Month: April 2021

ICRA: Uncertainties with rising Covid cases could compound NBFCs woes

Banking & Finance

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The resurgence of the Covid-19 pandemic is likely to impact the performance of assets under management of retail NBFCs in 2021-22, rating agency ICRA said on Wednesday.

“Domestic Retail-NBFC AUM are facing asset quality headwinds which will moderate growth in 2020-21 and is also likely to affect their performance in 2021-22, following resurgence of the Covid-19 pandemic,” it said in a statement.

Higher loan losses seen

Asset quality pressures would play out fully in this fiscal as the level of economic activities are yet to substantially pick up over the pre-Covid levels, with risks further compounded by recent rise in infection rate, it further said.

While NBFCs can proceed with the overdue recoveries post lifting of the Supreme Court order on the NPA classification in March 2021, ICRA notes that performance of most of the key target asset and borrower segments continues to be sub-optimal, which would impact realisations leading to higher loan losses.

“Entities have augmented their provisions steadily since the fourth quarter of 2019-20 and are currently carrying provisions of more than 50 per cent of the pre-Covid levels, the same is expected to be maintained at least for a few more quarters in view of the current uncertainties,” it said.

AM Karthik, Vice President, Sector-Head Financial Sector Ratings, ICRA, said, “Restructuring expectation averages around 2.6 per cent (ICRA sample of large NBFCs) presently and we expect reported Gross Stage 3 to increase steadily by about 50-100 basis points (over December 2020 levels) by March 2022, as a base case; and could inch-up further if the impact of the pandemic continues for longer period leading to lockdowns or other tighter restrictions.”

Revival in growth

ICRA expects the Retail-NBFC AUM, which is estimated to be about ₹10-lakh crore as of December 2020, to have grown by three to five per cent in 2020-21 as pent-up demand, post the lockdown, led to some revival in segments such as namely gold, microfinance, two-wheelers, and tractors.

In 2021-22, growth is expected to revive to about eight per cent to 10 per cent driven by improvement in demand from all key target segments compared to last fiscal.

Growth, however, would be contingent upon access to adequate funding lines, it further said, adding that the capital structure is expected to remain adequate.

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Gold Hallmark Mandatory From June 1; Things To Know Before Buying

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Planning

oi-Sneha Kulkarni

|

It is recommended that you purchase hallmarked gold articles to ensure that you are not duped when buying actual gold. It not only guarantees purity but also increases the resale value if you decide to sell it later. The government announced on Tuesday that, beginning June 1, 2021, mandatory hallmarking of gold jewellery and artefacts will be implemented. Jewellers had been given more than a year to transition to hallmarking and register with the Bureau of Indian Standards (BIS). India is the world’s largest importer of gold, primarily to meet the needs of the jewellery industry.

Gold Hallmark Mandatory From June 1; Things To Know Before Buying

1) Gold hallmarking is a voluntary process that certifies the purity of the precious metal.

2) Jewellers will be able to sell just 14 carat, 18 carat, and 22-carat gold jewellery starting June 1, 2021.

3) According to a report in PTI, the BIS has so far reported 34,647 jewellers.

4) Since April 2000, the BIS has operated a hallmarking scheme for gold jewellery.

5) The registration process is now fully automated and conducted online.

6) Every year, India imports 700-800 tonnes of gold.

7) About 40% of gold jewellery currently being hallmarked.

8) Under the BIS Act, the Bureau of Indian Standards, India’s National Standards Body, is in charge of hallmarking gold and silver jewellery.

The price of gold on the Multi Commodity Exchange (MCX) rose 545 points yesterday, closing at 46,964 per ten gram. Today’s gold price in the international market is hovering about $1,745 per ounce, up around $12 from Tuesday’s close. Indian Commodity Market is closed today on account of Dr Ambedkar Jayanti.

If you are planning to buy gold this month, make sure to buy the hallmarked jewellery only.



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Bandhan Bank Stock Has Upside Potential Of Nearly 50%

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Investment

oi-Sunil Fernandes

|

Emkay Global Financial Services has placed a target price of Rs 500 on the stock of Bandhan Bank, implying a potential upside of nearly 50 per cent from current levels.

“Bandhan Bank has reported better-than-expected AUM growth of 21% yoy/8% qoq to Rs802bn (provisional) on a high base, primarily driven by better disbursement trends in MFI, small business loans and mortgages, in our view. Q4 is seasonally a strong quarter for lenders with a sizeable MFI portfolio. Creditaccess (18% yoy/14% qoq), Ujjivan (7% yoy/11% qoq) and Satin Creditcare (1% yoy/5% qoq) too have reported healthy growth, as per their business updates,” Emkay Global Financial Services has stated.

Deposits growth remained strong at 37% yoy/10% qoq to Rs780bn (a phenomenon seen across banks), given the bank’s strong liability franchise. CASA ratio improved by 50bps qoq/660bps yoy to 43.4%. Deposits are now 90% of AUM vs. 79% in Q4FY20, leading to lower CoF and thus being structurally long-term positive for NIMs.

“Amid concerns around the asset quality due to waiver announcements in Assam and elections in Assam/WB, the bank has reported slightly better overall collections at ~96% (EEB-Microfinance at 95% vs. 90% in Jan’20 ? after slip down in Assam ? and 92% in Dec’20 in value terms). We seek more clarity on collection efficiency specifically in Assam/WB. Collection efficiency in the non-EEB portfolio was robust at 98%,” Emkay Global Financial Services has stated.

Bandhan Bank Stock Has Upside Potential Of Nearly 50%

The bank has strategically created a strong provisioning buffer to absorb any asset quality shocks. The cumulative contingent buffer stands at Rs27.4bn, 3.1% of AUM. We expect the bank to largely absorb the Assam related asset quality pain upfront in Q4 through the provisioning buffer (Collection efficiency in Assam in Jan’21 was ~89%). With the second wave of Covid-19 surging, we expect the bank to make some additional provisions, which may result in moderate profitability in Q4.

“We like Bandhan’s strategy to diversify the asset portfolio away from MFI (product as well as geography-wise) in the wake of rising adverse asset quality events while creating strong provisioning/capital buffers. After the recent correction, the stock is trading at reasonable valuations of 2x FY23 ABV. Currently, we have a Buy rating on the stock,” the broking firm has stated.



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Unfazed by Covid-19, fund raising for public issues jumped by 115% in FY21

Banking & Finance

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Pandemic does not seem to have affected fund mobilisation through capital market as Financial Year 2020-21 (FY 21) saw resources raising through public issue more than doubled. Mutual fund and corporate bond market also registered good growth; a Finance Ministry statement released on Wednesday.

“Despite the uncertainty prevailing in FY 2020-21 owing to Covid-19 pandemic, fund raising in FY 2020-21 was better than that in FY 2019-20 for both Public Issues and Rights Issues,” the statement said.

According to data compiled by the Ministry, fund raising through public issue jumped 115 per cent during FY 21 while growth was 15 per cent for rights issues. Similarly, number of unique investors across different kind of mutual fund grew by 10 per cent, while number of issues in Corporate Bond Market increased by 10 per cent in FY 2020-21.

Mutual funds

Assets under management (AUM) of Mutual Fund Industry increased by 41 per cent to ₹31.43-lakh crore as on March 31 of FY 21 from ₹22.26-lakh crore as on March 31, FY 20. During this period, the number of unique investors across Mutual Fund schemes also increased by 10 per cent to 2.28 crore from 2.08

With increasing expansion of the MF industry in smaller cities, the AUM from below top 30 cities increased by 54 per cent to over ₹5.35 lakh crore from ₹3.48 lakh crore. Investors in Mutual Fund industry may choose to invest in any of the 1,735 mutual fund schemes across categories as per their investment objective as on March 31, 2021.

Corporate bond market

Similarly, around 2003 issues of Corporate Bonds for an amount of over ₹7.82-lakh crore happened in FY 21, surpassing the amount raised (around ₹6.90-lakh crore). While the number of issues increased by 10 per cent during FY 21, the amount raised increased by 13.5 per cent as compared to the previous financial year.

Resource Mobilisation through Public and Rights Issues

(Amount is in Rs. Crore)

Particulars

2019-20

2020-21
 

No.

Amount

No.

Amount

1)Public Issues,

62

21,382.35

56

46,029.71

of which

 

 

 

 

Initial Public Offer (IPO)

60

21,345.11

55

31,029.71

Follow-on Public Offer (FPO)

2

37.24

1

15,000.00

2)Rights Issues

17

55,669.79

21

64,058.61

Total (1+2)

79

77,052.14

77

1,10,088.32

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5 Best Public & Private Sector Banks Offering Good Returns On 1-Year FDs

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1 Year FD Rates

For one-year FDs, IndusInd Bank and RBL Bank, for example, provide 6.5 percent interest rates. There are higher interest rates than those provided by public sector banks. On one-year FDs, leading private banks such as ICICI Bank and HDFC Bank provide 4.90 percent interest. Axis Bank is now offering a 5.15 percent interest rate and on one-year FD, Kotak Mahindra Bank pays 4.50 percent. On one-year FDs, public sector banks like Union Bank, Punjab & Sind Bank, and Bank of India provide 5.25 percent interest. On one-year FDs, leading banks including State Bank of India (SBI) and Bank of Baroda (BOB) provide 5% and 4.90 percent interest, respectively. Below are the top 5 public and private sector banks that are providing higher interest rates on 1 year fixed deposit.

Private Sector Banks ROI for non-senior citizens ROI for senior citizens
IndusInd Bank 6.50% 7.00%
RBL Bank 6.25% 6.75%
Yes Bank 6.25% 6.75%
DCB Bank 6.05% 6.55%
Bandhan Bank 5.75% 6.50%
Public Sector Banks ROI for non-senior citizens ROI for senior citizens
Bank of India 5.25% 5.75%
Punjab & Sind Bank 5.25% 5.75%
Union Bank 5.25% 5.75%
Canara Bank 5.20% 5.70%
Indian Overseas Bank 5.15% 5.65%
Source: Bank Websites

Who should invest in fixed deposits?

Who should invest in fixed deposits?

Investing in a fixed deposit has always been a popular option due to low risk and guaranteed returns. Fixed deposits are therefore not market dependent, meaning market uncertainty has no impact on them, making them an excellent option for those who are unfamiliar with the stock market. The term of a deposit may be as short as seven days or as long as ten years (20 years in some banks). Investors are paid a higher rate of interest, and as a result, their returns are higher than that of savings accounts. FDs are not market-linked like investment strategies such as mutual funds. The rate of interest provided to FD investors remains unchanged over the term of the deposit. Depositors know what they should get from their FD at the time of maturity by calculating fixed FD returns. This helps in proper financial preparation as well. Furthermore, since it is a liquid alternative, depositors are assured that if a crisis strikes, all they have to do is prematurely break the FD and address the dilemma. Fixed deposit interest rates are higher for senior citizens. Senior citizens’ preferential rates typically range from 0.25 percent to 0.65 percent higher than standard FD interest rates. A fixed deposit’s interest is paid in two ways: cumulative and non-cumulative. A cumulative fixed deposit is one on which interest is accrued or received until the maturity term ends. Non-cumulative fixed deposits have interest paid to the depositor on a monthly, quarterly, half-yearly, or annual basis. Non-cumulative options are good for those who want regular income, but cumulative options are best for those who want to maximise their returns by allowing compounding work for them.

Does fixed deposit is a secure bet?

Does fixed deposit is a secure bet?

Bank fixed deposits are covered by a Rs. 5 lakh insurance cover. The Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the Reserve Bank of India (RBI), provides this coverage. If a bank goes bankrupt and is unable to refund depositors’ savings or deposits, the DICGC will compensate them with Rs. 5 lakh, which includes both interest and principal amount. The DICGC insures all commercial banks in India, including foreign bank branches, local area banks, and regional rural banks. Currently, the DICGC covers all co-operative banks. The DICGC does not cover primary cooperative societies.



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CreditAccess Grameen’s collection improves to 94% in Jan-March quarter

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CreditAccess Grameen, a NBFC-MFI, said its collection efficiency (loan EMIs collected from women borrowers) as also its year-on-year (YoY) and quarter-on-quarter (QoQ) loan disbursement (microfinance loans given to women borrowers) has improved during the January to March 2021 quarter.

The company in a release said it YoY and also QoQ consolidated disbursement has risen by 42 per cent and 3 per cent to ₹4,726 crore, respectively in January to March 2021 quarter. The collection efficiency for CAGL, too, has risen from 91 per cent in December 2020 to 94 per cent in March 2021 and for its subsidiary Madura Microfinance, collection efficiency increased from 86 per cent in December 2020 to 90 per cent in March 2021.

The number of women customers fully paying their loan instalments, has risen to 92.4 per cent in March 2021 for the company, as compared to 88.1 per cent in December 2020. The percentage of women customers not paying their EMIs, for the company, has come down to 4.4 per cent in March 2021 compared to 5.1 per cent in December 2020.

Active borrowers

The performance is on the back of a number of active borrowers rising to 29.63 lakhs for the company and 10.98 lakhs for its subsidiary. The new borrower addition during the January to March 2021 quarter, too, has seen a healthy rise to 2.88 lakhs on a consolidated basis. The consolidated Gross Loan Portfolio, too, has increased YoY by 16 per cent and QoQ by 13 per cent to ₹13,878 crore.

Owing to improved performance, the overall portfolio at risk for 30 days, 60 days and 90 days, has seen gradual decline to 6.6 per cent, 5.9 per cent and 5.4 per cent, respectively for the company as on March 31, 2021.

Regarding its subsidiary Madura Microfinance, the overall portfolio at risk for 30 days, 60 days and 90 days, gradually declined to 9.7 per cent, 6.7 per cent and 4.7 per cent, respectively on March 31, 2021. The restructured book amounts to ₹75 crore (0.6 per cent of GLP) as on March 2021 for CreditAccess Grameen.

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8 Financial Matters You Should Make Your Spouse Aware About

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Why financial awareness for both spouses is a must?

This is all the more necessary as the information or sole financial management by one person may leave the other in a troublesome situation in case of ill-fate situation such as his or her untimely demise. Prior knowledge on the matter will pan out well for the well being of the family’s financial health.

Also because fair knowledge on the matter will enable both to actively participate in the finances management of the family and will lead to healthy decision most of the times.

Here we discuss all such matters that need to be known by both the main members of the house:

1.Financial assets or the total wealth can be discussed at first:

1.Financial assets or the total wealth can be discussed at first:

The starting point in the discussion or when acquainting one’s wife or husband on the matter, the communication can revolve around the various current assets ranging from gold, FDs, insurance, bank locker, EPF, PPF etc.

2. Make it a point to ensure joint discussion when consulting for money matters:

When going for a tax related consultancy to your Chartered Accountant or discussing your investment decision with a financial planner, encourage the involvement of both of you in all such discussions.

This will ensure that your wife gets a hang of the techniques you opt for when constructing your investment portfolio.

3.Budget preparation can be a joint exercise:

3.Budget preparation can be a joint exercise:

Both short and long term money goals can be reached more realistically if both the spouses participate. And this can be done on the basis of wants, needs and desires. Also, here in for reaching the goals, desired liquidity, return aspect needs to be considered.

4. Taxation KT is also a must:

While the subject of taxation is not everyone’s cup of tea, one must ensure that some basics are still be known by your spouse. Here as and when you will begin to involve her, she will hone her acumen over time and know all such tax saving ways.

5.Liabilities also cannot be hidden:

5.Liabilities also cannot be hidden:

Both official as well as unofficial information on your liabilities should also be known to her as then she would be able to do more justice in running a household and at the same time help you in servicing the various debts with which you may be burdened.

6.Reasonable valuation of the various investment should also be made known:

At times, for some of the investments it is difficult to arrive at the actual valuation and hence a closer value can be provided as in case of some disputed property or the like. This is also true for the bullion, jewellery as well as antiques if any.

7.Insurance plan knowledge cannot be neglected at any cost:

It is for the safety and financial well being that we buy term insurance plans and not telling about the various matters, such as to where the policy document is kept or who is the insurance agent who will come as help in times of making the claim can prove to be a tedious task for your spouse, if she happens to run for making claims.

8.Will:

This document while it tells on how the wealth has to be distributed among heirs in the family. It also gives a prudent idea of one’s wealth and investment and how it should be well-managed. So, speaking to your wife about your ‘will’ shall also go a long way in sound financial management of the family’s finances.



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Banks want debt recast scheme back as Covid wave intensifies, BFSI News, ET BFSI

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Banks have sought an extension of one-time debt recast scheme as the curbs after fresh Covid wave are likely to increase defaults and affect asset quality.

The bank chiefs have petitioned RBI to extend the scheme introduced last year in a meeting with the governor earlier this week, according to reports.

No relief measures

Banks, which got protection and support by a swift moratorium on loans when the pandemic first struck, have no such cover this time.

As the second wave intensifies, most of the relief measures and schemes announced by the government and Reserve Bank of India have expired. On top of it, the central bank is non-committal on moratoriums.

In today’s conditions, there is no need for a moratoriumRBI governor Shaktikanta Das

Also, a spike in overdue loans after the lifting of the moratorium has been worrying analysts.

“The level of loans in overdue categories has increased after the moratorium has been lifted and the impact on asset quality will be spread over FY2021 and FY2022 as various interventions and relief measures have prevented a large one-time hit on profitability and capital of banks,” ratings agency Icra said in a report.

What Fitch says

Banks want debt recast scheme back as Covid wave intensifies

India’s second wave of Covid infections poses increased risks for India’s fragile economic recovery and its banks, says Fitch Ratings. It already expects a moderately worse environment for the Indian banking sector in 2021, but headwinds would intensify should rising infections and follow-up measures to contain the virus further affect business and economic activity.

Fitch forecasts India’s real GDP growth at 12.8% for the financial year ending March 2022 (FY22). This incorporates expectations of a slowdown in 2Q21 due to the flareup in new coronavirus cases but the rising pace of infections poses renewed risks to the forecast. Over 80% of the new infections are in six prominent states, which combined account for roughly 45% of total banking sector loans. Any further disruption in economic activity in these states would pose a setback for fragile business sentiment, even though a stringent pan-India lockdown like the one in 2020 is unlikely.

Challenging environment

The operating environment for banks will most likely remain challenging against this backdrop. This second wave could dent the sluggish recovery in consumer and corporate confidence, and further suppress banks’ prospects for new business (9MFY21 credit growth: +4.5% as per Fitch’s estimate), it said. There are also asset quality concerns since banks’ financial results are yet to fully factor in the first wave’s impact and the stringent 2020 lockdown due to the forbearances in place. We consider the micro, small and medium enterprises (MSME) and retail loans to be most at risk, the rating agency said.

Retail loans have been performing better than our expectations but might see increased stress if renewed restrictions impinge further on individual incomes and savings. MSMEs, however, benefited from state-guaranteed refinancing schemes that prevented stressed exposures from souring.

Subscribe to ETBFSI Daily Newsletter and stay updated.
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How To Avoid TDS On Dividend Income?

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Taxes

oi-Vipul Das

|

During Budget 2020, Nirmala Sitharaman introduced adding Section 194K to the Finance Act. This provision allows any resident citizen to deduct the amount paid on mutual fund units, up to a certain cap. Any individual responsible for paying an income to a resident in regard to units of a Mutual Fund as defined in Section 10(23D), units from the Administrator, and units from a specified company as per Section 194K. Due to the abolition of the Dividend Distribution Tax (DDT), dividend income becomes taxable in the hands of taxpayers, and tax deduction at source (TDS) becomes effective on dividend payout u/s 194 of the Income Tax Act. As a result, if the investor’s PAN is submitted, 10% TDS is effective on dividend income of over Rs 5,000 in a fiscal year.

How To Avoid TDS On Dividend Income?

In the event that the PAN is not submitted, the TDS rate would be 20%. To make filing an Income Tax Return (ITR) simpler, the specifics of dividend income and TDS will now be available on the new format of Form 26AS. That being said, if an individual’s dividend income is less than Rs 2.5 lakh or his or her net income, including dividend income, is not taxable, he or she must file a tax return in order to get tax refund for TDS paid on dividend income. If your taxable income is less than Rs 2.5 lakh, but you have paid TDS on dividends, submit Form 15G or Form 15H for individuals over 60 years old to notify the company or the share registrar and transfer agent (RTA) about your tax-free income.

You can also find Form 15G/H on the website of your company or the RTA. Fill in the essential details such as the company’s name, whether shares are maintained physically or by a depository participant (DP), your DP ID or Client ID, and folio number. Individual investors should submit Form 15G or Form 15H to the company directly for dividend on their shares. The relevant form may be submitted directly to the Asset Management Company (AMC) or to their Registrar and Transfer Agents (RTA) – such as CAMS and KFintech – in the case of the Dividend Payout option on Mutual Fund schemes. Investors can also submit Form 15G or Form 15H online at the official site of AMCs or RTAs. PAN, name of the AMC, Folio Number, Income Distribution cum Capital Withdrawal (IDCW), year for declaration and so on are the specifics to be specified if applying for MF schemes via their RTAs.

If you have IDCW as part of your income and your overall income is not subject to taxation, you must apply Form 15G/H or else you will be required to file an ITR if you earn a dividend after TDS has been deducted. It is suggested to check your demat account and see if your PAN is linked with it or not. You will be charged a higher TDS of 20% if your PAN is not linked to your demat account. It is also important to note here that the TDS on dividends deducted in a fiscal year is 10%, but the actual income tax would be determined by your tax bracket and other sources of income.



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NHB launches ₹10,000-crore Special Refinance Facility-SRF 2021

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National Housing Bank (NHB) has rolled out a ₹10,000-crore ‘Special Refinance Facility-2021’ (SRF-2021) to provide short term refinance support to housing finance companies (HFCs) and other eligible Primary Lending Institutions (PLIs).

This facility is expected to meet the short-term liquidity requirements of the PLIs and will also support them for onward lending to individuals to maintain steady growth in the housing finance sector, according to NHB.

This NHB initiative comes on the heels of the Reserve Bank of India (RBI) extending fresh support ( in the recent monetary policy review) under another Special Liquidity Facility-2 (SLF-2) of ₹ 10,000 crore to the NHB for one year to support the housing sector.

RBI to provide ₹50,000-cr refinance to all-India financial institutions

Post Covid -19, the housing finance sector has revived and showed steady improvement in sanctions and disbursements since the second quarter of FY2020- 21.

It may be recalled that last year during May-August 2020, NHB had provided refinance support of ₹ 14,000 crore under the Special Refinance Facility (SRF) and Additional Special Refinance Facility (ASRF).

This short-term liquidity support for a year was part of Special Liquidity Facility (SLF) granted by the RBI at repo rate to NHB under Aatma Nirbhar Bharat Abhiyaan announced by the Finance Minister.

Return of DFIs

During the period April 1, 2020 to March 31, 2021, NHB had extended an amount of ₹ 42,823.93 crore as refinance to PLIs which includes HFCs, Scheduled Commercial Banks including Regional Rural Banks (RRBs), Small Finance Banks (SFBs), under its various refinance Schemes including SRF and ASRF extended by the RBI.

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