Category: Banking & Finance

To purchase and simultaneously sale G-Secs on Sept 23: RBI

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The Reserve Bank of India (RBI) on Monday announced that will conduct open market purchase of Government Securities (G-Secs) under its “G-Sec Acquisition Programme (G-SAP) 2.0” along with a simultaneous sale of G-Secs on September 23.

So far, under G-SAP, the RBI has only conducted standalone G-Sec purchases. But this time round, it is simultaneously conducting sale of G-Secs in view of ample liquidity in the banking system.

RBI will purchase three G-Secs of seven to 14 years tenor, aggregating ₹15,000 crore, under G-SAP 2.0 on September 23.

Simultaneously, the Central bank will sell three short-term G-Sec, all maturing in 2022, aggregating ₹15,000 crore.

In the second quarter so far, the RBI has bought G-Secs aggregating ₹90,000 crore in four G-SAP auctions. After the September 23rd G-SAP auction, it may conduct one more auction for ₹15,000 crore.

Marzban Irani, CIO-Fixed Income, LIC MF, said the simultaneous conduct of G-Sec purchase under G-SAP and sale of G-Sec will be liquidity neutral. However, it may push up short-term yields.

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HDFC Bank, plots path to double retail loans, BFSI News, ET BFSI

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HDFC Bank, India’s largest private lender, plans to double the amount of loans it makes to retail borrowers over the next couple years as consumer demand ramps up from a pandemic-induced slowdown.

Uncertainty is declining and demand is improving as businesses seek to bolster growth after Covid-19, Arvind Kapil, the bank’s country head for retail assets, said in an interview. It’s an opportunity to reverse the declining share of loans to this segment of the market that was needed to preserve asset quality, he said.

“We are planning to double our retail assets book in a focused manner,” Kapil said. “I can sense a robust demand at ground level. I run businesses and I am giving you a feel of what I see.”

Of the bank’s total Rs 11.5 trillion ($156 billion) loan book, Kapil is in charge of retail borrowing worth 3.7 trillion rupees, which is expected to reach almost 8 trillion rupees within the next two years.

If successful, that would mark a sharp turnaround from its strategy a year ago when the bank slowed down its retail lending to protect its asset quality as the pandemic led to millions of job losses and businesses closures.

HDFC Bank’s retail lending share as portion of its total fell to 47 per cent in March, the lowest in at least five years from an average of 54 per cent to 55 per cent previously. The bank, which is also the nation’s most valuable, has the lowest bad-loan ratio among peers, and now wants to focus on unsecured loans for salaried workers, vehicle loans and government business.

“We are taking a pretty aggressive positioning to grow our retail loan book,” Kapil said. “We want to accelerate on segments where we can maintain the asset quality and offer the best return on assets.”

HDFC Bank, plots path to double retail loans
The Mumbai-based lender’s retail loans grew around 9.3 per cent slower than its overall book’s 14.4 per cent in the June quarter. That’s sharply lower than its peers like State Bank of India’s 16.5 per cent and ICICI Bank’s 20 per cent growth in that portfolio. Still, the lenders also saw a spike in bad loans in retail lending in the June quarter after an unexpected and more deadly new wave of the virus ripped through India. Since then, loan collections have improved and, for HDFC Bank, are back to pre-pandemic levels, Kapil said.

“The results of doubling our business will be more visible early next financial year,” he said. “We will balance our top-line growth with our return on assets objective.”



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State Bank may look to finance Tata group’s Air India bid, BFSI News, ET BFSI

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State Bank of India is likely to support Tata Sons‘s bid to acquire state-owned carrier Air India.

The bank may subscribe to Tata Sons debentures or fund the special purpose vehicle (SPV) set up by Tata Sons for the acquisition, according to a report.

Tata Sons’s Air India buy may cost Rs 15,000 crore. The bank will subscribe to the debentures as Indian banks do not provide loans to corporates for acquisitions.

The lender is banking on the Tata Sons AAA rating, which signifies high safety and the prospects of Air India under the Tatas.

Tata Sons has a shareholder approval to raise Rs 40,000 crore while it Rs 10 lakh crore stake in TCS gives it financial heft to go for such a big acquisition.

Air India finances

Air India’s accumulated losses ballooned to Rs 70,820 crore in FY20. The earnings for FY21 haven’t been reported yet but the annual loss is expected to touch Rs 10,000 crore, from Rs 8,000 in the previous year.

Its revenue in FY21 more than halved year-on-year to Rs 12,139 crore. Air India’s total debt (according to provisional figures for FY20) stood at Rs 38,366.39 crore after transfer of debt amounting to Rs 22,064 crore to the special purpose vehicle, Air India Assets Holding Ltd, in FY20.

Tata group airlines

If it acquires Air India, the airline will compete directly with Vistara, another airline from the Tata stable. Bringing Vistara under the holding company with Air India could help with operational synergy and economies of scale.

Vistara’s loss for the year narrowed to Rs 1,612 crore, from Rs 1,814 crore a year earlier, having widened from Rs 831 crore in FY19. Its total liabilities at the end of FY21 were Rs 11,491 crore, while its net worth was a negative Rs 6,088 crore.

According to its latest annual report, Tata Group’s budget carrier AirAsia India’s net loss almost doubled in FY21 to Rs 1,532 crore and its net worth slipped into negative territory as the pandemic hit aviation globally.



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‘Missing’ whistleblower of bank fraud returns, BFSI News, ET BFSI

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The ousted CPM activist and whistleblower of the fraud at the party-ruled Karuvannur Cooperative Bank Sujesh Kannatt, who had gone missing on Saturday returned home in the wee hours of Monday.

Kannatt, who complained against the alleged irregularities at the cooperative bank at Karuvannur, said he was under stress and had undertaken a pilgrimage to Parassinikadavu temple.

Sujesh had left home in the car on Saturday morning and switched off his phone. “We all became worried when we were not able to contact him even by Saturday evening. So we filed a complaint with the police at Irinjalakuda,” said his mother Suma.

However, Kannatt reached home around 1:30am on Monday and reported at the Irinjalakuda police station around 7:45am.

The CI of Irinjalakuda said that Kannatt was produced before the judicial first class magistrate and his statement was taken. Kannatt had reportedly told the police that he was unaware of the sensation created in the media about his disappearance as his mobile was switched off.

Kannatt, who was the Porathissery CPM branch secretary, had launched a solo protest demanding action against those involved in the fraud at the bank, on June 14 last. Subsequently, he was expelled from the party.



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How banks in Europe are managing bad loans, BFSI News, ET BFSI

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Credit crunch was beginning to become a major problem for banks in Europe, however, they seem to have found a way to tackle the issue.

Non-performing assets in European banks were piling up due to COVID-19. As of the second quarter of 2020, the NPA ratio for all banks in the region was at 2.8%, up 0.2 percentage points from a year ago.

According to reports, banks set aside lower provisions for potential loan losses in the second quarter of 2021, with UK banks booking significant reversals. Booking reversals here means that overall funds that accounted for bad loans shrank, making risk from bad loans manageable, according to analysts.

According to data by S&P Global Market Intelligence, 12 of the 25 largest banks in Europe booked reversals, and loan loss provisions have been put aside to cover potential costs arising from defaulting loans.

Of the 12 — Barclays PLC, NatWest Group PLC, Lloyds Banking Group PLC, HSBC Holdings PLC and Standard Chartered PLC — are based in the UK, with Barclays releasing the highest amount of 911 million euros, according to their data.

So far, banks have not seen a surge in bad loans. However, with talks of central banks moving towards tapering COVID-19 support, the market expects deterioration in asset quality.

This is likely to be more visible in 2022 and will happen gradually rather than suddenly since the measures will not end all at once, DBRS’ Rivas told S&P Global.

If banks do need top-up provisions due to additional bad loans in pandemic-affected sectors, the risks would likely be against earnings rather than capital, said S&P Global Ratings’ Edwards.

Click here to read more stories on banking



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AU Small Finance Bank issues over 40,000 credit cards since inception, BFSI News, ET BFSI

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AU Small Finance Bank (SFB) on Monday said it has issued over 40,000 credit cards since its launch a few months back, and more than half of them are first time users. “AU Small Finance Bank, the first SFB in India to launch its own range of credit cards, has issued 40,000 plus credit cards,” AU SFB said in a release.

Of the total credit card issued, over 50 per cent of customers are first time users in more than 150 districts of the country since launch, it added.

The Jaipur based lender said it is the first SFB to enter semi-urban and rural areas with its own credit cards.

It also offers a special Altura plus credit card to empower women to experience a limitless living.

In future, the bank is also working on bringing out its limited-edition cards, featuring the bank’s brand ambassadors Aamir Khan and Kiara Advani.

“With our credit cards, besides the suave urban populace, we aim to empower the customers at rural and semi-urban locations.

“Having enrolled more than 50 per cent of customers as first-time credit card users in such a short span, I believe we are on our way to a new beginning,” Mayank Markanday, Chief of Credit Cards, AU Small Finance Bank said.

The bank offers credit cards in four variants: Altura, Altura Plus, Vetta and Zenith.



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RBI deputy governor stresses on need to mainstream green finance, BFSI News, ET BFSI

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There is a need to mainstream green finance and devise ways for incorporating environment impact into commercial lending decisions, RBI deputy governor M Rajeshwar Rao has said.

Addressing climate risk in the financial sector should be the joint responsibility of stakeholders as it would affect the resilience of the financial system in the long run, he said.

Rao made these comments while speaking at the CAFRAL Virtual Conference on Green and Sustainable Finance) recently.

“As the risks and opportunities and financial impact arising from climate change vary across jurisdictions, this poses unique considerations for emerging economies like India.

“The challenge before us is to mainstream green finance and think of ways to incorporate the environmental impact into commercial lending decisions while simultaneously balancing the needs of credit expansion, economic growth and social development,” Rao said.

He noted that the global understanding of systemic impact of climate change on the economy and the financial system as also its resultant impact on financial stability is evolving and, accordingly, the responses of central banks and supervisors around the world have also been developing.

“The private and the public sector need to build on our early progress, both by recognising what we do know and urgently filling in the gaps around what we do not,” Rao said.

He further said the impact of climate risk transcends across the national borders and continents.

“Let us be aware that even the countries which are not major contributors will also be equally impacted by these risks. We all are in it together,” he said.

Climate-related financial risk refers to the risk assessment based on analysis of the likelihoods, consequences and responses to the impact of climate change.

Thus, climate-related financial risks may arise not just from climate change but also from efforts to mitigate these changes, Rao said.

A report of the ministry of earth sciences, government of India released last year concluded that since the middle of the 20th century, India has witnessed a rise in average temperature, a decrease in monsoon precipitation, a rise in extreme temperature, droughts, and sea levels, as well as increase in the intensity and frequency of severe cyclones.



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MF staff under 35 get two years to comply with the 20% norm

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Market regulator SEBI has eased the ‘skin-in-the-game’ norm for mutual fund employees by allowing those below 35 years to comply with the rules over the next two years.

Junior members of fund management teams can invest 10 per cent of their salary in the schemes they manage between October 1, 2021 and September 30, 2022 and 15 per cent from October 1, 2022 to September 30, 2023. After October 2023, they will need to invest 20 per cent of their income.

However, other designated employees, who are older than 35, have to invest from October 20 per cent of their annual salary in the scheme they manage.

In April, SEBI had mandated that a minimum of 20 per cent of the salary of key employees should be paid in the form of units of the mutual fund schemes in which they have a role or oversight, with the allotments locked for three years.

While the new norm is intended to align employees’ interest with that of unitholders, industry players had raised concerns over rising wage costs. The industry also sought more time to implement it, and the regulator had postponed the implementation to October instead of the earlier notified deadline of July 1. Now, SEBI has also allowed fund managers to set-off their current investments against the mandatory investment to be made under the new regulation.

Investment in MF units have to be made on the salary day and the previous month’s closing AUM will be taken for apportioning the investment across eligible schemes. All non-cash benefits and perks, excluding superannuation benefits and gratuity, will be added to the salary for calculating the 20 per cent investment level, SEBI said.

Designated employees can set off their existing investments against the fresh investments as required in the same schemes but the three-year lock-in will be applicable from the day of set-off.

After the expiry of lock-in period, employees can roll their investment for further commitment and the new investment will be locked for three years.

Implementation issues

No mutual fund offered a comment, but a senior MF executive said the new norm will make life difficult not only for MF employees but also for AMCs as it will make compliance cumbersome.

“Since the value of the compensation will be market-linked and changing on a daily basis, it is not clear how it will be used to issue the units and calculate the monthly tax outgo of these executives. If a fund manager is handling several schemes, it becomes even tougher to compute the percentage of salary to be given in units and the tax on them,” he said.

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Arohan Financial looks to expand its footprint in newer markets

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Arohan Financial Services Ltd, which has been witnessing a steady improvement in disbursements and collections in the second quarter of this fiscal over Q1, has firmed up expansion plans to grow its portfolio further.

The company, which is looking to expand its footprint in newer geographies and strengthen presence in some of the existing towns and cities, is waiting for its capital raising plan to fructify to push ahead with the expansion programme.

IPO plan

The NBFC-MFI, which is a part of the Aavishkaar Group, had filed draft red herring prospectus for its proposed initial public offer (IPO). It plans to raise around ₹850 crore primary through the issue apart from secondaries.

“Q 1 of 2021-22 especially May’21 was slightly difficult period with the localised lockdowns but we managed well and we will be filing an updated DRHP soon. Q2 is turning out to be much better. We are seeing an increased demand for credit with the festival season round the corner,” Manoj Nambiar, MD, Arohan Financial Services, told BusinessLine.

Arohan currently provides microcredit to borrowers with a focus on underpenetrated States including Assam, Meghalaya,Tripura, Manipur in the North East; West Bengal, Bihar, Jharkhand and Odisha in the east; Madhya Pradesh, Chhatisgarh, Uttar Pradesh & Uttarakhand in central India.

The company plans to expand its presence in three more States including Rajasthan, Punjab and Haryana once its IPO is complete. It also plans to strengthen its presence in Uttar Pradesh and Madhya Pradesh by setting up more branches.

“We had entered UP and MP markets about two years back. Both of these are very big markets and we haven’t yet covered fully. We are also looking to enter newer markets contiguous to our existing operations. Our expansion plan is ready and it will all depend on the raising of additional capital,” he said.

Talking about the overall credit demand in the industry he said, demand is high and all clients are working towards a return to “normalcy” soon as people would require additional credit to restart their business. Credit demand had witnessed a dip in May this year following the regional lockdowns announced in several parts of the country and the slowdown induced by the second wave of Covid. Starting first half of June (when opening up started) things have started showing signs of improvement and each month has been better than the previous one for the industry, he said and added that the credit demand would increase further supported by the requirements of the upcoming festive season.

The company had a total loan outstanding of close to ₹4,800 crore as on March 2021.

Digital push

Arohan has digitalised the entire customer lifecycle and the post sales support touchpoints to enhance its offerings. With a clear focus on being ‘Cashless at the front and Paperless at the back’, the company aims to serve its customers better with limited paper work and in the process also reduce operational cost for both the customers as well as the company. Client origination is paperless and 100 per cent of the disbursements are now into the bank accounts of the client.

It has launched “meraArohan”- an automated lending solution designed to completely digitise the loan lifecycle from end-to-end. It has recently also launched “apnaArohan” app for customers. The app, which is available in regional languages, uses facial recognition to validate the login and helps customers view their loan details, including a complete ledger with details of payments made, call for any service request.

Customers can also make digital payments through the payment gateway provided.

According to Nambiar, an internal study shows that close to 61 per cent of the company’s customers have access to smartphone and close to 40 per cent had done cashless transactions during the Covid pandemic.

Such digitisation initiatives will help the company by ensuring better management of portfolio, better service and reduced time as compared to manual offerings. “The cost benefit will accrue over a period with business growth and better utilisation of the field employee time” he said explaining the rationale behind ramping up its digital offerings.

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Climate risks can impact the financial sector: RBI Deputy Governor

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Both climate change and the transition to a carbon-neutral economy have the potential to affect the economy and by extension, general welfare of the people, according to M Rajeshwar Rao, Deputy Governor, Reserve Bank of India (RBI).

Hence, there is a clear benefit to acting early and ensuring an orderly transition.

“While transition costs may be higher in the short term, they are likely to trend much lower in the long run when compared to the costs of unrestrained climate deterioration.

“It is thus, vital to make the financial system more resilient in the face of the potential costs of extreme weather events,” Rao said at a recent CAFRAL Virtual Conference on Green and Sustainable Finance.

Climate risks can impact the financial sector through two broad channels — physical and transition risks, he added.

Physical risks mean economic costs and financial losses resulting from the increasing severity and frequency of extreme weather events and long-term climate change.

Transition risks arise in the process of adjustment towards a low-carbon economy.

“It is, therefore, important to understand these risk drivers which are likely to affect the financial firms,” the Deputy Governor said.

Rao observed that the challenge before the RBI is to mainstream green finance and think of ways to incorporate the environmental impact into commercial lending decisions while simultaneously balancing the needs of credit expansion, economic growth and social development.

Recently, RBI set up a Sustainable Finance Group (SFG) within the Department of Regulation to spearhead its efforts and regulatory initiatives in the areas of sustainable finance and climate risk.

The Group will be advising regulated entities to have a strategy to address climate change risks and appropriate governance structures to effectively manage them from a micro-prudential perspective and exploring forward looking tools like climate scenario analysis and stress testing for assessing climate-related risks, among others.

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