1. Regulatory Updates
1.1. India
1.1.1. RBI releases data on sectoral deployment of credit for September 2024
The Reserve Bank of India (“RBI”) has published data indicating that non-food bank credit grew by 14.4 per cent (fourteen point four per cent) year-on-year in September 2024, slightly lower than the 15.3 per cent (fifteen point three per cent) growth recorded a year earlier. Credit to agriculture was steady at 16.4 per cent (sixteen point four per cent), while industry credit rose to 9.1 per cent (nine point one per cent), driven by growth in chemicals, food processing, and engineering. Credit growth to the services sector slowed to 15.2 per cent (fifteen point two per cent), mainly due to reduced lending to Non-Banking Financial Companies (“NBFCs”), though commercial real estate saw gains. Personal loan growth moderated to 16.4 per cent (sixteen point four per cent), with slower growth in vehicle and credit card loans, while housing credit growth accelerated. RBI
1.1.2. Monetary Penalties
RBI imposes monetary penalties on the following financial institutions:
Name of the Financial Institution | Penalty Imposed | Reasons |
INR 1,00,000/- (Indian Rupees One Lakh only) | Contravention of the provisions of section 26A read with section 56 of the Banking Regulation Act, 1949 (“BR Act”). | |
INR 2,00,000/- (Indian Rupees Two Lakh only) | Contravention of/non-adherence with ‘Loans and advances to directors, their relatives, and firms /concerns in which they are interested’. | |
INR 1,00,000/- (Indian Rupees One Lakh only) | Contravention of/non-adherence with certain directions issued by RBI on ‘Exposure norms & Statutory/ Other Restrictions – UCBs’. | |
INR 7,50,000/- (Indian Rupees Seven Lakh and Fifty Thousand only) | Contravention of/non-adherence with the directions issued by RBI on ‘Know Your Customers (KYC) norms’. | |
INR 2,60,000/- (Indian Rupees Fifty Thousand only) | Contravention of the provisions of section 20 read with section 56 of BR Act and non-compliance with certain directions issued by RBI on ‘Membership of Credit Information Companies (CICs) by Co-operative Banks’. |
1.2. Bangladesh
1.2.1. Expanded flexibility for guarantees to non-residents
Bangladesh Bank has broadened the scope for issuing guarantees on behalf of residents in favor of non-residents. Under the revised guidelines, Authorized Dealers (“ADs”) may now provide performance bonds or guarantees on behalf of Bangladeshi exporters or sub-contractors to overseas buyers or contractors without tender requirements. This measure aims to support export trade and local deliveries against foreign payments, allowing ADs to issue guarantees based on letters of credit, purchase-sale contracts, work orders, or advance payments. Bangladesh Bank
1.3. Sri Lanka
1.3.1. Sri Lanka's Inflation Hits - 0.8 per cent in October
Sri Lanka's inflation rate fell to - 0.8 per cent (minus zero point eight per cent) in October 2024, marking the second consecutive month of deflation, according to the Central Bank. The year-on-year change in the Colombo Consumer Price Index (CCPI) showed a deeper decline in the non-food category, with a 1.6 per cent (one point six per cent) decrease compared to 0.5 per cent (zero point five per cent) in September. In contrast, the food category shifted from deflation to inflation, recording a 1.0 per cent (one per cent) increase in October after a 0.3 per cent (zero point three per cent) decrease the previous month. These trends highlight the ongoing fluctuations in Sri Lanka's economic landscape. Newfirst
2. Trends
2.1. India and Saudi Arabia explore fintech and energy partnerships
India and Saudi Arabia are seeking collaboration in fintech, energy efficiency, and other emerging sectors to strengthen their trade relationship. During a recent visit by Commerce Minister Piyush Goyal to Riyadh, key discussions were held on enhancing cooperation in various industries, despite bilateral trade decreasing to USD 43 billion (United States Dollar Forty Three Billion only) in 2023-24 from USD 53 billion (United States Dollar Fifty Three Billion only) in the previous year. Both countries aim to leverage opportunities in high-growth sectors, promoting investment and economic ties between them. Tribune India
3. Sector Overview
3.1. Indian fintech deal activity drops in H1 2024
In the first half of fiscal year 2025, bank lending to industry surged by 42.8 per cent (forty two point eight per cent), reaching INR 1.5 trillion (Indian Rupees One Trillion Five Hundred Billion only). This increase is attributed to robust credit growth across small, medium, and large enterprises, despite a slowdown in bank deposit growth. Outstanding loans to large enterprises reached INR 27.16 trillion (Indian Rupees Twenty Seven Trillion One Hundred and Sixty Billion only), with overall credit to the industry growing to INR 37.86 trillion (Indian Rupees Thirty Seven Eight Hundred Sixty Billion only). While the manufacturing sector remains optimistic, retail loan growth has moderated, particularly in personal loans and vehicle financing. Business Standard
4. Business Updates
4.1. RBI grants approval for Jio Financial Services unit to operate as an online payment aggregator
Jio Financial Services announced that its wholly owned subsidiary, Jio Payment Solutions Limited (“JPSL”), has received authorization from the RBI to function as an online payment aggregator, effective October 28, 2024. This approval allows JPSL to facilitate online payment services under the Payment and Settlement Systems Act, 2007, marking a key step in Jio Financial Services' expansion into India’s digital payment sector. CNBC TV18
4.2. RBI grants Cashfree Payments PPI license, expanding its digital payment solutions
Cashfree Payments, a prominent Indian fintech in payments and API banking, has secured the Prepaid Payment Instrument (“PPI”) license, joining its existing authorizations as a Payment Aggregator (PA) and Payment Aggregator-Cross Border (PA-CB). This new license empowers Cashfree to offer enhanced digital payment solutions via prepaid instruments, enabling smoother transactions for businesses and customers. Founded in 2015, Cashfree Payments supports over 600,000 businesses globally and processes transactions worth over USD 80 Billion (United States Dollar Eighty Billion only) annually. Business Standard
4.3. RBI instructs microlenders to cease the practice of ‘netting off’ loans
RBI has directed lenders to microfinance institutions (“MFIs”) to halt the long-standing practice of ‘netting off’ loans, following its recent crackdown on high interest rates charged to microfinance borrowers. This move aims to clarify the number of borrowers classified as standard if a loan is not rolled over, addressing concerns over the potential ever-greening of loans. The practice typically involves lenders sanctioning new loans before borrowers fully repay existing facilities, often replacing overdue loans with fresh credit. During its annual inspections, the RBI found that this practice obscured the true picture of borrowers' creditworthiness, prompting the need for regulation. The RBI now requires that any outstanding loans be fully paid off before new loans can be granted, seeking to ensure transparency in the lending process and mitigate potential risks in the microfinance sector. Money Control
4.4. Fintech NBFC NPAs rise amid RBI scrutiny on unsecured loans
Several large NBFCs focused on digital loans are facing increased non-performing assets (“NPAs”) as delayed repayments rise. Navi Finserv reported 90+ days past due (DPD) rate of 5.8 per cent (five point eight per cent) as of June 30, 2024, compared to 2.8 per cent (two-point eight percent) the previous year. Other lenders like Fibe and Indifi Capital also noted increases in NPAs, raising concerns among investors. In response, the RBI has implemented stricter capital requirements for unsecured loans, prompting a slowdown in growth within this segment and urging NBFCs to enhance risk management and collections strategies. The Arc
4.5. Slice and North East Small Finance Bank merger finalised
Slice, a Bangalore-based fintech startup, has successfully merged with North East Small Finance Bank (“NESFB”), effective October 27, 2024, after receiving necessary approvals. This merger combines Slice's innovative fintech solutions with NESFB's established banking presence, aiming to create a tech-driven banking institution focused on stability and governance. The unified entity plans to enhance financial inclusion and drive regional growth in Northeast India. Rajan Bajaj, CEO of Slice, emphasized their commitment to customer-centric banking, while NESFB's MD, Satish Kumar Kalra, highlighted the merger as a significant milestone for the banking sector in the region. Press Trust of India
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Disclaimer
The note is prepared for knowledge dissemination and does not constitute legal, financial or commercial advice. AK & Partners or its associates are not responsible for any action taken based on its contents.
For further queries or details, you may contact:
Mr Anuroop Omkar
Partner, AK & Partners
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