Month: March 2021

How Often Should You Check And Review Your Mutual Fund?

Personal Finance

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How To Evaluate Mutual Fund Performance?

Rebalancing your portfolio of mutual funds helps you maintain your risk level so you need to have a proper asset mix in your portfolio.

Non Performers

The portfolio review helps you to identify investments in your portfolio that are not successful. You can see which investment does not work to re-equalize your portfolio and add investments to meet your requirements.

Benchmark Index

The performance of reciprocal funds compared to the benchmark index is simple and can be done directly by referring to the fund fact sheet. Investors should always strive to invest in funds with a positive alpha and their relative performance against this benchmark index is denoted as alpha.

Peer Funds

The performance of the scheme must also be compared to peer funds in the same category. Although the performance of the benchmark indicators may have shrunk due to exceptional movements within a stock group, the performance against the peer group can be a better index of the performance of the fund.

Expected Returns

It is recommended that the investment has to be consistent with its risk profile in the asset allocation of the mutual fund portfolio. Although you may have planned for an optimal portfolio of mutual funds in order to achieve your financial objectives in good time, the following results may not be as expected.

Things To Consider When Rebalancing Your Mutual Funds Portfolio

Things To Consider When Rebalancing Your Mutual Funds Portfolio

Revision of goals

Our financial objectives continue to change. Different factors lead an investor to change or add new factors to the existing list. For example, an investor wants to revisit his investments once in a while with the standard of living, inflation, and new financial dependents.

Broad diversification

It is necessary to expand your portfolio of mutual funds across sectors. Excessive diversification can result in inefficiency.

Long-term investments

Long-term investment needs to be patient. In their own way, every investment idea is unique.

Oversee short-term inconsistencies

In general, mutual funds are risky because markets can become volatile at all times. If the macroeconomic market trends affect an investor’s portfolio, due attention is required.

Underperforming funds

It is recommended that simple investors create a separate watch list of funds that underperform their benchmark or comparable peers. Look for improvement in performance over the next 2-3 quarters based on this list. A consistent underperformance over three to four quarters may indicate that the investment should be shifted to a better option.

Long Term Vs Short Term Mutual Funds

Long Term Vs Short Term Mutual Funds

There is no standard scenario as to how often your mutual fund investments should be reviewed or verified. However, yes, you must make it consistent on the basis of your portfolio and goals.

You should examine it once a year for your long-term objectives if you have invested in equity funds. You can review it more often when you get close to the goal. During the evaluation, check the performance of the fund, the AMC or a fund manager, peer performance, and how well the fund performs in different phases of the market.

You should review it more frequently when it comes to your short-term goals. You need to have a check of portfolio credit quality, country rate movements and funds performance e.g., if you have a short-term goal 2 years away and invested in a debt fund.

Conclusion

Conclusion

When it comes to mutual fund portfolio performance, there’s a distinction between looking at it and reviewing it. It is entirely up to you how many times you want to review your portfolio; what matters are the parameters under which you will assess your portfolio. Investors should review their portfolios at least once every six months or once per year.

The temptation to make unwarranted impulsive decisions may be enticed by frequent review and monitoring of mutual fund returns. Allowing a drop in NAVs to tempt you to stop SIPs or redeem units from a fund is a bad idea.

It’s important to resist the urge to look at the fund’s performance every time the market drops or rises dramatically. For an actively-managed equity scheme, patience is required, as the fund must produce returns in the portfolio over a period of 18 to 24 months.

GoodReturns.in



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Bank Nifty Vs Fin Nifty: Where To Invest Your Money?

Personal Finance

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Investment

oi-Sunil Fernandes

|

Are you confused or facing dilemma about where to invest your money – Bank Nifty or Fin Nifty? Investment should always be well-planned on the basis of logics, reasoning, fundamentals, calculations and other relevant aspects. Let’s deep dive into details of Bank Nifty vs Fin Nifty to understand which one is the better option to invest your money.

Bank Nifty

The Bank Nifty is basically a sectoral index with focus only on banking stocks; it includes private and PSU banks. It is also one of the most actively traded indexes in the futures and options (F&O) segment and it is available for F&O trading on the NSE.

Bank Nifty Vs Fin Nifty: Where To Invest Your Money?

This is how Bank Nifty is calculated

  • Bank Nifty is calculated using the free float methodology where the stocks are weighted based on the free float market capitalization.
  • The Bank Nifty was launched on September 15, 2003 and it uses January 01, 2000 as the base year with a base value of 1000. This means at the Bank Nifty value of ~30,000, it indicates wealth creation to the tune of 30 times over the last 19 years.
  • The index is rebalanced semi-annually and the Bank Nifty values are available on a real time basis during trading hours.

Stock mix of the Bank Nifty Index

Being a sectoral index, the Bank Nifty only represents the banking sector; including the private banks and PSU banks. Bank Nifty represents the 12 most liquid and large capitalised stocks from the banking sector which trade on the NSE. It provides investors and market intermediaries a benchmark that captures the capital market performance of Indian banking sector.

Here is the list of companies that are included in Bank Nifty Weightage Index (Nifty Bank Index Stocks) as released by NSE India on basis of closing prices of January 31, 2021.

S No. BANK NAME Weights %
1 HDFC Bank 26.89
2 ICICI Bank 20.01
3 Axis Bank 16.59
4 Kotak Mahindra Bank 13.55
5 State Bank of India (SBI) 10.93
6 IndusInd Bank 4.85
7 Bandhan Bank 2.11
8 Federal Bank 1.46
9 IDFC First Bank Ltd. 1
10 RBL Bank 0.97
11 Bank of Baroda 0.83
12 Punjab National Bank (PNB) 0.81

Now, as per the latest development, the Bank Nifty lot size has also been revised to 25 units from 20 units.

FIN NIFTY

The Nifty Financial Services Index is designed to reflect the behaviour and performance of the Indian financial market which includes banks, financial institutions, housing finance, insurance companies and other financial services firms. The Nifty Finance Index comprises of 20 stocks that are listed on the National Stock Exchange (NSE).

This is how NIFTY Financial Services Index is computed and its utility

-NIFTY Financial Services Index is computed using free float market capitalization method, wherein the level of the index reflects the total free float market value of all the stocks in the index relative to particular base market capitalization value.

-NIFTY Financial Services Index can be used for a variety of purposes such as benchmarking fund portfolios, launching of index funds, ETFs and structured products.

FIN NIFTY’s constituents

The index has 20 constituents and weightage of each stock in the index is calculated based on its free-float market capitalization such that no single stock shall be more than 33% and weightage of top 3 stocks cumulatively shall not be more than 62% at the time of rebalancing.

Index Constituents

S No. SECURITY NAME Weights %
1 HDFC BANK LTD. 27.13
2 HDFC LTD. 17.51
3 ICICI BANK LTD. 14.14
4 KOTAK MAHINDRA BANK LTD. 12.1
5 AXIS BANK LTD. 6.46
6 BAJAJ FINANCE LTD. 5.64
7 STATE BANK OF INDIA 4.06
8 HDFC LIFE 2.21
9 BAJAJ FINSERV LTD. 2.29
10 SBI LIFE INSURANCE. 1.43
11 ICICIGI 1.37
12 ICICI PRULIFE. 0.74
13 PEL LTD. 0.68
14 BAJAJ HOLDINGS. 0.66
15 HDFC AMC LTD. 0.59
16 SRT FINANCE LTD. 0.87
17 PFC LTD. 0.54
18 CHOLA INVESTMENT. 0.66
19 REC LTD. 0.49
20 M&M FINANCIAL LTD. 0.44
Lot size is 40

Bank Nifty vs Fin Nifty: Conclusion

  • The Nifty Financial Services index has a 94% correlation and a beta value of 1.2 with the Nifty 50 Index. It has a correlation of 98% with the Nifty Bank index.
  • The Nifty Financial Services index has delivered annualized returns of 14.99% in the last 5 years. 10 out of 20 stocks in Nifty Financial Services index are constituent stocks of Nifty 50 index. They account for 92.97% weightage in Nifty Financial Services index and 38.41% weightage in Nifty 50 Index.
  • 5 out of 20 stocks in Nifty Financial Services index are constituent stocks of Nifty Bank index. They account for 63.89% weightage in Nifty Financial Services index and 87.48% weightage in Nifty Bank Index.
  • Larger sector amongst listed companies; accounts for 33.5% of the Nifty 500 Index
  • 35% of Foreign Portfolio Investments (FPIs) assets under managements are invested in the financial services sector
  • 48% of FPIs net inflows in recent period is invested in the financial services sector
  • Last few years have seen big IPOs in the financial services sector and few big companies are in process of getting listed on the exchanges-
  • Most Asset Management Companies (AMCs) have schemes themed on the financial services sector
  • As it is complete package of Indian financial sector not only banks even other products as well and there is more scope in other financial sectors, so it is recommended to invest in FIN NIFTY.

Authored by – Ravi Singhal, Vice Chairman, GCL Securities Limited



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Reserve Bank of India – Tenders

Tenders

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Sealed tenders are invited under two bid system from established and reputed catering agencies (with sufficient experience of running canteens) to run the Staff Canteen at RBI, Hyderabad. Interested companies / firms having good reputation shall download the tender forms from the Bank’s website www.rbi.org.in (under “Tenders” column) The filled in tender form should be submitted latest by 11. am on April 15, 2021 (Thursday) at 3rdd floor, Human Resource Management Department, Reserve Bank of India, No.6-1-56, Secretariat Road, Saifabad, Hyderabad 500 004. Any rectification regarding above tender will be published only on our website. i.e. www.rbi.org.in.

The companies/ firms/ partnership/ sole proprietors with minimum three years of experience in undertaking work of similar nature and which are currently providing similar services to the Government Departments/ Public/ reputed Private Sector institutions with a contract value of more than Rs. 20 lakh (minimum) per year consecutively for the past two years in at least one institution are eligible to tender for the work.

The Regional Director
Reserve Bank of India
Hyderabad

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How To Make SIP & Avail Same Day NAV In NPS Account?

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Investment

oi-Vipul Das

|

Since NPS funds are allocated in assets such as equity, bonds, and debt instruments, their Net Asset Value (NAV) varies regularly based on the market valuation of the respective assets. This helps you to optimise your returns by making investments at a low NAV or by contributing on a regular basis. Most citizens open a Tier-1 National Pension System (NPS) account willingly only to get a tax gain of up to Rs 50,000 in a financial year above and above the Rs 1.5 lakh 80C cap. PFRDA, the pension fund authority, had announced in 2020 that the D-Remit facility for NPS subscribers will be available, allowing them to transfer funds directly from their bank accounts to their NPS account. This revolutionary NPS feature not only makes investing in NPS faster and more convenient, but it also allows subscribers to get same-day NAV for their investment. In fact, NPS subscribers can contribute on a regular basis (daily/monthly/quarterly) directly from their bank account using the recurring option of their banking platform, much like a mutual fund systematic investment plan or SIP.

How To Make SIP & Avail Same Day NAV In NPS Account?

What is a D-Remit Deposit Facility?

D-Remit is a digital system that allows you to transfer funds directly from your bank account to the Trustee Bank and get same-day Net Asset Value (NAV) for your NPS contribution. A Subscriber must have a Virtual ID (or Virtual Account) with the Trustee Bank to use the D-Remit feature under NPS. If contributions are made at Trustee Bank by 9:30 a.m. on any business day except Saturday, Sunday, and public holidays, the D-Remit system will enhance the contribution since you will get the same-day NAV. After 9.30 a.m., contributions received will be deposited the next working day. By logging into their respective CRA scheme and generating a Virtual ID linked to their Permanent Retirement Account Number (PRAN), existing NPS subscribers under the Government, Non-Government, and All Citizens model can take advantage of the D-Remit facility at no additional cost. When the D-Remit system was first launched, the cut-off time for same-day NAV was 8:30 a.m. That being said, as of November 12th, 2020, the cut-off time has been updated to 9:30 a.m. Subscribers can use D-Remit to configure a Systematic Investment Plan, or SIP, in NPS using the Auto Debit facility. Furthermore, the Virtual Account generated for D-Remit will not only enable you to obtain same-day NAV, but will also enable you to set up daily/monthly/quarterly Systemic Investments in the Virtual Account through Auto Debit / Standing Instructions in net banking.

How to use D-Remit Facility?

  • NPS investors can use this D-Remit service to transfer funds directly from their bank accounts to their NPS accounts and enjoy same-day NAV. The D-Remit option requires a minimum contribution of Rs. 500.
  • NPS subscribers must have a Virtual ID in order to use D-Remit (Virtual Account). They must log in to the National Pension System’s Central Recordkeeping Agency (CRA) portal. NPS subscribers do not have to pay additional cost to use the D-Remit facility by generating a Virtual ID.
  • On the mobile number registered with PRAN, the subscriber will receive an OTP for authentication purposes.
  • The creation of the Virtual ID is a one-time task, and this ID is linked to PRAN for D-Remit purposes.
  • For both NPS Tier 1 and Tier-2 accounts, the virtual Ids are different.

Steps to contribute to your NPS account using virtual ID

  • The R-Remit option is available to NPS subscribers who have access to their bank’s net banking facility.
  • To transfer funds or set up auto debit from their bank accounts, the subscriber must add the virtual ID as a beneficiary with the unique IFSC code of the trustee bank after signing in to net banking the account.
  • According to PRDRA, fund transfers made by D-Remit must have the term “NPS Contribution for D-Remit.”
  • The Trustee bank will accept funds received on T day up to 9:30 a.m. on every bank operating day (other than Saturdays, Sundays, and holidays) as same day contribution.
  • PFRDA stated in a circular that D-Remit allows a subscriber to set up Systematic Investment by auto debit/standing instructions in net banking, which allows for periodical and regular contributions such as daily, monthly, quarterly, and so on.

How to create a virtual ID to use the D-Remit facility?

To use the D-Remit facility to transfer funds, you must first generate a Virtual ID that is linked to your PRAN. Here are the steps to get a CRA Virtual ID:

  • Visit https://cra-nsdl.com/CRAOnline/VirtualIdCreation.html and now enter your PRAN and Date of Birth.
  • Now select the ‘Request OTP through’ option i.e. SMS or Email and enter the Captcha code.
  • Now click on ‘Verify PRAN’ and during PRAN authentication, you must enter an OTP that you have received on your registered mobile number via SMS or on registered Email ID.
  • The next step in the ‘Consent’ page is to pick ‘Virtual Account Registration Type’ from a list of three options: Tier-1, Tier-2, or Both. Choose the Tier-1 type option if you want to generate a virtual ID for your NPS Tier-1 account. You will receive two different virtual IDs for Tier-1 and Tier-2 accounts if you choose the ‘Both’ option.
  • Confirm the consent agreement button after selecting the ‘Virtual Account Registration Type’ and then click on ‘Generate Virtual Account’.
  • You will be issued an acknowledgment number once you have submitted your submission.
  • You will receive your virtual account ID in your mail or via SMS once your request has been accepted by CRA.

Steps to add Virtual Account (Virtual ID) as a beneficiary

  • The subscriber must log in to his bank’s net banking account and pick the Virtual Account (as created above) as the Beneficiary Account, as well as his or her name (as per CRA records) as the Beneficiary Name.
  • For funds transfer, the subscriber must enter the IFSC code of (Trustee Bank) and select the account type as ‘Current Account’, if necessary.
  • After entering beneficiary details, the Subscriber can invest in NPS (minimum of Rs. 500) whenever it is convenient for him/her and benefit from the same-day NAV. The cut-off time for funds transfer to get same-day NAV is 9.30 a.m. If funds are received after 9:30 a.m., the next working day’s NAV will apply.
  • Subject to the bank’s regulations, a subscriber can also set up standing instructions for his or her NPS Account.
  • As the mode of remittance, the subscriber can also use RTGS/NEFT facility. For this transaction, the Trustee Bank does not accept IMPS transactions at the
  • You can remit funds for NPS investment upon adding Virtual Account as a beneficiary.

Hints for addition of virtual account as beneficiary:

Beneficiary Name: Name as per PRAN Card

Beneficiary Account Number: Virtual Account Number received through SMS/Email

Beneficiary Account Type: Current

Beneficiary Bank: Axis Bank

IFSC: UTIB0CCH274 (where ‘0’ indicates ‘zero’)

Note: It is required to add a different Virtual Account Number as beneficiary for each Tier of NPS account.



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Reserve Bank of India – Press Releases

Press Releases

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(Amount in ₹ crore, Rate in Per cent)
  Volume
(One Leg)		 Weighted
Average Rate 		Range
A. Overnight Segment (I+II+III+IV) 3,99,224.56 3.26 0.01-5.30
     I. Call Money 14,574.87 3.24 1.90-3.50
     II. Triparty Repo 2,71,891.90 3.26 3.15-3.40
     III. Market Repo 1,10,838.79 3.25 0.01-3.50
     IV. Repo in Corporate Bond 1,919.00 3.53 3.45-5.30
B. Term Segment      
     I. Notice Money** 478.61 3.16 2.50-3.35
     II. Term Money@@ 358.00 – 3.25-3.50
     III. Triparty Repo 290.00 3.33 3.20-3.35
     IV. Market Repo 1,025.00 3.45 3.45-3.45
     V. Repo in Corporate Bond 0.00 – –
  Auction Date Tenor (Days) Maturity Date Amount Current Rate /
Cut off Rate
C. Liquidity Adjustment Facility (LAF) & Marginal Standing Facility (MSF)
I. Today’s Operations
1. Fixed Rate          
     (i) Repo          
     (ii) Reverse Repo Thu, 25/03/2021 1 Fri, 26/03/2021 3,83,316.00 3.35
2. Variable Rate&          
  (I) Main Operation          
     (a) Reverse Repo          
  (II) Fine Tuning Operations          
     (a) Repo          
     (b) Reverse Repo – – – – –
3. MSF Thu, 25/03/2021 1 Fri, 26/03/2021 60.00 4.25
4. Long-Term Repo Operations –   –   –
5. Targeted Long Term Repo Operations – – – – –
6. Targeted Long Term Repo Operations 2.0 – – – – –
7. Net liquidity injected from today’s operations
[injection (+)/absorption (-)]*		       -3,83,256.00  
II. Outstanding Operations
1. Fixed Rate          
     (i) Repo          
     (ii) Reverse Repo          
2. Variable Rate&          
  (I) Main Operation          
     (a) Reverse Repo Fri, 12/03/2021 14 Fri, 26/03/2021 2,00,007.00 3.51
  (II) Fine Tuning Operations          
     (a) Repo          
     (b) Reverse Repo          
3. MSF          
4. Long-Term Repo Operations# Mon, 17/02/2020 1095 Thu, 16/02/2023 499.00 5.15
  Mon, 02/03/2020 1094 Wed, 01/03/2023 253.00 5.15
  Mon, 09/03/2020 1093 Tue, 07/03/2023 484.00 5.15
  Wed, 18/03/2020 1094 Fri, 17/03/2023 294.00 5.15
5. Targeted Long Term Repo Operations^ Fri, 27/03/2020 1092 Fri, 24/03/2023 12,236.00 4.40
  Fri, 03/04/2020 1095 Mon, 03/04/2023 16,925.00 4.40
  Thu, 09/04/2020 1093 Fri, 07/04/2023 18,042.00 4.40
  Fri, 17/04/2020 1091 Thu, 13/04/2023 20,399.00 4.40
6. Targeted Long Term Repo Operations 2.0^ Thu, 23/04/2020 1093 Fri, 21/04/2023 7,950.00 4.40
7. On Tap Targeted Long Term Repo Operations€ Mon, 22/03/2021 1095 Thu, 21/03/2024 5,000.00 4.00
D. Standing Liquidity Facility (SLF) Availed from RBI$       32,387.06  
E. Net liquidity injected from outstanding operations [injection (+)/absorption (-)]*     -85,537.94  
F. Net liquidity injected (outstanding including today’s operations) [injection (+)/absorption (-)]*     -4,68,793.94  
G. Cash Reserves Position of Scheduled Commercial Banks
     (i) Cash balances with RBI as on 25/03/2021 4,47,616.81  
     (ii) Average daily cash reserve requirement for the fortnight ending 26/03/2021 4,55,339.00  
H. Government of India Surplus Cash Balance Reckoned for Auction as on¥ 25/03/2021 0.00  
I. Net durable liquidity [surplus (+)/deficit (-)] as on 26/02/2021 8,64,316.00  
@ Based on Reserve Bank of India (RBI) / Clearing Corporation of India Limited (CCIL).
– Not Applicable / No Transaction.
** Relates to uncollateralized transactions of 2 to 14 days tenor.
@@ Relates to uncollateralized transactions of 15 days to one year tenor.
$ Includes refinance facilities extended by RBI.
& As per the Press Release No. 2019-2020/1900 dated February 06, 2020.
* Net liquidity is calculated as Repo+MSF+SLF-Reverse Repo.
# As per the Press Release No. 2020-2021/287 dated September 04, 2020.
^ As per the Press Release No. 2020-2021/605 dated November 06, 2020.
€ As per the Press Release No. 2020-2021/520 dated October 21, 2020, Press Release No. 2020-2021/763 dated December 11, 2020 and Press Release No. 2020-2021/1057 dated February 05, 2021.
¥ As per the Press Release No. 2014-2015/1971 dated March 19, 2015.
Ajit Prasad
Director   
Press Release : 2020-2021/1303

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Former RBI deputy governor Kamalesh Chandra Chakrabarty passes away, BFSI News, ET BFSI

Banking & Finance

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Former Reserve Bank of India deputy governor Kamalesh Chandra Chakrabarty passed away on Friday morning due to heart attack.

One of the most colourful personalities in Indian banking who was known for speaking his mind, Chakrabarty served the central bank from June 2009 to April 2014, resigning three months ahead of the completion of his term citing personal reasons.

Prior to his stint as central banker, he was the chairman & managing director of Punjab National Bank. He had also led Indian Bank for two years.

Chakrabarty started his career as a teacher and researcher at the Banaras Hindu University before joining Bank of Baroda where he rose through the ranks to become general manager.

As RBI deputy governor, Chakrabarty championed the cause of customers’ rights and financial inclusion. He had also contributed to the fields of banking supervision and human resources management.

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Bank NPAs likely to shoot up during January-March quarter, BFSI News, ET BFSI

Banking & Finance

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The Supreme Court’s decision on Tuesday to lift the moratorium on the classification of bad loans is likely to see banks classifying more overdue loans as non-performing assets (NPAs) in the January-March quarter.

The move will lead to an improvement in collection efficiencies as banks can take legal action to recover their dues. It will also bring clarity on the real impact of the pandemic on asset quality.
Banks and non-banking finance companies have reported non-performing assets numbers on a proforma basis for the past two quarters.

The real picture of the banking will be visible from March quarter. We are all keen to see how the December and March quarter goes. Till then the major focus will be to manage the portfolio till March,” said B. Ramesh Babu, MD & CEO, Karur Vysya Bank in an interview with ETBFSI in December.

He added, we are very clear, we don’t want to postpone the problem. If a borrower couldn’t service the loan even pre-covid and its aggravated now, there is no point in restructuring that account. We have decided to bite the bullet and declare that as an NPA.

The real picture of the banking will be visible from March quarter. We are all keen to see how the December and March quarter goes. Till then the major focus will be to manage the portfolio till March.B. Ramesh Babu, MD & CEO, Karur Vysya Bank

As on December 31, banks reported gross NPAs at around Rs 7.4 lakh crore. Following the Supreme Court’s order, banks can now recognise loans worth Rs 1.3 lakh crore as NPAs in January-March, which will raise the tally to Rs 8.7 lakh crore.

According to ICRA’s estimates, in the absence of the SC’s standstill order, the gross NPAs (GNPAs) of the banks stood at Rs 8.7 lakh crore, or 8.3% of advances. This, as against the reported GNPA of Rs 7.4 lakh crore (7.1%) as on December 31, 2020.

“Hence, in absence of a standstill by the Supreme Court, the GNPAs for the banks would have been higher by Rs 1.3 lakh crore (1.2%) and net NPAs would have been higher by Rs 1 lakh crore (1%)

The focus of the many banks is to deal with the current challenges than the growth,

“We had earlier stated that we will keep a pause button on the growth because we were not comfortable with the way the things were panning out,” said, N. Kamakodi, MD & CEO, Citi Union Bank.

We had earlier stated that we will keep a pause button on the growth because we were not comfortable with the way the things were panning out.N Kamakodi, MD & CEO, City Union Bank

Collection efficiencies

“Post the judgment, we believe that lenders will report actual non-performing assets in January-March, net of write-offs instead of pro forma NPAs, and that the availability of legal recourse, including SARFASEI Act, should improve collection efficiency,” brokerage Emkay Global Financial Services said.

It said that actual recognition of NPAs would lead to margin compression for banks due to the reversal of accrued interest on NPAs.

However, most banks have made provisions on proforma NPAs, which they will be allowed to write back. This will not lead to any large impact on the balance-sheets of most lenders. Also, proforma NPAs are falling, while the provision coverage ratio has improved by an average of 300 basis points to over 70% for private banks and above 65% for public sector banks in the same period.

The proforma numbers

Following the Supreme Court (SC) stay order, banks have not tagged overdue loans as NPAs since August 2020. However, they have been listing such loans as portfolio-level proforma NPAs. For example, the actual bad debt for Axis Bank at the end of December 30, 2020, was 4.55% of its total loans while it reported NPAs of 3.44%. For Bank of Baroda the actual NPA was 9.63% but it reported 8.48%. In the case of Canara Bank, the actual NPA was 8.95% and the reported one was 7.46%.

The silver lining is this is just 16% more than the currently recognised NPA level, not any huge rise as modelled by the RBI stress tests.

RBI stress tests

Reserve Bank of India, in its financial stability report in January, had said that if the economic scenario were to worsen into a severe stress scenario, the bad loans could rise to 14.8% of the loans. For public sector banks, the rate could go up to 16.2% under a baseline scenario and 17.8% in a severe stress one.

In 2011 too, banks had started accumulating bad loans after a lending binge between 2004 and 2010, but they did not declare these bad loans as bad immediately. Only after an asset quality review in mid-2015, the banks started recognising them as bad and unearthed a big mountain of NPAs.



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PSB privatisation: RBI foresees four kinds of banks, in talks with govt

Banking & Finance

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“This demonstrates the need for scalability of systems and platforms in such a way that it can be easily scaled up, not ‘incremental scalability, but ‘exponential scalability’,” the governor said.

Reserve Bank of India (RBI) governor Shaktikanta Das on Thursday said he foresees four categories of banks functioning in India in the current decade. Governor Das said that the central bank is in discussion with the government on the privatisation of two banks. He was speaking at the Times Network India Economic Conclave 2021.

Among the four categories, the first set of banks will be dominated by a few large Indian banks with domestic and international presence. Next, there will be several mid-sized banks with an economy-wide presence. The third set would encompass smaller private sector banks, small finance banks (SFBs), regional rural banks and co-operative banks, which may specifically cater to the credit requirements of small borrowers. The fourth segment would consist of digital players who may act as service providers directly to customers or through banks as their agents or associates. “In fact, digital players would increasingly emerge as critical pieces across all segments,” Das said. The governor’s statement could be a nod to neo-banks, which are yet to make a dent in the Indian financial system, but have a growing presence.

Each of these segments needs to comprehend the future needs of society and respond to the growth in the Indian financial sector, he said, adding that information technology (IT) systems need to be developed to handle the exponential surge in the number of transactions. Das cited the example of Unified Payments Interface (UPI), which took three years (2017-2019) to register a monthly count of 1 billion transactions, but doubled that to 2 billion a month in a short span of another year. “This demonstrates the need for scalability of systems and platforms in such a way that it can be easily scaled up, not ‘incremental scalability, but ‘exponential scalability’,” the governor said.

The question of public sector bank (PSB) privatisation is constantly under discussion between the central government and the RBI, Das said. “We definitely had discussions before the Budget and more after the Budget. So naturally the process going forward, the central government always takes into consideration the viewpoint of the regulator and we are under discussion on this issue,” he added.

The governor said the growth projection of 10.5% for the coming financial year may not need to be changed despite a fresh surge in Covid infections. He attributed this expectation to the vaccination programme, greater awareness of Covid protocols among people and the reduced likelihood of lockdowns. “I would feel that the revival of economic activity which has happened should continue unabated going forward. Although I should not be saying it before the details are presented before me by our research team, my understanding and our preliminary analysis shows that the growth rate for next year at 10.5% which we had given would not require a downward revision,” Das said.

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LIC Housing Fin to waive off 6 EMIs under ‘Griha Varishtha’

Banking & Finance

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The lender is currently offering home loans starting at 6.9% for up to Rs 15 crore for customers having Cibil score of 700 and above.

LIC Housing Finance on Thursday announced that it will waive off six equated monthly instalments (EMIs) under home loan product ‘Griha Varishtha’. The company said the product caters to customers who are entitled to get pension under defined benefit pension scheme. The customers include retired or serving employees of public sector insurers, central and state government, railways, defence and banks, among others.

Y Viswanatha Gowd, MD and CEO, said: “Griha Varishtha, because of its unique features, has picked up well since its launch in July 2020. The company has disbursed close to 15,000 loans amounting to Rs 3,000 crore.” The six-EMI waiver is a loyalty benefit extended to the customer, he said.

The EMI waiver will be offered against the 37th, 38th, 73rd, 74th, 121st and 122nd EMIs when they become due, and adjusted against the outstanding principal, LIC Housing Finance said.

Under Griha Varishtha, a customer can apply for a home loan at a maximum age of 65 years. The loan tenure is fixed till attainment of 80 years of age or a maximum of up to 30 years, whichever is earlier. For higher loan eligibility, the applicant can also jointly apply with their earning children.

The lender is currently offering home loans starting at 6.9% for up to Rs 15 crore for customers having Cibil score of 700 and above.

LIC Housing Finance’s loan portfolio grew 13.3% to Rs 2.06 lakh crore during the December quarter (Q3FY21). The housing financier reported a 0.2% year-on-year growth in net profit to Rs 567.53 crore during the quarter. Total income was up 12.5% to Rs 4,996.45 crore.

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