments banks are also eligible to convert into Small Finance Bank after five years of operation.
While on-tap licensing of small finance banks is aimed at furthering financial access, it calls for a more deeper exploration of benefits to the end-customer from the SFB model, something that we have attempted to do in our recently published report “Tracking Performance of Small Finance Banks against Financial Inclusion Goals”. In this report, we ask whether the SFB model has been successful in meeting the purpose for which it was created through assessing the performance of SFBs against a carefully chosen set of metrics relevant to financial inclusion.
United Payment Interface (UPI) Goes Global
On 17th May 2019, a committee led by Nandan Nilekani on Deepening of Digital Payments submitted its report to Reserve Bank of India. As one of its recommendations, the report suggested that it is time for the National Payments Corporation of India (NPCI) to consider globally expanding UPI, BHIM (BHIM is a mobile payment app developed by the NPCI) and RuPay. In accordance with this recommendation, NPCI is in the process of enabling this feature, starting with Singapore and the United Arab Emirates (UAE) in the coming months.
Further, as part of its efforts towards taking UPI global, NPCI demonstrated its demo BHIM UPI QR-based payments at Singapore Fintech Festival in November. This demonstration marked the event of BHIM app going international for the first time. Later, on 16th December, RBI Governor Shaktikanta Das announced the setting up of NPCI export subsidiaries in other countries to oversee the business propositions that would emerge from exporting UPI to those countries.
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On behalf of everyone at Dvara, we would like to wish you a very happy New Year, and we look forward to your continued readership in the coming year.
One Response
Only UPI may stand the test of time and others are likely to face challenges. Apparently the attempt is to address the symptoms rather than treating the disease. The financial services sector, so far banks and very soon others, would continue to face challenges just like what has been the case with agriculture. There is need to get into details and find ways to address the same. In the case of agriculture the farmers have been at the receiving end; while in the case of financial services sector, the tax payers and customers will pay the price; others in the value chain are always safe! Unfortunately with more than seventy years of post independence era, we are yet to have desired MEL framework on governance and ensuring accountability..