Month: March 2021

Marginal impact of SC verdict on moratorium on earnings

Banking & Finance

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With banks gearing up to close the financial year and announce results for the fourth quarter and full fiscal 2020-21 in the coming weeks, analysts and experts believe that the Supreme Court verdict on loan moratorium will have marginal impact in terms of their earnings. It is expected that most lenders are likely to move into expansion mode now thanks to signs of economic recovery and improved credit demand.

“Our analysis indicates the earnings impact of the residual exposure is not very material,” said Edelweiss Research in a recent report.

Also read: Loan moratorium: SC orders full waiver of interest on interest

It has worked out three scenarios of such loans being 15 per cent, 20 per cent and 25 per cent of the moratorium books of its coverage banks. “The impact of a hit from loss of interest on interest for this moratorium period will, at most, result in a few basis points dent to the annual net interest margin, even if incremental costs are entirely borne by the banks and with no further government contribution,” it said.

Private sector lenders are set to announce their fourth quarter results in the coming weeks in April followed by public sector banks. HDFC Bank is scheduled to announce its results for the quarter ended March 31, 2021 and the fiscal year 2020-21 on April 17 while ICICI Bank will announce it on April 24.

A report by Axis Securities said it is not yet clear whether this incremental hit will be absorbed by the government or passed on to the banks.

“Even so, it will be a one-time hit and not have a material impact as it only pertains to interest on interest for five months period only. We expect that with NPA standstill withdrawn, banks will report actual NPAs in the fourth quarter of 2020-21 instead of reporting proforma NPAs, which could lead to some margin compression,” it said, adding that with better clarity on asset quality, banks with excess provisions such as ICICI Bank could result in some provision write-backs.

“On overall basis, we remain positive on banks due to improving macro-economic recovery feeding into better credit growth and limited asset quality disruption,” said Emkay Financial Services in a recent note.

Improved credit demand

Bankers have also been talking about increased credit demand in recent months.

CARE Ratings noted bank credit growth has stood largely stable compared to the last fortnight and returned to the levels observed in the early months of the pandemic (the bank credit growth ranged between 6.1 per cent to 7 per cent during March and February 2020).

“The credit growth stood at an almost similar level during the last two fortnights at 6.6 per cent and 6.5 per cent, marginally higher compared with last year’s level of around 6.1 per cent, as economic activities gather pace,” it said.

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HDFC Bank Special FD Scheme For Senior Citizens Extended Till June

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HDFC Bank FD Rates For Regular Citizens

HDFC Bank provides 2.50 percent on deposits with a maturity period of 7 to 29 days, and 3 percent on deposits with a maturity period of 30 to 90 days. 3.5 percent for 91 days to 6 months, and 4.4 percent for 6 months 1 day to less than one year. On one-year FDs, the bank offers 4.9 percent interest rate. Term deposits with a one-year or two-year maturity period will yield 4.9 percent interest. FDs maturing in 2 to 3 years will yield 5.15 percent, while those maturing in 3 to 5 years will yield 5.30 percent. 5.50 percent interest is provided on deposits for a maturity period of 5 to 10 years. The current fixed deposit interest rates of HDFC Bank are in effect from 13th November 2020.

HDFC Bank FD Rates For Senior Citizens

HDFC Bank FD Rates For Senior Citizens

“An additional premium of 0.25% (over and above the existing premium of 0.50%) shall be given to Senior Citizens who wish to book the fixed deposit less than Rs 5 crore for a tenure of 5 years one day to 10 years, during special deposit offer commencing from 18th May’20 to 30th Jun’21,” HDFC Bank stated on its official website. On these deposits, HDFC Bank gives a 75 basis point (bps) higher interest rate. The interest rate on a fixed deposit made by a senior citizen under the HDFC Bank Senior Citizen Care FD will be 6.25 percent. These special rates are in effect from 13th November 2020.

Tenure ROI in % for senior citizens
7 – 14 days 3.00
15 – 29 days 3.00
30 – 45 days 3.50
46 – 60 days 3.50
61 – 90 days 3.50
91 days – 6 months 4.00
6 months 1 days – 9 months 4.90
9 months 1 day < 1 Year 4.90
1 Year 5.40
1 year 1 day – 2 years 5.40
2 years 1 day – 3 years 5.65
3 year 1 day- 5 years 5.80
5 years 1 day – 10 years 6.25

Note

Note

Recently, the third time, the State Bank of India’s (SBI) special fixed deposit scheme for senior citizens has been extended. The SBI ‘WECARE’ Senior Citizens’ Term Deposit scheme for senior citizens was launched in May 2020 by the leading public sector bank of India. This special scheme has now been extended for another three months until June 30 which was previously extended until December 31, and then again until March 31, 2021. “A special SBI Wecare Deposit for Senior Citizens introduced in the Retail TD segment wherein an additional premium of 30 bps (over & above the existing 50 bps) will be paid to Senior Citizen’s on their retail TD for ‘5 Years and above’ tenor only. “SBI Wecare” deposit scheme stands extended till 30 June 2021,” SBI stated on its official website. The interest rate on SBI’s special FD scheme for senior citizens will be 80 basis points (bps) higher than the rate for regular citizens. SBI currently offers a 5.4 percent interest rate on five-year fixed deposits to the regular customers. Whereas under the “SBI Wecare” deposit scheme, senior citizens will get an interest rate of 6.20 percent. To know more click here.



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Kotak Bank Modified Fixed Deposit Interest Rates: Check Current Rates Here

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Kotak Bank FD Rates For Regular Public

For the general public, Kotak Mahindra Bank’s new FD rates for below Rs 2 crore are valid as of March 25, 2021.

Tenure ROI
7 – 14 Days 2.50%
15 – 30 Days 2.50%
31 – 45 Days 2.75%
46 – 90 Days 2.75%
91 – 120 Days 3.25%
121 – 179 days 3.25%
180 Days 4.40%
181 Days to 269 Days 4.40%
270 Days 4.40%
271 Days to 363 Days 4.40%
364 Days 4.40%
365 Days to 389 Days 4.50%
390 Days (12 months 25 days) 4.90%
391 Days – Less than 23 Months 4.90%
23 Months 5.00%
23 months 1 Day- less than 2 years 5.00%
2 years- less than 3 years 5.00%
3 years and above but less than 4 years 5.10%
4 years and above but less than 5 years 5.25%
5 years and above up to and inclusive of 10 years 5.30%

Kotak Bank FD Rates For Senior Citizens

Kotak Bank FD Rates For Senior Citizens

Senior citizens will get interest rates that are 50 basis points higher than the non-senior citizens. On FDs maturing in 7 days to 10 years, the bank provides interest rates ranging from 3% to 5.8% to the senior citizens.

Tenure ROI
7 – 14 Days 3.00%
15 – 30 Days 3.00%
31 – 45 Days 3.25%
46 – 90 Days 3.25%
91 – 120 Days 3.75%
121 – 179 days 3.75%
180 Days 4.90%
181 Days to 269 Days 4.90%
270 Days 4.90%
271 Days to 363 Days 4.90%
364 Days 4.90%
365 Days to 389 Days 5.00%
390 Days (12 months 25 days) 5.40%
391 Days – Less than 23 Months 5.40%
23 Months 5.50%
23 months 1 Day- less than 2 years 5.50%
2 years- less than 3 years 5.50%
3 years and above but less than 4 years 5.60%
4 years and above but less than 5 years 5.75%
5 years and above up to and inclusive of 10 years 5.80%

Note

Note

Recently IDBI Bank and Axis Bank have also revised interest rates on their fixed deposits. The new FD rates of IDBI Bank and Axis Bank are in effect from 18 March. Following the most recent revision, Axis Bank currently provides 2.50 percent interest on FDs maturing between 7 and 29 days, 3% for FDs maturing between 30 days and less than 3 months, and 3.5 percent for FDs maturing between 3 months and less than 6 months. Whereas the IDBI Bank’s FD interest rates range from 2.9 to 5.1 percent for FDs maturing in 7 days to 20 years. IDBI Bank provides 2.9 percent interest on deposits maturing in 7 to 14 days and 15 to 30 days. 3 percent interest for 31 to 45 days, 3.25 percent interest for 46 to 90 days, and 3.6 percent interest for 91 to 6 months. The bank offers 4.3 percent interest on FDs with a maturity period of six months to one year. IDBI Bank will pay 5.1 percent on deposits maturing in one year to ten years. The bank will also offer 4.8 percent on 10- to 20-year FDs. Term deposits with a 5-year maturity period will earn 5.1 percent interest.



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Bank holidays to watch out for in April 2021, BFSI News, ET BFSI

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Bank customers planning a visit to their respective banks in the month of April should plan their visit in accordance with the bank holidays.

While the bank branches will remain closed on these days, mobile and internet banking will remain functional as usual. Customers can make transactions through online modes.

Bank Holidays in April:
April 1: Closing of yearly accounts
April 2: Good Friday
April 4: Sunday
April 5: Babu Jagjivan Ram’s Birthday.
April 10: Second Saturday
April 11: Sunday
April 13: Gudhi Padwa/Telugu New Year’s Day/Ugadi Festival/Sajibu Nongmapanba (Cheiraoba)/1st Navratra/Baisakhi
April 14: Dr. Babasaheb Ambedkar Jayanti/Tamil New Year’s Day/Vishu/Biju Festival/Cheiraoba/Bohag Bihu
April 15: Himachal Day/Bengali New Year’s Day/Bohag Bihu/Sarhul
April 16: Bohag Bihu. Banks across Guwahati, Assam, will remain closed on this day
April 18: Sunday
April 21: Shree Ram Navmi (Chaite Dashain)/Garia Puja
April 24: Fourth Saturday
April 25: Sunday

Bank holidays are not observed by some states and hence may vary as per a specific region or state.

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Uday Kotak, BFSI News, ET BFSI

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Uday Kotak, MD & CEO, Kotak Mahindra Bank, in conversation with Nikunj Dalmia of ET NOW at the Times Network India Economic Conclave 2021.
During the last India Economic Conclave (IEC), you had said that India needs banks but it needs few PSU banks, it needs adaptation of fintech and it needs consolidation in the sector. I guess you knew what was happening because that indeed is happening one year after our interaction?
I do believe that India has made very serious progress in this pandemic era and actually grasped the opportunity of what we need to do. Therefore the financial sector is in for a significant change. The government’s move of testing out with two public sector banks is first of its kind and this combined with the fact that over time you will have four or five large state owned banks and private sector banks and at the same time opening up competition in the sector is the right way to go. At the same time, we need to be clear that in the last one year, Covid has changed our lives in the field of technology and financial services by a multiplier of five. What would have otherwise taken us five years is happening in one year. That is what we are going to be ready for.During the course of 2020 every time we interacted with you on various forums your words were: “India Inc has been hit. It is like a ship which is now trapped in muddy waters.” Is the challenging time behind us? Has the ship reached the shore?
Covid has created a new category of what I call as haves and have nots. The people who have had access to capital are in the category of haves and that is primarily the organised sector or companies which have access to public markets as also private equity and the have nots are the ones who did not have access to capital. There is a very stark difference between the haves and the have nots, based on access to capital. Therefore, even if you are from a stressed sector, if you have access to capital you are in good shape. If you do not have access to capital, you are in a tougher position and that is the difference which we have seen happen in front of us. That is as a result of dramatic pouring of money and liquidity globally and in India as well. That has enabled equity capital to rescue most of the organised sector.

The broad commentary from India Inc is one of highest-ever margins, strongest demand visibility and high optimism. A year ago, there was fear, gloom and doom on the Street. How does one differentiate the kind of indications which we are getting from India Inc.? Are these permanent or are there spurts of demand like sugar rush?
One year ago we did not know what hit us, we had no idea of the contours of the Covid impact. Today one year later, we seem to understand the virus a little better though it continues to mutate. At the same time, there is greater optimism on the possibility of vaccination of a lot of our people though I think it is going to take a few months more for us to get to a more comfortable place.

At the same time, we have started being able to deal with this virus in terms of our lives, what we can do, what we cannot do. We have adapted our life to the new reality. All these are the pluses and that is one of the reasons why business and industry feels they are in a better place than what it was one year ago.

Having said that, things will need to be better handled on the virus and vaccination moving forward but we have to be careful of a mindset of complacency. The virus has not gone one year later. It is still around and we feel more comfortable with it. But the virus is mutating and therefore I will certainly be looking with optimism because we are seeing a changed world. But I keep my guard up. I would not lower my guard too soon and make this more a marathon rather than a sprint.



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Government not inclined to bear loan moratorium costs, BFSI News, ET BFSI

Banking & Finance

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The government is not inclined to bear the burden arising of the recent Supreme Court judgement on a blanket waiver of compound interest or interest on interest on all loan accounts which opted for moratorium during March-August 2020.

“They (banks) are well-poised to handle this and we don’t see any space for government relief,” said a senior government official.

The government has already compensated banks for the interest on interest they had lost on loans outstanding below Rs 2 crore. Analysts estimate the additional cost to reimburse banks for all loans at Rs 7,000-10,000 crore.

“There is no directive from the court ordering the government to bear this cost,” the government official said on the condition of anonymity.

Since there is no deadline to refund the compound interest they have charged, banks can stagger the payment depending on individual account period and other conditions. A final call would be taken shortly, he said.

In its ruling last week, the Supreme Court refused to extend the moratorium beyond August 31, 2020 but directed lenders to waive interest on interest for all borrowers.

According to ICRA estimates, the compounded interest for six months of moratorium across all lenders was around Rs 13,500-14,000 crore, and the relief already extended over loans up to Rs 2 crore had cost the exchequer about Rs 6,500 crore.

A Macquaire research report has put the additional amount at around Rs 10,000 crore.

On account of the stress due to the Covid-19 pandemic, the Reserve Bank of India had announced the loan moratorium scheme to grant temporary relief to borrowers for payment of instalments due between March and August 2020.

The apex court in its judgement observed that the government and the central bank would decide on economic policy based on expert opinion. It further said a waiver of complete interest was not possible as it would affect depositors. The court ruled out an extension of the period of loan moratorium and any specific sector-wise relief.

According to Crisil Ratings, standstill on recognition of non-performing assets (NPAs) had tied the hand of lenders and consequently impacted the credit discipline of borrowers.

“Withdrawal of the same will enable lenders to enforce various legal measures and support their recovery efforts,” it said in a note.



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Govt unlikely to continue with zero-coupon bond route to recap PSU banks, BFSI News, ET BFSI

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The government is unlikely to take zero-coupon bond route to further recapitalise public sector banks after the Reserve Bank expressed some concerns in this regard, sources said. The government, they said, would resort back to recapitalisation bonds bearing a coupon rate for capital infusion in these banks.

To save the interest burden and ease the fiscal pressure, the government last year decided to issue zero-coupon bonds for meeting the capital needs of the banks.

The first test case of the new mechanism was a capital infusion of Rs 5,500 crore into Punjab and Sind Bank by issuing zero-coupon bonds of six different maturities last year. These special securities with tenure of 10-15 years are non-interest bearing and valued at par.

However, the RBI raised some concerns with regard to calculation of an effective capital infusion made in any bank through this instrument issued at par, sources said.

Since such bonds usually are non-interest bearing but issued at a deep discount to the face value, it is difficult to ascertain net present value, they added.

As a result, sources said, it has been concluded to do away with zero-coupon bond for recapitalisation.

These special bonds are non-interest bearing and issued at par to a bank, they said adding that it would be an investment that would not earn any return and rather depreciate with each passing year.

This innovative mechanism was adopted to ease the financial burden as the government has already spent Rs 22,086.54 crore as interest payment towards the recapitalisation bonds for PSBs in the last two financial years.

During FY 2018-19, the government paid Rs 5,800.55 crore as interest on such bonds issued to public sector banks for pumping in the capital so that they could meet the regulatory norms under the Basel-III guidelines.

In the subsequent year, according to the official document, the interest payment by the government surged three times to Rs 16,285.99 crore to PSBs as they have been holding these papers.

For the current financial year, interest payment for recap bonds have been reduced to Rs 19,292.77 crore from Rs 25,239.4 crore pegged in the Budget estimate.

Under this mechanism, the government issues recapitalisation bonds to a public sector bank which needs capital. The said bank subscribes to the paper against which the government receives the money. Now, the money received goes as equity capital of the bank.

So the government doesn’t have to pay anything from its pocket. However, the money invested by banks in recapitalisation bonds is classified as an investment which earns them an interest.

In all, the government has issued about Rs 2.5 lakh crore recapitalisation in the last three financial years. In the first year, the government issued Rs 80,000 crore recapitalisation bonds, followed by Rs 1.06 lakh crore in 2018-19. During the last financial year, the capital infusion through bonds was Rs 65,443 crore.



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Banks to conduct special clearing operations for closure of government accounts on March 31, BFSI News, ET BFSI

Banking & Finance

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Banks will conduct special clearing operations for annual closure of government accounts on March 31, which is the last day of the current fiscal year, the RBI has said. The Reserve Bank has issued directions to the banks for smooth clearing operation and asked them to mandatorily participate in it.

With regard to annual closing of accounts related transactions of the central and state governments, special measures are put in place for 2020-21, the RBI has instructed all the member banks to maintain sufficient balance in their clearing settlement account.

Normal clearing timings as applicable to any working Wednesday shall be followed on March 31, 2021, the RBI said in a notification addressed to the member banks, urban and state cooperative banks, payments banks, small finance banks as well as the NPCI.

To facilitate accounting of all the government transactions for the current financial year 2020-21 by March 31, 2021, it has been decided to conduct special clearing exclusively for government cheques across the three CTS grids on March 31, 2021, the RBI said.

Under this, presentation clearing will take place between 1700 to 1730 hrs and return clearing will take place between 1900 and 1930 hrs at the three CTS (cheque truncation system) grids located in New Delhi, Chennai and Mumbai.

“It is mandatory for all banks to participate in the special clearing operations on March 31, 2021. All the member banks under the respective CTS grids are required to keep their inward clearing processing infrastructure open during the special clearing hours and maintain sufficient balance in their clearing settlement account to meet settlement obligations arising out of the special clearing,” said the regulator.

Besides, it has asked the banks under the respective CTS grids to adhere to the instructions issued to them by the President of the respective CTS grid.

Under the CTS system, there is no need to present a cheque physically for clearance, instead an electronic image is being transmitted to the paying branch through the clearing house, with the relevant data.

This eliminates the cost of movement of the physical cheques and reduces time for collection and clearance of cheques.

All government transactions done by agency banks for 2020-21 must be accounted for within the same financial year, the RBI said.

The central bank said all agency banks should keep their designated branches open for over the counter transactions related to government transactions up to the normal working hours on March 31, 2021.

“Transactions through National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) System will continue up to 2400 hours as hitherto on March 31, 2021.

“Special clearing will be conducted for collection of government cheques on March 31, 2021 for which the Department of Payment and Settlement Systems (DPSS), RBI will issue necessary instructions,” it said.

With regard to reporting of central and state government transactions to RBI, including uploading of GST/e-receipts luggage files, the reporting window of March 31, 2021 will be extended and kept open till 1200 hours on April 1, 2021, the RBI said.



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Are IPOs making NBFC a risky financing business?, BFSI News, ET BFSI

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The choppy markets are making initial public offerings (IPOs) in India, which are considered sureshot winning bets for their huge listing gains, a risky bet.

During the pandemic, the IPO market has had a dream run with many issues doubling in value on debut trade. However, with the second wave of Covid, markets have turned volatile and IPOs with higher concerns have listed at a discount.

Kalyan Jewellers IPO listed with 15% discount on Friday while Craftsman Automation dropped 6% on debut trade against its issue price. Earlier, SBI Cards IPO has listed at a 13% discount to the issue price.

This has brought focus on the thousands of rupees of NBFC financing trade in them.

Riding on the primary market wave, NBFCs such as Bajaj Finance, Aditya Birla Finance, Motilal Oswal, IIFL Wealth, Inna Finance, JM Financial and Edelweiss among others have been funding high net worth individuals through short-term lending, sometimes for just five-seven days. From Burger King to Happiest Minds, Gland Pharma to Route Mobile or Indigo Paints, well-heeled investors are jumping at the opportunity

to rake it in within a short span. That debut bump is leading to artificial asset inflation and price distortions, according to some market participants.

IPO financing

The IPO financing market is very vibrant in 2020, supported by an increase in HNI investors’ interest in IPOs in the quest for listing gains, with average demand between Rs 40,000 crore to Rs 50,000 crore per IPO.

About Rs 35,200 crore was raised for the Mrs Bector Food IPO while around Rs 26,000 crore was raised for the Burger King IPO, according to data on ICRA rated commercial paper. The amount raised for Chemcon Speciality Chemicals and Computer Age Management Services was more than Rs 37,000 crore. Similarly, about Rs 24,700 crore was raised for Happiest Minds Technologies. This has pushed subscription to several hundred times.

Margin money

Currently, HNIs, with money borrowed from NBFCs, are allowed to pay just 1% margin money to bid for the entire portion reserved for this group of investors. In effect, in a Rs 1,000-crore IPO, 50% of which is reserved for HNIs, these investors can pay just Rs 5 crore to bid for shares worth Rs 500 crore offered in the IPO. Bidding with borrowed money can lead to a huge rise in the total subscription in the IPO and then to the listing prices of these offers. Often a high oversubscription number in an IPO may mislead investors into thinking that the company is doing exceptionally well, shares are highly valued and hence the mad rush for them. Post-listing, however, the shares slide and some of the investors incur losses.

NBFC Funding

Typically, to fund clients, NBFCs raise short-term money through commercial paper at 4-5% and then lend at 6.5-8%. In the last six months, the top 10 finance firms have raised nearly Rs 1.8 lakh crore through commercial paper in the primary market with a tenure of 7-10 days for IPO funding, apart from self-funding and other sources of funds. Funds are raised with a yield to maturity between 3.2% and 6.25% per annum. The HNIs make money from the listing premium, and the gains in the recent issuances have been mind-boggling.

The risk

Financiers insist the risk is limited since there is a margin for the lender in terms of shares. Normally, higher the funding cost, lower the chances of making money on the IPO after all costs are factored in. Investors need to pay interest on the entire amount borrowed and not on the amount actually allotted. That is why higher oversubscription works against borrowers as they have to have more interest on idle funds.

RBI proposal

Earlier the Reserve Bank of India had proposed to cap IPO financing by NBFCs to up to Rs 1 crore per person, a move which may lead to a sharp drop in bidding by high net worth individuals (HNIs) and a drastic reduction in subscriptions of offers.

Banks have a Rs 10-lakh limit on IPO financing and there is no such cap for NBFCs. “IPO financing by NBFCs has come under close scrutiny, more for their abuse of the system,” the RBI said in a discussion paper. “Taking into account the unique business model of NBFCs, it is proposed to fix a ceiling of Rs 1 crore per individual for any NBFC,” the RBI said. Market players said that RBI’s proposed rule would surely bring a break to highly subscribed IPOs.



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Will launch country-wide agitations: All India Bank Officers’ Confederation

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The All India Bank Officers’ Confederation (AIBOC) said it will launch a series of country-wide agitations culminating in strikes if the management of the Thrissur (Kerala) headquartered CSB Bank does not implement the terms of the industry-wide 11th Bipartite wage settlement vide the Joint Note for employees on the Indian Banks’ Association (IBA) scale.

“It is pertinent to note here that this 100-year-old bank had implemented all the bipartite settlements thus far beginning with the first in 1966 and the 10th in 2015 along with all Joint Notes.

“…We would like to point out that implementing the Joint Note/Bipartite settlement in this centenary year of the bank will stand to benefit the bank as it will motivate the employees immensely which in the long run will increase the productivity,” said Soumya Datta, General Secretary, AIBOC.

Datta emphasised that AIBOC will stand with all its might behind its associate, the Catholic Syrian Bank Officers’ Association, to ensure that employees on IBA scale in CSB get the fruits of the negotiated 8th joint note.

Compensation structure

In its annual report for 2019-20, CSB Bank said it is the discretion of the bank either to continue with the existing compensation structure prevailing under IBA scheme or modify the structure partially or fully based on the need or discontinue the existing structure in to and switch over to different structure which is prevailing in banking industry by keeping in view, various parameters like industry level, peer group status, burden on the bank, etc.

The report underscored that it is the prerogative of the bank either to utilise the service of IBA in the matter of structuring compensation or devise the compensation structure on its own based on the prevailing practice in the banking industry.

Out of 3,204 employees (as at March-end 2020), 1,805 employees both officers and Award Staff are governed under IBA pay structure and the remaining (1238 employees) are governed under Cost to Company basis.

During this financial year, as a policy decision the bank implemented, reducing the age of retirement of the officers from 60 years to 58 years, the report said.

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