Author: root

BoI Q2 profit doubles to ₹1,051 cr on decline in loan-loss provisions

Banking & Finance

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Bank of India’s standalone net profit almost doubled to ₹1,051 crore in the second quarter against ₹526 crore in the year-ago period on the back of robust growth in other income and steep decline in loan-loss provisions.

During the reporting quarter, there was a reduction of ₹5,771.50 crore in gross non-performing assets (GNPAs), net of slippages.

The Mumbai-headquartered public sector bank’s net interest income declined 14 per cent year-on-year (y-o-y) to ₹3,523 crore (₹4,113 crore in the year-ago quarter).

Other income, including profit/ loss on sale of assets, profit/ loss on revaluation of investments (net), earnings from foreign exchange and derivative transactions, recoveries from accounts previously written off and dividend income, jumped 59 per cent y-o-y to ₹2,136 crore (₹1,346 crore).

GNPA position improved to 12 per cent of gross advances as of September-end 2021 against 13.51 per cent in the preceding quarter. Net NPAs position, too, improved to 2.79 per cent of net advances against 3.35 per cent in the preceding quarter.

Global deposits (domestic plus overseas) edged up by about one per cent y-o-y to ₹6,12,961 crore.

Global advances increased 2.70 per cent y-o-y to ₹4,18,895 crore, mainly on the back of growth in RAM advances (retail, agriculture and micro, small and medium). Corporate advances portfolio saw a de-growth.

Corporate loans

Atanu Kumar Das, MD and CEO, observed that out of the corporate loan sanctions pipeline of ₹35,000 crore, disbursement was less than ₹10,000 crore. However, Das expects corporate loan disbursements to gain traction in the third and the fourth quarters, which will help the bank end FY22 with an overall credit growth of 6-7 per cent.

M Karthikeyan, Executive DIrector, expects GNPAs to reduce by about ₹4,500 crore in the third quarter and about ₹5,000 crore in the fourth quarter.

In the current quarter, out of the recovery of ₹3,218 crore, the bank received ₹1,880 crore on account of resolution of DHFL.

Exposure to SREI Group

Karthikeyan said BoI has direct exposure of ₹1,024 crore to the SREI Group, which is undergoing corporate insolvency resolution process, and ₹970 crore via the pooled route.

The bank has made 50 per cent provision on its direct exposure.

On a consolidated basis, including the results of four domestic subsidiaries, four overseas subsidiaries, one joint venture and six associates, BoI reported a 97 per cent jump in net profit at ₹1,073 crore (₹543 crore).

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Bankers protest against Chaudhuri’s arrest, want FinMin to intervene

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Bankers are up in arms against what they perceive as an unjust punitive action against former SBI Chairman Pratip Chaudhuri who was arrested on Sunday for an alleged loan scam.

While prominent bankers have condemned the arrest as being detrimental to lending and credit flows, the Indian Banks Association (IBA) has asked the Centre to put in place a procedure to safeguard bankers against state-level authorities, including police, in cases of loan defaults.

Former SBI Chief arrested in Jaisalmer hotel loan case

Sunil Mehta, Chief Executive Officer of IBA told BusinessLine that the mechanism to protect bankers should be on the lines of that already in place for central investigative agencies such as the CBI. Mehta said IBA has written to the Secretary, Department of Financial Services (DFS) in the Finance Ministry and the Chief Secretary, Rajasthan Government, seeking their intervention. In its communication to the DFS, the IBA has said the bona fide decisions on loans should not be subject to arrest without a mechanism in place.

‘Examine the evidence’

“How can you arrest a person until you have sufficient evidence against him? It is humiliating to subject a person of Chaudhuri’s stature to go through this. People with sufficient knowledge should examine the documented evidence and find out if there is something mala fide,” Mehta said.

Bankers, including former SBI chiefs Rajnish Kumar and Arundhati Bhattacharya, have also voiced support for Chaudhary and highlighted the bankers’ precarious situation. Uday Kotak, Managing Director and CEO, Kotak Mahindra Bank and Chairman of the IL&FS board, said on Tuesday, “Based on what I have read, we need to have a criminal justice system which protects bona fide actions taken by lenders to recover their money.”

Meanwhile, industry observers pointed out that Chaudhuri retired as SBI Chairman on September 30, 2013. SBI had assigned the asset in March 2014 to Alchemist ARC. Pratip Chaudhuri joined the ARC Board only in October 2014. Some bankers pointed out that the allegation against Chaudhuri is not borne out as he was neither with the SBI nor with Alchemist when the asset was assigned to the ARC.

Alchemist ARC in a statement alleged that defaulters in the Hotel Gaudavan matter are taking the “judicial machinery for a ride”.

With inputs from Surabhi

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Poonawalla Fincorp board okays Magma HDI stake divestment

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The board of directors of Poonawalla Fincorp Ltd (PFL) has approved divestment of the company’s direct and indirect shareholding in Magma HDI General Insurance in order to comply with requirements of the Reserve Bank of India and IRDAI.

Sanoti Properties, held by Adar Poonawalla and Serum Institute of India, has agreed to acquire the direct and indirect stake of the company in Magma HDI.

“This structure is in line with other financial services groups with NBFC and general insurance operations and will allow a framework for continued business relationship between PFL and Magma HDI,” PFL said in a statement on Tuesday.

Also see: Poonawalla Fincorp: Consolidated PBT up 151% YoY

PFL will also divest its 48.89 per cent shareholding in Jaguar Advisory which, consequent to the above divestment in MHDI shares, will own only cash and cash equivalent, to Celica Developers, the joint venture partner in Jaguar Advisory.

Regulatory compliance

IRDAI’s Registration of Insurance Companies Regulations stipulates that a promoter of an insurance company cannot be a subsidiary of another company. Post the acquisition of PFL by Rising Sun Holdings in May 2021, PFL has become a subsidiary of RSH. As a result, IRDAI sought compliance from Magma HDI regarding its shareholding structure.

PFL is a joint venture partner in Magma HDI with Celica Developers, Jaguar Advisory and HDI Global SE.

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Bankers shocked over ‘high-handed’ move, BFSI News, ET BFSI

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Former State Bank of India (SBI) chairman Pratip Chaudhuri was arrested by the Rajasthan police on Monday on complaints from a loan defaulter sending shock waves in the banking industry that was just limping back to normalcy after years of fear of being implicated criminally on trumped up charges.

There was reportedly no notice or formal summons in a decade-old soured-loan case which has shaken the banking sector, stoking concerns the incident could delay decision making in multi-billion-dollar recovery initiatives of several lenders.

Former SBI chairman Rajnish Kumar termed his predecessor’s arrest as extremely unfortunate and a case of high handedness. “Prima facie, it seems to be a case of misrepresentation of facts and singling out of an individual, who held a high position, to seek publicity,” Kumar told ET. “In the process, the dignity of an individual has not been given any consideration. It needs to be looked into whether due process of law has been followed.”

Account Acquired by an NBFC in 2017
Chaudhuri was arrested from his Delhi residence by the Rajasthan police and taken to Jaisalmer on Monday. His subsequent bail application was rejected by the local magistrate. The case refers to the ‘Garh Rajwada’ hotel project in Jaisalmer, financed by SBI in 2007.

  • Chaudhuri was arrested from his Delhi residence by Rajasthan police, taken to Jaisalmer on Monday
  • Local magistrate rejected his bail plea
  • Case refers to a Jaisalmer hotel project, financed by SBI in 2007 Account became an NPA in 2010
  • Chaudhuri retired in 2013 NPA was sold to an ARC in 2014
  • Bank not summoned or asked for its views in case

Since the project was not completed for three years and a key promoter passed away in April 2010, the account slipped into the non-performing asset (NPA) category in June 2010.

As the country’s biggest mass lender didn’t succeed in reviving the project, SBI sold the loans to the Alchemist Asset Reconstruction Co (ARC) in March 2014.

To be sure, it is unclear whether Chadhuri was arrested because of his role as SBI chairman or because he was later chairman of Alchemist ARC, which bought the assets from the bank. Police authorities in Rajasthan couldn’t immediately be reached for their comments.

Ironically, bankers said Chaudhuri retired from the bank six months before the sale of loans, in September 2013.

In a statement, SBI said the sale to Alchemist ARC was done through a laid-down process. Further, the account was taken to the bankruptcy court and was acquired by an NBFC in December 2017.

‘No Legal Basis’

The arrest, without any due notice or summons neither to the bank nor Chaudhuri, has not gone down well with current and former SBI executives. Former SBI deputy managing director Sunil Srivastava took to Twitter to express his displeasure. “Frankly, without notice and without summons, how can police from another state arrest someone in Delhi? Where is the due process of law? Absolutely pathetic. Is the system being gamed again by defaulters despite all efforts by Modi govt; time for overhaul of judicial processes to improve transparency and introduce accountability,” Srivastava wrote on the social media platform.

Interestingly, Alchemist ARC promoter Alok Dhir was not arrested and his mobile phone was switched off when ET tried to reach him. “Whatever it is, it does not have a logical or legal basis,” the chief of a large public sector bank said, on the condition of anonymity. “There have been numerous court orders, including from the Supreme Court, that directors are not liable for the faults or crimes of a company management. Some lower level judicial and police officers who have no clue of how banking works take these high-handed decisions to please higher-ups. This must stop.”

‘SBI not Party to Case’

SBI said despite the case involving its loan account, it was neither summoned nor asked for its side of the story.

“It transpires now that the borrower had initially filed an FIR with the state police against the sale of the asset to the ARC. Aggrieved against the negative closure report filed by police authorities, the borrower had filed a ‘protest petition’ before the CJM court,” SBI said in a statement. “Incidentally, SBI was not made a party to this case. All the directors of that ARC, including Mr Chaudhuri who joined their board in Oct 2014, have been named in the said case. Incidentally, Mr Chaudhuri retired from the bank’s service in Sep 2013.”

The bank said it has now accessed copies of the proceedings that show the court was not briefed correctly on the sequence of events.

Bank Offers Cooperation
“In as much as SBI was not a party to this case, there was no occasion for the views of SBI being heard as part of these proceedings,” the bank said. “SBI would like to reiterate that all due processes were followed while making the said sale to ARC. The bank has already offered its cooperation to the law enforcement and judicial authorities and will provide further information, if any, that may be called for from their side.”

Bankers said lessons have not been learnt despite recent judicial and police overreaches. They were referring to the dramatic June 2018 arrest of the Bank of Maharashtra CEO Ravindra Prabhakar Marathe, and executive director Rajendra Kumar Gupta. The police subsequently filed a closure report due to lack of evidence and Marathe and Gupta were reinstated.

“The point is that the police were not punished. There is no punishment for wrongful cases and judgements that can destroy careers. Law enforcement agencies are not acting with responsibility and this will have economic repercussions,” said the bank CEO cited above.



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Fino Payments Bank IPO fully subscribed on last day, BFSI News, ET BFSI

Personal Finance

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The initial public offer of Fino Payments Bank was subscribed 2.03 times on the last day of subscription on Tuesday. The Rs 1,200.3-crore IPO received bids for 2,32,46,150 shares against 1,14,64,664 shares on offer, according to data available with the NSE.

The category for Qualified Institutional Buyers (QIBs) was subscribed 1.65 times, while that for non-institutional investors was subscribed 21 per cent and Retail Individual Investors (RIIs) 5.92 times.

The initial public offer (IPO) had a fresh issue of up to Rs 300 crore and an offer for sale of up to 1,56,02,999 equity shares.

The price range for the offer was at Rs 560-577 per share.

Fino Payments Bank had on Thursday said it has garnered Rs 539 crore from anchor investors.

Proceeds from the fresh issue would be used towards augmenting the bank’s tier-1 capital base to meet its future capital requirements.

Fino Payments Bank or FPBL is a scheduled commercial bank serving the emerging Indian market with its digital-based financial services.

The company is a fully-owned subsidiary of Fino Paytech, a pioneer in technology-enabled financial inclusion solutions.

Fino Paytech is backed by investors like Blackstone, ICICI Group, Bharat Petroleum and International Finance Corporation (IFC).

Axis Capital, CLSA India, ICICI Securities and Nomura Financial Advisory and Securities were the managers of the offer. PTI SUM ANU ANU



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Report, BFSI News, ET BFSI

Banking & Finance

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-By Ishwari Chavan

The Indian banking sector is likely to witness a fresh phase of consolidation over the medium term, between FY22 and FY24, primarily driven by large private sector banks, according to a report by Acuite Ratings and Research.

Given the current buoyancy in equity markets, there is now a significant opportunity for large Indian private banks for inorganic growth through acquisition of smaller private banks that continue to face headwinds or even public sector banks where the government is considering a disinvestment, the report said.

The banking sector saw its first phase of consolidation involving public sector banks over the period 2017-20, with an intent to enhance their competitiveness, capital position and operational efficiency. Post this, there are twelve PSBs, including seven large ones and five smaller ones against 27 in 2017.

Market share

While PSBs have been enjoying a dominant market share since nationalisation of banks in 1969, they have witnessed a steady drop in both credit and deposit market share over the last one decade, the report said.

This was further accelerated over the last five years, with the impact of the Asset Quality Review (AQR) and the subsequent spike in NPAs in the banking sector.


Share of Public Vs Private Sector Banks in Outstanding Credit
Source: Acuite Ratings and Research

Over the last five years, the market share of state-owned banks has dropped by around 10% in both deposits and advances due to asset quality, resultant profitability and capital challenges.

This market share has been largely taken over by private banks, who have cemented their market position through easier access to capital, along with technological initiatives.


Share of Public Vs Private Sector Banks in Outstanding Deposits
Source: Acuite Ratings and Research

Domination of large private banks

Given investors’ confidence, large as well as some select mid-sized private banks have been able to raise funds through capital markets.

Despite repercussions from COVID, larger and few mid-sized private banks have been able to raise capital through equity (QIP) snd Tier I/II bonds in FY21 and H1FY22.

Large banks have been reporting double-digit growth rates on an average over the last five years due to a comfortable capital cushion, which can shield them from any asset quality stress.

Despite some improvement in profitability during FY21, small-size private banks continue to have low return on assets, reflecting their vulnerability in a challenging environment. These banks have also been facing difficulties in raising capital.

Furthermore, their ability to bring about a structural improvement in their lending and deposit profile is uncertain due to limitations in their geographical franchise, the report said.


Size Wise ROAA Trend of PVBs
Source: Acuite Ratings and Research



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Crypto coin riding Squid Game high craters after dizzying rally, BFSI News, ET BFSI

Personal Finance

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– A cryptocurrency named after the wildly popular Netflix drama “Squid Game” crashed to almost zero value on Tuesday after a dizzying rally pushed it to almost $2,800 last week.

The so-called squid token‘s market value jumped to $2.4 billion at the peak of Monday’s trading with a trading volume of $14 million over the last 24 hours, according to CoinMarketCap. The reason for squid’s slump was unclear. However, several reports including one by Gizmodo said holders of the coin were not allowed to sell the digital coin. Reuters could not independently verify the information.

Specialist crypto news outlet Coindesk reported that a digital address dumped squid tokens and cashed out millions of dollars worth of tokens in what it termed a “rug pull”- a situation where crypto developers abandon a project and run away with investors’ money.

Squid’s website appeared to be offline on Tuesday, while its Twitter account was “temporarily restricted” due to unusual activity.

Squid has only traded for a week, according to CoinMarketCap.

“Like many internet scams, cryptocurrency scams align themselves closely to popular trends and after the hype of Squid Game, this is no different,” said Jake Moore, cybersecurity specialist at cybersecurity firm ESET.

Cryptocurrencies based on memes or linked to internet culture have recorded rapid booms and busts this year, echoing soaring popularity of mainstream cryptocurrencies such as bitcoin.

Last week, for instance, shiba inu cryptocurrency – a meme-inspired cryptocurrency and a spinoff of dogecoin – muscled into the top-10 largest digital tokens by market capitalization. It has, however, barely any practical use.

South Korean series Squid Game, which became a global sensation and the No.1 program on Netflix, shows hundreds of cash-strapped players competing in hyperviolent games.

Squid is traded on exchanges PancakeSwap and DODO.

Pancakeswap did not respond to a request for comment. (Reporting by Medha Singh and Shreyashi Sanyal in Bengaluru and Tom Wilson in London; Editing by Bernard Orr and Shinjini Ganguli)



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RBI spells out rules for a bank to exit prompt corrective action framework, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India has modified the prompt corrective action plans for weaker banks with it laying down criteria for a bank to exit the framework once its financial metrics improve. It has also removed the profitability parameter for invoking the regulatory action.

The revised framework will be effective from January next year. The existing one has been in vogue since April 1, 2017. Under the existing rules, as many as 12 banks were placed under restrictions after they crossed the tolerance threshold. Barring one, all banks have exited the framework over the last two years but no uniform policy was applied for their exit. For example, RBI removed PCA from Bank of India and Bank of Maharashtra in January 2019 after their net non-performing assets ratio fell below the risk threshold of 6%.

But they were not profitable when the restrictions were lifted. In contrast, the erstwhile Oriental Bank of Commerce was profitable but its NPA was higher than 6% at the time PCA was removed from it. With the introduction of the structured exit policy, RBI has tried to address this anomaly. Under the existing framework, RBI invokes PCA if a bank makes net loss for consecutive financial years.

This clause has been removed in the revised guidelines. Once a bank is placed under PCA, taking the bank out of PCA framework and /or withdrawal of restrictions imposed under it will be considered if no breaches in risk thresholds in any of the parameters are observed as per four continuous quarterly financial statements, one of which should be audited annual financial statement, RBI said Tuesday.

However, any exit from the framework would depend on RBI’s supervisory comfort of the RBI and assessment on sustainability of profitability of the bank. The regulator has also tweaked the capital norm and leverage rules. The objective of the PCA framework is to enable supervisory intervention at appropriate time and require the supervised entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health, RBI said.

“The PCA framework is also intended to act as a tool for effective market discipline,” it said. These rules however do not preclude the regulator from taking any other action as it deems fit at any time, in addition to the corrective actions prescribed in the framework, which is applicable to all banks operating in India including foreign banks operating through branches or subsidiaries.

A bank is generally placed under the framework based on the audited annual financial results. However this does not bar RBI from imposing restrictions on any bank during the course of a year in extreme cases.



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RBI governor asks banks not to let down their guard, BFSI News, ET BFSI

Banking & Finance

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RBI governor Shaktikanta Das on Tuesday met with bank chiefs and asked them to remain vigilant to any emerging signs of vulnerabilities and take timely remedial measures to mitigate the risks. Even as Das acknowledged the resilience of the banking sector, the central bank sought to beef up pre-emptive action against weak banks by reworking its prompt corrective action (PCA) norms to enable supervisory intervention at the right time and use of lending restrictions as a tool for market discipline.

The note of caution comes at a time when there is increased optimism in respect of the economy even as pandemic-related stress continues to be felt in some sectors. Bankers have started talking of recovery even as several countries in the world are going through a third phase of lockdowns.

Das on Monday held separate meetings with the MDs and CEOs of public sector banks and some private banks through videoconferencing. He advised banks to take timely remedial measures to mitigate the risks and maintain the stability of not only the institutions themselves but also of the overall financial system. Several other matters, including credit flows, especially to micro and small enterprises, were also discussed during the meetings.

Das sought feedback from bank chiefs on the outlook for stressed assets and measures for mitigation, pricing of risks and the collection efficiencies experienced by banks. He also asked banks about their engagement with fintech entities. This was the first meeting with banks after Das was granted a fresh three-year term by the government last week. The meeting was attended by RBI’s deputy governors M K Jain, M Rajeshwar Rao and T Rabi Sankar.

The new norms for PCA come after most weak banks have exited the lending restrictions imposed by the central bank under its earlier framework for early corrective action. A record number of 11 banks were placed under PCA after banks saw a surge in bad loans following RBI’s asset quality review in 2016.

“The PCA framework does not preclude the RBI from taking any other action as it deems fit at any time, in addition to the corrective actions prescribed in the framework,” RBI said. Bankers said that in the past banks were placed under PCA based on their audited financial results and now the indications are that the RBI might impose the restrictions if it feels that they are required based on its supervision.

On Tuesday, RBI deputy governor Jain said that the central bank was also focusing on governance reforms. He said that banks need to put in place governance standards to be worthy of public trust.

“Being highly leveraged entities and with the interconnectedness, there must be a separation between ownership and management, so that they operate on professional lines,” he said.



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RBI Committee, BFSI News, ET BFSI

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Multiple factors have led to sub-optimal performance of the asset reconstruction companies (ARCs) in the country, said the Reserve Bank Of India (RBI) Committee.

The ARC framework was designed to allow originators to focus on their core function of lending, by removing sticky stressed financial assets from their books.

It was also designed to help borrowers revive their businesses, which protects the viable and productive assets of the economy and often ensures a better return to banks and financial institutions (FIs).

Accordingly, the Committee constituted to “Review the working of ARCs said multiple factors behind the sub-optimal performance of the sector such as vintage NPAs being passed on to ARCs, lack of debt aggregation, non-availability of additional funding for stressed borrowers, difficulty in raising of funds by the ARCs on their balance sheet, among others.”

“Also, ARCs have lacked focus on both recovery and acquiring necessary skill sets for holistic resolution of distressed borrowers.”

The RBI Committee cited data which showed that the performance of the ARCs has been lacklustre, both in terms of ensuring recovery and revival of businesses.

“Banks and other investors could recover only about 14.29 per cent of the amount owed by borrowers in respect of stressed assets sold to ARCs during the FY 2004-2013 period.”

“Similarly, data shows that approximately 80 per cent of the recovery made by ARCs has come through deployment of measures of reconstruction that do not necessarily lead to revival of businesses.”

Considering the challenges impacting the performance of the ARC sector, the Committee recommended sale of stressed assets by lenders at an earlier stage to allow for optimal recovery by ARCs.

“In this respect, the Committee highlights the need for regulatory clarification on sale of all categories of special mention accounts (SMAs) to ARCs.”

“Further, as a measure to incentivise lenders to sell their financial assets to ARCs at an early stage of stress, the committee recommends a dispensation to lenders, on an ongoing basis, to amortise the loss on sale, if any, over a period of two years.”

Besides, it called for a higher threshold of investment in SRs by lenders below which provisioning on SRs held by them may be done on the basis of Net Asset Value (NAV) declared by the ARC instead of the IRACP norms.

In addition, the Committee among other measures, recommended the creation of an online platform for sale of stressed assets.

“Infrastructure created by the Secondary Loan Market Association (SLMA) may be utilised for this purpose.”

–IANS

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