Month: February 2021

A working group of Insurance Regulatory and Development Authority of India (IRDAI) has recommended the introduction of Index-Linked Insurance Products (ILIP).

ILIP is an insurance product where the returns are linked to benchmark indices.

In its report submitted to the regulator, the group, which was formed by the regulator last year, said the relevance of ILIP is “further enhanced, in the current context of volatile investment markets leading to the customer preference for guarantees”.

“ILIPs could be an apt alternative or complimentary option to the current conventional guaranteed products (including annuities and savings products) and ULIPs, particularly in the context of volatile investment markets/ stressed interest rates,” it said.

For the annuity product with return of purchase price, the panel favoured allowing resetting of annuity rates with reference to a specified index on top of the minimum stipulated guarantees at stated periodicity.

The customer concerns are to be taken care of with a properly disclosed benchmark index and option for customers to change the annuity option to switch the full amount to other form of annuities or opt for open market option.

“This will reduce the risks for insurers as well as enhance the customer value and options for the annuitants and pensioners,” it said.

The working group recommended that under ULIPs, a segregated fund may also be allowed to be offered as an option with an option to invest in assets confirming a chosen index.

Micro, small and medium enterprises (MSMEs) could turn out to be the next stress area for banks, with many lenders and analysts worried about loans given under the Emergency Credit Line Guarantee Scheme (ECLGS).

These loans have a 12-month moratorium, and many lenders say there is no clarity on how many of the borrowers would be able to repay.

A better understanding of the repayment behaviour and possible defaults is likely to emerge in the second half of the fiscal year, but could take at least another year for full clarity on the issue.

“There is a one-year moratorium on the loans. As the economy revives, there is expectation that the companies that take loans under this scheme will benefit. But no one knows what will happen one year down the lane,” noted a senior banker who did not wish to be quoted on the issue.

The cumulative amount sanctioned under ECLGS by January 25 was ₹2.39-lakh crore, according to a reply by Finance Minister Nirmala Sitharaman in Rajya Sabha to a question by Rajeev Chandrasekhar on Tuesday.

Guarantees issued

MSME Minister Nitin Gadkari had informed Parliament on Monday that around 91 lakh guarantees have been issued till January 25 this year under the scheme.

The scheme is available till March 31, 2021, or till guarantees for ₹3-lakh crore are sanctioned, whichever is earlier.

It is a key part of the government’s relief measures for Covid-19-led distress to help the MSME sector.

Most banks have been increasing provisions every quarter and say they are fully covered for losses.

Experts said small businesses are taking loans under the scheme either for working capital or alternatively to repay an existing loan that was taken at a higher interest rate. However, it is difficult to assess the recovery in businesses over the coming months, though the expectation is for a sharp rebound in the economy.

“There is some concern about stress in the sector when the moratorium ends. Banks will have to see how it plays out,” said a sectoral expert.

Anil Gupta, Vice-President, Financial Sector Ratings, ICRA, said the ECLGS has been very productive. “It has helped borrowers tide over temporary liquidity issues, but there is some question as to how many have overleveraged and will be able to repay the loans. Among banks, there is some anxiety about this portfolio and how it will behave over the next one to two years,” he said.

The Union Cabinet had, in May 2020, approved the ECLGS to help ease the Covid-19-led economic distress faced by MSMEs by providing them additional funding of up to ₹3-lakh crore in the form of a fully guaranteed emergency credit line. It was later extended through ECLGS 2.0 for the 26 sectors identified by the Kamath Committee and the healthcare sector. The loans provided under ECLGS 2.0 have a 5-year tenor, with a 12-month moratorium on repayment of principal.

Indian Overseas Bank’s prospect to exit RBI’s PCA (prompt corrective action) brightened further as the Chennai-headquartered public sector bank exhibited an impressive performance for the December 2020 quarter with good profit and improvements in asset quality.

IOB was brought under RBI’s PCA programme, which put several restrictions in September 2015, after reporting high levels of bad loans. With various efforts in recent years, the bank managed to trim losses and contain slippages, even as capital infusion by the Government of India aided the bank’s turnaround.

It has now reported a good net profit for the fourth quarter in a row, while asset quality has also been improving quarter-on-quarter basis. Thus, with improved parameters, chances are bright the bank will move out of the RBI’s PCA framework soon.

For the quarter ended December 31, 2020, IOB reported a net profit of ₹213 crore against a net loss of ₹6,075 crore in the year-ago quarter, driven by higher non-interest income and lower provisions.

Operating profit of the bank more than doubled to ₹1,731 crore from ₹762 crore.

Gross NPA as of December 31, 2020, stood at 12.19 per cent against 17.12 per cent as on December 31, 2019. The net NPA dropped to 3.13 per cent from 5.81 per cent in December 2019 quarter.

“Now, IOB has been generating profits continuously for the past four quarters, and the quantum of profit is also increasing. In Q3, too, there were marked improvements in all parameters. There was perceptible reduction in gross and net NPAs. Also, provision coverage ratio improved to 91.91 per cent, one of the best in the banking industry. In a nutshell, IOB has performed well and will continue to show good results,” said Partha Pratim Sengupta, Managing Director & CEO of IOB.

Interest income fell to ₹4,244 crore (₹4,352 crore in Q3 of FY20), while non-interest income was 83 per cent higher at ₹1,543 crore (₹846 crore). Total income stood at ₹5,787 crore (₹5,198 crore).

Total recovery, including technical write-off, stood at ₹1056 crore, slightly higher than its collection target of ₹1,000 crore for the quarter.

Gross advances stood at ₹1,37,469 crore (₹1,38,643 crore as on December 31, 2019). The bank has evolved a policy of not taking fresh exposures in stressed sectors.

With expected restructuring of ₹2,000 crore worth of accounts in Q4, the total restructured assets are estimated at ₹3,000 crore in FY21, about 2.5 per cent of the book. About ₹18,000 crore worth of assets await NCLT resolutions. Any positive outcome will add to the bottom line of the bank.

Gold loan lender Muthoot Finance Ltd has posted a 22 per cent rise in net profit at ₹991 crore in Q3 of FY21 against ₹851 crore in the corresponding period of the previous fiscal.

The consolidated profit of the group registered 17 per cent increase at ₹1,007 crore in Q3 against ₹861 crore in the corresponding period of the previous fiscal.

Consolidated loan AUM touched ₹55,800 crore against last year’s ₹43,436 crore for nine months in FY21. Loan assets stood at ₹50,391 crore as on December 31, 2020, against ₹38,948 crore as on December 31, 2019. During the quarter, gold loan assets increased by ₹3,389 crore.

Muthoot Homefin (India) Ltd’sloan portfolio decreased to ₹1,881 crore against ₹2,025 crore in the previous year. Microfinance Limited grew its loan portfolio to ₹2,886 crore against last year’s ₹2,285 crore. The third quarter achieved a PAT of ₹5 crore.

Muthoot Insurance Brokers Pvt Limited generated a total premium collection amounting to ₹107 crore in Q3 FY21. It generated a PAT of ₹9 crore. The Sri Lankan subsidiary, Asia Asset Finance PLC, increased its loan portfolio to LKR1331 crore. It generated a PAT of LKR1.6 crore in Q3 FY21. Muthoot Money Ltd, a wholly-owned subsidiary extending loans for commercial vehicles and equipments, made a profit of ₹3 crore for 9M ended December 31, 2020.

George Alexander Muthoot, Managing Director, said: “We had a remarkable third quarter with several achievements. Our Standalone Loan Assets has crossed the landmark of ₹50,000 crore. Our active customers presently having a loan account also crossed the landmark of 50 lakh customers. We have achieved a growth of 22 per cent in gold loan portfolio during the 9 months of current year and likely to end the year with at least 25 per cent growth. Our disbursements for the quarter were focussed on new customer additions, fresh loans to active and inactive customers and top-up loans to existing customers. We disbursed fresh loans to 3.88 lakh new customers amounting to ₹2,976 crore and to 4.38 lakh inactive customers amounting to ₹2,960 crore. Subsidiaries followed a cautious approach towards lending.”

Our Bureau

Max Financial Services Ltd (MFSL) has reported a 54 per cent increase in consolidated net profit for the third quarter ended December 31, 2020, at ₹227 crore. Aided by higher investment income, the company’s consolidated revenues grew 68 per cent year-on-year to ₹8,990 crore for the quarter ended March 31, 2020.

For the quarter under review, Max Life Insurance – the sole subsidiary of MFSL – reported Gross Written Premium of ₹4,629 crore, up 19 per cent over the previous year. Shareholders’ PAT stood at ₹ 220 crore, up 43 per cent over the previous year.

Mohit Talwar, Managing Director, Max Financial Services, said in a statement: “MFSL has had a solid quarter with our subsidiary Max Life registering impressive VNB and Individual Adjusted Sales. This has been a consequence of a consciously diverse product mix, where Non-Par and Protection products continue to lead in sales growth and margin expansion. Our business apparatus, which was rapidly digitised as a result of a global pandemic, has played a significant role in helping Max Life continue its progression despite Covid headwinds. In fact, we gained 158 bps to maintain our private market share at nearly 11 per cent.”

This quarter, MFSL has also moved a step closer to the conclusion of its much-anticipated deal with Axis Bank, with a CCI approval for 12 per cent stake acquisition in Max Life by the bank and its subsidiaries, Axis Capital Limited and Axis Securities Limited.

“We are now waiting for IRDAI’s decision. Our focus in the upcoming year will be set on bringing the deal to closure as well as on furthering our digitisation agenda, with equal attention to expanding proprietary sales and boosting persistency through increased renewals and collection rates,” he added.

For the nine months ended December 31, 2020, Max Life reported a Market-Consistent Embedded Value (MCEV) of ₹11,723 crore with an Operating Return on Embedded Value (RoEV) of nearly 18 per cent.

The Value of New Business (VNB) written during 9 months in FY21 was ₹788 crore, growing 37 per cent year-on-year, due to shift in the product mix towards NPAR savings and protection products. New Business Margin (NBM) of 25.9 per cent expanded by 490 bps over last year. Focus on protection growth continued with 54 per cent retail growth, and penetration increased to 10 per cent in 9M FY21, compared to 8 per cent in 9M FY20.

Renewal Premium grew 16 per cent to ₹ 7,669 crore In this period, Max Life’s Assets under Management (AUM) grew 23 per cent to ₹ 84,724 crore.