Month: March 2021

Privatisation of 2 PSBs could lead to negative migration of their ratings: Ind-Ra

Banking & Finance

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The Budget proposal to privatise two public sector banks (PSBs) could lead to material negative migration of the long-term issuer ratings and the ratings on Tier 2 instruments of the identified banks, especially those among the weaker non-consolidated ones, cautioned India Ratings and Research (Ind-Ra).

Historically, the government has ceded majority in only one bank – IDBI Bank – with Life Insurance Corporation of India picking up majority stake in the bank.

Majority shareholding

The government has stated that banks would be privatised as opposed to being divested, which suggests that it may be considering ceding majority shareholding as well as control of the identified banks, said the credit rating agency in a note.

The agency believes ceding of control should make the proposal attractive for potential investors and may make it more viable to attract a large quantum of capital that this exercise may require.

For government majority-owned banks, Ind-Ra has a long-term issuer rating floor of ‘AA-’ (for senior instruments and Tier 2 instruments), factoring in timely government intervention and, hence, the minimal probability of default.

As per the note, the hybrid instruments (Additional Tier/AT 1 instruments), however, are rated based on the standalone profile (which factors in ordinary support from government for PSBs) as terms of these instruments could, under certain circumstances, prevent government support for servicing these instruments.

Ind-Ra said its rating of AT-1 instruments for weaker government banks could be multiple notches below the long-term issuer rating, factoring the inherent weakness of the institutions along with the discretionary nature of the security, which could impact its ability to service the instrument.

“Once the banks to be privatised are identified, the agency, as per its criteria, may place the ratings on a rating watch.

“Based on clarity on the final contours of transacted, the agency would take appropriate rating calls,” the note said.

 

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Reserve Bank of India – Press Releases

Press Releases

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Auction Results 91 days 182 days 364 days
I. Notified Amount ₹ 4000 Crore ₹ 7000 Crore ₹ 8000 Crore
II. Competitive Bids Received      
(i) Number 68 82 151
(ii) Amount ₹ 16412.8 Crore ₹ 23328.25 Crore ₹ 43077 Crore
III. Cut-off price / Yield 99.1771 98.2993 96.3604
(YTM: 3.3280%) (YTM: 3.4698%) (YTM: 3.7874%)
IV. Competitive Bids Accepted      
(i) Number 29 12 34
(ii) Amount ₹ 3976.042 Crore ₹ 6999.915 Crore ₹ 7999.868 Crore
V. Partial Allotment Percentage of Competitive Bids 32% 100% 19%
(1 Bids) (1 Bids) (1 Bids)
VI. Weighted Average Price/Yield 99.1820 98.3051 96.3740
(WAY: 3.3080%) (WAY: 3.4577%) (WAY: 3.7728%)
VII. Non-Competitive Bids Received      
(i) Number 5 2 1
(ii) Amount ₹ 1523.958 Crore ₹ 8632.535 Crore ₹ 0.132 Crore
VIII. Non-Competitive Bids Accepted      
(i) Number 5 2 1
(ii) Amount ₹ 1523.958 Crore ₹ 8632.535 Crore ₹ 0.132 Crore
(iii) Partial Allotment Percentage 100% (0 Bids) 100% (0 Bids) 100% (0 Bids)

Ajit Prasad
Director  

Press Release: 2020-2021/1291

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Banks closed for 7 days out of 9 from March 27; check full list of holidays during Mar 27-Apr 4

Banking & Finance

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According to the Reserve Bank of India (RBI), these holidays may differ from state to state and be different in various banks.

All banks in India will remain closed for three days in a row during March 27-29, including the two-day weekend and the Holi festival. Also, bank services will remain suspended on March 31, 2021, on account of the last day of the financial year. And then on 1st, 2nd and 4th April 2021 due to banks’ closing of accounts, Good Friday and Sunday. Hence, people can complete their bank-related work only on two days — March 30 (Tuesday) and April 3 (Saturday). The list of holidays given below has been notified by RBI under the Negotiable Instruments Act.

National Holidays

27 March 2021- Fourth Saturday
28 March 2021- Weekly off (Sunday)
29 March 2021- Holi (second day)
31 March 2021- Financial year 2021 closing
01 April 2021- To enable banks to close their yearly accounts
02 April 2021- Good Friday
04 April 2021- Weekly off (Sunday)

Banks to remain open on Holi and Good Friday in these states

According to the Reserve Bank of India (RBI), these holidays may differ from state to state and be different in various banks. Banks will not be closed on March 29, 2021 (Holi), in states such as Agartala, Aizawl, Bengaluru, Chennai, Guwahati, Jammu, Kochi, Kolkata, Srinagar and Thiruvananthapuram. While Banks in Patna will remain shut on March 30, 2021, on account of Holi, according to RBI. All over India, only states like Aizawl and Shillong will remain functional on April 1, 2021. The holiday on April 2, 2021, will not be observed in banks across Agartala, Ahmedabad, Chandigarh, Guwahati, Jaipur, Jammu. Shimla, and Srinagar.

On March 15-16, bank branches remained closed after the United Forum of Bank Unions (UFBU), an umbrella body of nine unions, called a two-day strike. The protest was called against the proposed privatisation of two state-owned banks. During Union Budget 2021 speech, Finance Minister Nirmala Sitharaman announced the privatisation of two public sector banks (PSBs) as part of a disinvestment plan to generate Rs 1.75 lakh crore. About 10 lakh bank employees and officers of the banks participated in this two-day strike.

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Compound interest relief may cost banks 2% of their operational profits, BFSI News, ET BFSI

Banking & Finance

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The Supreme Court has allowed compound interest relief for borrowers with loans over Rs 2 crore. While the government has picked the tab for such payment for small borrowers, banks may have to pony for relief to larger ones.

Banks may have to take a hit of Rs 7,500 crore after the Supreme court extended the compound interest relief to loans above Rs 2 crore.

“All the borrowers irrespective of moratorium status and loan size will be eligible for compounded interest benefit for six-month moratorium period.

No compound or penal interest will be charged during the six-month loan moratorium period announced last year amid the COVID-19 pandemic and the amount already charged shall be refunded, credited or adjusted, SC said in its order.

The math

As per rating firm ICRA, compound interest for six months of moratorium across all lenders is estimated at Rs 13,500-14,000 crore.

The government had already announced relief for borrowers having loan up to Rs 2 crore which was estimated to cost about Rs 6,500 crore to the exchequer.

SC said compound interest should be charged on deliberate or wilful defaulters, in the nature of penal interest. The government’s March 27, 2020 notification had provided for deferment of installments due and payable during the moratorium period.

“Once the payment of installment is deferred…non-payment of installment during the moratorium period cannot be said to be willful and therefore there is no justification to charge interest on interest/compound interest/penal interest for the period during moratorium.

“Therefore, we are of the opinion that there shall not be any charge of interest on interest/compound interest/penal interest for the period during the moratorium from any of the borrowers and whatever the amount is recovered by way of interest on interest/compound interest/penal interest for the period during the moratorium, the same shall be refunded,” the apex court said.

It said there was no rationale to restrict such relief to loans up to Rs 2 crore only.

“As a result, borrowers excluded earlier may get additional relief of Rs 7,000-7,500 crore in the form of compound interest benefit,” Anil Gupta, Vice President – Financial Sector Ratings, ICRA Ltd said.

Who will pick the tab?

On who will bear the additional burden of refunding compound interest or penal interest already collected during the moratorium period, Gupta said it is premature to assume the hit will be on the government.

On whether the banks should pay from their pocket, he said, “We don’t know”, adding the amount is not very large.

To give a perspective, Gupta said the banks, accounting for 70 per cent of the loan market, have operating profits of over Rs 3 lakh crore.

“So, that way Rs 7,000 crore on Rs 3 lakh crore will be like 2 per cent of their operating profits,” he added.

Clarity to banks

Finance minister Nirmala Sitharaman said the judgement brings much-needed clarity to lenders on these issues, adding that it also clears the way for lenders to recognise non-performing assets, which they had not been able to do since the end of the moratorium period in August 2020. Reported gross non-performing assets of the banking system are estimated to be around 7% as of Dec 31. These would have been 100 basis points higher at 8%, if not for the apex court’s standstill order on recognition of such loans. “Standstill on recognition of 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,” Sitaraman said.



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Barbeque Nation Hospitality IPO Opens Today: Should You Subscribe?

Personal Finance

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IPO details:

The issue size of the IPO is Rs. 453 crore and includes a fresh share issuance of Rs. 180 crore and an offer for sale or OFS of up to 54,57,470 equity shares. Ipo price band is Rs. 498-500

Link Intime India Private Ltd is the registrar of the IPO. As per brokerages, the share allocation for Barbeque Nation is likely to be completed by April 1 and the stock will debut on the bourses on April 7.

The lot size for subscription is 30 and 10% of the quota is reserved for retail investors.

The investment bankers for the issue are IIFL Securities, Axis Capital, Ambit Capital and SBI Capital Markets.

Promoters of Barbeque Nation include Sayaji Hotels, Sayaji Housekeeping Services, Kayum Dhanani, Raoof Dhanani and Suchitra Dhanani and is also backed by CX Partners.

Further, ahead of the issue, the company aggregated Rs. 202 crore from 15 anchor investors.

Company profile:

Company profile:

The company owns and operates a chain of Barbeque Nation restaurants across India. Also it has Toscano restaurant and UBQ by Barbeque Nation Restaurant under its banner. Jhunjhunwala holds stake in the firm through his investment firm Alchemy Capital that has the ownership in 5,75,000 shares or 2% stake in Barbeque Nation Hospitality.

As of the quarter ended December, the company owns and operates 164 restaurants that include 147 Barbeque Nation fine dining restaurants across 77 Indian cities, 7 international outlets and 11 Toscano stores offering Italian cuisine.

Some of the key shareholders in the firm are

CX Partners, Jubilant Foodworks, Xponentia and Alchemy.

Issue objective:

The proceeds from the issue will be put towards expanding and opening of new restaurants, pre-payment or repayment of all or a part of company’s outstanding borrowings and general corporate purposes.

Key risks:

Key risks:

Sales have registered recovery after the pandemic but risks emerges again

After being hit severely amid the pandemic, the company has recorded recovery in sales, with sales scaling to 84% by November 2020. Primarily, the strong recovery is led by the company’s delivery business which now accounts for close to 15% of the total firm’s revenue against 3 percent in FY20. What has further helped the company is its various cost optimization measures and strengthening of its digital offering after it revamped its BBQ App. But now the second Covid 19 wave remains an operational risk for the company in the near term.

Future growth prospects depend on delivery and footprint expansion

The company remains focused on menu innovation and augmenting customer experience and improving their satisfaction level. Further by adding the delivery platform, the company has managed to increase restaurant throughput without additional costs pressure. So, as the Italian cuisine foray is in the early phase and international presence has also not yielded substantial results, overall expansion in the near future shall be in the country while at the same time delivery business shall also be ramped up.

Financials:

Owing to the high depreciation and interest charges that have swollen due to aggressive company expansion, the company despite high EBITDA margins has not yet become a profitable entity. Margins have also been impacted owing to losses suffered in international outlets in FY 19 and Covid impact in FY20 and 8MFY21. Now after the pre-IPO fund raise and IPO, debt is likely to reduce which can bring the company closer to profitability.

IPO valuation:

Considering near term headwinds, Yes Securities has come up with some concerns on the valuation front. “Company is targeting a market cap of Rs 18.8bn post-issue which equates to 12.2x FY20 EV/EBITDA and 2.2x P/S, which is significantly lesser than QSR peers like Westlife and Burger King. But given the highly capital intensive and more volatile dine-in business model, we believe the discount is justified. Moreover, given the recent pre-IPO allotment in December and January was done at 50% less than IPO price and COVID concerns have again come back which would be a near term headwind for the space, the pricing looks on the higher side with not a lot left on the table for investors”, said the brokerage.

Should you subscribe to the IPO of Barbeque Nation?

Though there has been a strong growth outlook for the sector with industry CAGR expected at 18% and strong brand equity that should facilitate the company in grabbing market share, Yes Securities advices on avoiding the IPO and look for better entry point post listing of the issue.

GoodReturns.in



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Reserve Bank of India – Press Releases

Press Releases

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I. T-Bill 91 days 182 days 364 days
II. Total Face Value Notified ₹4,000 Crore ₹7,000 Crore ₹8,000 Crore
III. Cut-off Price and Implicit Yield at Cut-Off Price 99.1771
(YTM: 3.3280%)		 98.2993
(YTM: 3.4698%) 		96.3604
(YTM: 3.7874%)
IV. Total Face Value Accepted ₹4,000 Crore ₹7,000 Crore ₹8,000 Crore

Ajit Prasad
Director  

Press Release: 2020-2021/1290

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Banks may be hiding much more NPAs than what is revealed, BFSI News, ET BFSI

Banking & Finance

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Lenders will see bad loans rise by Rs 1.3 lakh crore after the SC lifted the moratorium on classifying overdue loans as non-performing assets, but they may be hiding more skeletons in their books.

The order is positive for lenders as it removes uncertainty on the classification of defaulters. The lifting of the stay on the classification of loans as NPAs will not hurt banks as they have been keeping money aside for this eventuality.

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 pro-forma 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.

ICRA estimates

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%)

Economic survey

The Economic Survey 2021 had called for a fresh review of the asset quality of banks once the Covid-19- related regulatory forbearances are withdrawn.

“A clean-up of bank balance sheets is necessary when the forbearance is discontinued. Note that while the 2016 AQR exacerbated the problems in the banking sector, the lesson from the same is not that an AQR should not be conducted,” the Economic Survey said.

“Given the problem of asymmetric information between the regulator and the banks, which gets accentuated during the forbearance regime, an AQR exercise must be conducted immediately after the forbearance is withdrawn,” the survey said.

Forbearance represents emergency medicine that should be discontinued at the first opportunity when the economy exhibits recovery, the survey stated. In the past, banks exploited the forbearance window for window-dressing their books and misallocated credit, thereby damaging the quality of investment in the economy.

Citing the example of the global financial crisis of 2008, it said that the forbearance which was announced by the RBI helped borrowers tide over temporary hardships. But the continuance of this even after economic recovery led to unintended consequence in the form of banks window dressing their books and misallocating credit. This in turn damaged the quality of investment in the economy as borrowers who benefitted from the forbearance invested in unviable projects.

Giving examples, the report said the recent events at Yes Bank and Lakshmi Vilas Bank corroborate that the asset quality review did not capture evergreening of loans carried out in ways other than formal restructuring.

“Had the review detected evergreening, the increase in reported NPAs should have been in the initial years of the exercise.”

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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ICICI Bank launches instant EMI facility on internet banking, BFSI News, ET BFSI

Banking & Finance

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Private lender, ICICI Bank has launched an instant EMI facility on its internet banking platform. called ‘EMI @ Internet Banking’, the facility aims to offer increased affordability to millions of pre-approved customers, as it enables them to convert their high-value transactions up to Rs. 5 lakh into easy monthly instalments.

It also brings in enhanced customer experience as customers get the benefit of EMIs instantly and in a fully digital manner.

ICICI Bank is the first in the industry to introduce instant EMI facility on its internet banking platform. The Bank has tied up with BillDesk and Razorpay, leading online payment gateway companies to offer this facility.

Presently, the ‘EMI @ Internet Banking’ has been enabled for over 1000 merchants in categories like online shopping portals, insurance, travel, education- school fees and electronic chains.

The Bank endeavours to partner with more payment gateway companies, merchants and add categories under this facility in the near future.

Sudipta Roy, Head- Unsecured Assets, ICICI Bank said, “We have observed that many of our customers undertake high-value transactions for payments of insurance premiums, school fees, purchasing electronics, or paying for vacations through the Bank’s internet banking platform. Our latest offering of ‘EMI @ Internet Banking’ brings in enhanced affordability for customers by providing them with flexibility of EMIs for high value transactions.”

He added, “It also offers immense convenience to the customers as the entire experience is completely digital and instant. We believe this facility will empower millions of our pre-approved customers to purchase or shop for their needs in a completely contactless, instant, digital and secure manner.”

Ajay Kaushal, Co-founder and Director BillDesk said, “This will help ICICI Bank customers easily finance their online purchases using convenient monthly instalment payments across merchants supported by BillDesk.”

Khilan Haria, Head- Payments Product, Razorpay said, “This EMI on internet banking feature will be a major value-add to our partner businesses by providing them with higher conversion rates and benefit end-consumers by now making large payments easier and affordable.”



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How Interest Earned From A Savings Account Is Taxed?

Personal Finance

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Taxes

oi-Vipul Das

|

Interest earned on a savings bank account that exceeds the deduction cap is taxed as ‘Income from other sources’ at the taxpayer’s tax slab rate. However, if you fail to report it on your ITR, you will receive an income tax notice and as a result you will face penalties. Section 80TTA of the Income Tax Act allows a deduction for interest received on a savings bank account up to Rs 10,000 per year. This limit covers interest from all bank, co-operative bank, and post office savings accounts. It’s worth noting here is that the exemption under Section 80TTA is based on the total interest received across all of your bank accounts, not per bank account. Section 80TTA allows individuals under the age of 60 to claim a deduction on interest income. Those aged 60 and above can claim a tax deduction on interest income of up to Rs 50,000 or actual interest income, whichever is lower, under section 80TTB.

How Interest Earned From A Savings Account Is Taxed?

Important points to note

  • The interest part of a savings account is categorized under “Income from Other Sources.”
  • The interest income will be disclosed on your tax return and subject to the relevant slab rate of taxation.
  • TDS is not due on a savings account, according to Section 19A of the Income Tax Act of 1961.
  • For interest received on NRO accounts, TDS is deducted at a rate of 30% for NRIs.
  • On NRE accounts, no TDS is withheld by the bank.
  • Savings account interest that exceeds Rs 10,000 is taxed as per your tax slab rate.
  • Interest earned on a savings account up to Rs 10,000 is legally tax-deductible.

Section 80 TTA of Income Tax Act, 1961

  • Individuals and HUFs are the only ones who can take advantage of the deduction whereas companies and firms are not.
  • Interest received on all savings accounts held in post offices, banks, or co-operative banks is eligible for an overall deduction of Rs 10,000.
  • Interest received from any of these sources over Rs 10,000 is subject to taxation.

Section 80TTB

  • Senior citizens over the age of 60 are eligible for a deduction of up to Rs 50,000 per year on interest on savings accounts and fixed deposits under this section.
  • Interest on fixed deposits is also eligible for the same deduction under this section.

Note

Interest received on time deposits, fixed deposits, recurring deposits, or any other, is not eligible for the Section 80TTA deduction. On interest income from bank savings accounts, no tax is deducted at source. Senior residents are not covered under Section 80TTA. On the other hand, section 80TTB allows a senior citizen to deduct interest received on savings deposits and fixed deposits with banks, post offices, or co-operative banks for an amount up to Rs 50,000.



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