July 2021 – Page 57 – IFSCCodeof.in

Report, BFSI News, ET BFSI

July 15, 2021 root Banking & Finance

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The Reserve Bank of India‘s (RBI) insistence on companies opening current accounts with banks is among the factors that has helped large lenders such as HDFC Bank, ICICI Bank and SBI raise their shares of the competitive corporate banking market in 2020, according to a report. Apart from the RBI rules, the government’s mega merger to reduce the number of state-owned banks has also helped in the trend, rating agency Crisil said on Wednesday in the report.

In mid-2020, the RBI had come up with the circular that specified which bank can open a current account for a borrower, in order to check any misuse through multiple current accounts.

A fourth of the large and medium corporates said they were banking with at least one among ICICI Bank, Axis Bank and HDFC Bank as against 17 per cent in 2016, it said adding that the private sector banks have grown at over 25 per cent per year.

In most of the four-year period, SBI defended its market-leading penetration levels but in 2020, the lender expanded its footprint. Now, nearly a third of corporates do business with the largest lender and 30 per cent name it as their cash management provider.

“Several trends have contributed to the pick-up in market penetration among the leading banks, including the ‘mega merger’ of the country’s public sector banks and the Reserve Bank of India’s ‘circular on current accounts’, which essentially rules that banks can only open current accounts for companies to whom they are also major credit providers,” the report said.

It said the pressures exerted by the pandemic will accelerate the consolidation of the Indian corporate banking industry, as the market’s biggest banks prove themselves best-positioned to help large- and middle-market companies overcome crisis disruptions.

“When the pandemic sent the country into lockdown last year, companies needed immediate assistance from banks, at first to ensure financial stability, and then to keep businesses running,” says Gaurav Arora, head of Asia at Coalition Greenwich, part of Crisil, said.

The 2021 ‘Coalition Greenwich’ research study mentioned State Bank of India, along with leading private sector banks Axis Bank and HDFC Bank, and foreign banks Citi and HSBC, as companies’ top sources of support during the crisis.

The report said that even before the start of the global pandemic, India’s corporate banking market was on a consolidation path, driven by decisive steps by regulators to solidify the country’s banking sector, and the rapid evolution and growth of the leading private banks.

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4 Auto And Auto Ancillary Stocks To Buy From Angel Broking For July Month

July 15, 2021 root Personal Finance

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1. Suprajit Engineering:

Angel Broking has recommended the scrip of auto ancillary firm for a target price of Rs. 360 and the price at the time of recommendation has been Rs. 285 (closing price of scrip on July 7, 2021). Notably Suprajit Engineering is a small cap stock with a market capitalization of Rs. 3646 crore. Last the stock traded at a price of Rs. 310.3

Low cost, diversified exposure and net cash position a big-positive for the auto ancillary firm

Suprajit Engineering (SEL) is the largest supplier of automotive cables to the domestic OEMS with presence across both 2Ws and PVs. Over the years, SEL has evolved from a single product/client company in India to having a diversified exposure which coupled with its proposition of low-cost player has enabled it to gain market share and more business from existing customers, said the brokerage firm.

The brokerage firm in its report said the firm in recent years has outperformed (posting positive growth vs low double-digit declines for the domestic 2W and PV industry in FY21). The company believes that consolidation of vendors and new client additions would help in maintaining the trend of market/wallet share gains. SEL has grown profitably over the years and as a result boast a strong balance sheet (net cash).

“We believe SEL is prime beneficiary of ramp-up in production by OEMs across the globe and is well insulated from threat of EV (is developing new products). Its premium valuations are justified in our opinion owing to strong outlook and top grade quality of earnings.”, adds the brokerage report.

Y/E	Sales	OPM	PAT	EPS	ROE	P/E	P/BV	EV/Sales
March	(` cr)	(%)	(` cr)	(`)	(%)	(x)	(x)	(x)
FY2022E	1840	14.9	175	12.6	16.8	22.4	3.6	2.2
FY2023E	2182	15.8	227	16.4	19.5	17.3	3.2	1.8

2. GNA Axles:

Angel Broking is again bullish on this small cap scrip from the auto ancillary space. The scrip as on June 30, 2021 commanded a market cap of Rs. 834 crore.

The brokerage states that the company is a major supplier of rear axles to the commercial vehicles industry and is seen as the top beneficiary of the revival in the commercial vehicle (CV) cycle. Major portion i.e. as much as 60% revenues are accounted for from the company’s exports while the remaining comes from the domestic markets.

Robust truck sales outlook in US and Europe markets to benefit GNA Axles

“GNA is expected to be one of the biggest beneficiaries of strong growth outlook for truck sales in US and Europe markets which are witnessing strong recovery in demand. US which accounts for almost 40% of the company’s revenues has been registering strong class 8 truck sales. The venture into the SUV axle would provide the company with new growth avenues while the recovery in the domestic CV cycle also bodes well for the company. At current level the stock is trading at a P/E multiple of 11.8x FY23E EPS estimate of Rs. 39″, added the brokerage firm.

The broking house sees the target of Rs. 550 for the stock i.e. an upside of 19% from the price when the scrip was given a ‘Buy’ i.e. from Rs. 462 levels. As of writing this report, the stock has hit a fresh 52-week high in today’s trade of Rs. 505.95.

Y/E	Sales	OPM	PAT	EPS	ROE	P/E	P/BV	EV/Sales
March	(` cr)	(%)	(` cr)	(`)	(`)	(%)	(%)	(x)
FY2022E	1026	15.5	76	35.4	13.6	13.1	1.8	1
FY2023E	1140	15	84	39.3	13.3	11.8	1.6	0.9

3. Escorts:

For the tractor major the brokerage firm sees the stock price to scale to Rs. 1573 i.e. a substantial upside from Rs. 1204 (the closing price as on July 7, 2021). The stock last traded at a price of Rs. 1197.2. The company today announced a final dividend of Rs. 5 per share for FY21. The company for the FY commanded a market share of 11.3 percent.

Record procurement of food grain by government agencies major advantage for tractor company

In the broader automobile segment, the company is seen to outperform as there is huge traction in food procurement by government agencies as well as good Kharif crop in 2021. Also, there is seen good earnings visibility for the company after the company has entered into a strategic partnership with Kubota Corporation of Japan (one of the global leaders in farm machinery and implements).

Notably Escorts is a mid-cap auto company with market capitalization of Rs. 16,948 crore.

Y/E	Sales	OPM	PAT	EPS	ROE	P/E	P/BV	EV/Sales
March	(` cr)	(%)	(` cr)	(`)	(%)	(x)	(x)	(x)
FY2022E	7843	14.7	874	86.4	14.6	13.9	2	2.5
FY2023E	8840	15.3	1034	102.2	14.8	11.8	1.7	2.3

4. Ashok Leylamd (ALL):

The brokerage firm in its report stated that Ashok Leyland is the top player in India CV industry with a 32% market share in the MHCV segment. The company also has a strong presence in the fast growing LCV segment. Demand for MHCV was adversely impacted post peeking out due to multiple factors including changes in axel norms, increase in prices due to implementation of BS 6 norms followed by sharp drop in demand due the ongoing Covid-19 crisis. While demand for the LCV segment has been growing smartly post the pandemic, demand for the MHCV segment has also started to recover over the past few months before the 2nd lockdown while demand for buses are expected to remain muted due to greater preference for personal transportation.

Company best placed to benefit from the CV segment revival

“We believe that the company is ideally placed to capture the growth revival in CV segment and will be the biggest beneficiary of the Government’s voluntary scrappage policy and hence rate the stock a buy”, added the brokerage report.

This is again a mid-cap auto company with a market cap of Rs. 35,410 crore as on June 30, 2021.

Y/E	Sales	OPM	PAT	EPS	ROE	P/E	P/BV	EV/Sales
March	(` cr)	(%)	(` cr)	(`)	(%)	(x)	(x)	(x)
FY2022E	22491	7.8	558	1.9	7.6	65.8	4.9	1.8
FY2023E	30700	10.1	1560	5.3	19.6	23.5	4.4	1.3

Disclaimer

All of the above stocks are picked from brokerage report of Angel Broking. Investing in stocks is risky and investors should do their own research. The author, the brokerage firm or Greynium Information Technologies Pvt Ltd is not responsible for any losses incurred due to a decision based on the above article. Investors should hence exercise due caution as markets have run-up significantly.

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NPS Tier-1 Has Outperformed Corporate Debt Funds: Should You Invest?

July 15, 2021 root Personal Finance

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NPS Scheme C Tier-1

Over the last three years, HDFC Pension Fund and Aditya Birla Sun Life Pension Fund have been the best players among all NPS Scheme C Tier-1 fund managers. The most current returns can be seen in the table below.

Pension Fund	Inception Date	AUM (Rs Crs)	NAV	Returns 1 Year	Returns 3 Year	Returns 5 Year	Returns 7 Year
Aditya Birla Sun Life Pension Management Ltd.	9 May 17	59.45	14.2796	6.24%	10.61%	NA	NA
HDFC Pension Fund Co. Ltd.	1 Aug 13	3724.96	21.9007	7.10%	11.16%	9.50%	10.12%
ICICI Pru. Pension Fund Mgmt. Co. Ltd.	18 May 09	1780.42	33.3072	6.77%	10.66%	9.30%	10.11%
Kotak Mahindra Pension Fund Ltd.	15 May 09	335.09	32.0209	5.68%	9.40%	8.52%	9.43%
LIC Pension Fund Ltd.	23 July 13	937.96	21.6255	6.50%	10.91%	9.08%	9.86%
SBI Pension Funds Pvt. Ltd.	15 May 09	3495.67	33.4514	6.39%	10.79%	9.27%	9.89%
UTI Retirement Solutions Ltd.	21 May 09	491.14	29.7066	5.41%	10.13%	8.78%	9.53%
Benchmark Return as on 09.07.2021				8.77%	11.66%	9.56%	10.20%v

Best Performing Corporate Debt Mutual Funds

Corporate bond funds are allowed to allocate a minimum of 80% of their holdings in the highest-rated corporate bonds, according to SEBI. These funds put the majority of their capital into AAA-rated corporate bonds which provide higher returns than other fixed-income securities to the risk-averse investors having short to mid-term financial goals. Here are the best performing corporate bonds funds based on higher ratings given by Value Research and returns.

Funds	AUM In Rs	NAV as of 14 July 2021	1-year returns	3-year returns	5-year returns	Rating
Nippon India Corporate Bond Fund	2,663 Cr	Rs 47.80	6.71%	8.14%	7.92%	4 star
Kotak Corporate Bond Fund	9,849 Cr	Rs 3032.36	5.21%	8.49%	8.23%	4 star
Aditya Birla Sun Life Corporate Bond Fund	24,168 Cr	Rs 88.32	5.58%	9.34%	8.47%	5 star
ICICI Prudential Corporate Bond Fund	20,276 Cr	Rs 23.84	5.14%	8.83%	8.18%	5 star

Where should you invest?

NPS Scheme C Tier-1 has undoubtedly outperformed the returns of corporate debt funds across the last 3 years and 5 years. On an average basis, NPS Scheme C has delivered a return of 10.52% across the last 3 years and 9.07% across the last 5-years. Whereas according to the date of Value Research, corporate debt funds have also done a pretty decent job.

These schemes have delivered an average return of 7.89% across the last 3-years and the 5-year average return is 7.66%. The comparison is clearly stating that NPS has the potential to give higher returns than the debt mutual funds only if you want to invest for your post-retirement days. The Tier-1 NPS account, as a retirement savings scheme, only allows the subscribers to withdraw the maturity corpus after the age of 60, implying that NPS is a long-term retirement strategy.

On the other hand, corporate bond funds are the best among the debt category if you have a short to mid-term personal finance goal and want higher returns than fixed-income investments like fixed deposits. Credit risk, interest rate risk, and market risk are the three risks linked with corporate bonds. The risk element in the NPS system is typically managed since it enables investment in equities, government bonds, and corporate bonds while maintaining the highest equity exposure at 50-75 percent.

So, with these risk considerations, one may invest in NPS or Corporate Bond Funds based on the investment objectives, and as a caveat, no one can guarantee future results based on past performance.

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Mastercard: Will work with RBI to provide any additional details

July 15, 2021 root Banking & Finance

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Mastercard said it is disappointed by the action by the Reserve Bank of India but said it will continue to work with them to provide any additional details required to resolve their concerns.

“Mastercard is fully committed to our legal and regulatory obligations in the markets we operate in. Since the issuance of the RBI directive requiring on-soil storage of domestic payment transaction data in 2018, we have provided consistent updates and reports regarding our activities and compliance with the required stipulations,” it said in a statement.

It also re-iterated its commitment to working with customers and partners in advancing on the government’s Digital India vision.

The RBI on July 14 took supervisory action against Mastercard and barred it from acquiring new customers (debit, credit or prepaid) from July 22 for not complying with data localisation requirements.

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Reserve Bank of India – Press Releases

July 15, 2021 root 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)	377,767.46	3.23	0.01-5.30
I. Call Money	9,794.62	3.21	1.90-3.40
II. Triparty Repo	283,057.05	3.23	3.22-3.50
III. Market Repo	82,796.49	3.23	0.01-3.40
IV. Repo in Corporate Bond	2,119.30	3.50	3.40-5.30
B. Term Segment
I. Notice Money**	119.10	3.05	2.60-3.40
II. Term Money^@@	42.50	–	3.00-3.40
III. Triparty Repo	0.00	–	–
IV. Market Repo	20.00	3.15	3.15-3.15
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	Wed, 14/07/2021	1	Thu, 15/07/2021	455,612.00	3.35
(iii) Special Reverse Repo^~
(iv) Special Reverse Repo^ψ
2. Variable Rate^&
(I) Main Operation
(a) Reverse Repo
(II) Fine Tuning Operations
(a) Repo
(b) Reverse Repo
3. MSF	Wed, 14/07/2021	1	Thu, 15/07/2021	0.00	4.25
4. Special Long-Term Repo Operations (SLTRO) for Small Finance Banks (SFBs)^£
5. Net liquidity injected from today’s operations [injection (+)/absorption (-)]*				-455,612.00
II. Outstanding Operations
1. Fixed Rate
(i) Repo
(ii) Reverse Repo
(iii) Special Reverse Repo^~	Fri, 02/07/2021	14	Fri, 16/07/2021	1,881.00	3.75
(iv) Special Reverse Repo^ψ	Fri, 02/07/2021	14	Fri, 16/07/2021	61.00	3.75
2. Variable Rate^&
(I) Main Operation
(a) Reverse Repo	Fri, 02/07/2021	14	Fri, 16/07/2021	200,018.00	3.46
(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
	Mon, 14/06/2021	1096	Fri, 14/06/2024	320.00	4.00
8. Special Long-Term Repo Operations (SLTRO) for Small Finance Banks (SFBs)^£	Mon, 17/05/2021	1095	Thu, 16/05/2024	400.00	4.00
	Tue, 15/06/2021	1095	Fri, 14/06/2024	490.00	4.00
D. Standing Liquidity Facility (SLF) Availed from RBI^$				19,178.80
E. Net liquidity injected from outstanding operations [injection (+)/absorption (-)]*				-99,489.20
F. Net liquidity injected (outstanding including today’s operations) [injection (+)/absorption (-)]*				-555,101.20
G. Cash Reserves Position of Scheduled Commercial Banks
(i) Cash balances with RBI as on		14/07/2021		611,826.73
(ii) Average daily cash reserve requirement for the fortnight ending		16/07/2021		619,975.00
H. Government of India Surplus Cash Balance Reckoned for Auction as on^¥		14/07/2021		0.00
I. Net durable liquidity [surplus (+)/deficit (-)] as on		18/06/2021		904,119.00
^@ 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.
^£ As per the Press Release No. 2021-2022/181 dated May 07, 2021.
^~ As per the Press Release No. 2021-2022/177 dated May 07, 2021.
^ψ As per the Press Release No. 2021-2022/323 dated June 04, 2021.
Ajit Prasad Director
Press Release: 2021-2022/531

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3 Equity Mutual Funds With Upto 60% Returns & 5-Star Ratings, Should You Invest?

July 15, 2021 root Personal Finance

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UTI Flexi Cap Fund

This fund has a 5-star rating from Value Research and CRISIL. It has generated a whopping 61% returns in 1-year. However, you should not read too much into returns, given the fact that markets have rallied in the last 1-year following a collapse in the first half of last year after the Covid outbreak.

The UTI Flexi Cap Fund as the name suggests invests in companies with different market capitalizations, so to that extent the fund manager of the mutual fund scheme has the flexibility.

UTI Flexi Cap Fund is managed by Ajay Tyagi and has assets under management of almost Rs 18,000 crores. SIPs in the fund are not too expensive and can be started with a sum of Rs 1,000 every month. Markets are expected to consolidate at these levels and if earnings done catch-up there could be a sharp downturn. It is therefore advisable to go for SIPs, as you can average the cost should the markets take a turn for the worse. UTI Flexicap has a lot of holdings in the financial sector and the performance of the fund would be linked to the economy, as banking stocks are a proxy for the economy.

Mirae Asset Largecap Fund

Before we suggest the Mirae Asset Largecap fund, we would like to inform readers once again that markets are clearly overpriced and hence you need to be cautious. The market-cap to GDP ratio has touched 105, against a historical average of 79 and on other parameters like price to earnings multiples for Nifty companies are also expensive. Hence, the best way to invest is through SIPs.

Mirae Asset Largecap Fund is a fund that invests its money in largecap stocks. It has been rated 5-star by Value Research, Morningstar and CRISIL. The 1-year returns from the fund is a whopping 51% over the last 1-year, and the 5-year returns are16% on an annualized basis. For investors who want to stay invested for a long period of time this is a good bet. Ideally, large cap equity funds can generate good returns over a long period of time like 5-years, but it is hard to predict where the markets would be 5-years from now.

Mirae Largecap Fund has holdings in stocks like Infosys, HDFC Bank, ICICI Bank, Reliance Industries and Axis Bank.

Axis Bluechip Fund

This fund is an eternal favorite of most analysts. The fund has been rated as 5-star by CRISIL, Value Research and Morningstar. In fact, Axis Bluechip Fund has given a returns of 44% in the last 1-year and the 5-year returns from the fund is 16% on an annualized basis.

Investors can look at investing in the fund through the Systematic Investment Plan route as a lumpsum investment is full of risks. The expense ratio of the fund is around 1.77%.

Over the years the fund has augmented good collections and now its assets under management are a huge Rs 28,000 crores. The top 10 stocks of the fund account for 65% of the portfolio, which means the investment in stocks is very concentrated around its top 10 holdings, which includes names like Infosys, HDFC Bank, Bajaj Finance, ICICI Bank and Tata Consultancy Services.

A SIP can be started in the fund with a sum of Rs 500 and 6 cheques.

Disclaimer

Mutual fund investment is subject to risk associated with the stock markets and hence investors need to be very careful. Neither the author, nor Greynium Information Technologies Pvt Ltd would be responsible for losses incurred based on a decision to buy into the schemes based on the above article.

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Fullerton India appoints Rahul Bhardwaj as CIO, BFSI News, ET BFSI

July 15, 2021 root Banking & Finance

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Fullerton India Credit Company Limited (Fullerton India), a leading Non-Banking Financial Company, today announced the appointment of Rahul Bhardwaj as their Chief Information Officer and Head of Operations & Customer Service. He will be reporting to Pavan Kaushal, Chief Operating Officer.

Bhardwaj re-joins Fullerton India from Jio Payments Bank, where he was a part of the founding team and led the operations for Jio Payments Bank and Reliance Payments Solutions Ltd. During his 25 years work experience, Bhardwaj has worked with leading financial and technological institutions such as ICICI Bank, Aptech Internet and Globus Stores.

Bhardwaj was previously with Fullerton India for 11 years, where he held leadership positions in multiple roles, heading Operations, Customer Service and Technology. He played a key role in strategizing, designing and implementing the first full suite of technology applications at the company. During his role in Operations, Rahul led the creation of a regional structure and instituted a metrics-driven delivery culture.

Speaking on the appointment, Shantanu Mitra, CEO and MD, Fullerton India, said, “On behalf of the Fullerton India family, we are delighted to welcome back Rahul. Rahul has previously been with us for over a decade and helped the company grow immensely, while holding multiple leadership roles. We are certain he will draw from his past experiences in the industry and add value with his ideas to strengthen and help lead Fullerton India’s business and technological transformation during his tenure.”

“I am delighted to be back at Fullerton India. It had been an enriching and rewarding experience working for this organization. Through my current role, I look forward to not just enhancing the company’s Ops and Tech space but to take it to the next level of Digitization and business growth by deepening our technology adoption and expanding our digital footprints. We hope that this transformation will help us reach our customers more effectively and serve them better,” Bhardwaj said.

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RBL Bank taps Visa to issue credit cards as RBI barred Mastercard from issuing new cards, BFSI News, ET BFSI

July 15, 2021 root Banking & Finance

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Private lender, RBL Bank has entered into an agreement with Visa Worldwide Pte Limited (Visa) to issue credit cards on the Visa payment network.

The bank informed the exchanges about the agreement with Visa as RBI had barred Mastercard from issuing new cards due to non-compliance of data storage norms.

RBL Bank in the exchange notificiation said, “We await further information from Mastercard on RBI’s supervisory action. RBL Bank currently issues credit cards on the Mastercard network only. The debit and prepaid cards issued by the Bank are already enabled on other payment networks in addition to the Mastercard network.”

The bank said the integration with Visa will take another 8-10 weeks post which they will start issuing credit cards on Visa’s payment network. It’s current run rate of approximately 100,000 new credit card issuances per month could potentially be impacted till the integration with Visa gets over and regulatory clarity on the Mastercard network.

The bank currently has 3 million credit card customers and is the fifth largest credit card issuer in the country with roughly 5% market share.

On July 14, RBI had directed Mastercard to not issue any new cards on its network from July 22 onwards over non-compliance with data storage norms.

Mastercard said in a statement that it was disappointed with the stance taken by the regulator.

The payment giant in the statement said, “Mastercard is fully committed to our legal and regulatory obligations in the markets we operate in. Since the issuance of the RBI directive requiring on-soil storage of domestic payment transaction data in 2018, we have provided consistent updates and reports regarding our activities and compliance with the required stipulations. While we are disappointed with the stance taken by the RBI in their communication dated July 14, we will continue to work with them to provide any additional details required to resolve their concerns. Building on our considerable and continued investments in India, we remain committed to working with our customers and partners in advancing on the Government’s Digital India vision.”

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Biggest U.S. banks smash profit estimates as economy revives, BFSI News, ET BFSI

July 15, 2021 root Banking & Finance

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By Michelle Price

WASHINGTON – The four largest U.S. consumer banks posted blockbuster second-quarter results this week, after pandemic loan losses failed to materialize and the U.S. economy began roaring back to life.

Wells Fargo & Co, Bank of America Corp, Citigroup Inc and JPMorgan Chase & Co posted a combined $33 billion in profits, buoyed by the release of $9 billion in reserves they had put aside last year to absorb feared pandemic losses.

That was beyond analyst estimates of about $24 billion combined, compared with $6 billion in the year-ago quarter.

Consumer spending has climbed, sometimes beyond pre-pandemic levels, while credit quality has improved and savings and investments have risen, the banks said.

Thanks to extraordinary government stimulus and loan repayment holidays, feared pandemic losses have not materialized. A national vaccination roll-out has allowed also Americans get back to work and to start spending again.

Sizzling capital markets activity has also helped the largest U.S. banks, with Goldman Sachs Group Inc reporting a $5.35 billion profit, more than double its adjusted earnings a year ago.

“The pace of the global recovery is exceeding earlier expectations and with it, consumer and corporate confidence is rising,” Citigroup Chief Executive Officer Jane Fraser said.

That was reflected in a pick-up in consumer lending.

For example, JPMorgan said combined spending on its debit and credit cards rose 22% compared with the same quarter in 2019, when spending patterns were more normal.

Spending on Citi-branded credit cards in the United States jumped 40% from a year earlier, but with so many customers paying off balances its card loans fell 4%.

Citigroup Chief Financial Officer Mark Mason said the bank expects more customers to go back to their pre-pandemic pattern of carrying revolving balances as government stimulus programs wind down later this year.

Wells Fargo posted a 14% gain in credit-card revenue compared with the second quarter of 2020, due to higher point-of-sale volume. Revenue was up slightly on the first quarter, the bank said.

“What we’re seeing is people starting to spend and act more in a way that seems more like it was before the pandemic started and, certainly on the consumer side, spending is up quite a bit, even when you compare it to 2018,” Wells Fargo chief financial officer Mike Santomassimo told reporters.

While loan growth is still tepid, which is usually bad for bank profits, there were signs that demand is creeping back.

Excluding loans related to the U.S. government’s pandemic aid program, loan balances at Bank of America, for example, grew $5.1 billion from the first quarter.

“Deposit growth is strong, and loan levels have begun to grow,” Bank of America CEO Brian Moynihan said in a statement.

JPMorgan, the country’s largest lender, on Tuesday reported profits of $11.9 billion compared with $4.7 billion last year.

Citigroup’s second-quarter profit rose to $6.19 billion, up from $1.06 billion last year, while Bank of America’s profit jumped to $8.96 billion from $3.28 billion.

Wells Fargo posted a profit of $6 billion compared with a loss of $3.85 billion last year, which was largely related to special items.

While the results indicate good news for consumers and businesses, low interest rates, weak loan demand and a slowdown in trading will probably weigh on results going forward, analysts said.

The U.S. Federal Reserve is staying the course, with an inflation target of 2% and no plans to tighten monetary policy by, for instance, raising interest rates, Fed Chair Jerome Powell said in prepared remarks for a congressional appearance on Wednesday.

That suggests banks will have to deal with low rates for an extended period of time.

(Reporting by Michelle Price; additional reporting by Noor Zainab Hussain, David Henry and Matt Scuffham; Editing by Lauren Tara LaCapra and Nick Zieminski)

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Microfinance sector hit as defaults surge in pandemic

July 15, 2021 root Banking & Finance

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Small loan specialists in India that typically cater to people without bank accounts are facing a jump in pandemic-related defaults that could force some of them out of business, industry experts warn.

Loans overdue by 30 days are expected to reach 14-16 per cent of all so-called microfinance loans in the immediate aftermath of the second Covid-19 wave sweeping India, said Krishnan Sitaraman, senior director at credit rating agency Crisil.

That’s higher than 6-7 per cent in March, before the second wave took hold, and also above the 11.7 per cent reached in March 2017 after the demonetisation drive — an attempt to boost digital transactions and crack down on undeclared money that also hit microfinance lenders hard.

ALSO READ MFIs need bold policy support

“Older loans that were taken in 2019 or early 2020 are at a higher risk of defaults and they form about 60-65 per cent of the loanbook for lenders,” said Harsh Shrivastava, former head of the Microfinance Institutions Network, an association representing the sector in India.

Rahul Johri, chair of Vector Finance, a microfinance firm that provides loans to small enterprises, said many support measures brought in by the government had only helped larger institutions, while smaller players had struggled.

“It has become an existence issue for several small and mid-sized microfinance institutions as business has been severely impacted and collections are down,” said Johri.

Loan collection efficiency across the total loan pool has fallen to about 70 per cent from a peak of nearly 95 per cent in March, analysts say, indicating a potential build up in stress.

The gross loan portfolio of India’s microfinance lenders stood at ₹2.6-lakh crore ($35 billion) as of March 31, according to Crisil.

ALSO READ NBFC-MFIs: Sector sees nearly 25% decline in FY21

Bumpy road ahead

Despite the short-term challenges, some remain bullish on the sector and expect it to bounce back if an anticipated third wave is not so severe.

“About 55 per cent of the market is still untapped which means there is huge market opportunity … so things will look up soon,”said Johri.

But for now, many smaller microfinance firms are struggling.

Such companies, typically with loan books of less than ₹5-lakh crore ($67 million), have also seen their cost of funds rise by 100-150 basis points as banks and companies have become less willing to lend to them, said one industry executive, speaking on condition of anonymity.

Some microfinance firms have had to scale back capital raising plans due to tepid interest from investors, said the heads of two firms that have been looking to raise funds.

As smaller players falter, some have stopped paying salaries, or incentives to employees in recent months, they added, asking not to be identified due to the sensitivity of the matter.

“We are now only getting basic salaries, incentives have completely stopped in the last few months as collections are down,” said a collection agent.

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