Banking & Finance – Page 159

PayPal heats up buy now, pay later race with $2.7 billion Japan deal, BFSI News, ET BFSI

September 8, 2021 root Banking & Finance

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FILE PHOTO: The PayPal logo is seen at an office building in Berlin, Germany, March 5, 2019. REUTERS/Fabrizio Bensch

US payments giant PayPal Holdings Inc said it would acquire Japanese buy now, pay later (BNPL) firm Paidy in a $2.7 billion largely cash deal, taking another step to claim the top spot in an industry witnessing a pandemic-led boom.

The deal tracks rival Square Inc’s agreement last month to buy Australian BNPL success story Afterpay Ltd for $29 billion, which experts said was likely the beginning of a consolidation in the sector.

The BNPL business model has been hugely successful during the pandemic, fuelled by federal stimulus checks, and upended consumer credit markets.

These alternative credit firms make money by charging merchants a fee to offer small point-of-sale loans which shoppers repay in interest-free instalments, bypassing credit checks.

Heavyweights like Apple Inc and Goldman Sachs are the latest heavyweights that have been reported to be readying a version of the service.

Paypal, already considered a leader in the BNPL market, also entered Australia last year, raising the stakes for smaller companies such as Sezzle Inc and Z1P.AX Co Ltd, stocks of which were down in midday trading on Wednesday.

“The acquisition will expand PayPal’s capabilities, distribution and relevance in the domestic payments market in Japan, the third largest ecommerce market in the world, complementing the company’s existing cross-border ecommerce business in the country,” PayPal said in a statement on Tuesday.

After the acquisition, Paidy will continue to operate its existing business and maintain its brand. Founder and Chairman Russell Cummer and President and Chief Executive Riku Sugie will continue to hold their roles in the company, PayPal said.

The Financial Times had reported last month that Paidy was considering becoming a publicly listed company.

The transaction is expected to close in the fourth quarter of 2021, and will be minimally dilutive to PayPal’s adjusted earnings per share in 2022.

BofA Securities was the sole financial adviser to PayPal on the deal, and White & Case was lead legal adviser. Goldman Sachs advised Paidy, and Cooley LLP and Mori Hamada & Matsumoto provided it legal counsel.

(Reporting by Anirudh Saligrama in Bengaluru; Writing by Sayantani Ghosh; Editing by Ramakrishnan M. And Kim Coghill)

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Here are top 5 things an Account Aggregator System can do, BFSI News, ET BFSI

September 8, 2021 root Banking & Finance

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The Reserve Bank of India last week launched the Account Aggregator (AA) system, which according to industry experts, will be a game changer.

The network is a collection of user data, and has a three-tier structure – FIP, FIU and consumer.

A Financial Information Provider (FIP) will hold customers’ data, and it can be a bank, a non banking financial company, mutual fund, insurance repository or pension fund repository. Then, a Financial Information User (FIU) will consumes the data from an FIP to provide various services to the consumer. The FIU is the lending bank that wants access to the customer’s or the borrower’s data to determine if the borrower qualifies for a loan. Banks, here, will play a dual role – as an FIP and FIU.

The system will not support transactions by customers, but will ensure appropriate mechanisms for customer identification.

As of now, eight of India’s major banks – State Bank of India, ICICI Bank, Axis Bank, IDFC First Bank, Kotak Mahindra Bank, HDFC Bank, IndusInd Bank, and Federal Bank have joined the account aggregator network.

Here are top 5 things the network can do –

1. The network can help bridge the gap between the physical collateral required for approving a loan. For instance, if a customer wants to avail an MSME loan, they can provide ‘secure data sharing via AA’, which can quantified as an information collateral or data on future MSME income. Information collateral, with the help of AA, can be used to access a small formal loan. HDFC Bank and Axis Bank have been using AA for auto loans, LendingKart for MSME loans, and IndusInd Bank for personal finance management.

2. With consent from customers, all financial institutions in the network can share their collection of user data in the system, which can be accessed across institutions. The AA will share information only with the customer to whom it relates or any other financial information user as authorised by the customer.

3. Customers will not need to do their Know Your Customer (KYC) formalities for taking loans, getting insurance or investing in mutual funds, if everything is linked to the AA.

4. If customers link their information with the AA, they can share financial information of various accounts such as banks deposits, equity, mutual fund and pension funds to any entity requiring access to such information.

5. A system like AA can help customers access their personal data, especially amid COVID-19. The network will help in reducing fraud associated with physical data by introducing secure digital signatures and end-to-end encryption for data sharing.

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Top bankers may only get bonus after new RBI rule, BFSI News, ET BFSI

September 8, 2021 root Banking & Finance

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The Reserve Bank of India‘s directive to treat grant of employee stock options as an expense is having an unintended impact.

Banks are doing away with ESOPs and adding deferred bonus payments to the senior managerial staff as the new rules could add significant costs to banks, eroding their quarterly earnings.

The shares are required to be valued at a fair value that may add to the costs. Though it is a non-cash cost, it still results in a higher expense in the P&L for the bank, impacting its profits and earnings.

The RBI directive

The RBI said last week the fair value of the share-linked incentives paid to chief executive officers, whole-time directors and other key functionaries by the private banks should be recognised as an expense during the relevant accounting period.

Issuing a clarification in this regard, the RBI said, “the fair value (of share-linked incentives) …should be recognised as expense beginning with the accounting period for which approval has been granted”.

In terms of the extant guidelines, share-linked instruments are required to be fairly valued on the date of grant using the Black-Scholes model.

The Black-Scholes model, also known as the Black-Scholes-Merton model, is a mathematical model for pricing an options contract. In particular, the model estimates the variation over time of financial instruments.

Treatment as expense

The RBI issued the clarification saying “it has been observed” that banks do not recognise grants of the share-linked compensation as an expense in their books of account concurrently.

The RBI also asked all banks, including local area banks, small finance banks and foreign banks to comply with its directions for all share-linked instruments granted after the accounting period ending March 31, 2021.

The central bank had issued guidelines on the compensation of whole-time directors/ chief executive officers/ material risk takers and control function staff in November 2019 in which it had said that share-linked instruments will be included as a component of variable pay.

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Axis Bk diversity charter to empower staff, clients, BFSI News, ET BFSI

September 8, 2021 root Banking & Finance

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Mumbai: Axis Bank has taken several HR measures to bring equality to employees and customers from the LGBTQIA+ community as part of its strategy to promote diversity and inclusion.

The private lender on Monday announced a ‘ComeAsYouAre’ charter of policies and practices that will apply to those within the organisation and customers. The bank said that this charter is in keeping with the spirit of the Supreme Court verdict on September 6, 2018 on Section 377, which ruled that all sexual relationships between consenting adults in private should be decriminalised.

While multinational banks have already in place a diversity charter in keeping with their global practices, Axis Bank is the first among domestic lenders to publicly announce a charter. Under this charter, employees can list their partners for mediclaim benefits irrespective of gender, sex or marital status. Employees can dress following their gender or gender expression.

“We recognise that employees could have gender or gender expression that’s different from their sex assigned at birth. They can choose to dress in accordance with their gender/gender expression,” the bank said. Employees can also choose to use the restroom of their choice following their gender expression/gender identity.

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India Post Payments Bank, LIC Housing tie up to sell home loans, BFSI News, ET BFSI

September 8, 2021 root Banking & Finance

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India Post Payments Bank (IPPB) has joined hands with LIC Housing Finance for selling housing finance products of the latter to its 4.5 crore customers, a statement said on Tuesday.

Through its robust and extensive network of 650 branches and more than 136,000 banking access points, IPPB will make LIC Housing Finance Ltd’s (LICHFL) home loan products accessible to its customers pan-India, the statement said.

Under the strategic partnership, credit underwriting, processing, and disbursement for all home loans will be handled by LICHFL, while IPPB will source the loans.

The alliance with LICHFL is part of IPPB’s strategy to expand its range of products and services, and to cater to the banking and financial needs of diverse customers, especially unbanked and underserved, across the country.

IPPB already distributes general and life insurance products through partnerships with insurance companies. Credit products are natural extension for the customers at the last mile, the statement said.

IPPB has an on-ground workforce of nearly 200,000 postal employees (postmen and Gramin Dak Sevaks) equipped with micro ATMs and biometric devices for doorstep banking. This will play a significant role in offering LICHFL’s housing loans.

“Easy access to credit for buying a house is an important prerequisite towards achieving inclusive growth. The partnership with LICHFL is a significant tie-up in IPPB’s journey to become one of the largest platforms for availing credit products by our customers for meeting various needs,” J Venkatramu, MD & CEO, India Post Payments Bank said.

LIC Housing Finance MD & CEO Y Viswanatha Gowd said the strategic MoU with IPPB will help the company to further deepen the market penetration.

“It will enable us to increase LICHFL’s home loan product outreach in untapped geographies across the country. With an unmatchable presence of post offices, we see this strategic partnership as a significant step that will help our long-term business growth and improve our market share,” he said.

LIC Housing Finance offers home loans starting from 6.66 per cent for loans up to Rs 50 lakh for salaried individuals.

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Banks may see stress rising in retail, MSME segments by March, BFSI News, ET BFSI

September 8, 2021 root Banking & Finance

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Domestic rating agency India Ratings on Tuesday maintained a stable outlook on the banking sector for 2021-22 while it expects an increase in stressed assets in retail and MSME segments by end-March.

It estimates gross non-performing assets (GNPA) of the banking sector to be at 8.6 per cent and stressed assets at 10.3 per cent for fiscal 2021-22.

“We have maintained a stable outlook on the overall banking sector for the rest of FY22, supported by the continuing systemic support that has helped manage the system-wide COVID-19 linked stress,” the rating agency said in its mid-year banks outlook released on Tuesday.

Banks will continue to strengthen their financials by raising capital and adding to provision buffers which have already seen a sharp increase in the last three to four years, it said.

Private banks

The agency said its stable outlook on large private banks indicates their continued market share gains both in assets and liabilities, while competing intensely with public sector banks (PSBs). Most have strengthened their capital buffers and proactively managed their portfolio.

Outlook on PSBs takes into account continued government support through large capital infusions (Rs 2.8 lakh crore over FY18-FY21 and further Rs 0.2 lakh crore provisioned for FY22), it said.

The agency has a negative outlook on five banks (about 6.5 per cent of system deposits), driven primarily by weak capital buffers and continued pressure on franchise.

It estimates that the asset quality impact in the retail segment has been higher for private banks with a median rise of over 100 per cent in gross NPAs over Q1 FY21 to Q1 FY22 (about 45 per cent for PSBs).

“Banks have also undertaken restructuring in retail assets (including home loans), which could have postponed an immediate increase in slippages. Overall stressed assets (GNPA + restructured) in the segment is expected to increase to 5.8 per cent by end-FY22,” the report said.

It said the MSME sector has been under pressure with demonetisation, introduction of GST and RERA, slowing down of large corporates and now COVID-19.

ECLGS stress

However, the government has supported the segment by offering liquidity under the Emergency Credit Line Guarantee Scheme (ECLGS) and restructuring, it said adding that it expects that beginning Q3 FY22, a portion of such advances would start exiting moratoriums a part of which could slip.

GNPAs of MSMEs is expected to increase to 13.1 per cent by end-FY22 from 9.9 per cent in FY21. Stressed assets similarly would increase to 15.6 per cent from 11.7 per cent.

For corporate segment, the agency estimates GNPAs to increase to 10.2 per cent and stressed asset to increase to 11.3 per cent.

The rating agency has kept its FY22 credit growth estimates unchanged at 8.9 per cent for FY22, supported by a pick-up in economic activity post Q1 FY22, higher government spending especially on infrastructure and a revival in demand for retail loans.

Last week, the agency had changed the outlook to improving from stable for retail non-banking finance companies (NBFCs) and housing finance companies (HFCs) for the second half of FY22.

It said non-banks have adequate system liquidity (because of regulatory measures), sufficient capital buffers, stable margins due to low funding cost and on-balance sheet provisioning buffers.

These factors provide ‘enough cushion to navigate the challenges that may emanate from a subdued operating environment leading to an increase in asset quality challenges due to the second covid wave impacting disbursements and collections for non-banks’, it had said.

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Quality of banks’ retail loans dips, India Ratings projects total gross NPA at 8.6% for FY22, BFSI News, ET BFSI

September 8, 2021 root Banking & Finance

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India Ratings & Research has estimated banks’ gross non-performing assets to rise to 8.6% by March 2022 while maintaining a stable outlook on the overall banking sector for the rest of FY22.

The rating company’s NPA estimate is much more benign than 9.8% projected by Reserve Bank of India’s Financial Stability Report even as it expressed concerns over significant stress on banks’ retail and MSME loan books. It projected overall stressed assets at 10.3% for FY22 expecting provisioning cost to rise to 1.9% from its earlier estimate of 1.5%.

The banking sector gross NPA was at 7.7% at the end of March 2022.

Retail loans, which have been considered as a safe bastion for lenders, are showing cracks as the pandemic drives higher delinquencies due to salary cuts and job losses. The rating firm estimated that the asset quality impact in the retail segment has been significantly higher for private banks, forcing them to restructure loans helping to defer immediate rise in slippages. Overall stressed assets in the segment are expected to increase to 5.8% by end-FY22 from 2.9% earlier.

The micro, small and medium enterprises sector has been under pressure with demonetisation, introduction of Goods & Services Tax and Real Estate Regulatory Authority (RERA), slowing down of large corporates and now COVID-19, India Ratings said.

Although the government support in form of liquidity under the Emergency Credit Line Guarantee Scheme (ECLGS) and permission to restructure loans comes as an immediate relief for the sector immediately, a part of this credit support could turn bad when moratorium ends beginning the third quarter this fiscal. The rating firm projected gross NPA from MSME to rise to 13.1% by FY22 from 9.9% in FY21. Stressed assets similarly would increase to 15.6% from 11.7%.

The stable outlook on large private banks indicated their continued market share gains both in assets and liabilities, while competing intensely with public sector banks. “Most have strengthened their capital buffers and proactively managed their portfolio. As growth revives, large private banks are likely to benefit from credit migration due to their superior product and service proposition,” the rating company said.

The stable outlook on public sector banks took into account the continued government support through large capital infusions leading to a significant boost in capital buffers over the minimum regulatory requirements, significant improvement in provision coverage. The government injected Rs 2.8 trillion over FY18-FY21 and has budgeted another Rs 20000 crore for this fiscal.

The outlook on non-banking finance companies is however mixed depending on the category of their businesses. The outlook on NBFCs engaged in commercial vehicle loans and loans against property is negative while the rating company maintained stable outlook for NBFCs engaged in housing finance as well as gold loans.

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Dish TV gains 13% after Yes Bank move to sack board, BFSI News, ET BFSI

September 8, 2021 root Banking & Finance

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Mumbai: Shares of Dish TV were up nearly 13% on Tuesday after Yes Bank moved a shareholder proposal to overthrow the board, including the managing director and CEO Jawahar Lal Goel. The private lender, which acquired just below 26% in the company following debt resolution, served notice to remove five directors and proposed seven directors to be appointed in their place.

In June, the company’s board had approved the raising of funds through a rights issue of Rs 1,000 crore. The promoters of Dish TV had pledged their holding for credit facilities used by the Essel Group.

With lenders revoking the pledge, the promoter stake in the firm had fallen to below 6%. Yes Bank’s notice comes ahead of the company’s annual general meeting on September 27. Shares of the company rose to a high of Rs 16 during intraday trade on Tuesday before closing at Rs 15.5, up 12.7% from the previous close of Rs 13.8.

Explaining the grounds for removal of the board, the bank said the directors approved a rights issue process despite pending objections raised with them time and again, solely to dilute the shareholding of the bank, which is the largest shareholder, and to prejudice its interest.

According to a Yes Bank notice to the exchange, banks and financial institutions hold around 45% stake in the company, but the board is acting at the behest of minority shareholders holding merely 6% of the shares. The bank also said that the board had completely sidelined its multiple requests to reconstitute the board.

The notice has been sent to the board under Section 169 of the Companies Act, which empowers shareholders to remove a director. The company secretary has informed the exchange that it is taking steps to get the candidatures of the proposed new directors cleared from the information & broadcasting ministry, as prior approval of the authority is required.

The other four directors sought to be removed are Rashmi Aggarwal, who is currently associated with IMT-Ghaziabad and is on the board of other Essel Group companies, B D Narang, former chairman of Oriental Bank of Commerce, Shankar Aggarwal, an IAS officer, and Ashok Mathai Kurien, an entrepreneur.

Yes Bank has informed the exchanges that it has made repeated requests to the board to induct Akash Suri and Sanjay Nambiar who are part of the company’s top management and experts in their respective field. The bank has again proposed their names with five other directors. These are Vijay Bhatt, Haripriya Padmanabhan, Girish Paranjpe, N V Prabhutendulkar and Arvind Nachaya.

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India Ratings maintains stable outlook on banking sector in FY22, BFSI News, ET BFSI

September 8, 2021 root Banking & Finance

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Domestic rating agency India Ratings on Tuesday maintained a stable outlook on the banking sector for 2021-22 while it expects an increase in stressed assets in retail and MSME segments by end-March. It estimates gross non-performing assets (GNPA) of the banking sector to be at 8.6 per cent and stressed assets at 10.3 per cent for fiscal 2021-22.