Category: Banking & Finance

City Union Bank to start pushing non-gold loan advances by FY22-end

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N Kamakodi, MD & CEO of CUB, recently said during an analysts’ call that when the growth of other credit increases, correspondingly the growth of gold loan would also decrease.

South India-based private sector lender City Union Bank (CUB) has said it will start pushing growth in non-gold loan advances by the end of the current financial year. During the last few quarters, due to the Covid pandemic and in the absence of other avenues for growth, the bank had given thrust to improve gold loans, which were increased by 73% from Rs 4,537 crore in Q2 FY21 to Rs 7,849 crore in Q2 FY 22.

N Kamakodi, MD & CEO of CUB, recently said during an analysts’ call that when the growth of other credit increases, correspondingly the growth of gold loan would also decrease.

“We have not pushed our growth pedal in non-gold loan credit. We should be probably starting that from the end of the financial year if everything goes well. When the growth of other credit increases, correspondingly the growth of gold loan will also decrease, this is how we have managed growth in the past,” he said.

Currently, all the rural and semi-urban branches of the bank have gold loan as a product. As regards to metro branches, may be only 10% of the branches will have gold loan products. Out of a total 700, 350 to 400 branches may have gold loan products, he said.

On the recovery front, Kamakodi said in the first half of FY22, the bank had recorded a total recovery of Rs 290 crore comprising about Rs 210 crore from live accounts and about Rs 80 crore from technically written-off accounts, compared to Rs 108 crore comprising Rs 72 crore of live account and Rs 36 crore from technically written-off accounts in H1 of FY21.

In Q2 of FY22, it recorded a total recovery of Rs 189 crore comprising Rs 128 crore from live accounts and Rs 61 crore from the technically written off accounts.
“The current quarter recovery is the highest in the recent years, but still has to improve from here. The recovery will determine the ROA over the next couple of years, so we are taking all our steps under our command to improve this going forward,” he said.

The total provisions made during Q2 of FY22 and H1 of FY22 was at Rs 223 crore and Rs 433 crore against Rs 227 crore and Rs 429 crore in Q2 of FY21 and H1 of FY21 respectively.

He said that post Covid, only 4% to 5% of the transactions has been happening through the branches creating a huge capacity once the growth pace picks up.
On the network expansion plans, he said the bank every year used to keep plans for about 50 branches. “We opened only 3 branches or so in the financial year 2021 and this year probably we may open about 25 branches. That is what we are planning if everything goes well and we may initiate around 75 branches getting opened in the next year,” he said.

Kamakodi said the bank will also be looking at the co-lending space, underlining that it will do it on its own our terms by identifying a proper partner, going through small portfolio, testing the behaviour through cycles before expanding it and taking it as one of the main avenues of growth.

“What I can definitely say is that for the next three years, we would have definitely started co-lending, but it will not be a very significant proportion of our overall book even three years down the line. Once we get the total comfort and grip over how that segment is performing and what amount of control we have on that portfolio, we will take further call on that,” he said.

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Tata AIA Life Insurance bets on 40% growth over next 3 years

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Tata AIA Life Insurance expects a 30-40 per cent growth in business over the next three years backed by a strong push to protection and pension plans, ramping up of distribution network and with renewed emphasis on branding.

According to Naveen Tahilyani, MD and Chief Executive Officer, Tata AIA Life Insurance, pension as a category is currently a small part of their total portfolio. But the company plans to launch new products starting this month to tap into the potential growth in the segment.

The company will also continue its focus on protection plans, which currently accounts for nearly 25 per cent of its product mix.

“We grew by nearly 30 per cent in H1 and in Q2 of this fiscal. Our growth has been close to 40 per cent. We have had strong numbers in November. We are hopeful of 30-40 per cent growth over the next three years,” Tahilyani told BusinessLine.

In FY21, the total premium income grew by 34 per cent to ₹11,105 crore, compared with ₹8,308 crore in FY-20. The total renewal premium income also witnessed a 37 per cent growth at ₹6,961 crore (₹5,066 crore). Its 13th month persistency remained at 88.28 per cent despite the adverse impact of Covid-19 pandemic while the claim settlement ratio stands at around 98.05 per cent. The company claims to have registered 35 per cent CAGR in the retail protection business over the last two years.

Ramping up distribution

The company is looking to ramp up its distribution network both by opening new branches and entering into partnerships with health tech and fintech companies for ramping up sales.

As on March 2021, the company had around 215 branches. It has already added 100 branches so far this year and plans to add another 100 over the next six months taking the total to around 415 by June 2022.

The company has a strong presence in Maharashtra, Gujarat, West Bengal, Delhi NCR, Punjab and Haryana. It plans to ramp up presence in the southern markets by setting up new branches.

Distribution through agency network accounts for nearly 30 per cent of its total sales, while the remaining 70 per cent comes from non-agency network including bancassurance, broking partners and new age digital companies.

Branding and marketing

Tata AIA Life Insurance has on-boarded Olympic gold medallist Neeraj Chopra as its brand ambassador in a multi-year deal with a focus on enhancing its brand image. The move would help promote health and wellness among policyholders and penetrate deeper into the Tier-II and Tier-III markets.

“So far, we have been reasonably quiet on branding front. Now, we think it is time to invest in branding. The Neeraj Chopra campaign would be initially rolled out on the digital platform,” Tahilyani said.

The company plans to lay emphasis on the omni-channel network with the digital channel serving more as a feeder to the physical network.

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Indian banks behind the curve on payments: Uday Kotak

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Banks have been “short sighted” in the last three years on the payments business which is now monopolised by two or three payment companies, said veteran banker Uday Kotak, and urged them to “wake up”.

“Indian banks are behind the curve. Indian banks have allowed the growth of UPI payments that have been essentially monopolised by two players — Google Pay and PhonePe — which have 85 per cent of the market share,” said Kotak, Managing Director and CEO, Kotak Mahindra Bank on Friday.

Wake-up call

Addressing the InFinity Forum organised by IFSCA and Bloomberg, Kotak added that this is a wake up call for Indian banking.

“Wake up or you will see large parts of traditional financial systems move out,” he said.

Also see: Fintech risk landscape

Noting that bankers had been short-sighted over the last three years, Kotak said their standard response was that there is no money in payments.

He, however, stressed that consumer protection has to be the key priority when fintech companies grow.

Legal boundaries

Consumer tech companies have revenue models which are outside finance — such as advertising and e-commerce — while banks legally can not enter non-financial businesses, Kotak noted.

“So, there are serious issues of how to draw lines and, simultaneously, there are issues on financial stability,” he said.

Keep trust

While underlining that he is not against competition, Kotak said that we need to make sure that competitive service mustn’t lead to systemic and stability challenge.

Also see: Digital payments remain strong, marginal decline in November

“We must ask the question of who runs the risk when raising the deposit — is it the consumer tech company which is facing customers and raising deposits who runs the risk of the underlying asset? As we grow fintech, we must make sure that we do not betray trust,” he added.

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Deposit growth in alternative fortnights a contrarian trend: SBI Ecowrap

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The abrupt increase and subsequent slump in deposits of all scheduled commercial banks (ASCBs) in the fortnight ended November 5, and the preceding fortnight ended November 19, respectively, are contrarian trends, according to the State Bank of India’s economic research report, Ecowrap.

“While it may be exactly difficult to decipher the increase and subsequent decline, it does pose questions on liquidity management, financial stability, or a shift in behavioural trend in customer payment habits through digitisation and hence, lower currency leakage and concomitant deposit bulge or both,” said Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI.

Also see: NBFC NPAs could increase by a third due to tightening of norms: Ind-Ra

Referring to an increase of ₹3.3-lakh crore in deposits in the fortnight ended November 5, Ghosh observed that this has never happened during a Diwali week as there is always a currency leakage and concomitant deposit decline. This is also the fifth largest increase in any fortnight in the last 24 years, he added.

Looking back

The report noted that such huge incremental addition has happened only a few times, with higher deposits accretion (than the current year’s fortnight) occurring during the fortnight ended November 25, 2016 (₹4.16-lakh crore), September 30, 2016 (₹3.55-lakh crore), March 29, 2019 ( ₹3.46-lakh crore), and April 1, 2016 (₹3.41-lakh crore).

However, the increase in November 2016 was because of demonetisation and the March and April fortnightly increases could be attributed to seasonal year-end bulge. In this respect, the current deposit bulge requires a detailed explanation, Ghosh said.

Deposit build-up and market rally

Referring to ₹2.70-lakh crore slump in deposits during the fortnight ended November 19, 2021, Ghosh believes that it is possible there was a large influx of deposits into the banking system for the fortnight ended November 5, 2021, in anticipation of a buildup in stock market rally post primary issuances of new age companies and others.

Also see: FIDC seeks relaxation on IRACP norms

However, when such rally did not materialise, the bulge in banking deposits slumped and almost 80 per cent of the deposit bulge was withdrawn.

Ghosh said interestingly, the amount of money parked in fixed reverse repo window jumped from ₹0.45-lakh crore on October 19 this year to ₹2.4-lakh crore on November 17, and has remained at such level till December 1. However, the significant jump in digital transactions has also resulted in lower usage of cash in current fiscal, and ideally could also have resulted in a surge in deposits for the Diwali week.

Growth in deposits

The report said though the deposits growth remained the same in Q2 (2.6 per cent) as compared to Q1 (2.5 per cent), sequentially at all-India level, apart from Metro regions, it has decelerated quarter over quarter (q-o-q), particularly in rural areas, indicating the current economic recovery is mostly urban-led and rural economy is still recouping.

Meanwhile, the ASCB’s credit has increased by ₹1.18-lakh crore (7.1 per cent y-o-y) during the fortnight ended November 5, which may be due to festive demands.

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NBFC NPAs could increase by a third due to tightening of norms: India Ratings

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The Reserve Bank of India’s clarification accounting of non-performing advances is likely to increase non-banking finance companies’ (NBFCs) non-performing assets (NPAs) by around a third, according to India Ratings (Ind-Ra).

NBFCs would also have to invest in systems and processes to comply with daily stamping requirements.

Ind-Ra noted that NBFCs have asked the RBI to privide a transition period on this requirement.

Limited impact on provisioning

However, the impact on provisioning could be modest, because NBFCs use Ind-AS (Indian Accounting Standards) and higher rated NBFCs have a more conservative provision policy than IRAC (income recognition and asset classification) requirements.

All arrears to be cleared

The credit rating agency observed that the RBI clarification would allow stage 3 (credit impaired) assets to become standard only when all overdues and arrears (including interest) are cleared.

Earlier, NBFCs would classify an account as Stage 3 when there is a payment overdue for more than 90 days. Typically, for monthly payments, this would be when there are 3 or more instalments overdue on any account.

Also see: Deposit growth in alternative fortnights a contrarian trend: SBI Ecowrap

However, when the borrower makes a part payment such that the total amount due is less than three instalments, the account is removed from NPA classification and classified as a standard asset. It remains in the overdue category if not all dues are cleared.

Now, RBI has restricted movement from Stage 3 to Standard category.

NBFC borrowers are generally a weak class of borrowers and have volatile cash flows so once an account has been classified as NPA, it could remain there for a considerable period, said Pankaj Naik, Associate Director, Ind-Ra.

Accelerated pace of NPA recognition

Referring to an RBI circular requiring daily stamping of accounts instead of a monthly or quarterly one to count the number of overdue days, Ind-Ra opined that this would result in an accelerated pace of NPA recognition for accounts.

“Where there is cash collection, NBFC borrowers typically pay their overdues with some delays. Accounts can now get into NPA category for just a day’s delay in payment and once categorised as NPA will not be able to become standard unless all arrears are cleared.

Also see: Time to convert fintech initiatives into revolution: PM Modi

“So, in other words, accounts would get categorised as NPAs at a faster pace and would remain sticky in that category for a longer period of time. Both these accounting treatments would result into higher headline number for NBFCs,” said Naik.

He noted that it may so happen that NBFCs would disclose NPA numbers as per IRAC norms and Stage 3 numbers as per Ind-AS separately in their disclosures.

Varied performance across segments

The agency assessed that borrowers in the earn-and-pay model such as commercial vehicle finance, small ticket business loans, and personal loans to self-employed customers are vulnerable with volatile cash flows.

They are generally not in a position to clear all dues in one go and so the headline numbers would look elevated.

On the other hand, home loan and salaried personal loans could exhibit a better performance.

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IndusInd Bank appoints Deloitte to review whistleblower allegations at arm Bharat Financial, BFSI News, ET BFSI

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Private lender IndusInd Bank has appointed audit firm Deloitte to conduct an independent review of the whistleblower allegations on evergreening loans at its arm Bharat Financial Inclusion Limited (BFIL).

Until the completion of this review, the Board of Bharat Financial has deferred the decision to consider the resignations of Executive Director and CFO Ashish Damani as well as MD and CEO Shalabh Saxena; the top executives had tendered their resignation November 25, IndusInd Bank informed stock exchanges November 29.

“Both the Employees have offered their assistance in the ongoing review of transactions related to BFIL, for which the Bank has appointed a renowned international audit firm to conduct independent review and ascertain veracity of the anonymous complaints,” IndusInd Bank November 29’s regulatory filing said.

In the filing, IndusInd Bank did not disclose the name of this “renowned international audit firm”. ETCFO confirmed with a source aware of the matter who shared it is Deloitte. Deloitte will review loan disbursement processes at Bharat Financial and check if they are compliant with the Reserve Bank’s stipulated norms, the source, who did not wish to be identified, said.

A detailed questionnaire sent to IndusInd Bank seeking the audit firm’s name, its date of appointment, the expected timeframe of the independent review, and other queries asked in respect of whistleblower allegations went unanswered while Deloitte could not be reached.

On November 5, The Economic Times’ Sugata Ghosh had reported that a group of senior employees at Bharat Financial Inclusion, acting as whistleblowers, had alerted the Reserve Bank and the Board of the parent IndusInd Bank on lapses in governance and accounting norms to allegedly evergreen loans. The report pointed that the group had warned in at least two mails to IndusInd Bank CEO Sumanth Kathpalia between October 17 and October 24, and there was a separate whistleblower complaint from an outsider to RBI on October 14.

The report also said Bharat Financial Inclusion Non-Executive Chairman M R Rao had raised red flags in his resignation letter on September 15. “I am aware that RBI has raised issues with respect to BFIL particularly that 80,000 loans were given in May 2021, without customer consent. This is a point on which I expressed in the Board and in fact demanded a third-party audit too. To me it appears to be not a process lapse but a deliberate act to shore up repayment rates. I had warned the board too about the serious consequences,” Rao had said.

On November 6, the IndusInd Bank, came out with a press release, and refuted whistleblower’s allegations on loan evergreening at BFIL, terming them as “grossly inaccurate” and “baseless”, however, it admitted to disbursing 84,000 loans without customers consent and held technical glitch responsible for it.

CFO, CEO Resignations

The governance issue at the IndusInd’s arm became more prominent when Spandana Sphoorty Financial Ltd, a Hyderabad-based micro-lender, announced on November 22 the appointment of Shalabh Saxena as MD and CEO and Ashish Damani as its CFO.

A day later, on November 23, Indusind Bank came out with a regulatory clarification saying the duo are still employed with Bharat Financial Inclusion, and have not tendered their resignations. “…certain transactions relating to BFIL are subject matter of an ongoing review and the continued employment of Mr. Shalabh Saxena and Mr. Ashish Damani at BFIL is critical to the closure of such (a) process,” the clarification had said.

Subsequently, on November 25, the BFIL’s CFO and CEO tendered their resignations, IndusInd Bank informed in its stock exchange filing on November 29. In the interim, the lender has nominated J Sridharan, who has over two decades of experience in managing finance and governance functions at the bank, as Executive Director on the BFIL’s Board. Bharat Financial Inclusion Former Non-Executive Chairman M R Rao continues to be associated as an advisor to BFIL, the lender said.



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Study, BFSI News, ET BFSI

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The recent clarification by the Reserve Bank of India on non-performing advances (NPA) may increase non-banking financial companies’ (NBFC) bad loans by one-third, says a report.

Last month, the RBI had provided clarification on income recognition asset classification and provisioning (IRAC) norms for banks, NBFCs and All-India Financial Institutions.

The clarification included classification of special mention account (SMA) and NPA on a day-end position basis and upgrade from an NPA to standard category only after clearance of all outstanding overdues.

“The RBI’s clarification on non-performing advances (NPAs) accounting is likely to increase NPAs by around one-third for non-banking finance companies (NBFCs),” domestic rating agency India Ratings and Research said in a report on Friday.

However, the impact on provisioning could be modest, given NBFCs are using Indian Accounting Standards (IND-AS) and generally for higher rated NBFCs, provision policy is more conservative than IRAC requirements.

The report said the RBI circular also calls for daily stamping of accounts to count the number of days they are overdues instead of a monthly or quarterly stamping.

This again would result in an accelerated pace of NPA recognition for accounts, it said.

NBFC borrowers, typically where there is cash collection, pay their overdues generally with some delays. Accounts can get into NPA category just for a day’s delay in paying the instalments and once it gets categorised as NPA it will not be able to become standard unless all the arrears are cleared, the report said.

“So, in other words, accounts would get categorised as NPAs at a faster pace and would remain sticky in that category for a longer period of time. Both these accounting treatments would result in higher headline numbers for NBFCs,” it said.

It may so happen that NBFCs would disclose NPA numbers as per IRAC norms and stage 3 numbers as per Ind-As separately in their disclosures, the agency said.



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Two firms cheat banks of Rs 70 cr, CBI lodges cases, BFSI News, ET BFSI

Banking & Finance

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New Delhi, The Central Bureau of Investigation on Friday registered a case against two private firms and its officials for allegedly cheating banks to the tune of Rs 70 crore.

A CBI official said that case has been registered against a Hyderabad (Telangana) based private company, it’s two Directors, a Guarantor, a Nandyal based private firm and a person.

The official said that the private company based in Hyderabad, had in connivance with others, availed loans from Bank of Baroda, Banjara Hills Branch and later diverted the money for some other use and also for personal gains.

“The accused submitted false stock statements with the bank for concealing their irregularities, falsified their account book and willfully defaulted in repayments. By furnishing fake documents, the accused caused a loss of Rs 61 crore to the bank,” the official said.

The official said that after registering a case, they conducted raids at six different places at Hyderabad, Nandyal, Kurnool and were able to recover incriminating documents against the alleged accused.

Another case was registered against six accused, including three private companies, based in Hyderabad.

He said that the company had availed secured over draft facility of Rs 4 crore and LC of Rs 2 crore with a total limit of Rs 6 crore in 2016 for business purpose from the Union Bank of India.

It was further alleged that after availing the loan, the company committed default in its repayment.

It was a violation of the terms of loan agreement and it’s account slipped into Non-Performing Assets(NPA) in 2018. Later, the bank declared them fraud.

Later, it was found that borrowers had diverted and misappropriated the funds and also mortgaged disputed, unidentified property with an intention to cheat bank. Thus, they caused a loss of Rs 8 crore to the bank.

The CBI conducted raids at several locations and have recovered some evidence against the accused.



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Uday Kotak, BFSI News, ET BFSI

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Veteran banker Uday Kotak has said that Indian banks have been behind the curve on payments and two players Google Pay and PhonePe have a monopoly with an 85% of the market share.

“Indian banks saw it happen in front of them. It’s a wake-up call for Indian banking. Wake up or you will see large parts of traditional financial markets move out,” said Uday Kotak, MD & CEO of Kotak Mahindra Bank, at a discussion at the Infinity Forum, organised by Bloomberg and IFSCA.

Bankers were shortsighted over the last three years and they let the payments market be taken over by two or three players. Their standard response was there is no money in payments, he said, adding that however, consumer tech have revenue models which are outside finance, for example, advertising or e-commerce models.

“Banks under Section 6 of Banking Regulation Act cannot get into non-financial business as defined. There are serious issues about how we are going to draw the line. Simultaneously there is an issue about financial stability,” he said, adding that in the name of better competitive service there should not be any systemic and stability challenge.

On payment companies raising deposits on the behalf of banks, he said the issue really is who is raising the deposits. “Is it the consumer tech companies, which are the front end and who are going to the customers, marketing the deposits and risking the underlying asset? We need to make sure that as we grow into fintechs, we do not betray trust. The most important aspect is consumer trust that has to be protected at all costs.”

MSME lending

On MSME lending, Kotak said the time has some sort of transformation in MSME lending, particularly the turnaround times.

He said the power of data can give a Msme clarity on loans in minutes if not seconds. MSMEs should be able to get to know if they will get money in a day rather than the few weeks they have to wait now. He said GST is an extremely powerful tool, which needs to be leveraged and democratised. “While you protect privacy you need to make data available with consent and work on that with speed.”

On NRI banking

Stressing the need to bring NRIs and PIOs under UPI, he said NRIs have to go through a lot of friction for opening an operative account in India.

“NRIs should be able to do all their transactions at the offshore centre and we must build that with speed.”

Identifying tech, talent and customer as three key components for the Indian financial system to get into the new age, Kotak said the focus has to be on the customer, with technology being the translation and talent the translator.

“We need to have a sales and service oriented and customer-first approach and all the solutions at the click of a button,” he said.

On Gift City, he said it should be built on the lines of London, Dubai, Singapore. There should be a united approach to regulation and policymaking cutting across all regulators.

Digital-only banks

On digital-only banks, he said the current policy doesn’t stop anyone from setting up digital-only banks. only it needs fit and proper and appropriate people setting up the bank. The time has come for some entrepreneurs to make an application to RBI for a digital-only bank, he said.

He said Kotak Mahindra Bank was excited about the digital space and was focused on creating start-ups within the organisation, a different culture, a squad approach and letting these start-ups have their power of imagination and execution. “We are hiring appropriate talent and giving them the ability to go ahead and experience in the financial world even if there are some risks. What we are not compromising is on security and regulation,” he said.



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Sebi relaxes minimum promoter lock-in norm for Ujjivan SFB, Ujjivan Fin Services for amalgamation, BFSI News, ET BFSI

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Markets regulator Sebi has provided relaxation with regard to the minimum promoter lock-in norm to Ujjivan Small Finance Bank (SFB) and its promoter Ujjivan Financial Services, for the purpose of their amalgamation. On October 30, the bank had approved the scheme of amalgamation between Ujjivan Financial Services (transferor company) and Ujjivan SFB (transferee company).

Following this, it had submitted a joint application on behalf of the transferor/promoter to Sebi, seeking relaxation of the three-year minimum promoter lock-in requirements.

Besides, it also sought approval to adopt the proposed scheme of amalgamation as a method to achieve the minimum public shareholding.

“…we hereby inform you that the Sebi, vide its letter dated December 2, 2021, has acceded to our request to relax the three-year minimum promoter lock-in requirements,” it said in a regulatory filing.

The exemption is subject to no-objection certificate (NOC) from the exchanges and final approval by the National Company Law Tribunal (NCLT).

“The exemption being granted from lock-in is only for the period commencing after approval of the proposed scheme of amalgamation by NCLT and till expiry of the lock-in period,” it said citing the Sebi letter.

However, the Sebi specified that the relaxation is granted to them for the “specific purpose of scheme of amalgamation” between Ujjivan Financial Services and Ujjivan SFB and “shall not be treated as a precedence”.

Further, as advised by Sebi, the bank will initiate necessary steps to ensure compliance with minimum public shareholding requirements through mode specified under Sebi circular dated February 22, 2018, it added.

Currently, Ujjivan Financial Services holds 83.32 per cent of the equity shareholding and 100 per cent of preference shareholding of Ujjivan SFB.

As per the minimum shareholding norms, the promoter’s minimum initial contribution in the SFB arm should be at least 40 per cent. If the promoter’s initial shareholding in the SFB is in excess of 40 per cent, it is to be brought down to 40 per cent within a period of five years from the date of commencement of operations of SFB.

This period of five years is expiring on January 31, 2022.



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