Month: February 2021

Government security (G-Sec) prices hardened for the second straight trading session this week as the government, on Monday, announced additional borrowing of ₹80,000 crore in the February-March 2021 period.

Bond market players fear that the higher fiscal deficit numbers announced in the Budget for the current financial year (revised estimate of 9.5 per cent of GDP against Budget estimate/BE of 3.5 per cent) and the next (6.8 per cent BE) could push up the cost of financing in the economy.

In Tuesday’s trading, yield on the benchmark 10-year G-Sec (carrying a coupon of 5.77 per cent) went up about 7 basis points (bps) to close at 6.1495 per cent over Monday’s close, with its price declining 48 paise to ₹97.30.

Bond yields and price move in opposite directions..One basis point is equal to one-hundredth of a percentage point.

On Monday, when the Budget was was announced, yield on the aforementioned benchmark G-Sec jumped about 13 bps, with its price declining about 91 paise.

Referring to the ₹12-lakh crore government borrowing in FY21, Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, observed that: “During this period, the Reserve Bank of India (RBI) injected liquidity and cut the policy rate.

“Now as we step into FY22, the leeway to cut (the policy rate) is limited. Liquidity is getting sucked out gradually and the borrowing amount is still ₹12-lakh crore. Hence the yields are hardening.”

Irani expects the RBI to gradually suck out liquidity in a non disruptive manner and maintain stance status quo in the forthcoming monetary policy review.

He is of the view that the bond market needs some support from the RBI by way of open market operation (purchase) of G-Secs.

Abheek Barua, Chief Economist, HDFC Bank, in his report ‘Budget 2021-22: The Queen’s Gambit’ noted that the unexpectedly large fiscal deficit numbers both for the current and the next year entail huge borrowings, much beyond market expectations.

“Government bond yields have hardened quite a bit in the wake of the recovery. The Finance Ministry and the RBI will have to work closely together to check the rise in yields and ensure that the Budget doesn’t ultimately result in a rise in borrowing costs across the board,” he said.

Our Bureau

Life Insurance Corporation of India’s pension and group schemes vertical that looks after group schemes and superannuation business has clocked over ₹1-lakh crore of premium income during the first 10 months of the current fiscal.

“This is the first time ever any single vertical of the insurer has crossed such a gigantic premium income figure successively for two years,” said LIC in a statement on Tuesday, adding that it holds great significance as it was achieved in the middle of the Covid-19-led economic uncertainty.

Pension and group schemes vertical of LIC holds about 80 per cent market share in new business premium post opening of the life insurance sector, it further said.

This vertical of LIC manages funds of over ₹7-lakh crore through over 80,000 gratuity, superannuation and leave encashment schemes.

Our Bureau

The Reserve Bank of India (RBI) has given banks three more months to appoint Chief Compliance Officer (CCO) as per the guidelines it issued in September 2020.

This breather has been given due to the difficulties being faced by many banks on the issue of appointment of new CCO meeting all requirements of the September 2020 guidelines/ circular on ‘Compliance Functions in Banks and Role of Chief Compliance Officer (CCO)’.

“In view of the difficulties expressed by banks, they may follow the indicated processes for selection of CCO in the above circular within a period of nine months from the date of the circular – September 11, 2020 – and are free to reappoint the current incumbent as the CCO if she/he meets the requirements,” the RBI said in the frequently asked questions (FAQs) on the circular.

The circular, which was issued to bring uniformity in approach followed by banks to appoint a designated CCO selected through a suitable process with an appropriate ‘fit and proper’ evaluation/ selection criteria to manage compliance risk effectively, had originally given Banks six months for compliance.

Age limit

On the “not more than 55 years” eligibility criteria for appointment as CCO, the central bank said if a person identified for CCO role is more than 55 years but she/ he has been continuously associated with the compliance function prior to completing the age of 55 years, the person would be eligible for such appointment.

Referring to the prescription that the CCO shall have an overall experience of at least 15 years in the banking or financial services out of which minimum 5 years shall be in the Audit / Finance / Compliance / Legal / Risk Management functions., the RBI said: “…if a regional/ zonal/ business head had the requisite responsibility/ experience on the control functions of the business lines for 5 years or more, she/ he shall be eligible for the post of CCO under this condition.”

The RBI reiterated that compliance is a shared responsibility of the business units and the compliance function. Therefore, adherence to applicable statutory provisions and regulations must be the responsibility of each staff member of the bank and it is the work of the compliance function to ensure the same.

There should also be appropriate mechanisms for co-operation among departments and with the Chief Compliance Officer, it added.

The Centre will hold at least 75 per cent stake in state-owned Life Insurance Corporation of India for the next five years and will continue to hold at least 51 per cent in the life insurer after that period.

The Amendments to the Life Insurance Act, 1956, which was tabled along with the Finance Bill, also proposes to increase the authorised share capital of the corporation to ₹25,000 crore divided into 2,500 crore shares of ₹10 each.

Finance Minister Nirmala Sitharaman had, in the Budget, said that the government would like to take ahead the initial public offering of LIC in the coming fiscal.

“In 2021-22 we would also bring the IPO of LIC, for which I am bringing the requisite amendments in this Session itself,” she had said as part of the Budget speech.

The other amendments to the Life Insurance Act include introduction of provisions on corporate governance in line with SEBI norms to enable listing of LIC on stock exchanges.

“It is further proposed to substitute section 4 of the LIC Act to provide for the vesting of the general superintendence and direction of the affairs and business of the LIC in its Board of Directors…,” said the Notes on Clauses of the Finance Bill.

Other amendments propose to include new sections for constitution and composition of an executive committee to provide for an annual general meeting, appointment of auditors and declaration of dividend.

A key amendment is also regarding the utilisation of surplus from life insurance business under which it pays 5 per cent of the surplus to the government.

The government will also likely to continue with its guarantee on LIC policies.

The amendments further propose to enable issue of shares to the Central Government against paid-up capital invested by it in LIC as well as issue of bonus shares to it, which could be offered for sale by way by IPO, with resultant receipt of money into the Consolidated Fund of India.

Stiff opposition

LIC’s employees unions are, however, not happy with the move to go ahead with the IPO and are planning to oppose it.

“Over the course of the next few days, employees will be deciding on their strategy to oppose it,” said a union leader.

In a statement, the Bhartiya Mazdoor Sangh had also said that aggressive disinvestment programme and bringing IPO of LIC will reduce the charm of Atmanirbhar Bharath and benefits of some good proposals in the Budget.

Tamilnad Mercantile Bank (TMB) has reported an impressive performance for the December 2020 quarter with a significant growth in net profit and better asset quality parameters.

For the quarter ended December 31, 2020, the Tuticorin-based bank’s net profit grew 96 per cent to ₹181 crore, compared to ₹92 crore in the year-ago quarter.

The operating profit of the company grew 37 per cent at ₹350 crore compared to ₹256 crore in Q3 of the previous fiscal, on the back of strong growth in net interest income that stood at ₹429 crore against ₹339 crore, an increase of 27 per cent. Total income grew by eight per cent at ₹1083 crore (₹999 crore).

Higher net interest income and lower provisions aided the strong growth in bottomline, said KV Rama Moorthy, Managing Director and CEO, TMB.

He said about 90 per cent of the customers in MSME segment saw business returning to pre-Covid levels, while several MSMEs in the agri-segment were doing much better than the pre-Covid period.

Gross NPAs

TMB had a gross NPA of ₹978 crore as of December 31, 2020. Its Gross NPA, as a percentage of total advances, dropped to 3.24 per cent as of December 2020 quarter from 5.16 per cent in December 2019 quarter. Net NPA reduced to 0.92 per cent (₹270 crore from 2.13 per cent (₹564 crore).

The bank has an additional Standard Assets Provision of ₹150 crore plus ₹3.80 crore for 90 DPD accounts in respect of Covid-stressed accounts, in line with the Supreme Court directives for standstill clause.

“Covid is still not over. While it has created a lot of challenges, the pandemic has also thrown up new opportunities. For instance, we never did anything in healthcare and pharma sectors. With stronger focus from the government, we may look at this segment going forward,” said Moorthy.

For nine-month period ended December 2020, the net profit of the bank grew to ₹422 crore against ₹243 in the year-ago period, an increase of 73 per cent. Operating profit grew 34 per cent at ₹932 crore (₹695 crore).

Total deposits

Total advances grew 10 per cent to ₹30,212 crore from ₹27,369 crore. Total deposits stood at ₹37,889 crore (₹35,174 crore). Provision coverage ratio of the bank grew to 89.31 per cent (78.57 per cent). Its net worth stood at ₹4404 crore (₹3817 crore).

Moorthy said TMB is hopeful achieving its targets for FY21 – net profit of ₹480 crore and total business of ₹72,500 crore (₹32,000 crore of advances and ₹40,500 crore of deposits).

Our Bureau

Housing Development Finance Corporation Ltd (HDFC) reported a 65.05 per cent drop in standalone net profit for the third quarter of the fiscal at ₹2,925.83 crore against ₹8,372.49 crore in the same period last fiscal.

“The profit numbers for the quarter ended December 31, 2020, are not directly comparable…To facilitate a like-for-like comparison, after adjusting for the above, the adjusted profit before tax for the quarter ended December 31, 2020, is ₹3,694 crore, compared to ₹ 2,908 crore in the previous year, reflecting a growth of 27 per cent,” said HDFC in a statement on Tuesday.

The profit numbers are not comparable due to fair value gain consequent to the merger of GRUH with Bandhan Bank of ₹9,020 crore.

For the quarter ended December 31, 2020, HDFC reported a 26 per cent growth in net interest income at ₹4,068 crore, compared to ₹ 3,240 crore in the previous year. Net interest margin for the nine months ended December 31, 2020, stood at 3.4 per cent.

As of December 31, 2020, the individual loan book on an assets under management (AUM) basis grew 10 per cent and the non-individual loan book grew by 7 per cent. The growth in the total AUM was 9 per cent.

HDFC said December 2020 witnessed the highest ever levels in terms of receipts, approvals and disbursements.

During the quarter ended December 31, 2020, individual loan disbursements grew at 26 per cent over a year ago. Growth in home loans was seen in bothaffordable housing segment and high-end properties, it said.

“We continue to see strong growth in demand for housing loans. We grew perhaps better than what we expected in October when we were fairly optimistic,” said Keki Mistry, Vice-Chairman and CEO, HDFC.

The mortgage financier also reported an improvement in overall collection efficiency ratios for individual loans, which are now nearing pre-Covid levels. The collection efficiency for individual loans in December 2020 stood at 97.6 per cent, compared to 96.3 per cent in the month of September.

The gross non-performing loans as of December 31, 2020, stood at ₹8,012 crore. This is equivalent to 1.67 per cent of the loan portfolio.

If the Supreme Court order of maintaining the classification of accounts as status quo till further orders were not to be considered, NPLs would be at 1.91 per cent of the loan portfolio, with individual NPLs at 0.98 per cent and non individuals NPLs at 4.35 per cent.

Provisions as of December 31, 2020, stood at ₹12,342 crore.