Category: Banking & Finance

Banks, NBFCs see home loan delinquencies rise as pandemic hits borrowers, BFSI News, ET BFSI

Banking & Finance

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It’s not just retail, non-collateralised loans that are seeing delinquencies. Home loans that are mortgage-backed are seeing stress due to the pandemic.

Home loans of many banks have seen signs of stress with data from IMGC, a leading guarantor of such advances pointing to

an increase of nearly three times in the mortgage delinquency pool over the past 15 months.

IMGC guarantees home loans for about 20 lenders, including the State Bank of India, Housing Development Finance Corp, ICICI Bank and Axis Bank.

The number of claims paid by IMGC has gone up three times in June since March 2020, but it feels that the worst is over for the segment and the situation will stabilise in the next six months.

LIC Housing Finance

LIC Housing Finance has said there has been an increase in delinquencies, mostly due to economic activities being impacted in Q1. With improvement in economic activities and our increased and focused efforts in recovery, it was confident of controlling the same.

For LIC Housing Finance, on the asset quality, the stage-3 exposure at default worsened to 5.93%, from 4.12% a quarter ago and 2.83% a year ago.

There was a sharp deterioration in asset quality across product segments. Developer/Project GNPA deteriorated to 24.4% (down 640 bps quarter on quarter). According to brokerage estimates, in addition GS3, its Developer/Project book has at least 25% of restructured advances and ~16% in Stage 2.

Total restructured advances of LIC Housing Finance stood at Rs 5,350 crore (of which an estimated 88% were loans to corporate/developers). Against this, LICHF has made additional provisions of Rs 5,000 crore. Around Rs 1,500 crore of Covid-related provisions were booked in the First quarter

Housing finance companies

Non-bank lenders have restructured loans worth 1.6% of their overall book. Out of this while housing finance companies restructured about 1.0% of their AUM, other NBFCs restructured about 2.2%.

According to the rating agency Icra, the restructured book for non-bank lenders is expected to move up to 4.1-4.3% by March 2022 while the same for housing finance companies is estimated to go up to 2.0-2.2%.

The second wave of the Covid pandemic significantly impacted the collection efforts of non-bank lenders especially those in the business segments of vehicle finance, business loans and micro finance, who witnessed their collection efforts decline by about 20-25% in May 2021 versus March 2021. The efficiency improved by 3-5% in June 2021.

TThe loans due beyond 90 days, in March 2021 increased by only 30-40 bps over March 2020 levels, as the collections had improved steadily. Several institutions resorted to high quantum of loan write-offs in the fiscal year gone by which was estimated to be about 1.6% of the total assets under management, which is higher by about 60 basis points over the last fiscal.



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balancing growth and inflation, BFSI News, ET BFSI

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2021 is witnessing a K-shaped recovery, with most developed countries seeing higher growth rates while most developing countries are decelerating post the initial growth.

This has resulted in a varied response by the central banks. Few markets like Turkey and Russia have increased their interest rate to control inflationary pressures. At the same time, others like European central banks (ECB) and Chinese central banks maintain an accommodative stance.

The European central bank (ECB) has maintained an accommodative stance with a negative interest rate with the main deposit rate at -0.5%. The bank has increased the inflation target to 2%, indicating it is looking at a dovish stance even in 2022.

In contrast, the federal reserve is looking at pulling out liquidity in 2022 as the fiscal stimulus creates inflationary pressure. The indication of this can be seen within the latest Federal Open Market Committee (FOMC) meeting minutes.

In Asia, the Chinese central bank, in its latest policy, has undertaken liquidity boosting measures which is expected to release 1 trillion Yuan into the Economy. This action points to the concern the Chinese central bank has regarding the impact of the current geopolitical situation on its Economy. Japan has also kept an accommodative stance, with COVID-19 being a key concern given the vaccination rate.

We believe this variance in policy across countries is driven primarily by three key factors:
1. Success in fighting the pandemic through vaccinations
2. Ability to provide a sizeable fiscal stimulus
3. Impact of COVID-19 on critical drivers of economic growth

Countries that have been relatively successful in vaccinating the majority of their population are returning to pre-pandemic levels of economic activity. They see their employment rates rise while the supply chains are normalized. Central banks here are targeting the normalization of rates by the end of this year.

Also, governments that have provided massive fiscal stimulus to bolster initial monetary support have been able to moderate the impact of covid on growth. This has provided the central bank with headroom to increase rates to control inflation.

Finally, export-driven economies that have been able to take advantage of the record commodity prices are experiencing higher growth than consumption-driven economies. Central banks here are prioritizing currency stability.

In the case of India, while we have been able to recover from the devastating second wave, the vaccination coverage required to lift all restrictions is not expected to be reached before the end of 2021. Also, there is limited scope to provide a large fiscal stimulus given India’s fiscal deficit. With consumption which is a crucial driver of economic growth impacted due to second wave and resultant local lockdown, India’s growth is expected to be at 9.5% compared to the previous
estimate of 12.5%.

Given the current scenario, the Reserve Bank of India (RBI) will have to prioritize growth. Most central banks globally have stuck to their dovish stand, with only countries seeing high inflationary pressure raising rates. Globally, central banks, especially in developed countries, are expected to start taking a hawkish stance only by the beginning of 2022.

RBI should also maintain an accommodative stance with a gradual pull back of liquidity measures once sustained economic growth is observed. We expect the government of India to continue its reform push and look at providing additional fiscal stimulus. These measures are expected to accelerate growth once we can lift covid restrictions across sectors and states.

Synchronizing the monetary tightening with economic growth is critical. RBI, just like its global counterparts, has been able to walk the tightrope of balancing growth and inflation. The key going forward will be to identify the right time to rebalance the pole, focusing on shifting from growth to inflation.

The blog has been authored by Nilaya Varma, CEO, Primus Partners and Shravan Shetty, MD, Primus Partners

DISCLAIMER: The views expressed are solely of the author and ETBFSI.com does not necessarily subscribe to it. ETBFSI.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.



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Bond market witnessed 60% decline in issuances: CARE Ratings

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The bond market witnessed a sharp 60 per cent decline in issuances in the first quarter (Q1) of FY22, with total issuances being at ₹87,885 crore as against ₹2,21,668 crore during the same period last year, according to CARE Ratings.

In 2020, the Reserve Bank of India (RBI) had announced a series of Long-Term Repo Operations (LTRO) and Targeted LTRO operations which helped the corporate bond market.

“This year, while there have been announcements made for special LTROs for small finance banks the response has been limited.” the agency said in a statement.

CARE Ratings observed that bank credit growth has been in the negative zone with de-growth of 1 per cent on top of -1.2 per cent last year.

On a sector-wise basis for the first quarter of the year, there was a fall in growth in credit by 1.7 per cent for industry and 1.1 per cent for services.

Growth in outstanding Commercial Papers was lower at 3.2 per cent this quarter against 13.6 per cent in 2020.

Meanwhile, CARE Ratings reported a 10 per cent increase in standalone net profit at ₹11 crore in the first quarter ended June 30, against ₹10 crore in the year ago quarter.

Standalone total income increased by 16.31 per cent from ₹42.49 crore in Q1 FY21 to ₹49.42 crore in Q1 FY22. Total expenses rose by 21.07 per cent from ₹30.09 crore to ₹36.43 crore.

“The first quarter of the year started with lockdowns being imposed by several states sequentially over the first two months which restricted consumption activity. This has been reflected in the lower PMI indices for manufacturing and services this quarter.”

“Therefore, the overall environment in the credit and debt markets was subdued amid lockdown conditions which affected real sector activity. All this affected investment activity in the economy which had a bearing on the credit rating industry,” the agency said in a statement.

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Mahindra Finance: Macro sentiments turning positive in July

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Mahindra and Mahindra Financial Services said it has witnessed an improvement in macro sentiments in July with normalcy returning to the economy as the second wave of the Covid-19 pandemic subsided.

It also expects a significant reduction in a number of NPA contracts in August and September with improved mobility and customer cash flows.

“The NPA contract counts are showing stability and a declining trend,” the NBFC said in a stock exchange filing on Wednesday.

The disbursement during the month at about ₹2,400 crore, more than doubled over a smaller base in July 2020, it further said.

Mahindra Finance also reported an improvement in collection efficiency to about 95 per cent, up from nearly 90 per cent in June 2021, it further said.

With the second wave of the Covid-19 pandemic impacting the semi-urban and rural markets, Mahindra Finance had reported a consolidated net loss of ₹1,573.4 crore in the first quarter of the fiscal.

The gross NPAs were higher at 15.5 per cent as on June 30, 2021 versus 9 per cent as of March 31, 2021.

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BharatPe raises $370 million in series E

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BharatPe has raised $370 million funds in Series E equity round, led by Tiger Global and participation from new investors Dragoneer Investment Group and Steadfast Capital.

“Five out of the seven existing institutional investors participated in the round — namely Coatue Management, Insight Partners, Sequoia Growth, Ribbit Capital and Amplo,” it said in a statement on Wednesday.

The primary component of the round is $350 million, with secondary component of $20 million. All employees holding vested ESOPs have been given full liquidity in the secondary.

The post money valuation is at $2.85 billion.

BharatPe to spread PoS business to 80 cities

“BharatPe is now amongst the Top 5 most valued Fintech start-ups in India and has one of the strongest cap tables for any start-up in India,” it further said.

New roles

Ashneer Grover, Co-Founder and CEO, BharatPe, will be elevated to Co-Founder and Managing Director and will lead strategy, product, technology, capital (IPO, equity and debt) and drive the overall people agenda for the company.

BharatPe acquires PAYBACK India

Suhail Sameer, Group President, BharatPe, has been appointed as the CEO.

“We now have $0.5B cash on books and are extremely well capitalised to deliver on our mandate to build India’s first truly Digital Bank,” Grover said on the fund raise.

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Mini Ipe takes charge as LIC Managing Director

Banking & Finance

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Mini Ipe has taken charge as Managing Director of Life Insurance Corporation of India.

LIC divestment: It’s like killing the golden goose

She was named by the Centre on July 5 this year.

Ipe was previously Executive Director of LIC’s Legal Department.

A postgraduate in Commerce from Andhra University, Ipe had joined LIC in 1986 as a direct recruit officer.

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‘IBC is a success, now time to bring individual, group and cross border insolvency’, BFSI News, ET BFSI

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India’s Insolvency and Bankruptcy Code (IBC) has been a success so far in its five years of existence and has brought about a “significant change” in the corporate landscape of India in terms of credit culture, feels Biswarup Basu, President at the Institute of Cost Accountants of India. He suggests now is the time to bring individual, group and cross-border insolvency frameworks to further strengthen the framework. Edited excerpts.

Q: What is your take on the IBC regulation? Five years gone, would you read it as a success or a work in progress?

IBC is one of the deepest economic reforms adopted in India. In the last five years, it has brought about a significant change in the corporate landscape of India in terms of credit culture, unlocking of value from the non-performing assets, and the equation between debtors and creditors. This has resulted in putting a large amount of money back into productive channels. It is a nascent law.

Five years in the journey of a law of critical importance is too short, so in a way, there are constant restructuring / amendment of several provisions of the IBC to make it conducive so as to achieve its objectives. So it’s been a success but still the provisions of individual insolvency, cross border insolvency, group insolvency are yet to be notified / operationalised, and to that extent, one can say that it is a work in progress..

Q: What’s your view on 90% haircuts seen in three high profile cases, Jet, Videocon, and Siva?

The objective of IBC is primarily rescuing a company in distress and not recovery. So the outcome of various cases under IBC till now has to be seen in that context. Moreover, the haircut depends upon the stage of distress at which the company is brought into the IBC framework. All these companies were brought under the umbrella of IBC at a much later stage of distress, by which time most of the value of the assets of the company had already been eroded.

Q: Would you say IBC has its limitations and can’t satisfy everyone at the end of the day?

The law stands on its principles and objectives and all the stakeholders accordingly may not have similar outcomes from an IBC matter.

it may be noted that the law is not adversarial in nature where one party wins and the other loses. It seeks to balance the interest of all stakeholders to the extent possible whereby it is not possible to make everyone happy..

Q: What three challenges exist in the current IBC framework? What changes would you propose?

First, the timelines provided under IBC are not being met in the majority of the cases due to litigation and also lack of capacity of NCLT / NCLAT to deal with the large number of cases brought up before them. The NCLT / NCLAT should be strengthened in terms of manpower. Maybe separate benches could be created to deal with IBC matters.

Second, cross border insolvency provisions have not yet been notified. There are many companies that have assets located in multiple jurisdictions. It is suggested that the government should give this matter priority to further enhance the scope of IBC.

Third, individual insolvency provisions have not yet been notified. This should be operationalised sooner to provide succour to the Individuals facing financial hardships.

'IBC is a success, now time to bring individual, group and cross border insolvency’Q: There is a view that the regulators or statutory bodies take their own decisions even after resolutions are approved successfully by the NCLTs. Should there be more clarity on which law is superior?

It is well settled law that once a resolution plan is approved by the adjudicating authority it becomes binding on all stakeholders. There is enough clarity in this regard.

Q: How can CMAs play a role in the resolution of assets under IBC? Today a lot of insolvency professionals are CMAs…

Many CMAs have become insolvency professionals and are regularly handling various cases under IBC. Besides acting as the interim resolution professional / resolution professional, CMAs can also assist in carrying out due diligence, forensic audit, preparation of Information Memorandum, and preparation of resolution plan.

Q: Last, CMAs as RPs have been or are being litigated against quite a lot by promoters or dissenting lenders over haircuts. How should the RPs deal with such a situation?

Many promoters, who find themselves on the verge of losing control of their companies, try to find some way out or at least try to drag the matter longer and thus involve resolution professionals in litigation. The RP should have confidence in his actions, maintain proper documents relating to CIRP, and justify his action appropriately before the adjudicating authority.

ALSO READ: ‘IBC can’t make everyone happy, Videocon case will help law mature further’



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Vodafone Idea lenders can potentially lose Rs 1.8 lakh cr if telco collapses, BFSI News, ET BFSI

Banking & Finance

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A fresh eruption in Vodafone Idea financial woes with the promoter K M Birla offering to hand over his equity to the government has worried the telco’s lenders who stare at a loss of Rs 1.8 lakh crore if the company collapses. “I am more than willing to hand over my stake in the company to any entity- public sector/government /domestic financial entity or any other that the government may consider worthy of keeping the company as a going concern,” Birla said in the letter.

A large part of the loans to the lender is in the form of guarantees with public sector banks having a lion’s share of the debt. Some private lenders with a funded exposure have already started making provisions.

The debt

According to official data, VIL had an adjusted gross revenue (AGR) liability of Rs 58,254 crore out of which the company has paid Rs 7,854.37 crore and Rs 50,399.63 crore is outstanding.

VIL’s gross debt, excluding lease liabilities, stood at Rs 1,80,310 crore as of March 31, 2021. The amount included deferred spectrum payment obligations of Rs 96,270 crore and debt from banks and financial institutions of Rs 23,080 crore apart from the AGR liability.

The scenario

If fails to repay its dues to the government and these guarantees are invoked, it would immediately turn into debt and would soon be classified as a non-performing asset.

The hit on PSU banks will not be as large as their exposure because in recent years lenders have been demanding a substantially higher cash margin for their guarantees. IDBI Bank is understood to have up to 40% margins for the guarantees it has extended. But even then it will be large enough to wipe out profits for many.

What ahead?

The insolvency process can work only when there are buyers. In the case of Vodafone, the Rs 53,000-crore AGR (adjusted gross revenue) dues to the Centre are a deterrent. This is despite Birla being willing to write down his entire equity. The government dues cannot be avoided as the Centre cannot make an exception for one company. Even in insolvency cases, the department of telecom has claimed its dues to be that of a financial creditor although there have been attempts to mark them as operational creditors.

The uncertainty over DoT’s claims, which is already being experienced by lenders in the Reliance Communications

insolvency case, would make telecom resolutions a challenge. Lenders do not want to risk insolvency as this

would result in the exit of customers which was the case with RCom.

With the the company’s debt obligations being equal to 1.5% of the banking sector’s credit, experts have suggested the debt be converted into equity shares, the company be nationalised and perhaps merged with BSNL and MTNL. However, it seems highly unlikely the government will nationalise the company. On balance, they would reckon it is better to give up the revenues than act politically incorrectly in bailing out a private sector player—one with a foreign promoter.



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IOB asks Union Bank to buy its stake in Malaysian bank, BFSI News, ET BFSI

Banking & Finance

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Indian Overseas Bank (IOB) has asked the Union Bank of India to buy its 35 per cent holding in India International Bank, Malaysia, a top IOB official said on Tuesday.

The India International Bank was originally a three-way joint venture between the Bank of Baroda (40 per cent stake), the IOB (35 per cent) and Andhra Bank (25 per cent). The Andhra Bank was taken over by the Union Bank of India as a part of the megabank merger scheme last year.

“We have asked Union Bank of India to buy our stakes. The valuation exercise is going on,” IOB Managing Director & CEO Partha Pratim Sengupta told reporters.

According to him, the IOB had decided to exit the Malaysian joint venture as part of its plan to come out of the Reserve Bank of India‘s (RBI) Prompt and Corrective Action (PCA) fold.

Though Sengupta said the IOB is expecting to be out of the PCA fold as it fulfills the RBI’s conditions, the decision to exit the India International Bank continues to hold.

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Indian Overseas Bank profit doubles to Rs 327 cr in Q1, BFSI News, ET BFSI

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New Delhi: State-owned Indian Overseas Bank on Tuesday reported over two-fold jump in its net profit to Rs 327 crore for the quarter ending June as provisions for bad loans declined. The bank had posted a net profit of Rs 121 crore in the year-ago quarter.

Total income during Q1FY22, however, was down at Rs 5,155 crore as against Rs 5,234 crore in Q1FY21, Indian Overseas Bank said in a regulatory filing.

The interest income was down by 5.6 per cent at Rs 4,063 crore during the quarter. The non-interest income rose by 17.2 per cent at Rs 1,092 crore due to increase in other income, the bank said.

The Chennai-headquartered lender said it reduced non-performing assets (NAPs) worth Rs 1,616 crore during the quarter, as against Rs 1,969 crore in June 2020 quarter.

Bank’s gross NPAs (bad loans) fell to 11.48 per cent of the gross advances as of June 30, 2021, against 13.90 per cent in the year-ago period.

In terms of value, the gross NPAs were worth Rs 15,952 crore, down from Rs 18,291 crore. Net NPAs fell to 3.15 per cent (Rs 3,998 crore) from 5.10 per cent (Rs 6,081 crore).

Provisions for bad loans and contingencies for the quarter fell to Rs 868 crore from Rs 969.52 crore a year ago.

“The bank plans to come out of prompt corrective action (PCA) by focussing on recovery, low-cost deposits and less capital consuming advances,” it said.

The provision coverage ratio recorded at 91.56 per cent, it added.

Shares of the bank traded 2.7 per cent down at Rs 23.40 apiece on BSE. PTI KPM MR MR



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