Month: June 2021

We are looking at a revival through retail focus, says Shivan JK, MD, Dhanlaxmi Bank

Banking & Finance

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Thrissur-based Dhanlaxmi Bank has chalked out strategies for growth by expanding its retail book. Shivan JK, Managing Director and CEO, is optimistic of achieving a good growth rate in the current fiscal. He says that the bank would continue to focus on CASA and retail advances including gold loans. The business volumes grew 6.39 per cent to ₹18,834 crore for the last fiscal. Edited excerpts:

What are your growth plans in the current financial year?

We will continue our focus on expanding our retail book through gold loan and other retail products. We have launched limited period MSME campaign. Our gold loan book is showing steady growth and with the launch of special 1/3-month product this book is gaining traction.

Also read: Dhanlaxmi Bank posts ₹5.28 crore net profit in Q4

We are looking at an overall 12-15 percent growth with thrust on retail/ agri including microfinance and select MSME and corporate growth. Our liability franchise is robust, and we estimate steady growth in CASA and retail term deposits.

What is the position of NPAs of the bank? How has it progressed last year?

The GNPA position as on March 31, 2021, was 9.23 per cent. We are maintaining a provision coverage of 74.20 per cent.

The position has deteriorated from the previous year due to a low advance base and recognition of NPAs, which were under moratorium following the Supreme Court order on March 23. If we include the ‘proforma’ NPAs, we were at 10.82 per cent as at the end of Q3.

Most of these are small ticket NPAs with good security coverage. Due to lockdown, our recovery efforts are constrained. We are hopeful of bringing this level below 9 per cent by end of this quarter. And there are no major fresh slippages expected.

What is the impact of Covid on the bank’s business? What plans are in place?

The growth has been muted whereas asset deterioration has steadily increased. The moratorium and its sudden lifting added to the woes.

We have instructed our operating offices to maintain all Covid protocols and safety precautions. We are tying up with two private hospitals to ensure that all staff take at least the first dose of vaccine.

When do you see the economy recovering? Also do you see interest rates going up soon?

Our hope is that things return to almost normal from the second quarter of this fnancial year and then the economy will bounce back with a growth in GDP of 8-9 per cent for the FY as per revised predictions. As for your question regarding the interest rates going up, we have reached the bottom. But with the liquidity overhang and the time lag in corporate demand picking up, the rates would be stable in the short term but will firm up by Q3.

Also read:Banks decide to extend unsecured personal loans for Covid treatment

How about NRI investments in your business? And are there any plans for merger with bigger banks?

We are not a big player in the NRI segment compared to other peer banks. In this current financial year, it will be one of our focus areas. And, no, we don’t have any plans for merger with other bigger banks.

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RBI’s MPC begins deliberations amidst hopes of status quo in policy rate

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The Reserve Bank of India’s rate-setting panel, Monetary Policy Committee (MPC), began its three-day deliberations on Wednesday amid expectations of status quo on the benchmark rate, mainly on account of uncertainty over the impact of the second wave of the Covid-19 pandemic.

Moreover, fears of firming inflation may also refrain the MPC from tinkering with the interest rate. . The outcome of the bi-monthly monetary policy meeting will be announced on Friday.

Also read: How the RBI managed a large surplus transfer to the Centre in a difficult year

The RBI had kept key interest rates unchanged at the last MPC meeting held in April. The key lending rate, the repo rate, was kept at 4 per cent and the reverse repo rate or the central bank’s borrowing rate at 3.35 per cent.

M Govinda Rao, Chief Economic Advisor, Brickwork Ratings, said the better-than-expected GDP numbers provide the much-needed comfort to the MPC on the growth outlook.

However, with the imposition of partial lockdown-like restrictions to contain the virus spread in several parts of the country, the downside risk on growth recovery has intensified, he said.

“Hence, the RBI is likely to continue with its accommodative monetary policy stance. Considering the risk of inflation emanating from the rising commodity prices and input costs, Brickwork Ratings expects the RBI MPC to adopt a cautious approach and hold the repo rate at 4 per cent,” he noted.

Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and PropTiger.com believes the RBI can maintain its accommodative stance in light of the economic impact of the second wave of Covid-19, without endangering its key goal of keeping inflation under control.

Reviving growth has become an important objective due to the economic damage caused by the recent lockdowns, he said, and added the RBI should also consider providing more liquidity to the National Housing Bank to enable the stability of housing finance companies, which in turn will allow the real estate sector to expand.

Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank was of the view that in the current environment, the choices before the Monetary Policy Committee may be limited.

“With the second phase of the pandemic impacting consumption and growth, the MPC will likely maintain status quo on policy rates, continue with an accommodative policy stance and ensure adequate liquidity in the system – all in an effort to stimulate growth. While it will keep one eye on inflation levels on the back of rising global commodity prices, it currently will focus on supporting economic growth,” Ekambaram said.

According to Sandeep Bagla, CEO of TRUST AMC, “It is expected to be a no change policy, with continued economy friendly soft interest rate bias.”

The RBI annual report released last week has already made it clear that “the conduct of monetary policy in 2021-22 would be guided by evolving macroeconomic conditions, with a bias to remain supportive of growth till it gains traction on a durable basis while ensuring inflation remains within the target.” The Reserve Bank, the report added, would ensure that system-level liquidity remains comfortable during 2021-22 in alignment with the stance of monetary policy, and monetary transmission continues unimpeded while maintaining financial stability.

In the assessment of the RBI, the evolving CPI inflation trajectory is likely to be subjected to both upside and downside pressures. The food inflation path will critically depend on the temporal and spatial progress of the south-west monsoon in 2021.

The government has retained the inflation target at 4 per cent with the lower and the upper tolerance band of 2 per cent and 6 per cent, respectively, for the next five years (April 2021 – March 2026).

Also read: ‘RBI may keep repo rate unchanged’

Retail inflation, based on Consumer Price Index (CPI), slipped to a three-month low of 4.29 per cent in April mainly on account of easing of prices of kitchen items like vegetables and cereals. The RBI mainly factors in the CPI while arriving at its monetary policy.

As per the RBI annual report, supply-demand imbalances may continue to exert pressure on food items like pulses and edible oils, while prices of cereals may soften with bumper foodgrains production in 2020-21.

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Bharti AXA Life in bancassurance pact with Shivalik Small Finance Bank

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Private life insurer Bharti AXA Life Insurance has entered into a bancassurance partnership with Shivalik Small Finance Bank for the distribution of its life insurance products through the bank’s pan-India network of branches.

Under this agreement, Bharti AXA Life Insurance will offer its suite of life insurance products, including protection, health, savings and investment plans, to customers of Shivalik Small Finance Bank across its 31 branches and digital network across the country.

This alliance will enable over 4.5 lakh customers of Shivalik Bank to access the range of products offered by the company to provide financial security.

Bharti AXA General launches Health AdvantEDGE

Expansion of distribution footprint

Commenting on the association, Parag Raja, Managing Director and Chief Executive Officer, Bharti AXA Life Insurance, said in a statement: “The outbreak of Covid-19 has led to a notable shift in customers’ perception of life insurance, which is fundamentally about protection. With our alliance with Shivalik Bank, we shall empower the bank’s customers with protection and holistic insurance solutions and help us strengthen our commitment while reaching out to urban, tier-II and tier-III markets. We believe this partnership will enrich our distribution footprint and help us increase insurance penetration in the country.”

UP-based Shivalik SFB commences operations

Suveer Kumar Gupta, Managing Director and Chief Executive Officer, Shivalik Small Finance Bank, said this alliance is a part of the bank’s various measures towards financial inclusion and acceleration of wealth creation for its customers.

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Fintech start-up Boxop ties up with Mahindra Insurance for Covid treatment

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Boxop, a Kerala-based start-up has tied up with Mahindra Insurance Brokers Ltd (MIBL) to provide low-cost insurance protection for the Covid-19 treatment.

Boxop is providing this comprehensive service across the State through Akshaya Kendras and support from MIBL.

The company has introduced a Group Covid plan in which individual who is tested Covid positive will get a lumpsum benefit plan of ₹25,000, in which 24 hour of hospitalization is mandatory. Individuals can also avail other products like cashless treatment plans for all illnesses including Covid-19, at select hospitals (reimbursement plans at other hospitals) and an income replacement plan for in-patient hospitalisation for an amount of ₹1,000 per day (for maximum 30days in a year) across all Akshaya Kendras.

These plans can be availed only after 30 days of enrolment and customers of Boxop-Akshaya can get enrolled into these plans at all Akshaya centres.

Boxop is a fintech focussed start-up registered under Kerala Start-up Mission for customised financial and non-financial services to the public who are not serviced by banks and other financial entities.

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Coinbase to allow users to use card via Apple, Google wallets

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Coinbase Global Inc launched a tie-up with Apple and Alphabet Inc’s Google on Tuesday that will allow users to add cards from their accounts to the payment apps run by the two tech giants.

The Coinbase card added to the wallets can be used to buy everyday goods with digital currencies, the biggest US cryptocurrency exchange said in a blog post. (https://bit.ly/3wN2wNN)

Also read: Investors cheer after RBI clarifies crypto trading isn’t banned

The company said it will automatically convert all cryptocurrency to US dollars and transfer the funds to a customer’s Coinbase Card for use in purchases and ATM withdrawals.

It also said users can earn crypto rewards on their shopping when a Coinbase Card is used with Apple Pay or Google Pay.

Coinbase’s move comes after PayPal Holdings Inc said it would allow US consumers to use their cryptocurrency holdings to pay millions of its online merchants globally, significantly boosting use of digital assets in everyday commerce.

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Despite RBI clarification, crypto deals still remain a grey area for investors, banks

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While banks have stopped warning customers against cryptocurrency transactions, investors are still not sure on the way forward.

Cryptocurrency investors do not expect to face problems in banking transactions after the notification by the Reserve Bank of India to ignore its directive post the Supreme Court ruling. But while most banks said they will abide by the RBI direction, they are looking for more regulatory clarity.

“Certain banks were not providing services or had reservations over cryptocurrency related transactions but this circular from the RBI will help banks have a clear stance,” said Ramalingam Subramanian, Head of Brand and Communication, CoinDCX The RBI had not issued a fresh circular post the Supreme Court ruling, which led to a lot of flux, he further said.

The expectation now is that banks will allow processing of such transactions through their payment gateways and not ask customers to desist from trading in such currencies.

Due diligence process

“The RBI notification clarifies that as of now there is no ban from the RBI on cryptocurrencies, and individuals holding or trading in cryptocurrencies and crypto businesses enabling this do not violate any RBI policy. Moreover, this also goes for banks — the mention of due diligence procedures clarifies that banks can service such individuals with suitable risk mitigation measures in place,” said Asheeta Regidi, Head, Fintech Policy, Cashfree.

The RBI had, on May 31, asked regulated entities to not cite its April 2018 circular on “Prohibition on dealing in Virtual Currencies” as it is no longer valid following the Supreme Court ruling. It also asked them continue carrying out customer due diligence in line with regulations for KYC, AML, Combating of Financing of Terrorism (CFT) and obligations of regulated entities under the Prevention of Money Laundering Act, (PMLA), 2002.

“Basis this notification, banks have stopped sending messages to customers advising them not to carry out cryptocurrency transactions. However, now it will be up to each bank on how to proceed with such transactions. Banks will carry out the due diligence as directed by the RBI,” said a banker who did not wish to be named, adding that there is a need to end the regulatory grey area around cryptocurrencies.

‘Speculative assets’

Another expert pointed out that cryptocurrencies continue to be speculative assets. “Most central banks are still examining what to do on the issue, while some have sent out advisories,” he said, adding that many are working on a Central Bank Digital Currency (CBDC). Significantly, both crypto investors and bankers are hoping for some direction from the Finance Ministry. The Centre had proposed to bring a legislation to ban cryptocurrencies but has put it on hold for now.

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UPI transactions in May fall for second straight month

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Amid the second Covid-19 wave that has led to lockdowns in many States, digital payments continued to fall for a second consecutive month in May. Exception was payments through Bharat BillPay and Aadhaar Enabled Payment System (AePS).

Transactions through the Unified Payments Interface (UPI) fell to a three-month low, according to data released by the National Payments Corporation of India.

The number of transactions on BHIM UPI fell to 253 crore in May amounting to ₹4.9 lakh crore as against 264 crore transactions worth ₹4.93 lakh crore in April. UPI transactions had crossed the ₹5-lakh crore in March, but has been falling since then due to the lockdowns.

Lower mobility

Similarly, transactions on the Immediate Payments Service platform also continued to slide down in May. As many as 27.98 crore transactions totalling ₹2.66 lakh crore were processed through IMPS in May. In comparison, 32.2 crore payments worth ₹2.99 lakh crore were made through IMPS in April.

Reflecting the lower mobility, transactions through FASTags also declined. A total of 11.64 crore transactions valued at ₹2,125.16 crore took place through NETC FASTags in May as against 16.43 crore transactions worth ₹2,776.9 crore in April this year.

With people preferring to stay at home and avoid crowds, payments on Bharat BillPay surged to 3.92 crore in May after a slight dip in April when it was at 3.53 crore. Payments worth ₹6,270.31 crore took place through the platform in May compared to ₹5,201.92 crore in April.

The number of live billers on Bharat BillPay also rose to 20,186 last month from 19,954 in April.

AePS transactions also rose to 8.42 crore in May amounting to a total of ₹24,619.24 crore as against 7.4 crore transactions worth ₹22,139.05 crore in April.

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Central authority needed to vet write-off, compromise proposals: AIBEA

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The All India Bank Employees’ Association (AIBEA) has called for the setting up of a Central authority, comprising retired bankers with credit knowledge and integrity, under the auspices of the Central Vigilance Commission (CVC) to vet the proposals for write-off and compromise.

The authorities or the Committees that have sanctioned loans must not have the powers to write-off the same, according to CH Venkatachalam, General Secretary, AIBEA. “The (public sector) banks are bleeding because of the problem of bad loans and huge write-offs and provisioning are being made year after year from out of the operating profits,” he said.

Also read: Delay in insolvency resolution continues to be cause for concern

As per the Association, in 2019, bad loan write-offs by banks amounted to ₹1,83,391 crore and the amount transferred from operating profits as provisions for bad loans/ NPAs (Non-Performing Assets) was at ₹2,29,852 crore.

‘Compromise’ proposals

Venkatachalam emphasised that all write-off proposals beyond a particular limit should be disposed off by the Central Authority constituted specifically for the purpose. Further, “compromise” proposals should be screened at the highest levels. He alleged that going by present day experience, these so-called “compromise proposals” are nothing but camouflage and cover-up of collusive acts.

“Willful bank loan default should be treated as a criminal offence… personal guarantees/ assets of the borrowers including directors of the corporate sector should be attachable for recovery of bank loan dues as has been held by the Supreme Court of India,” Venkatachalam said.

In a representation to the RBI’s committee on the functioning of Asset Reconstruction Companies (ARCs), AIBEA said, “Looking to ARCs’ track record, recovery performance, and the loss borne by the banks on bad debts handled by ARCs, we are very clear that ARCs are not required but stringent laws should be enacted to recover all willful defaults at a relatively quick-time.”

Also read: Private sector banks increased share in deposits, credit at the cost of PSBs in FY21:

The Association suggested that banks should be banned from lending to a company or group of companies, which defaulted and whose account has become a NPA in a particular bank. “The loans of such groups in other banks should also be treated as NPA and should be recalled by the banks. This, we feel, would enable speedy recovery of willfully defaulted corporate loans,” Venkatachalam said.

‘No participation’

The company or group of companies should not also be allowed to participate in the auction for purchase of assets of other defaulting company or group of companies that are brought through SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) or ARCs.

The Association said in case of ARCs, as far as the Public Sector Banks are concerned, the amount of discount with which a bad loan is sold, the discounted amount should be replenished by the government of India as they are the primary owners of these banks.

Also read: Bank credit growth declines to 5.6 per cent in March

“The present system of sharing recovery on water-fall structure has to change. At present, ARC recovers first its legal and resolution expenses and then management fees and thereafter the recovery is shared in the agreed ratios. This needs to be changed to proportionate sharing of all the items so as to keep the ARC driving recovery,” Venkatachalam said.

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‘NPAs can decline due to cleaning up of balance sheet, improving credit cycle’: Interview | Sanjiv Chadha, MD and CEO of Bank of Baroda

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The stress in the corporate segment is well-contained, but margins are going to be under pressure.

By Ankur Mishra
Double-digit credit growth may be challenging for Bank of Baroda, according to Sanjiv Chadha, MD and CEO of the lender. Speaking with Ankur Mishra, Chadha said growth is likely to be impacted by the second wave of Covid-19. However, the lender is banking on a positive credit growth in the corporate segment in FY22, despite a muted showing in the March quarter. Edited excerpts:

What will be your strategy for FY22? Will you be cautious in lending in the current scenario?

Unfortunately, we are in a similar position [to] the beginning of the last financial year … Growth is likely to get impacted and it may not be very high. Therefore, for us in terms of strategy, on the liability side we would want to do a similar thing. Last year, we were conscious that credit growth will not be very high. It makes sense to make sure that your deposit growth is aligned to credit growth … And also make sure that deposit growth is of good quality. We believe this year also credit growth is not going to be extraordinary. A double-digit credit growth may be challenging this year. The emphasis will again remain more on the retail segment. But if we are looking in terms of balance, my sense is that retail will still grow faster compared to corporate. The stress in the corporate segment is well-contained, but margins are going to be under pressure.

Although the corporate book has remained flat in the March quarter, you expect it do better in FY22. What gives you the confidence for this?

There are two reasons for corporate growth. One is how the working capital cycle has changed. Last year, due to reduced activity levels, working capital utilisation came down very significantly. This time, although the second wave may have impacted corporates to some degree, we are looking for a growth rate of 10% for the economy. This should be reflected in some time [in] inventory growth for corporates and better working capital utilisation. You are seeing capital investment going ahead, which is driven by the government package. The government has been very aggressive in pushing the road sector. So we are seeing a reasonable growth. Also, we have a very good corporate book. There is a tendency on the part of corporates to consolidate as far as banking relations are concerned, so we are benefiting from that.

Unlike other lenders, your deposit growth has been muted, mainly on account of de-growth in bulk deposits. What will the strategy be there? Do you believe rates are at the bottom?

We have pushed current account savings account (CASA) growth aggressively. Our retail term deposits grew about 3%, but our CASA grew by 16%, which has really helped our CASA ratio to move up to 43%. There is not much room for any aggressive rate reduction. But I do see that there is a significant room to leverage our franchise and the technology improvement. This can still have further improvement in the CASA ratio.

Your write-offs have doubled compared to last year. What has been the reason? And will the bank continue to be aggressive on that front?

The write-offs are very much a function of where your provisioning is, so all the banks have seen the provisioning ratios rising very significantly. The accounts where you are 100% provisioned and where prospects of recovery may not be very bright, it makes sense to clean up your balance sheet. Therefore, both on account of the improvement in credit cycle the possibility of cleaning the balance sheet, we should see gross NPAs and net NPAs trend downwards.

What is your outlook on the asset quality of the bank?

There is no doubt that challenges are there. The nature of the challenge would differ bank to bank on the books you have. So if we are sitting on a very large book of unsecured loans, I am sure the nature of challenges would be of one kind. On the other hand, if you look at the book composed of good quality corporates, and given the fact that the impact of the second wave on corporates has been limited and we are in the midst of a credit cycle as far as corporates are concerned when you actually see an improvement going ahead, the nature of the challenge is different. We believe that despite the second wave and particularly because the issues in the international book we had last year were one-time, our credit cost should continue to trend downwards, despite the challenges we have.

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Addendum – Expression of Interest – Consultant for Review of Supervisory Models

Tenders

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Please refer to the advertisement dated April 30, 2021 regarding submission of EOI for engagement of External Consultant to undertake review of supervisory models. In this connection, it may be noted that the EOI documents received till 12pm on May 31, 2021 shall be opened on June 4, 2021 at 11am at RBI, WTC, 3rd Floor, Cuffe Parade. Due to pandemic situation, physical presence of outsiders is being avoided in line with Government guidelines. Consultants desirous of attending the EOI opening process through virtual mode may send in a request at the following email ids – cgmicdosco@rbi.org.in and sparcdos@rbi.org.in. All other terms and conditions mentioned in the EOI remain unchanged.

Chief General Manager-in-Charge
Department of Supervision, Central Office

Mumbai

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