Month: August 2021

RBI says stress in retail, MSME loans is not alarming, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India (RBI) has said there is stress visibility in retail and MSME loan segments but the situation is not alarming.

“With regard to the moment of any kind of stress in the retail segment and MSME segment, we are very closely monitoring, yes there is a visibility of little bit stress from the past data, but definitely it’s not alarming and constantly we are engaged with the regulated entities, particularly the outlier banks and the outlier NBFCs,” RBI Deputy Governor M K Jain said in the post-policy press conference.

He said RBI had advised all regulated entities post Covid to improve their provisions to which they have responded and implemented the parameters tied to the capital adequacy ratio.

“There is a reduction in gross and net NPA as well as slippage ratio, there is an improvement in the provision coverage ratio, and there is also an improvement in the profitability. So the sector isin a better position today than what it was before the Covid pandemic, he said.

Rising stress

Banks and NBFCs have seen stress rising during the last April-June quarter in the retail and MSME segment.

State Bank of India has reported GNPAs rising to 5.32 per cent in April-June quarter compared with 4.98 per cent in the previous quarter. During the quarter the bank reported fresh slippages of Rs 15,666 crore compared with Rs 21,934 crore in the preceding quarter.

Kotak Mahindra Bank reported the gross NPAs at 3.56 per cent in the last quarter against 3.25 per cent in the previous one.

The gross non-performing assets (GNPAs) ratio of banks may rise to 9.8 per cent by March 2022, under a baseline scenario, from 7.48 per cent in March 2021, according to the Financial Stability Report (FSR) released by the RBI early last month.

Under a severe stress scenario, GNPA of banks may increase to 11.22 per cent, the report said.

The asset quality of non-banking finance companies will see elevated stress levels in the near term due to the second wave of the pandemic, but the stress will subside subsequently with improvement in collection efficiencies and rise in restructuring, according to rating agency Icra.



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Rajasthan CM seeks Centre’s cooperation for economic, social development of states, BFSI News, ET BFSI

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Jaipur, Rajasthan Chief Minister Ashok Gehlot on Friday insisted upon increasing economic and policy cooperation from the Centre in order to strengthen the spirit of cooperative federalism. In a meeting with NITI Aayog member Ramesh Chand, senior adviser Yogesh Suri and adviser Rajnath Ram, the chief minister said in the last few years, the financial condition of all the states of the country has been adversely affected due to the coronavirus pandemic and the economic slowdown.

At the same time, he said the need to increase the scope of social security is being felt more.

“In such a situation, the central government should provide more cooperation to the states for the smooth conduct of activities related to economic and social development,” Gehlot said.

He said it is not easy for any state to bring the economy back on track without the cooperation of the central government.

“In view of the peculiar geographical conditions of the state, the Centre should provide assistance to the state in the ratio of 90:10 instead of 50:50 like the northeastern and hilly states, and Union Territories,” a statement quoting the chief minister said.

He reiterated his demand to give national status to the Eastern Canal Project of Rajasthan, which is aimed at providing drinking and irrigation water in 13 districts in eastern Rajasthan.

Gehlot also raised several demands pertaining to the state.

In the meeting, the Niti Ayog praised the performance of Rajasthan in the areas of ease of doing business, export sector, school education, MGNREGA, agriculture and animal husbandry, health, renewable energy, women empowerment, MSME sector, etc.

Energy Minister BD Kalla, Education Minister Govind Singh Dotasra, Industries Minister Parsadi Lal Meena, Chief Secretary Nirajan Arya, CM‘s economic advisor Arvind Mayaram, advisor Govind Sharma and other senior officers attended the meeting.

Selja is supposed to enjoy the confidence of Congress president Sonia Gandhi and is also considered close to Ashok Gehlot (in pic)



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Co report net loss of Rs 233 cr, BFSI News, ET BFSI

Banking & Finance

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Kolkata: Ujjivan Small Finance Bank has reported Rs 233 crore net loss in the June quarter as compared with Rs 55 crore net profit in the year ago period on rising stress on asset quality and shrinking business.

Loan repayment was severely hit due to the second wave and fresh lockdowns with collection efficiency fell to 78 per cent in June against 94 per cent in March, the bank said. The ratio improved to 93 per cent in July for the bank.

“The second Covid wave and consequent restrictions and lockdowns lashed the industry, especially the micro banking sector,” chief executive Nitin Chugh said.

Its operating profit fell 24 per cent at Rs 163 crore compared with Rs 215 crore over the same period.

The bank created a floating provision of Rs 250 crores to absorb the impact of potential slippages in near future. Its total provision stood at Rs 1,149 crore, covering 8.2 per cent of gross advances, which shrunk 2 per cent year-on-year to Rs 14,037 crore. Provision coverage ratio improved to 75 per cent from 60 per cent three months back.

Its asset quality sharply deteriorated with gross non-performing assets ratio rising to 9.8 per cent at the end of June as against 1 per cent a year back. Net NPA was at 2.7 per cent compared with 0.2 per cent for the same period. The bank wrote off loans worth Rs 280 crore.

“We are hopeful that our customers will resurrect their livelihoods and continue to be resilient. We continued to diversify our asset book as a strategic approach,” he added.

The bank’s non-micro banking portfolio grew to 32 per cent from 22 per cent over the year with the secured portfolio rising to 30 per cent from 21 per cent earlier.

Its deposits rose 24 per cent at Rs 13,673 crore with current and savings bank account ratio being at 20.3 per cent, an improvement from 14.2 per cent a year back.



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Yes Bank board okays prosecution of Rana Kapoor, BFSI News, ET BFSI

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Troubled lender Yes Bank’s board has given sanction to prosecute its jailed promoter Rana Kapoor under the Prevention of Corruption Act (PCA).

This came following a requisition by the Central Bureau of Investigation (CBI), which informed a local magistrate’s court of the development and filed a supplementary chargesheet in the Yes Bank fraud case earlier this week.

The central agency has charged R Anand, the then area sales manager, as well as a junior ex-employee of Yes Bank in the case, sources privy to the development told ET.

Last year, the CBI had sought the board’s approval after a special CBI court in Mumbai rejected its charge sheet against the banker under PCA as it lacked prosecution sanction.

The special court remitted the case to a lower court for cognisance under sections related to cheating and criminal conspiracy of the Indian Penal Code (IPC), which attract lesser punishment.

Prior sanction from a competent authority is mandatory to an accused public servant to stand trial under PCA, as per an amendment to the Act notified in 2018.

“Once the consent was accorded by the board, the lower court was intimated and since the sections invoked under PCA attract punishment of over seven years, the case papers have been sent to the Sessions court. A supplementary chargesheet has also been submitted before the Sessions court and cognisance is awaited,” a senior official told ET.

The sanction to prosecute Kapoor was granted by the Yes Bank board, while that for Anand was given by the managing director of the bank, the source added. The agency is probing Kapoor and Dewan Housing Finance Corporation Ltd’s (DHFL) promoters Kapil and Dheeraj Wadhawan in an alleged corruption case of over Rs 600 crore.

“During the course of the probe, it was found that Anand and another junior employee acted on the advice of Kapoor and overruled the recommendations given by the risk management committee against loans sanctioned to DHFL,” the official added.

The committee, in its recommendation, had highlighted that the Letter of Intent was not made to the company that applied for the loan, but in the name of a different company.

The project for which the loan was sought did not have the requisite sanction from the local authorities, including MHADA, and the tenants were not evicted, the official added.

“These over-rulings are discussed on email exchanged between the three and the same has been found during the course of the probe which has been detailed out in the chargesheet,” the source said.

According to the CBI’s first chargesheet, in June 2018, Kapoor, the then head of Yes Bank’s management credit committee, sanctioned a loan of `750 crore on an application by the promoters of DHFL in the name of Belief Realtors Pvt Ltd to develop the Bandra Reclamation Project.

This amount was advanced to RKW Developers, a company controlled by Dheeraj Wadhawan, though the bank’s risk management team had pointed out multiple issues with the proposal.

The agency’s probe revealed that the loan was not utilised for the stated purpose.

Simultaneously, Kapil Wadhawan is alleged to have paid a kickback of `600 crore to Kapoor and his family members in the garb of a builder loan from DHFL to DOIT Urban Ventures (India) Private Ltd (DUVPL).

Rana Kapoor’s daughter Roshni is one of the directors of DUVPL. After deducting a processing fee, Rs 632 crore was transferred to RKW Developers.



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Gold Prices Set To Fall By Rs 1,000 As International Prices Plunge

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Investment

oi-Sunil Fernandes

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Gold rates in Indian cities are set to fall by Rs 1,000 per 10 grams at the very least on Saturday, as international prices fell by 2.5% in trade. The MCX which trades until 11 pm, saw gold prices fall by Rs 952. Jewellery associations in the country, which take cues from the MCX prices would quote these same rates.

Gold in Indian cities was trading around that Rs 44,600 to Rs 46,600 per 10 grams for 22 karats on Friday and hence it should open lower on Saturday from these levels.

In the global markets gold fell to its lowest in over a month after a strong U.S. jobs report boosted expectations the Federal Reserve could begin tapering its economic support sooner than previously anticipated.

Spot gold fell 2.3% to $1,763 per ounce after touching its lowest since June 30 at $1,757.

Strong US Jobs data, pushes gold prices lower

Hiring in the United States rose for the month of July at its fastest pace in nearly a year despite fears over Covid-19′s delta variant and as companies struggled with a tight labor supply, the Labor Department reported.

Nonfarm payrolls increased by 943,000 for the month while the unemployment rate dropped to 5.4%, according to the department’s Bureau of Labor Statistics. The payroll increase was the best since August 2020.

This strong jobs data may now push the US Fed to begin partial withdrawal of its easing programme much earlier than anticipated.

Many analysts believe that gold could now be headed lower in the direction of $1700 an ounce. However, support could arise near these levels as the globe is still awash with liquidity and this could lead to buying at lower levels.

“The Fed has underscored that their decisions in terms of when they will begin to taper, as well as normalizing interest rates, are tied directly to the state of the economy. More so, they have adjusted their dual mandate which was to facilitate full employment and maintain a target inflationary rate of 2% to focus upon full employment while letting inflationary rates run hot. Their rationale is that much of the current upticks in inflationary pressures are transitory and will be alleviated as the country continues to rebound returning to a much more robust economy,” says Amit khare, AVP- Research Commodities, Ganganagar Commodities, Limited.

Meanwhile, the Sovereign Gold Bonds have now opened for subscription.

Gold Prices Set To Fall By Rs 1,000 As International Prices Plunge

According to Nish Bhatt, Founder & CEO, Millwood Kane International – an Investment consulting firm, the price for the Fifth tranche of SGB is fixed at Rs 4790/gm.
“Investment in non-physical gold, via digital or paper gold, is highly recommended as it provides high liquidity, no storage cost, and is easier to sell vs physical gold. Investment in SGBs comes with an interest coupon payable semi-annually. Investment in SGB is a superior alternative to physical gold. The investments in non-physical gold will help the government to keep a check on the currency and larger fiscal deficit.

Gold prices have softened in the past few weeks to touch a 1-month low. In the past one week alone, it has dropped nearly Rs 1,000/10gm in value. The rising US Dollar and Treasury yields on the back of a sooner than expected policy tightening by the Fed have largely led to softening of gold prices. Gold prices domestically and internationally have traded in a narrow range in the past few months. The latest variant of the virus, the pace of vaccination, unlocking, and signs of policy tightening by the Fed will guide gold prices going forward,” he says.



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Motilal Oswal Places A “Buy” On These 2 Stocks, Says 26% Returns Likely

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Buy Birla Corporation for a target of Rs 1,740 on the stock

Current market price Rs 1371
Target price Rs 1,740
Likely Profits if target price achieved 26%

Birla Corporation is primarily engaged in the manufacturing of cement as its core business activity. It has significant presence in the jute goods industry as well.

The company plans to increase capacity by 30% over the next 12 months, which should support volume growth. Around 55% of its capacity is in Central India (a preferred market), which bodes well for the margin outlook.

Birla Corporation: Attractive on the valuations front

Birla Corporation: Attractive on the valuations front

Birla Corporation first quarter results for FY 2022 was in line, with EBITDA growing by 47% YoY to Rs 3.4 billion, led by 39% growth in volume and EBITDA per tonne at Rs 1,026 (+6% YoY).

The ongoing 3.9 metric tonnes per annum greenfield expansion at Mukutban (to be commissioned in 4QFY22) provides strong volume growth visibility in FY23. While blended realization rose 3% year on year, to Rs 5,221 per tonne due to higher jute revenue, cement realization was flat year on year at Rs 4,943 per tonne (+2% QoQ).

“We expect a 14% earnings before interest, taxes, depreciation, and amortization Compounded Annual Growth Rate in FY21-23E, led by 14% volume Compounded Annual Growth Rate, as it expands capacity by 30% over the next 12 months. Valuation is also attractive at 7.4x FY23E EV/EBITDA. We reiterate our Buy rating,” the brokerage firm has said.

Buy NOCIL Stock for 20% upside

Buy NOCIL Stock for 20% upside

Current market price Rs 287
Target price Rs 340
Likely Gains 20%

According to Motilal Oswal, NOCIL reported higher-than-estimated realization (pricing action taken in Apr’21 to offset the increase in input cost), while volumes came in below estimates (as operating activity at the customer was interrupted for 2-3 weeks by the second COVID wave). This translated to in-line revenue, although margins expanded.

“The management has guided that with no further supply surplus in the market, NOCIL should be able to pass on the cost going forward as well, Factoring in the beat on realization and margins, we revise our respective variables, resulting in an upward revision in EPS by 31% and 14% for FY22E/FY23E, ” the brokerage has said.

“As a result, we forecast a revenue/EPS CAGR of 28% and 47% over FY21-24E. Valuing the company at 22x Sep’23 EPS, we arrive at price target of Rs 340. Reiterate Buy,” it further added.

Disclaimer

Disclaimer

Investing in stocks poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house, Motilal Oswal are not liable for any losses caused as a result of decisions based on the article. Investors should take care because the markets are at record highs, with the Nifty crossing the 16,000 points mark.



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S&P revises Indian Bank’s rating outlook to stable from negative

Banking & Finance

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In its view, Indian Bank is likely to maintain its solid funding and liquidity profile over the next 18-24 months.

S&P Global Ratings has revised its rating outlook on Chennai-based public sector lender Indian Bank to stable from negative. At the same time, the rating agency affirmed its ‘BBB-‘ long-term and ‘A-3’ short-term issuer credit ratings on the bank.

S&P Global Ratings said it had revised the rating outlook to reflect its view of Indian Bank’s strengthened capital position stemming from its recent equity capital raising through qualified institutional investors, and its improving profitability.

The stable outlook reflects S&P’s expectation that the likelihood of support from the central government to Indian Bank will remain very high over the next 24 months. It also believes Indian Bank’s strengthened capital position should be able to weather asset quality pressures while the bank maintains its financial profile in line with its ratings.

In its view, Indian Bank is likely to maintain its solid funding and liquidity profile over the next 18-24 months.

“In our view, the stronger capital position should give the bank sufficient cushion against potential asset quality pressures from the brunt of a Covid-19 second wave, our baseline expectation is for Indian Bank’s weak loans (gross non-performing loans plus restructured loans) to stay below 12% of total loans, and credit costs not materially worse than 2%,” it said.

The rating agency forecast that the pre-diversification risk-adjusted capital (RAC) ratio for Indian Bank to trend above 5% despite its assumption of 10%-12% annual credit growth and elevated credit costs over the next 12-24 months.

“We expect the bank to further increase its capitalisation to protect the balance sheet against downside risks. Indian Bank already has approval for raising equity capital of up to Rs 40 billion. We project the bank’s weak loans to stay slightly above the industry level over the current fiscal year, mainly driven by our expectation of higher loan restructuring, and then trend downward over the next 12-24 months. This is in line with our expectation for the industry,” S&P said.

It expects Indian Bank’s credit costs to remain elevated at about 2% in fiscal years 2022 and 2023, partly due to the management’s policy of increasing its reserves to improve its net non-performing loan (NPL) ratio to about 2%, from 3.5% at the end of June 2021. The bank’s reported NPLs have continued to sequentially trend downward to about 9.7% as of June 2021, from the high of 11.4%, following the amalgamation of Allahabad Bank. Nonetheless, its asset quality compares unfavourably to peers such as Axis Bank, ICICI Bank, or State Bank of India.

“We project Indian Bank’s weak loans to peak at about 12% of total loans in fiscal 2022 and trend downward to about 11.5% in fiscal 2023. Over the two fiscal years, we expect the bank’s return on average assets to improve to 0.7% from 0.5%, but stay slightly below the industry average,” S&P said.

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4 Midcap Stocks Available Cheap, Should You Buy?

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Midcap stocks that are cheap when compared to long-term averages

According to the “Bulls & Bears India Valuation Handbook” by Motilal Oswal Financial Services, there are many midcap stocks that are available at a discount to long-term averages, which automatically means that they are cheap.

Current p/e 10-year average p/e Discount
SAIL 4.3 12.5 -66%
SUN TV 13.9 18.0 -23%
Zee Entertainment 14.0 30.1 -53%
Bank of Baroda 8.3 12.9 -35%

Now, just because these midcap stocks are available at a discount, does not mean they become great investment bets. For example, investors maybe unwilling to buy the shares, because of issues surrounding growth, promoter related issues, or some issues that are a hangover on the stock. Therefore, it is not advisable to simply jump into stocks looking at the valuations and discount and go ahead and buy.

Here below we tell you whether you should buy these stocks.

Should you buy the stocks of SAIL, SUN TV, Zee and BOB?

Should you buy the stocks of SAIL, SUN TV, Zee and BOB?

Now, let’s take the case of SAIL. The stock has already had a solid run and is trading near 52-week highs. Metal prices have rallied and hence quarterly numbers of metal companies have been robust. Should the global economy slow, metal prices could fall and so would metal stocks.

Now as far as Zee Entertainment is concerned, the covid situation over the last 18 months or so has hit performance badly. Apart from this there have been issues in the past pertaining to the promoters pledged share to pay off debts in other group companies. SUN TV too has been hit by stiff competition and churning out solid growth rates looks difficult.

Bank of Baroda is a good midcap stock to buy

Bank of Baroda is a good midcap stock to buy

According to Motilal Oswal, earnings outlook is improving for government owned banks, led by a reduction in credit cost estimates, as most public sector banks have strengthened their provision coverage over the last couple of years.

Bank of Baroda is one stock that many analysts are optimistic on. Many analysts have set a higher price target on the stock. HDFC Securities said that the stock of Bank of Baroda inexpensive and valuation gives a comfort for long-term investment in a report recently.

“It is a play on the gradual recovery in the Indian economy. Any progress on the rollout of the proposed bad bank would be positive for large PSU banks like Bank of Baroda,” Motilal Oswal has said.

Disclaimer

Disclaimer

Investing in stocks poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house, Motilal Oswal are not liable for any losses caused as a result of decisions based on the article. Investors should take care because the markets are at record highs, with the Nifty crossing the 16,000 points mark.



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Reserve Bank of India gives corporate borrowers 6 more months to meet debt recast guidelines

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Experts also pointed out that RBI had given the relaxations as the earnings of companies were impacted due to the second wave of Covid-19.

The Reserve Bank of India (RBI) on Friday allowed corporate borrowers six more months to meet certain operational thresholds outlined by the KV Kamath committee under Covid-19 debt recast scheme. The relaxation has been provided by the central bank upon recognising the adverse impact of second Covid wave on revival of businesses. The financial parameters were earlier required to be met till March 31, 2022, by companies that took the benefit of the debt recast scheme.

“Recognising the adverse impact of the second wave of Covid-19 and the resultant difficulties on revival of businesses and in meeting the operational parameters, it has been decided to defer the target date for meeting the specified thresholds in respect of the above four parameters to October 1, 2022,” RBI governor Shaktikanta Das said on Friday.

Last September, the Kamath committee had recommended financial ratios for 26 sectors that had to be factored in by lending institutions while finalising a resolution plan for a borrower. Of these parameters, the thresholds in respect of total debt to EBIDTA (earnings before interest, taxes, depreciation, and amortisation) ratio, current ratio, debt service coverage ratio and average debt service coverage ratio are related to operational performance of the company. The 26 sectors specified by the Reserve Bank of India (RBI) included automobiles, power, tourism, cement, chemicals, gems and jewellery, logistics, mining, manufacturing, real estate, and shipping, among others.

According to bankers, the move by RBI will address the difficulties faced by businesses in their revival. SS Mallikarjuna Rao, MD and CEO of Punjab National Bank (PNB), said deferral for achievement of financial parameters under Resolution Framework 2.0 will address the revival difficulties faced by businesses in meeting the operational parameters.

Experts also pointed out that RBI had given the relaxations as the earnings of companies were impacted due to the second wave of Covid-19.

Vivek Iyer, partner and national leader-financial services risk advisory, Grant Thornton Bharat, said, “We need to be patient and study how the coming few months pan out. Since economic data comes out with a lag, the extra time would allow banks to make a sharper assessment.”

Anil Gupta, VP and sector head, financial sector ratings, Icra, said as earnings of companies have been impacted because of the second wave, achieving financial parameters related to profitability could be a challenge in FY2022. As per Icra’s estimates, the corporate loan restructuring implemented by banks is estimated to be Rs 70,000 crore.

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RBI monitoring stress in retail, MSME segments: Deputy governor MK Jain

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On comparing the results of banks from the pre-Covid days with their numbers in March 2021, one can see an improvement in all the parameters with regard to the capital adequacy ratio, Jain said.

The Reserve Bank of India (RBI) has taken note of the rising stress in the retail and small enterprises categories, and is closely monitoring it, deputy governor MK Jain said on Friday.

Jain said the regulator was cognisant of the stress levels in the retail and the micro, small and medium enterprises (MSME) segments. “Yes, there is a visibility on a little bit of stress from the past data, but definitely it’s not alarming. We are constantly engaged with the regulated entities, particularly the outlier banks and the outlier NBFCs (non-banking financial companies) and we also conduct stress tests,” Jain said.

The deputy governor pointed out that in the past, the central bank had advised all regulated entities to improve their provisions in the wake of Covid, and banks have heeded that call. On comparing the results of banks from the pre-Covid days with their numbers in March 2021, one can see an improvement in all the parameters with regard to the capital adequacy ratio, Jain said.

“There’s a reduction in gross NPA (non-performing asset), net NPA as well as the slippages ratio. There is an improvement in the provision coverage ratio and there is also an improvement in profitability. So, the sector is better positioned today than what it was before the Covid onset,” Jain said.

The RBI’s financial stability report for July 2021 observed that consumer credit deteriorated after the loan moratorium programme came to an end in September 2020. Consumer credit portfolios of non-public sector banks (PSBs) are seeing incipient signs of stress, the central bank said, citing data from credit bureau TransUnion Cibil. The delinquency ratio in aggregate consumer credit for private banks doubled to 2.4% in January 2021 from 1.2% in January 2020, and for NBFCs and housing finance companies (HFCs), it rose to 6.7% from 5.3% over the same period.

In the April-June quarter of FY22 as well, banks and non-bank lenders saw their retail and MSME NPA ratios worsening as collections were hit during the second wave. The high demand for restructuring from the two borrower categories has also been a cause for concern.

Lenders have time until the end of September 2021 to recast accounts hit by Covid, and the numbers are set to rise, by some estimates. In a recent report, Icra analysts said the restructured book for NBFCs is expected to move up to 4.1-4.3% by March 2022, while the same for the HFCs is estimated to go up to 2-2.2%. The overall sectoral restructured book is, therefore, expected to double to 3.1-3.3% by March 2022 from 1.6% in March 2021, Icra said.

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