:max_bytes(150000):strip_icc()/Investopedia-terms-indexfund-f7a1af966bd34da5b77ca1627607e41b.png)
Many investors hold onto mutual funds that consistently underperform benchmarks. This article stresses the need for portfolio pruning and suggests reallocating to passive index funds to reduce risk and meet long-term goals. It’s particularly helpful for retail investors seeking more stable, cost-effective alternatives.
Finance Minister Nirmala Sitharaman, in a meeting with heads of Public Sector Banks (PSBs) on Friday, urged them to leverage the Reserve Bank of India’s recent 50 basis points rate cut to accelerate lending towards the productive sectors of the economy. Sources reported that the Finance Minister asked PSBs to maintain the profitability momentum in FY26, building on their strong performance last year.
The cumulative net profit of 12 PSBs surged to Rs 1.78 lakh crore in FY25, marking a 26% rise compared to the previous fiscal. In absolute terms, this meant a profit increase of about Rs 37,100 crore. Sitharaman also emphasised the importance of financial inclusion, directing banks to onboard more customers under government schemes to ensure broader credit outreach.
On June 6, the RBI’s monetary policy committee, led by Governor Sanjay Malhotra, cut the benchmark repo rate by 50 basis points to 5.5%. The minister highlighted that PSBs should maintain or exceed their FY25 credit growth levels this year, using the rate cut as an opportunity to fuel economic growth and support sectors needing capital infusion.
)
Blackstone Inc.’s ASK Group plans to strengthen its foothold in India’s booming wealth management sector by hiring 70 new private bankers. This expansion will increase the ASK Private Wealth unit’s total banker strength to 175 by March next year, up from about 105 at present, as confirmed by Rajesh Saluja, CEO and co-founder of the business, in an interview this week.
India is witnessing a sharp rise in its wealthy population, driving a surge in demand for wealth management services. This has led to the emergence of several new firms competing to manage these assets, while established players like ASK Private Wealth, Bain Capital-backed 360 One WAM Ltd, and PAG-backed Nuvama Wealth Management Ltd are rapidly expanding their teams to retain market leadership.
Experts believe that the wealth management space in India will see intense competition in the coming years, with firms vying to acquire and retain high-net-worth individual (HNI) clients. Blackstone’s ASK Group aims to capitalise on this rising demand by nearly doubling its team size to cater effectively to the growing client base.
1 February 2025
Analysts have recommended that the Reserve Bank of India (RBI) should inject up to ₹1 trillion (~US$11.5 billion) into the banking system by the end of March 2025 to address an ongoing liquidity deficit. As of February 20, the banking system faced a shortage of about ₹1.7 trillion, despite prior liquidity injections via bond purchases and dollar–rupee swaps. The RBI has taken several steps, including long-term repo operations, interest rate reductions, bond purchases worth ₹1.39 trillion, and ₹440 billion via currency swaps. However, persistent system-level deficiency signals a need for further intervention. Analysts suggest that the RBI may expand its open market operations (OMO), increase non-resident Indian (NRI) deposit inflows, and roll over maturing repos. The central bank may also consider revising its policy framework, including daily fixed funding windows or adopting the Secured Overnight Rupee Rate (SORR) as its operational benchmark. These measures aim to stabilise liquidity, help maintain repo rates and support sustained credit growth going into FY26.
The Reserve Bank of India’s (RBI) recent decision to grant IndusInd Bank a license to establish a wholly owned asset management company (AMC) represents a significant shift in regulatory policy. Historically, the RBI has maintained a cautious stance regarding banks' involvement in para-banking activities, which are non-core banking operations that can include asset management, insurance, and other financial services.
This move by the RBI could potentially pave the way for other banks to engage in similar para-banking businesses. By permitting IndusInd Bank to launch its own AMC, the RBI may be signaling a broader acceptance of banks diversifying their activities beyond traditional banking services. This decision could open the route for other banks to explore and establish their own asset management and related non-banking financial ventures.
The implications of this regulatory change are multifaceted. Firstly, it could lead to increased competition in the asset management sector, as more banks might seek to leverage their existing customer bases and financial expertise to enter the market. This increased competition could benefit consumers through a wider range of investment products and potentially better service offerings.
Secondly, allowing banks to own AMCs could also enhance the synergy between banking and asset management services. Banks with in-house AMCs could offer more integrated financial solutions, combining traditional banking products with investment management services. This integration could streamline customer interactions and provide a more cohesive financial service experience.
However, this regulatory shift also raises potential concerns. The expansion of banks into para-banking activities could lead to increased risks if not adequately managed. The RBI will need to ensure that appropriate regulatory frameworks and oversight mechanisms are in place to mitigate these risks and maintain financial stability.
In summary, the RBI’s decision to permit IndusInd Bank to set up an AMC represents a notable development in the regulatory landscape for banks. It opens up possibilities for other banks to follow suit, potentially transforming the para-banking sector and offering new opportunities for growth and service innovation. The long-term effects will depend on how banks and regulators navigate this evolving space.
The Reserve Bank of India (RBI) is set to enhance the UPI Lite wallet system by introducing an auto-replenishment feature. This update will allow UPI Lite wallets to automatically top up if their balance falls below a user-defined threshold.
What is UPI Lite?
UPI Lite, which was launched by the National Payments Corporation of India (NPCI) in September 2022, allows users to make transactions of up to Rs 500 without needing a PIN. This feature aims to simplify and speed up transactions, and currently, the maximum balance that can be held in a UPI Lite wallet is Rs 2,000.
How Will Auto-Replenishment Work?
Under the new auto-replenishment facility, users can set a minimum balance threshold for their UPI Lite wallet. For example, if a user sets a floor limit of Rs 500 and their balance drops below this amount, the wallet will automatically be topped up with Rs 2,000, which is the maximum allowable balance for UPI Lite.
Availability and Integration
UPI Lite is supported by various payment apps including Paytm, BHIM App, and Google Pay, and is integrated with banks like Canara Bank, HDFC Bank, Indian Bank, Kotak Mahindra Bank, Punjab National Bank, State Bank of India, and Union Bank of India, among others.
This new auto-replenishment feature aims to streamline the user experience by ensuring that funds are always available for quick transactions, reducing the need for manual topping up of the wallet.
Narayanan Vaghul, a towering figure in Indian banking and the former Chairman of ICICI Bank, passed away on Saturday in Chennai at the age of 88. His death marks the end of an era for Indian financial services, where his legacy has had a profound and enduring impact.
Vaghul is survived by his wife, daughter, and son. His contributions to the banking sector are widely celebrated, and he was honored with the Padma Bhushan award, one of India's highest civilian honors, for his exceptional service to the nation.
Dubbed the ‘Bhishma Pitamah’ of Indian banking, Vaghul’s tenure at ICICI Limited began in 1985, during which he spearheaded its transformation from a development bank into the country’s second-largest commercial bank. This metamorphosis established ICICI as a significant player in various financial services, including commercial banking, insurance, investment banking, and mutual funds.
ICICI Bank's tribute to Vaghul on X (formerly Twitter) reflects his monumental contributions: “A Dharma yogi, institution builder, Guru, visionary, author, philanthropist, and doyen of Indian industry. A legendary banker who transformed ICICI from a development bank to a universal banking group. A visionary leader who was instrumental in setting up many pioneering financial institutions.” The bank acknowledged his role in nurturing a new generation of leaders across the banking sector and expressed eternal gratitude for his leadership.
Vaghul's influence extended beyond banking. He was instrumental in mentoring numerous prominent figures in the industry and played a crucial role in the advancement of women CEOs in banking. His efforts laid the groundwork for modern practices and sustainable models within the Indian financial ecosystem.
Indian Reserve Bank Governor Shaktikanta Das expressed his sorrow over Vaghul’s passing, calling him a “visionary” who made significant contributions to India’s financial sector. Das noted, “Every interaction with him was refreshing. May his soul rest in eternal peace. Om Shanti.”
Born in 1936 in rural South India, Vaghul’s early life was marked by a deep-seated ambition. Although he initially aspired to join the civil service, he began his career with the State Bank of India in 1955. There, he was mentored by the esteemed banker R.K. Talwar, whose influence shaped Vaghul's career path. Vaghul’s subsequent role at the National Institute of Bank Management (NIBM) and his leadership positions at the Central Bank of India and Bank of India showcased his rapid rise in the banking world.
At the age of 39, Vaghul was appointed Executive Director at the Central Bank of India and, at 44, became the youngest Chairman of Bank of India. His pioneering efforts included the introduction of credit rating in India and the establishment of Crisil (Credit Rating Information Services of India Ltd) in 1987, a milestone that significantly impacted financial assessments in the country.
Throughout his career, Vaghul received numerous prestigious awards and accolades, testament to his vision and leadership in shaping the Indian banking landscape. His legacy will continue to inspire future generations in the financial sector, reflecting a lifetime of commitment to excellence and innovation.
The recent surge in gold prices has fueled a significant increase in gold loan demand across India. According to CRISIL Ratings, June 2024 saw a substantial 20 percent rise in gold loan applications compared to May 2024, highlighting the growing popularity of this financial option. Gold loans offer a quick and convenient way to access funds in emergencies, allowing borrowers to avoid selling their gold assets. These loans are often more affordable than personal loans because they are secured by gold, resulting in lower interest rates. Paisabazaar data reveals that the most competitive gold loan interest rates start at 8.8 percent. Below is a list of the top ten banks and non-banking financial companies (NBFCs) offering the lowest interest rates on gold loans:
Indian Bank: Offers gold loans with an interest rate starting at 8.8 percent for a loan amount of Rs 5 lakh over a 2-year term, resulting in a monthly EMI of Rs 22,796.
ICICI Bank: Provides gold loans at an interest rate from 9 percent onwards for Rs 5 lakh with a 2-year tenure, translating to a monthly EMI of Rs 22,842. Canara Bank also offers similar rates.
State Bank of India (SBI): As the largest public sector bank, SBI offers gold loans starting at 9.05 percent for Rs 5 lakh over a 2-year period, with a monthly EMI of Rs 22,853.
HDFC Bank: Known for its competitive rates, HDFC Bank offers gold loans beginning at 9.10 percent for Rs 5 lakh with a 2-year tenure, resulting in a monthly EMI of Rs 22,865.
Punjab National Bank (PNB): Offers gold loans with an interest rate starting at 9.25 percent for a Rs 5 lakh loan over a 2-year period, resulting in a monthly EMI of Rs 22,899.
CSB Bank: Provides gold loans at an interest rate starting at 9.49 percent for Rs 5 lakh over 2 years, translating to a monthly EMI of Rs 22,954.
DCB Bank: Offers gold loans starting at 9.55 percent for Rs 5 lakh with a 2-year tenure, resulting in a monthly EMI of Rs 22,968.
Manappuram Finance: This leading NBFC offers gold loans with an interest rate starting at 9.9 percent for Rs 5 lakh over 2 years, translating to a monthly EMI of Rs 23,049.
Muthoot Finance: Provides gold loans at an interest rate starting at 10.5 percent for Rs 5 lakh with a 2-year tenure, resulting in a monthly EMI of Rs 23,141.
This information is sourced from the official websites of the respective banks and NBFCs as of August 20, 2024. The list is arranged in ascending order of interest rates, with the institution offering the lowest rate listed first. The EMI calculations assume zero processing and other charges for simplicity.
The recent decline in the loan-to-deposit ratio (LDR) within the banking sector has been attributed to two main factors: reduced money creation by the Reserve Bank of India (RBI) and increased bank profits, according to a Nomura report.
The primary factor contributing to the reduced LDR is the significant drop in net money creation by the RBI during the fiscal year 2023-24. The cumulative net fresh money creation for this period was only Rs 0.6 trillion, a sharp decrease compared to the Rs 20 trillion created in the three fiscal years prior (FY20-22). This reflects a substantial reduction in money supply compared to previous years. In FY23, net money creation by the RBI was nearly neutral, recording a -1 percent change, with a modest +1 percent increase in FY24, against a historical average of +3 percent and +4-5 percent in the preceding three years. This moderation in money supply, which was a discretionary action by the RBI, has restricted banks' ability to expand their lending relative to deposits.
Another significant factor affecting the LDR is the marked increase in bank profits over the past two years. In FY24, the total profit of banks amounted to 1.8 percent of the previous year's deposits, a notable rise from the average of 0.1 percent observed between FY16-20. This increase in profitability, while a sign of strong financial health, has led to a decrease in deposits as banks allocate a larger portion of these profits elsewhere. The relationship between bank profits and deposits is inherently linked, as banks' profits are derived from the funds deposited by customers. Thus, rising profits necessitate adjustments in the balance sheet, often resulting in a reduction of the deposit base and further impacting the LDR.
The elevated LDR should be viewed as a cyclical phenomenon rather than a systemic problem. The current factors influencing the LDR are beyond the banks' control. The lower money creation by the RBI represents a temporary issue expected to correct over time, while the increase in bank profits indicates a positive trend rather than a fundamental problem. The argument that banks are failing to mobilize deposits or that money is being diverted to other sectors is misplaced. Instead, the flows into capital markets and the relatively stable growth in currency in circulation over the past two years do not directly impact the system's deposits.
Recent changes by the Reserve Bank of India (RBI) to peer-to-peer (P2P) lending regulations are set to bring improved transparency and clarity to the sector, despite initial concerns about tighter restrictions. Industry experts view these amendments positively, suggesting they will ultimately benefit both lenders and borrowers.
The RBI's revised guidelines aim to address various issues in the P2P lending industry by specifying what non-banking finance companies (NBFCs) involved in P2P lending are prohibited from doing, particularly concerning credit risk assumption. These updates are intended to eliminate irregular practices and enhance the overall transparency of P2P platforms.
Understanding P2P Lending
P2P lending allows individuals to borrow and lend money through RBI-regulated NBFC platforms that match lenders with borrowers. These platforms act as intermediaries, managing transactions and repayments for a fee. P2P loans are often used for short-term needs such as medical emergencies, business funding, travel expenses, or debt repayment.
Key Changes and Their Implications
No Credit Risk Assumption by Platforms: Previously, some P2P platforms provided credit guarantees, which could mislead lenders about the actual risk involved. The new rules prohibit NBFC-P2P platforms from assuming credit risk, ensuring that lenders are fully aware of potential losses due to borrower defaults.
Escrow Account Management: The updated regulations mandate that funds in escrow accounts must be transferred within one day (T+1) of transactions. This ensures clearer fund segregation and timely processing. However, some experts suggest a gradual introduction of these strict timelines might be more feasible.
Restriction on Cross-Selling: Platforms are now restricted from cross-selling non-loan-specific products, such as credit enhancements and insurance, reducing potential conflicts of interest and focusing on their primary role of facilitating loans.
Cap on Lending Amounts: While the 2019 cap on individual lender exposure remains unchanged, the revised guidelines align the language with the RBI’s digital lending regulations. However, practical implementation of this cap might pose challenges due to the lack of tools to track cumulative lending across platforms.
Board-Approved Matching Policy: P2P platforms must now adhere to a board-approved policy for matching borrowers with lenders. This change is expected to improve governance and ensure more appropriate borrower-lender matches.
Monthly Performance and NPA Disclosures: Platforms are required to disclose detailed monthly performance reports, including actual losses and non-performing assets (NPAs). This transparency will help lenders make more informed decisions and better track their investments.
Revised Fee Structure: The new guidelines stipulate that fees must be fixed amounts or percentages of the principal loan amount, rather than contingent on borrower repayment performance. This change aims to simplify fee structures and enhance predictability.
Overall, while the RBI's new guidelines impose stricter controls on P2P platforms, they are designed to foster greater transparency and reduce potential risks. Experts believe these measures will ultimately lead to a more robust and trustworthy P2P lending ecosystem.
Many investors hold onto mutual funds that consistently underperform benchmarks. This article stresses the need for portfolio pruning an...
