Category: Banking & Finance

Videocon’s Venugopal Dhoot moves NCLAT; says Twin Star Technologies’ offer too low

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Videocon group’s former promoter Venugopal Dhoot has moved the National Company Law Appellate Tribunal (NCLAT) against the decision of the lenders to accept the debt resolution proposal from a Vedanta group entity. Dhoot has claimed that the offer made by Twin Star Technologies was too low.

Banks will take a ₹42,000-crore haircut after the Mumbai Bench of the National Company Law Tribunal (NCLT) approved a bid by Anil Agarwal-backed Twin Star Technologies to acquire Videocon Industries for ₹2,962 crore. Claims worth ₹46,000 crore had been admitted under the insolvency process that began in December 2017.

NCLT expresses surprise

The NCLT, while approving the debt resolution plan, had expressed surprise that the bid placed by the Vedanta Group for acquiring 13 companies under the Videocon Group was almost the same value arrived at by the registered valuers for liquidation.

According to the valuation reports, the fair value of the Videocon group was ₹4,069.95 crore while the liquidation value was ₹2,568.13 crore. Twin Star Technologies has offered ₹2,962.02 crore to acquire Videocon

Dhoot had earlier promised to repay about ₹30,000 crore for taking back control of the conglomerate under Section 12 A of the Insolvency and Bankruptcy Code, which allows the withdrawal of the debt resolution proceedings under NCLT if the majority of the lenders agree to it.

But the offer by the Dhoot family entailed repayments until 2035, which was not acceptable to many banks on Videocon’s Committee of Creditors (CoC).

Promoters’ attempts

Dhoot’s fresh attempt to block the sale of Videocon assets comes at a time when several other promoters are also trying to do the same. For example, Kapil Wadhawan has also approached the Supreme Court claiming rights to bid for DHFL.

C Sivasankaran has also offered to take back control of Siva Industries by paying less than 7 per cent of the total outstanding debt.

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IPs to face penalty for non-compliances

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Insolvency regulator IBBI has come up with a novel step to ensure Insolvency Professionals ( IPs) better discharge their duties and at the same time help distinguish the performers and non-performers amongst them. It has come up with a graduated system of levy of monetary penalty for minor non-compliances by the IPs.

For this purpose, the Insolvency & Bankruptcy Board of India (IBBI) has now directed the three Insolvency Professional Agencies (IPAs) to amend their bye-laws so as to provide maximum and minimum monetary penalty for certain non-compliances by IPs registered with such agencies.

Till date, there are three IPAs registered with the IBBI. These are ICSI Institute of Insolvency Professionals, Indian Institute of Insolvency Professionals of ICAI and Insolvency Professional Agency of Institute of Cost Accountants of India.

Monetary penalty

The IPAs have now been directed to provide for the maximum and minimum monetary penalty in the interest of objectivity and uniformity. The penalty will be imposed where the Disciplinary Committee of the IPAs decides to impose such penalty on its professional members.

As many as 14 contraventions have now been listed out by the IBBI in a circular along with the minimum and maximum penalty that can be imposed.

The contraventions include failure to submit disclosures, returns etc. to IPAs or incorrect disclosures, returns relating to any assignment as required under IBC (penalty of upto ₹1 lakh or 25 per cent of fee, whichever is higher, subject to a minimum of ₹50,000); accepting an assignment having conflict of interest with stakeholders (upto ₹ 2 lakh or 25 per cent of fee, whichever is higher, subject to a minimum of ₹1 lakh), etc.

Experts’ views

Ashok Haldia , Chairman of Indian Institute of Insolvency Professionals of ICAI, said “Prescription of a graduated system of monetary penalty for minor non compliances is welcome as it would bring in objectivity and uniformity in dealing with cases within an IPA and across all the IPA. It differentiates between non compliances and violations.”

Abhishek Saxena, Co-founding Partner, Phoenix Legal, said this marks a welcome step to ensure better diligence and integrity in the system.

Nakul Sachdeva, Partner, L&L Partners, said “The circular would lead consistency in the quantum of penalty imposed”.

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Monetary Policy Committee may opt for a status quo on repo rate

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The rate-setting Monetary Policy Committee (MPC) may unanimously vote to continue status quo on the policy repo rate as a solid increase in aggregate demand is yet to take shape even as retail inflation print in May and June was above its upper tolerance level.

The six-member MPC has kept repo rate (the interest rate at which banks borrow funds from the Reserve Bank of India to overcome short-term liquidity mismatches) rock-steady at 4 per cent since it last cut this rate by 40 basis points from 4.40 per cent in May 2020.

Overall, since the onset of the Covid-19 pandemic in March 2020 in India, the repo rate has been cut by 115 basis points to mitigate its impact on the economy.

The Committee is also expected to persist with its accommodative stance to support growth till it gains traction on a durable basis while ensuring inflation remains within the target of 4 per cent with the lower and the upper tolerance band of 2 per cent and 6 per cent, respectively.

According to the RBI’s latest monthly bulletin: “While several high frequency indicators of activity are recovering, a solid increase in aggregate demand is yet to take shape. …A pick-up in inflation is driven largely by adverse supply shocks and sector-specific demand-supply mismatches caused by the pandemic. These factors should ease over the year as supply side measures take effect.”

Rahul Bajoria, Chief Economist, Barclays Securities (India), observed that while the virus caseload has declined significantly since April, the overall trajectory of economic variables has not changed sufficiently to warrant any material change in the RBI’s policy stance in the August MPC meeting.

He expects the RBI to keep rates unchanged in August as well as continue to buy bonds for some time under G-SAP (Government Securities Acquisition Programme). The MPC is also expected to maintain an accommodative policy stance.

“Our reading of high frequency activity indicators suggest no reason for the RBI to adjust its overall growth outlook, though its inflation forecasts may need to be revised modestly higher,” Bajoria said.

Unlikely to rock the boat

Radhika Rao, Senior Economist, DBS, opined that the RBI MPC is unlikely to rock the (policy) boat in its August bi-monthly monetary policy review, opting to keep the repo rate at 4 per cent and the policy corridor unchanged.

“Forward guidance will favour a continuation of the accommodative policy stance to guard against growth risks, especially the third Covid wave,” she said.

“The accompanying commentary will heed inflation risks through close monitoring and refrain from tweaking the policy levers for now,” Rao said in a report.

As per the DBS report the preference to gradually draw out excess liquidity might increase the sizes of variable reverse repo rate (VRRR) auctions while reaffirming support for the ongoing G-SAP program.

The impact of a VRRR increase might be marginal given the scale of surplus liquidity (estimated at ₹7.5-8 lakh crore) – bank liquidity plus government cash balances.

“Nonetheless, it affirms the Central Bank’s intent to mop-up liquidity at a calibrated pace before setting the stage for a reverse repo increase and change in policy stance around the end of 2021 or early 2022,” Rao said.

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Fino Payments Bank files for Rs 1300 crore IPO, BFSI News, ET BFSI

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Four years after starting operations Fino Payments Bank will soon launch a Rs 1300 crore initial public offering which includes a Rs 300 crore OFS component. The Blackstone, ICICI Group and BPCL backed Fino Payments Bank said it has filed the draft documents with SEBI for an IPO.

Investment bankers Axis Capital, CLSA India, ICICI Securities and Nomura Financial Advisory Services are the book running lead managers to the IPO.

The fintech bank turned profitable in the fourth quarter of FY20 and has consistently enhanced its profitability since. “This makes FPBL the first profitable fintech to file for an IPO,” the payments bank said in a statement.

Fino serves the emerging India market with its digital based financial services. Over the last few years, the payments bank has witnessed a steep surge in transaction volumes on the back of digitization and proliferation of its banking points.

As stated in the DRHP, at the end of fiscal year March 2021 the payment bank’s platform has facilitated more than 434 million transactions having a gross transaction value of Rs 1.32 lakh crores. It has the largest network of micro ATMs as of March 2021 with a market share of 55%, a robust merchant network of 6.4 lakhs and 25.7 lakh bank accounts.

Its revenue for FY21 stood at Rs 791 crores that grew at a CAGR of 29% in last three years. The bank registered a profit of Rs 20.5 crores in FY21 with an annual average ROE of 15%, the DRHP states.



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Banks disburse over Rs 2 lakh cr under ECLGS till mid-July, BFSI News, ET BFSI

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Nearly 17 months after the launch of the Emergency Credit Line Guarantee Scheme (ECLGS), banks have sanctioned Rs 2.76 lakh crore, with disbursals adding up to Rs 2.14 lakh crore till mid-July.

Similarly, the PM SVANidhi scheme, providing loans of up to Rs 10,000 to street vendors, has seen flows of a little over Rs 2,500 crore to 25 lakh vendors, although the internal target was more ambitious, with banks nudged to give loans.

Although the government has announced an increase in the ECLGS limit from Rs 3 lakh crore to Rs 4.5 lakh crore, officials do not expect a major surge, amid demands that eligibility norms be eased to enable more small businesses to use the window. When the scheme was announced last year, it was meant for micro, small and medium enterprises (MSMEs), but the scope was enlarged later as the demand was not sufficient.

Up to July 2, a little less than 1.1 crore MSME borrowers have been provided guarantee-based support amounting to Rs 1.65 lakh crore, which translates into an average ticket size of Rs 1.5 lakh. Under the originally announced scheme, MSMEs that had loans of up to Rs 50 crore at the end of February 2020 were eligible even with past dues of up to 60 days.

MSME industry groups say that the conditions are such that it is difficult for businesses to get a loan. “The requirements were such that only a certain set of entities with existing loans were eligible. Now banks are reluctant to lend. The government should have dropped the condition of prior credit because we are seeing cash flows being disrupted for a lot of MSME units,” said Animesh Saxena, president of Federation of Indian Micro and Small & Medium Enterprises (FISME).

Recently, the parliamentary standing committee on industry noted that there is a huge gap between sanctions and disbursals as banks feared defaults in the wake of the second wave, and also said that only half the amount has gone to small businesses.



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Police, BFSI News, ET BFSI

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Palghar (Maharashtra), Former Manager of Axis Bank, Anil Dubey – who looted the ICICI Bank and killed a woman Deputy Manager on Thursday – has now been charged with allegedly cheating his immediate previous employer of Rs 26.84 lakh (Rs 2.68 mn), police said here on Saturday.

The huge amount was found missing during a recent audit of the cash reserves at the Axis Bank’s Naigaon Branch where Dubey was the manager before he was abruptly sacked on Friday, hours after the sensational ICICI Bank Virar East Branch heist and murderous attacks on two women staffers inside the bank premises.

The Waliv Police Station has registered a complaint of the missing amount under various sections of the Indian Penal Code and investigations are currently on, said an official.

“The discrepancy was found during the routine monthly tally of accounts and reported to the top authorities. Thereafter, an internal investigation has been launched and we have also lodged an FIR with the police,” an official of Axis Bank told IANS, requesting anonymity.

Simultaneously, the bank is attempting to confirm whether Dubey – who had joined Axis Bank in August 2020 – had cheated its customers or indulged in any other scams or misappropriation of public money.

Apprehending action from the Axis Bank or the police after his misdeeds were discovered in the past few days, he had skipped office during the week, but by the weekend masterminded the ICICI Bank heist to clear off his outstanding dues at one go.

Officials reveal that since he had served ICICI Bank for 15 months, he was on good terms with the staffers there, well acquainted with the bank’s routine activities.

These and other details may have helped him commit the daring – but unsuccessful – loot attempt on Thursday (July 29) night as the bank would be closed for the weekend after the July month-end accounts tally.

As his escape attempt was foiled by the local people, the Virar Police recovered the booty comprising cash and gold totally valued at around Rs 3.38 crore, said Senior Police Inspector Suresh Warade.

Dubey was produced before a Vasai Magistrate Court which remanded him to police custody till August 6, under charges of dacoity, attempt to murder, murder, theft, etc.

Meanwhile, the condition of the injured cashier Shraddha Devrukhkar – who was attacked by Dubey with a cut-throat razor, remains worrisome and she has been shifted to Lilavati Hospital in Mumbai.

“She is still in deep shock due to the bloody assault on her and also her senior colleague and close friend, Yogita Vartak Choudhary, who succumbed on Thursday,” said another staffer.

Owing to the serious injuries on her neck, shoulder and other parts, Devrukhkar, 32, is communicating through signs with her family, police and bank colleagues.

Dubey, 38, with over 15 years of experience in the banking sector, had piled up huge debts through a lavish lifestyle, expensive tastes, certain investments in lucrative residential/commercial properties, etc, though the sources of his finance are still not clear.



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Introduction and evolution of Neo-banks in India, BFSI News, ET BFSI

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The rise of e-commerce led to trusting digital-first options in various segments such as payments, insurance, investments. It was inevitable that this transition would be witnessed by the banking sector as well. Millennial audiences unfamiliar with brick-and-mortar services are open to digital-first banks where the need to visit a branch diminishes.

Globally, India has the 2nd largest base of internet subscribers, smartphones, and social media user base. With ~600mn digitally active customers, India offers a large market for digital banking services. This growth has been enabled by India’s public digital infrastructure and other regulations and policies.

Additionally, the COVID-19 pandemic has also accelerated the transformation of banking. It created an opportunity to innovate, and almost all traditional banks supplemented their brick-and-mortar branches with sophisticated digital versions of their services. Banks expanded their digital footprint and are using their digital channels to offer a range of services.

Taking this a step further, we now have neo-banks, which are fully operational digital-only banks with advanced features. The state of the art technology is what gave rise to neo-banks in the last few years with startups like Jupiter, Fi, and Finin, launching their services in 2019-20. Revolut, which was last valued at $33B, has recently announced its plan to roll out neo-banking services in India.

What is making Neo-banking the winner?

In the US, neo-banks like Chime allowed consumers to transfer money faster than the usual 3-4 days taken by conventional banks. On the other hand, in the UK, in addition to money transfer, neo-banks also provided borderless banking across Europe, which is a borderless economy. However, such problems do not exist in India, and the winning reasons will be different.

India is different. With an experiential layer added on top of traditional banking, neo-banking will help solve access to several financial products that are not readily available to the 600M Indians and the 65M MSMEs. Riding on the success of the India FinTech stack – Digi locker, Aadhar, UPI 2.0, Account aggregator model, neo-banks will be able to improve digital distribution channels and onboarding for customers. Through the account aggregator model, neo-banks will be able to have access to the financial health of consumers, thus being able to offer personalized financial products. It will also allow them to correctly measure the default risk of these consumers, reducing NPAs and improving ROE margins.

The global scenario for neo-banks is quite different from that in India. In India, digital banking licenses are yet to be issued. Hence the current framework does not allow them to launch full-stack banking services. Obtaining a universal banking license will allow neo-banks to operate as a bank, in addition to the tech angle for better customer experience and ability to offer a myriad of products.

Today, some banks including Kotak Mahindra Bank, Yes Bank, and Federal Bank, are willing to partner with neo-banks for offering underlying banking accounts. It is a lucrative proposition for banks since they share RoE without bearing the additional cost to acquire these customers.

Way forward for neo-banks in India?

Since Indian neo-banks are just being launched, it will be interesting to see how they will monetise as the traditional sources of revenue for a bank would be unavailable to them, i.e., taking deposits and lending those deposits. Other revenue streams like MDR fees on card transactions is decreasing with the acceleration of UPI payments (and UPI payments are not revenue-generating). This leaves the neo-banks with cross-selling of financial products (wealth management, insurance, community-led discounts, stock market investments, etc.) and account opening commissions from banks as the primary source of income.

Currently, Neo-banking in India is at a nascent stage where some positive developments have happened in the last few quarters. The business models around neo-banks in India will have to evolve beyond the MDR on card transactions in the next few years. The key to their success will depend on how innovative they will be, in creating new revenue streams and acquire users with high lifetime value. Neo-banks who eventually will acquire a large user base with sustainable revenue streams will stand a chance to get a digital or a universal bank license and they are the ones who will emerge as winners in this space.

The blog has been authored by Kiran Vasireddy, Partner at Kalaari Capital.

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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UPI sets new record in July

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Unified Payments Interface continued to gain in popularity in July and crossed the 300 crore mark in terms of volume and Rs 6 lakh crore in transaction value.

Data released by the National Payments Corporation of India revealed that UPI processed 324 crore transactions worth Rs 6.06 lakh crore in July. This reflected the opening up of the economy and was a sharp jump since June when it had processed 280 crore transactions worth Rs 5.47 lakh crore.

On a daily basis, UPI has been processing 9 to 10 crore transactions recently. As per NPCI’s transaction count for July 29, UPI processed 10.44 crore transactions worth Rs 19,154 crore.

Launched in 2016, UPI processed 100 crore transactions for the first time in October 2019. While the lockdowns due to the Covid-19 pandemic had impacted digital payments and transactions but UPI has been gaining popularity due to its wide acceptance, ease of use as well as norms of social distancing.

NPCI data revealed that other modes of digital payments also continued to gain traction.

Immediate Payments Service (IMPS) clocked 34.97 crore transactions amounting to Rs 3.09 lakh crore in July. This was the first time that IMPS has also breached the Rs 3 lakh crore mark. It had processed 30.37 crore transactions worth Rs 2.84 lakh crore in June.

Aadhar Enabled Payment System (AePS) transactions also rose to 8.88 crore in volume terms and Rs 23,447.11 crore in value in July. It had processed 8.75 crore transactions amounting to Rs 24,667.08 crore in June.

As many as 19.23 crore transactions worth Rs 2,976.39 crore were processed on NETC FASTag in July as compared to 15.78 crore transactions totaling Rs 2,576.28 crore in June.

Reflecting the rapid adoption and deepening of digital payments across the country in recent years, the Reserve Bank of India- Digital Payments Index for March 2021 rose to 270.59 as against 207.84 for March 2020.

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Bandhan Bank Q1 net falls 32% on higher provisioning

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In Q4FY21, gross slippages were around Rs 3500 crore.

Private sector lender Bandhan Bank on Friday reported a 32.14% year-on-year (y-o-y) fall in net profit to Rs 373.08 crore in the first quarter of the current fiscal year on the back of additional provisions on non-performing assets (NPAs) and accelerated provisions on standard assets for potential impact of Covid-19.

During the first quarter of FY22, the lender made additional provisions on NPA amounting to Rs 750.83 crore for potential impact of Covid 19 on certain loan portfolios, while holding accelerated provisions of Rs 322.66 crore on standard assets as on June 30.   The Kolkata-based bank had posted a Rs 549.82-crore net profit in the first quarter of 2020-21, while in the fourth quarter of 2020-21 the net profit was Rs 103.03 crore.

The total provision and contingencies during the quarter under review rose 61.93% YoY to Rs 1374 crore from Rs 849.06 crore in the same quarter previous fiscal year. Gross NPAs as a percentage of total loans increased 137 basis points quarter on quarter to 8.18% from 6.81% during the fourth quarter of the last fiscal. In Q1FY22, net NPA ratio, however, fell 22 basis points QoQ to 3.29% from 3.51% in Q4FY21.

Commenting on the performance, Chandra Shekhar Ghosh, MD and CEO of Bandhan Bank, said, “In spite of challenging environment due to Covid second wave, we have delivered the best-ever quarter in terms of operational performances. Collections continue to improve with Covid restrictions getting relaxed.”

During Q1FY22, the bank’s loan portfolio grew 8.1% YoY, while its EEB (erstwhile micro-banking segment) portfolio grew 12% YoY. Total collection efficiency for the EEB portfolio during the June quarter stood at 98%. Net interest income (NII) for the quarter grew 16.70% YoY to Rs 2,114.08 crore, against Rs 1,811.53 crore in the corresponding quarter of the previous year. Net interest margin (NIM) stood at 8.5%, up 35 bps from 8.15% for Q1FY21.

Ghosh said during Q1FY22, around Rs 4,661 crore of loans were restructured, while gross slippages stood at Rs 1,661 crore.

In Q4FY21, gross slippages were around Rs 3500 crore.

“EEB is 60% of our business and that is unsecured. And, situation was such that with Covid in the last quarter doorstep collections were not possible in many parts. So, slippages have been higher in this business,” said Sunil Samdani, CFO, Bandhan Bank. In terms of overall collection efficiency, the bank said July was better than June.

“Our growth situation is intact,” Ghosh said, adding the bank was focussing on transformation and diversification of its balance sheet for greater secure-unsecure loans balance.

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Reliance Home Finance Q1 net loss widens to ₹287.50 crore

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Reliance Home Finance net loss widened to ₹287.53 crore for the quarter ended June 30, 2021 as compared to a net loss of ₹161.34 crore in the corresponding period last fiscal.

The company’s total revenue from operations fell by 46.9 per cent to ₹129.5 crore in the first quarter of the fiscal from ₹243.84 crore a year ago.

Impairment on financial instruments also rose to ₹233.86 crore in the first quarter of the fiscal as against ₹160.79 crore a year ago.

The company’s lenders had approved Authum Investment and Infrastructure Limited (Authum) as the final bidder on June 19, 2021 as part of its resolution process.

“The company has shared the final resolution plan along with the distribution mechanism with the debenture trustees to call for the debenture holder’s meeting and seek approval on the resolution plan along with the distribution mechanism,” Reliance Home Finance said in its results.

According to the auditor’s note, the company has defaulted in payment of borrowings obligations amounting to ₹8,217.47 crore as on June 30, 2021 and the asset cover has also fallen below 100 per cent of outstanding debentures amounting to ₹5,967 crore.

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