Factbox: India central bank scrutiny of financial firms leads to restrictions

IIFL Finance

30/05/2024 05:27

(Updates Factbox published on April 25 with recent RBI actions)
    By Jaspreet Kalra and Siddhi Nayak
       MUMBAI, May 30 (Reuters) - The Reserve Bank of India's
(RBI) increased scrutiny of banks and other financial firms has
resulted in a spate of supervisory restrictions, most recently
on two Edelweiss Group companies for engaging in 'evergreening'
of distressed assets.
    On Tuesday, the RBI said Edelweiss Asset Reconstruction Co
Ltd (EARCL) and non-banking firm ECL Finance (ECL) had entered
into a series of structured transactions for evergreening some
stressed loans, barring both firms from acquiring financial
assets or undertaking structured transactions. 
    Since 2020, the RBI has placed business restrictions on many
players. The following are some of its key actions: 
    
    HDFC BANK
    In December 2020 the RBI ordered HDFC Bank to stop all
launches of new digital products and issuance of new credit
cards following multiple outages on the bank's digital banking
channels. 
    The restrictions lasted until March 2022 which hindered the
bank's business growth, contributing to underperformance of its
stock compared to its peers. 
    
    BANK OF BARODA
    In October 2023, the central bank barred state-run Bank of
Baroda from adding customers to its mobile app, bob World. 
    Al Jazeera reported that Bank of Baroda had linked mobile
numbers of strangers to boost registrations on the application,
compromising security. 
    The restriction was lifted earlier in May after the bank
rectified the deficiencies.
        
  
    BAJAJ FINANCE
    In November 2023 the RBI ordered India's largest non-bank
finance company (NBFC), Bajaj Finance, to stop offering loans
under two of its lending products. 
    The restrictions were levied due to non-adherence with the
central bank's digital lending guidelines and were reversed
earlier this month.
  
    PAYTM PAYMENTS BANK
    At the end of January 2024 the RBI asked Paytm Payments Bank
to wind down its operations by March 15 due to persistent
compliance issues and supervisory concerns. 
    Reuters reported that the RBI's concerns stemmed largely
from violations of rules on customer due diligence, use of funds
and technology infrastructure.
    
    IIFL FINANCE    
    In early March 2024 the RBI barred IIFL Finance, an NBFC,
from offering gold loans, citing concerns about the lender's
assessment of the gold collateral and violations of the maximum
permitted loan-to-value ratio, among other issues. 
    The restrictions are still in effect. 
    
    JM FINANCIAL
    Also in March 2024, non-bank financier JM Financial was
barred from giving out loans against shares and debentures due
to regulatory violations and governance concerns. 
    The central bank said it found serious deficiencies in
respect of loans sanctioned by the company for IPO financing.
The non-bank lender continues to be barred from operating in the
segment.

 (Reporting by Jaspreet Kalra and Siddhi Nayak; Editing by
Nivedita Bhattacharjee)
 ((jaspreet.kalra@thomsonreuters.com; +91-8769636545;))