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Reserve Bank of India – Press Releases

Press Releases

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The Reserve Bank of India today released the July 2021 issue of its monthly Bulletin. The Bulletin includes three Articles and Current Statistics.

The three articles are: I. State of the Economy; II. Monetary Policy Transmission in India: Recent Developments; and III. Drivers of Indian Pharmaceutical Exports.

I. State of the Economy

The tapering of the second wave, coupled with an aggressive vaccination push, has brightened near-term prospects for the Indian economy. While several high frequency indicators of activity are recovering, a solid increase in aggregate demand is yet to take shape. On the supply side, agricultural conditions are turning buoyant with the revival in the monsoon, but the recovery of manufacturing and services sectors has been interrupted by the second wave. A pick-up in inflation is driven largely by adverse supply shocks and sector-specific demand-supply mismatches caused by the pandemic. These factors should ease over the year as supply side measures take effect.

II. Monetary Policy Transmission in India: Recent Developments

The transmission of policy repo rate changes to deposit and lending rates of scheduled commercial banks (SCBs) has improved substantially since the introduction of external benchmark linked lending rate (EBLR) regime in October 2019. Data collected from banks suggest that the share of outstanding loans linked to external benchmark in total floating rate loans has increased from as low as 2.4 per cent during September 2019 to 28.5 per cent by the end of 2020-21. The adoption of external benchmark-based pricing of loans has strengthened market impulses for a quicker adjustment in deposit rates. Further, a combination of surplus liquidity conditions amidst weak credit demand conditions has enabled banks to lower their deposit rates. The lowering of deposit rates has resulted in the decline in cost of funds for SCBs, prompting them to reduce their MCLRs, and in turn their lending rates.

III. Drivers of Indian Pharmaceutical Exports

The article attempts to capture the dynamics of the Indian pharmaceutical industry as it evolved in the last two decades and looks specifically into the export markets with an aim to understand the determinants of exports that can help this sector leverage its export potential in future.

  • The Indian pharmaceutical industry is currently heavily dependent on its imports of active pharmaceutical ingredients (APIs), especially from China, despite having domestic research and development (R&D) potential through various channels such as joint ventures and domestic capacity improvements.

  • Empirical analysis using panel data of 42 Indian pharmaceutical firms over the 12-year period from 2007 to 2019 suggest that import intensity and Research and Development (R and D) expenditure are the two key determinants of export intensity.

  • A timely diversification of imports of raw materials and a long-term approach towards R and D is emphasised for elevating the sector’s global position.

(Yogesh Dayal)     
Chief General Manager

Press Release: 2021-2022/534

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Reserve Bank of India – Press Releases

Press Releases

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(Amount in crores of ₹)
SCHEDULED COMMERCIAL BANKS
(Including RRBs and SFBs)		 ALL SCHEDULED BANKS
03-Jul-20 18-JUN-2021 * 02-JUL-2021 * 03-Jul-20 18-JUN-2021 * 02-JUL-2021 *
I LIABILITIES TO THE BKG.SYSTEM (A)            
  a) Demand & Time deposits from bks. 243942.69 185044.24 176450.76 249039.16 189393.8 180721.20 **
  b) Borrowings from banks 55601.14 40629.42 39969.52 55608.52 41034.32 40443.16
  c) Other demand & time liabilities 15350.33 18230.62 17473.03 15509.44 18473.5 17710.17
II LIABILITIES TO OTHERS (A)            
  a) Deposits (other than from banks) 14077081.17 15298543.42 15451305.26 14496149.56 15717036.57 15872975.06
  i) Demand 1510061.51 1751738.98 1750930.09 1546017.66 1791730.66 1791159.07
  ii) Time 12567019.66 13546804.45 13700375.12 12950131.9 13925305.93 14081815.94
  b) Borrowings@ 284663.47 249079.88 250746.75 288784.41 254637.51 256095.87
  c) Other demand & time liabilities 505139.43 575486.18 567558.75 518029.3 587363.32 579383.19
III BORROWINGS FROM R.B.I. (B) 285586.86 90886.34 90973 285586.86 90886.34 90973
  Against usance bills and / or prom. Notes            
IV CASH 83263.7 91330.15 87282.98 85620.83 93320.74 89235.16
V BALANCES WITH R.B.I. (B) 441783.55 669031.86 657893.57 454305.5 686133.8 674799.56
VI ASSETS WITH BANKING SYSTEM            
  a) Balances with other banks            
  i) In current accounts 13785.58 17184.84 17247.48 15972.61 19476.92 19736.17
  ii) In other accounts 154646.38 123957.76 121978.53 188383.88 155126.73 154159.88
  b) Money at call & short notice 16791.41 9408.47 5906.74 42793.92 27284.45 21570.84
  c) Advances to banks (i.e. due from bks.) 22554.9 18194.35 24684 23597.81 19877.99 26198.96 £
  d) Other assets 43277.05 25262.48 23378.2 49577.55 27817.03 25639.35
VII INVESTMENTS (At book value) 4218380.56 4581982.39 4667499.04 4343094.05 4718703.26 4807664.17
  a) Central & State Govt. securities+ 4217493.88 4580580.27 4666374.34 4335284.11 4711576.05 4800612.21
  b) Other approved securities 886.68 1402.14 1124.71 7809.94 7127.23 7051.98
VIII BANK CREDIT (Excluding Inter Bank Advance) 10304202.57 10841755.54 10931091.9 10635085.79 11178307.83 11268884.87
  a) Loans, cash credits & Overdrafts$ 10113733.63 10643607.28 10726595.14 10442696.2 10978054.02 11062283.59
  b) Inland Bills purchased 22141.53 29498.93 31139.12 22400.39 29544.16 31174.98
  c) Inland Bills discounted 126278.73 115293.09 115580.26 127249.69 116644.07 116914.91
  d) Foreign Bills purchased 16619.14 18680.76 21548.35 16880.16 18875.47 21763.93
  e) Foreign Bills discounted 25429.54 34675.4 36229.05 25859.36 35190.03 36747.49
NOTE
* Provisional figures incorporated in respect of such banks as have not been able to submit final figures.
(A) Demand and Time Liabilities do not include borrowings of any Scheduled State Co-operative Bank from State Government and any reserve fund deposits maintained with such banks by any co-operative society within the areas of operation of such banks.
** This excludes deposits of Co-operative Banks with Scheduled State Co-operative Banks. These are included under item II (a).
@ Other than from Reserve Bank, National Bank for Agriculture and Rural Development and Export Import Bank of India.
(B) The figures relating to Scheduled Commercial Banks’ Borrowings in India from Reserve Bank and balances with Reserve Bank are those shown in the statement of affairs of the Reserve Bank. Borrowings against usance bills and/ or promissory notes are under Section 17(4)(c) of the Reserve Bank of India Act, 1934. Following a change in the accounting practise for LAF transactions with effect from July 11, 2014, as per the recommendations of Malegam Committee formed to review the Format of Balance Sheet and the Profit and Loss Account of the Bank, the transactions in case of Repo/ Term Repo/MSF are reflected under “Borrowings from RBI”.
£ This excludes advances granted by Scheduled State Co-operative Banks to Co-operative banks. These are included under item VIII (a).
+ Includes Treasury Bills, Treasury Deposits, Treasury Savings Certificates and postal obligations.
$ Includes advances granted by Scheduled Commercial Banks and State Co-operative Banks to Public Food Procurement Agencies (viz. Food Corporation of India, State Government and their agencies under the Food consortium).

Food Credit Outstanding as on
(₹ in Crores)
Date 03-Jul-20 18-Jun-21 02-Jul-21
Scheduled Commercial Banks 85886.44 86912.17 83177.65
State Co-operative Banks 30405.39 35818.62 35818.33

The expression ‘ Banking System ‘ or ‘ Banks ‘ means the banks and any other financial institution referred to in sub-clauses (i) to (vi) of clause (d) of the explanation below Section 42(1) of the Reserve Bank of India Act, 1934.

No. of Scheduled Commercial Banks as on Current Fortnight: July 02, 2021: 134

Ajit Prasad
Director   

Press Release : 2021-2022/533

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Reserve Bank of India – Press Releases

Press Releases

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The Government of India has announced the sale (re-issue) of Government Stock detailed below through auctions to be held on July 16, 2021.

As per the extant scheme of underwriting notified on November 14, 2007, the amounts of Minimum Underwriting Commitment (MUC) and the minimum bidding commitment under Additional Competitive Underwriting (ACU) for the underwriting auction, applicable to each Primary Dealer (PD), are as under:

(₹ in crore)
Security Notified Amount Minimum Underwriting Commitment (MUC) amount per PD Minimum bidding commitment per PD under ACU auction
5.63% GS 2026 11,000 262 262
GoI FRB 2033 4,000 96 96
6.64% GS 2035 10,000 239 239
6.67% GS 2050 7,000 167 167

The underwriting auction will be conducted through multiple price-based method on July 16, 2021 (Friday). PDs may submit their bids for ACU auction electronically through Core Banking Solution (E-Kuber) System between 09:00 A.M. and 09:30 A.M. on the date of underwriting auction.

The underwriting commission will be credited to the current account of the respective PDs with RBI on the date of issue of securities.

Ajit Prasad
Director   

Press Release: 2021-2022/532

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Mutual Fund SIPs To Start Now For Long Term

Personal Finance

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1. Nippon India Nivesh Lakshya Fund:

This long duration fund can be invested by millenials who have their financial goals long ahead say for instance retirement planning. Indeed the investors in these funds need not be impacted by interest rate movement.

Fund’s investments

The fund’s investments are into government papers hence no risk element. Typically the bonds come with a maturity of 23-25 years and all of the gains are reinvested into similar investments. Primarily the portfolio includes government bonds maturing in 2042, 2044, 2045 and 2046.

This fund commands a substantial AUM of Rs. 1789 crore and further has a lower expense ratio of 0.52%. The fund carries a moderate risk as per the risk is moderate. SIP route in the fund is suggested as there are interest rate risk going ahead so staggered investment in the fund shall be best. The fund is also suitable for those investors who do not want credit risk with their funds.

This can be a good investment option in comparison to RBI floating rate bonds that yield a post tax return of 5.5%. Notably SIP in the above plan or debt scheme can be started for as less as Rs. 100.

Long duration fund SIP return in 1 year (in %) SIP return in 3 year (in %) SIP return in 5 year (in %)
Nippon India Nivesh Lakshya Fund -2.47% 3.43% 7.27%

2. Mirae Asset Emerging BlueChip Fund-Growth:

2. Mirae Asset Emerging BlueChip Fund-Growth:

This mutual fund from the house of Mirae AMC is a large and mid cap fund with an AUM of Rs. 18,675 crore. The fund is CRISIL 5-Star rated and is categorized to be very high on risk as per the risk-o-meter. Expense ratio of the fund is at 1.66% that is indeed lower than the category average.

Prime investments

With prime investments into large and mid cap stocks the fund aims to provide capital appreciation. Over the long tenure of say 10 years, the SIP annualized return have been at a good over 24%. The top holdings of the fund include ICICI Bank, HDFC Bank, Infosys, Axis Bank, SBI, Bharti Airtel, TCS etc.

Through participation in the India growth story over the long run, individual investors will be able to make significant gains over the long run. Primarily emerging companies that have the potential to turn into bluechip names works well.

The investment approach is bottoms up approach: driven by value investing, in growth oriented businesses.

Other key points integral to the fund

Benchmark of the fund is Nifty Large Midcap 250 (TRI)

Fund managers are Mr. Surana and Mr. Ankit Jain

Direct plan of the scheme entails an expense ratio of just 0.68%

So by taking on to this investment bet for a longer term, the fund may be able to generate alpha over sufficient longer tenure through exposure to mid caps. Also, the large cap portfolio provides stability to the holdings with no major fluctuations. Here the SIP invested can be kick-started for Rs.1000.

Fund SIP return in 1 year (in %) SIP return in 3 year (in %) SIP return in 5 year (in %)
Mirae Asset Emerging BlueChip Fund-Growth: 61.52% 33.32% 23.42%

Disclaimer:

Disclaimer:

The story listed here is only for informational purpose. Mutual fund investment is risky and one needs to engage in his or her own research and look for professional advice before betting on any of the investment product.

GoodReturns.in



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Reserve Bank of India – Tenders

Tenders

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Reserve Bank of India invites E-Tender for DSITC of Microprocessor Based Security Alarm System for Bank’s Main Office Building, Reserve Bank of India, Kanpur. The tendering would be done through the e-Tendering portal of MSTC Ltd. (http://mstcecommerce.com/eprochome/rbi). All interested companies/agencies/firms specialized in the field of Microprocessor Based Security Alarm System must register themselves with MSTC Ltd through the above-mentioned website to participate in the tendering process. The Schedule of e-Tender is as follows:

E-Tender No RBI/Kanpur/Estate/21/21-22/ET/23
a) Estimated cost Rs. 18.75 Lakh
b) Mode of Tender e-Procurement System (Online Part I – Techno-Commercial Bid and Part II – Price Bid through www.mstcecommerce.com/eprochome/rbi)
c) Date of NIT available to parties to download July 15, 2021
d) Pre-Bid meeting Offline at 11:30 AM on August 06, 2021 Venue: Reserve Bank of India, 2nd Floor Estate Department, Mall Road, Kanpur.
e. i) EMD through DD//NEFT or Banker’s Cheque issued by a Scheduled Bank and intimate/forward the transaction details (UTR number OR scanned copies (in PDF) of DD to estatekanpur@rbi.org.in and upload www.mstcecommerce.com/eprochome/rbi) Rs. 37,500/- by NEFT in our A/c No. 186003001, IFSC RBIS0KNPA01(where ‘0’ represents zero) or DD in favour of Reserve Bank of India Payable at RBI Kanpur or Bank Guarantee in the given format from any scheduled Bank.
ii) Tender Fees NIL
f) Last date of submission of EMD. August 17, 2021 till 11:00 AM
g) Date of Starting of e-Tender for submission of on line Techno-Commercial Bid and price Bid at e-Tendering portal of MSTC (http://mstcecommerce.com/eprochome/rbi). August 06, 2021 onwards 17:00 PM
h) Date of closing of online e-tender for submission of Techno-Commercial Bid & Price Bid. August 17, 2021 till 11:00 AM
i) Date & time of opening of Part-I (i.e. Techno-Commercial Bid) Part-II Price Bid: Date of opening of Part II i.e. price bid shall be informed separately August 17, 2021 at 12:00 PM
j) Transaction Fee (To be submitted separately by the vendors to MSTC vide MSTC E-Payment Gateway for participating in the E-Tender) Rs. 1,180/- inclusive of GST @ 18% Payment of Transaction fee through MSTC payment gateway /NEFT/RTGS in favour of MSTC LIMITED

Intending tenderers shall pay as earnest money a sum of Rs. 37,500/- by way of NEFT to Reserve Bank of India, Kanpur or by a Demand Draft in favour of Reserve Bank of India payable at Kanpur or Bank guarantee issued by a Scheduled Bank.

Applicants intending to apply will have to satisfy the Bank by furnishing documentary evidence in support of their possessing required eligibility and in the event of their failure to do so, the Bank reserves the right to reject their bids. Tenders without EMD will not be accepted under any circumstances.

The Bank is not bound to accept the lowest tender and reserves the right to accept either in full or in part any tender. The Bank also reserves the right to reject all the tenders without assigning any reason thereof.

Any amendments / corrigendum to the tender, if any, issued in future will only be notified on the RBI Website and MSTC Website as given above and will not be published in the newspaper.

Regional Director
Reserve Bank of India
Kanpur

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Banks get time till March 2022 to implement lockable cassettes swap system for ATMs, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: The Reserve Bank has extended the deadline till March 2022 for banks to use only lockable cassettes for replenishing cash in ATMs.

Currently, most of the ATMs (automated teller machines) are replenished by way of open cash top-up or by loading cash in the machines on the spot.

To do away with the current system, the Reserve Bank of India (RBI) had asked banks to ensure that lockable cassettes are swapped at the time of cash replenishment in the ATMs.

Following representations received from banks citing difficulties in moving towards the lockable cassettes system, RBI has decided to extend the deadline for its implementation till March next year, according to a notification issued on Wednesday.

In April 2018, the apex bank had asked banks to consider using lockable cassettes in their ATMs which shall be swapped at the time of cash replenishment. It was to be implemented in a phased manner covering at least one-third ATMs operated by the banks every year, such that all ATMs achieve cassette swap by March 31, 2021.

“In this regard, representations have been received from Indian Banks’ Association on behalf of various banks expressing difficulties in meeting this timeline. Accordingly, it has been decided to extend the timeline for implementation of cassette swap in all ATMs till March 31, 2022,” RBI said.

Banks have also been asked to monitor progress and make the required course correction at the end of every quarter and report status to the RBI.

The recommendation to switch to lockable cassettes in ATMs was based on report of Committee on Currency Movement that was set up by the central bank.

At the end of May, there were 1,10,623 ATMs on site of banks and 1,04,031 of site-ATMs in the country.



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5 Alpha Stocks That Have Given Multibagger Returns Of Over 500-1000% in the Past Year

Personal Finance

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5 Stocks That Have Given Multibagger Returns Of Over 500-1000% In The Past Year

Stock Name 1-year Return in % 3-Year Return in % LTP (July14)
Tanla Solutions 1101.74 2150.91 946.10
Adani Enterp. 808.49 1414.47 1,402.05
CG Power & Indu. 772.88 34.70 75.50
Intellect Design 513.52 263.11 710.65

Adani Total Gas

 500.39 1121.83 881.25

Tanla Solutions

Tanla Solutions

Tanla Platforms Limited, formerly Tanla Solutions Ltd, is an Indian cloud communications firm situated in Hyderabad. In the cloud communications area, the company offers value-added services. Tanla has offices in eleven cities throughout the world, including Singapore, London, Colombo, and Dubai. The company is listed on the BSE and NSE in India.

Over a three-year period, the stock gave a fantastic return of 2150.91 percent, compared to 96.3 percent for the Nifty IT index. The company has grown its income by 28.59 percent, in the past three years. Tanla Platforms’ PE ratio is 81.08, which is expensive and pricey in comparison. The current ratio of Tanla Platforms is 2.29. Tanla Platforms’ current year dividend is Rs 0 with a yield of 0.21 percent.

Adani Enterprise

Adani Enterprise

According to Adani Group Chairman Gautam Adani, the Adani Group has taken over management control of the Mumbai International Airport from the GVK Group.

Adani Enterprises Ltd. was founded in 1993 and its share price presently is 1401.45. Its current market capitalization stands at Rs 154132.88 Cr. In the latest quarter, the company has reported Gross Sales of Rs. 133587.3 Cr and Total Income of Rs.137506.5 Cr.

For the past three years, the company has shown a good profit growth of 23.24 percent. The corporation manages its cash flow well, with a CFO/PAT ratio of 2.48. The company has a high EV/EBITDA ratio of 112.18. The stock gained 976.87 percent over three years, compared to 41.72 percent for the Nifty 100. In the past year, the stock performed well and gave a return of 808%.

CG Power and Industrial

CG Power and Industrial

CG Power and Industrial Solutions founded in 1937, is a Small Cap business in the Electric/Electronics sector with a market cap of Rs 10,101.89 crore. Stock generated 34.7 percent over three years, compared to 50.6 percent for the Nifty Midcap 100. The promoters’ share of the company has increased by 53.24 percent in the last six months. The company’s financials aren’t stellar, yet the stock has returned a whopping 772 percent in the last year. Over the last three years, the company has had a dismal ROCE of -19.60 percent. With a coverage ratio of -5.78, the company has a low interest coverage ratio.

Intellect Design

Intellect Design

Intellect Design Arena develops financial technology that assists banks in leading enterprises to success and growth. Intellect Design’s PE ratio is 45.87, which is high and overvalued in comparison. Only 4.49 percent of trading sessions in the last six years had intraday drops of more than 5%. The stock made 263.11% during the last three years, compared to 50.6 percent for the Nifty Midcap 100.

Adani Total Gas

Adani Total Gas

Only 7.96 percent of trading sessions in the last two years had more than 5% intraday gains. Adani Total Gas Ltd., founded in 2005, is a Large Cap business in the Gas & Petroleum industry with a market cap of Rs 96,920.76 crore.

In the last five years, the company has maintained effective average operating margins of 28.63 percent. The ROA of Adani Total Gas is 16.54 percent, which is a positive sign for future performance; however, greater levels are usually preferable. Adani Total Gas offers a greater return on investment (ROI) of 27.50 percent.

Disclaimer

Disclaimer

Stock market investment is subject to risk associated with the stock markets and hence investors need to be very careful. Neither the author, the brokerage, nor Greynium Information Technologies Pvt Ltd would be responsible for losses incurred based on buying into the stocks based on the above article.



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BharatPe to spread PoS business to 80 cities

Banking & Finance

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Merchant-focused fintech BharatPe plans to triple its point of sale (PoS) business, BharatSwipe, and targets $6 billion in annualised transaction processed value (TPV) by the end of this fiscal year.

“We will be expanding our reach in the PoS business to 80 cities and deploy three lakh machines by the end of 2021-22. Additionally, we are exploring strategic partnerships with banks, financial institutions and brands with the objective of enhancing customer experience on our PoS devices,” said Suhail Sameer, Group President, BharatPe.

Fintech continues to garner highest seed funding after a pandemic-hit 2020

“BharatPe, which is now the number three player in the private PoS category, will also ramp up its reach by five times,” the company said in a statement on Thursday, adding that it plans to ramp up brand partnerships and offer consumer credit to drive further value in the PoS business.

BharatSwipe was launched in the second half of 2020 and contributes 20 per cent to the overall payments TPV of the company.

Fintech will be the silver bullet for growth in 2021

At present, there are over one lakh BharatSwipe machines installed across 16 cities in the country, which facilitate transactions exceeding ₹1,400 crore every month.

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Mastercard ban gives opportunity to RuPay, digital credit card firms, BFSI News, ET BFSI

Banking & Finance

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The ban on Mastercard for onboarding new customers by the Reserve Bank of India is set to hit new card issuances in the country, and give an opportunity to other players like Visa and RuPay to raise their market share.

Indian banks may see card spends and new card issuance take a beating after the RBI ban on Mastercard.

Mastercard’s has a one-third share of the Indian card market where Visa is the biggest player. The ban may also impact credit card spends, which are already down due to the Covid pandemic.

Banks have been swift to move on with RBL announcing a partnership with Visa just a day after the ban on Mastercard.

Digital credit card companies that use multiple tech innovations and do not rely on Visa, Mastercard rails are also likely to gain. They use UPI, which is said to have a larger acceptance for both P2P and P2M payments.

RuPay cards

India’s indigenous payment network RuPay has cornered a significant market share in the domestic card market since its launch. As of November 30, 2020, RuPay’s market share has increased to more than 60 per cent of total cards issued, from merely 17 per cent market share in 2017, according to RBI data.

As of November 2020, around 603.6-million RuPay cards have been issued by nearly 1,158 banks. But a majority of these are debit cards and only 970,000 are credit cards.

The number of debit cards issued in the country between 2010-11 and 2019-20 increased from 227.8 million to 828.6 million, of which around 300 million were RuPay debit cards issued to basic savings bank deposit account holders.

On the other hand, during the same period, the number of credit cards issued also increased from 18 million to 57.7 million.

The value of transactions for debit cards is lower than credit cards. In credit cards, Visa and Mastercard are at the top with the value of total credit card transactions in PoS system being much higher than the value of all debit card transactions. The government has also been pushing banks to focus more on RuPay cards and provide them as the first option to customers.

With this ban, RuPay can target high-value credit card transactions, which are dominated by Visa and Mastercard.

The Mastercard ban

In a major supervisory action, the Reserve Bank on Wednesday indefinitely barred the US-based Mastercard from issuing new credit, debit and prepaid cards with effect from July 22 for its failure to comply with data storage norms.

Mastercard, a major card issuing entity in the country, is the third company to have been barred by RBI from acquiring new customers after American Express Banking Corp and Diners Club International over data storage issue.

In a statement, Mastercard said it is disappointed with the stance taken by RBI.

The RBI, however, clarified that its supervisory action will not impact the services of the existing customers of Mastercard in the country.

Announcing the ban on Mastercard, RBI said, “notwithstanding lapse of considerable time and adequate opportunities being given, the entity has been found to be non-compliant with the directions on Storage of Payment System Data“.

Mastercard is a payment system operator authorised to operate a card network in the country under the Payment and Settlement Systems Act, 2007 (PSS Act).

In terms of RBI’s circular on Storage of Payment System Data on April 6, 2018, all system providers were directed to ensure that within a period of six months the entire data relating to payment systems is stored only in India.



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Microfinance sector hit as defaults surge in pandemic, BFSI News, ET BFSI

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MUMBAI: 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% 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% in March, before the second wave took hold, and also above the 11.7% reached in March 2017 after demonetisation drive – an attempt to boost digital transactions and crack down on undeclared money that also hit microfinance lenders hard.

“Older loans that were taken in 2019 or early 2020 are at a higher risk of defaults and they form about 60-65% of the loan book 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 existential issue for several small and mid-sized microfinance institutions as the business has been severely impacted and collections are down,” said Johri.

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

The gross loan portfolio of India’s microfinance lenders stood at 2.6 trillion rupees ($35 billion) as of March 31, according to CRISIL.

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 of Covid-19 infections in India is not so severe.

“About 55% of the market is still untapped which means there is a 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 Rs 500 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 at one microfinance lender in eastern India.



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