1. HDFC Bank listed in Domestic Systemically Important Banks.
The Reserve Bank of India has listed HDFC Bank as a domestic systemically important bank (DSIB) under the bucketing structure identified last year. State Bank of India and ICICI Bank were identified as DSIBs under the RBI rules in 2015. The additional Common Equity Tier 1 (CET1) requirement for D-SIBs has already been phased-in from April 1, 2016 and will become fully effective from April 1, 2019. The additional CET1 requirement will be in addition to the capital conservation buffer. “D-SIB surcharge for HDFC Bank will be applicable from April 1, 2018,” the RBI said.
The RBI had issued the framework for dealing with domestic systemically important banks (D-SIBs) on July 22, 2014. The D-SIB framework requires the RBI to disclose the names of banks designated as D-SIBs every year in August starting from 2015 and place these banks in appropriate buckets depending upon their systemic importance scores (SISs).
In case a foreign bank having branch presence in India is a global systemically important bank (G-SIB), it has to maintain additional CET1 capital surcharge in India as applicable to it as a G-SIB, proportionate to its risk weighted assets (RWAs) in India. Based on their systemic importance scores in ascending order, banks will be plotted into four different buckets and will be required to have additional Common Equity Tier 1 capital requirement ranging from 0.20 per cent to 0.80 per cent of risk weighted assets, depending upon the bucket they are plotted into. D-SIBs will also be subjected to differentiated supervisory requirements and higher intensity of supervision based on the risks they pose to the financial system.
It was observed during the global financial crisis that problems faced by certain large and highly interconnected financial institutions hampered the orderly functioning of the financial system, which in turn, negatively impacted the real economy. Government intervention was considered necessary to ensure financial stability in many jurisdictions. Cost of public sector intervention and consequential increase in moral hazard required that future regulatory policies should aim at reducing the probability of failure of SIBs and the impact of the failure of these banks.
SIBs are perceived as banks that are ‘Too Big To Fail (TBTF)’. This perception of TBTF creates an expectation of government support for these banks at the time of distress. Due to this perception, these banks enjoy certain advantages in the funding markets. “However, the perceived expectation of government support amplifies risk-taking, reduces market discipline, creates competitive distortions, and increases the probability of distress in the future. These considerations require that SIBs should be subjected to additional policy measures to deal with the systemic risks and moral hazard issues posed by them,” the RBI said in an earlier report.
2. Four Thousand crores disclosed by 21 thousand people under the Pradhan Mantri Garib Kalyan Yojna (PMGKY).
Black money worth Rs 4,900 crore was disclosed by 21,000 people under the Pradhan Mantri Garib Kalyan Yojna (PMGKY), the stash money declaration window announced by the government post demonetisation, an official said today.
The Income Tax Department, a top government official told PTI, has collected a tax of Rs 2,451 crore till now from these declarations.
"21,000 people disclosed Rs 4,900 crore of black money under the PMGKY scheme that closed on March 31 this year. These are now the final figures," the official said, adding that the I-T department is now following up the legal processes with the declarants in few cases.
The scheme was launched in December last year by the government to enable people with black money to come clean by paying tax and penalty of 50 per cent. It closed on March 31 this year.
The scheme was announced after Prime Minister Narendra Modi declared the demonetisation of two high-value currency notes of Rs 1,000 and Rs 500 on November 8 last year.
Revenue Secretary Hasmukh Adhia, after the closure of the PMGKY window, had said that the response to the scheme has "not been so good."
Finance Minister Arun Jaitley had said that the PMGKY was preceded by similar schemes and hence the response to it by the public should not be seen in isolation.
"Keep in mind that PMGKY in that financial year was not an isolated scheme. You first had the IDS, then you had people depositing cash in banking system knowing it would incur a tax liability and PMGKY was over and above that.
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"When you look at the total amount of disclosures made, you have to look at all three of them collectively," the minister had said.
The government had also termed the PMGKY as the one last window for black money holders to come clean by paying tax and penalty on their undisclosed illicit wealth.
The scheme provided for payment of 49.9 per cent tax, surcharge and penalty. Also, a mandatory deposit of 25 per cent of the black money was to be made in a zero-interest bearing account for four years.
The PMGKY was preceded by the Income Declaration Scheme (IDS), between June 1, 2016-September 30, 2016, where 71,726 declarations disclosing undisclosed income of Rs 67,382 crore were made by black money holders.
The government has collected over Rs 12,700 crore tax under the IDS till now.
3. ‘Pakistan’s Habib Bank to pay $225-mn New York fine for compliance failures’.
The New York State Department of Financial Services on Thursday said Pakistan’s Habib Bank had agreed to pay $225 million to settle an enforcement action brought against it for infringing laws designed to combat illicit money transfers.
The DFS said in a legal filing last month it was seeking to fine the bank, Pakistan`s biggest lender, up to $630 million for “grave” compliance failures over anti-money laundering and sanctions rules at its only U.S. branch.
The regulator said the bank, known as HBL, agreed to pay just over a third of that sum as part of a broader settlement in which it will shutter its New York branch, subject to conditions.
These include submitting to a DFS investigation of transactions processed by the branch from October 2013 to the end of September 2014, and from April 2015 through the end of July 2017.
In a statement HBL said it “remains committed to strengthening its compliance processes, operations and controls” across its 1,700 branches.
Shares of HBL surged 5 %, to 160.58 rupees per share, amid investor relief that the fine was not larger than $225 million.
Thursday`s announced settlement does not preclude further future enforcement action if the DFS investigation reveals further problems.
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The enforcement action followed a 2016 review in which the regulator said it found “weaknesses in the banks risk management and compliance” that management had failed to tackle.
The review showed HBL had failed to properly screen thousands of transactions and had processed payments for known criminals and sanctioned entities, among other failings.
“The bank has repeatedly been given more than sufficient opportunity to correct its glaring deficiencies, yet it has failed to do so,” Financial Services Superintendent Maria Vullo said in the statement.
“DFS will not stand by and let Habib Bank sneak out of the United States without holding it accountable for putting the integrity of the financial services industry and the safety of our nation at risk.”
HBL disclosed it was in negotiations with the DFS last month and said the potential fine and closure of its New York branch would have no material impact on its business outside the United States.
“HBL is pleased to have this matter behind it and has begun the orderly wind-down of its New York operations,” Matthew Biben, a partner at Debevoise & Plimpton LLP and the bank`s U.S. lawyer, said in a statement.
“HBL believes that the opportunity to resolve this matter consensually at this time is in the best interests of its investors, shareholders and customers. HBL remains committed to strengthening its operations and controls.”
The DFS said a court hearing set for later this month had been canceled as part of the settlement.
Pakistani brokerage firm Intermarket Securities said the hefty fine would hurt profits and could force HBL to issue foreign-currency subordinated debt to pay the regulator.
But the sum was “manageable” and the medium-term outlook for the bank should not be affected, it said in a research note.
“Under the circumstances, we believe it makes sense for the bank to take this one-off hit, rather than approaching courts which would have put the share price under a cloud for longer.”