Category: Banking & Finance

IDFC First Bank reports net loss of ₹630 crore in Q1 on higher provisions

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Private sector lender IDFC First Bank reported a standalone net loss of ₹630.04 crore in the first quarter of the fiscal year due to a sharp rise in provisions.

The bank had reported a standalone net profit of ₹93.54 crore in the quarter ended June 30, 2020.

Total income grew by 11.4 per cent to ₹4,938.05 crore in the first quarter of the fiscal from ₹4,434.12 crore a year ago.

The bank’s net interest income grew by a robust 25 per cent to ₹2,185 crore in the quarter ended June 30, 2021 as against ₹1,744 crore a year ago.

Net interest margin was 5.51 per cent as on June 30, 2021 versus 4.86 per cent a year ago and 5.09 per cent in the fourth quarter of 2020-21. In a statement on Saturday, the bank said this was because the cost of funds further reduced.

Other income surged by 75.1 per cent to ₹848.76 crore from ₹484.85 crore a year ago.

Additional Covid-19 provisions

Provisions shot up by 145.9 per cent to ₹1,878.61 crore in the first quarter of the fiscal as against ₹764.08 crore in the corresponding period a year ago.

“The bank has created additional Covid-19 provisions of ₹350 crore during the quarter taking the total Covid-19 provision pool to ₹725 crore. The bank believes that the full estimated impact of second wave of Covid is now provided for in the books of the bank,” it said.

Noting that there was no moratorium provided to customers during the second wave of the pandemic, it said that there was ageing provisions that were required to be taken as per its conservative provisioning norms.

“The bank believes that these provisions may not reflect actual economic loss but represent a delay in timing of repayments,” it further said.

Based on the recent portfolio quality indicators (latest cheque bounce trends, collection efficiency, vintage analysis), the bank said it expects the provisions to taper off for the rest of the year if there is no third wave of the pandemic.

“Regarding the loss during the quarter, we have made prudent provisions for Covid second wave, and expect provisions to reduce for the rest of the three quarters in the fiscal. We guide for achieving pre – Covid level gross and net NPA, with targeted credit loss of only two per cent on our retail book by the fourth quarter of 2021-22 and onwards, assuming no further lockdowns,” said V Vaidyanathan, Managing Director and CEO, IDFC First Bank.

The bank’s asset quality deteriorated. Gross non performing assets shot up to ₹4,667.12 crore or 4.61 per cent of gross advances as on June 30, 2021 from 4.15 per cent as on March 31, 2021 and 1.99 per cent a year ago.

Net NPAs also rose to 2.32 per cent of net advances from 0.51 per cent as on June 30, 2020.

Standard restructured outstanding portfolio (under the Covid-19 relief package provided by the RBI) in retail loans was 1.81 per cent of the overall retail loan book as of June 30, 2021. Restructuring for the overall portfolio stood at 2.01 per cent of the total funded assets.

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IDFC First Bank logs Rs 630 crore loss in Q1 on Covid provisioning, BFSI News, ET BFSI

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Private lender IDFC First Bank on Saturday reported a net loss of Rs 630 crore in the April-June quarter due to provisioning measures for cushioning the impact of the second wave of the Covid-19 pandemic. The bank had posted a net profit of Rs 93.55 crore in the year-ago quarter ended in June 2020 and that of Rs 127.81 crore in the previous quarter ended in March 2021.

“Net loss of Rs 630 crore for Q1FY22 is because of prudent provisions for Covid wave 2.0. Covid provision pool increased from Rs 375 crore to Rs 725 crore during the current quarter on a prudent basis to act as a cushion for Covid impact,” IDFC First Bank said in a release.

The bank expects to collect a reasonable proportion of these dues in due course, it added.

Total income (net of interest expense) grew by 36 per cent year-on-year to Rs 3,034 crore in Q1FY22, driven by the growth in NII and fee income, the bank said. Its total income during Q1FY21 stood at Rs 2,229 crore in June 2020 quarter.

The bank said its net interest margin (NIM) — the difference of interest earned and expended — was the highest ever at 5.51 per cent during the reported quarter. The NIM was 4.86 per cent in year ago quarter.

The net interest income (NII) rose by 25 per cent year-on-year to Rs 2,185 crore.

On the asset front, bank’s gross and net non-performing assets (NPAs) were at 4.61 per cent and 2.32 per cent respectively as of June 30, 2021.

The NPA ratios were up from 1.99 per cent and 0.51 per cent respectively, from year ago period.

“The GNPA and NNPA include impact of 84 bps (basis points, which is one hundredth of a percentage) and 71 bps respectively on account of one Mumbai based infra toll account which slipped during the quarter. The bank expects no material economic loss in this account eventually as this is an operating toll road and is only delayed.”

Bank deposits were up by 36 per cent to Rs 84,893 crore. The retail loan book of the lender increased to Rs 72,766 crore as on June 30, 2021 from Rs 56,043 crore.

The year-on-year growth of the retail loan book was 27 per cent excluding Emergency Credit Guarantee Line loan book of Rs 1,645 crore. However, it declined by 1.2 per cent on a sequential basis. The wholesale loan book fell by 15 per cent to Rs 34,232 crore from Rs 40,275 crore.

Capital adequacy ratio stood at 15.56 per cent with CET-1 (common equity tier-1) ratio at 14.86 per cent. Average liquidity coverage ratio (LCR) was at 166 per cent for Q1FY22.

“Within just two years we have made tremendous progress at the bank. Our CASA (current account savings account) ratio is high at 50.86 per cent despite reducing savings account interest rates by 200 bps recently, which points to the trust customers have in our bank and service levels.

“Because of our low cost CASA, we can now participate in prime home loans business, which is a large business opportunity,” V Vaidyanathan, Managing Director and CEO, IDFC First Bank, said. Regarding the loss during the quarter, he said the bank has made prudent provisions for Covid second wave.

“We expect provisions to reduce for the rest of the three quarters in FY22. We guide for achieving pre-Covid level gross and net NPA, with targeted credit loss of only 2 per cent on our retail book by Q4FY 22 and onwards, assuming no further lockdowns,” he said further.



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SBI waives processing fee on home loans till August-end, BFSI News, ET BFSI

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The country’s largest lender State Bank of India (SBI) on Saturday announced waiving processing fee on home loans till August-end. Currently, the processing fee on home loans is 0.40 per cent.

SBI said it is the bank’s limited period ‘Monsoon Dhamaka Offer‘, through which a home loan customer can gain substantially. The state-owned lender said the offer will help revive the consumer sentiments.

“There could not be a better time to buy a house, considering SBI home loan interest rates start at just 6.70 per cent,” SBI said in a release. The Monsoon Dhamaka Offer is for a limited period ending on 31st August 2021, SBI said.

“We believe this offer of processing fee waiver will facilitate and encourage home buyers to take decision with ease, as interest rate is at its historic low. We strive to be a banker to every Indian and thereby, be partners in nation-building,” C S Setty, MD (Retail & Digital Banking), SBI said.

There will be a concession of 5 bps (0.05 percentage) for home loans applied through the bank’s one-stop YONO App. Women borrowers will be eligible for concession of 0.05 percentage (5 basis points/bps) on the loan rate.



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Forcing minimum claim period of 1 year on bank guarantees wrong, says Delhi HC, BFSI News, ET BFSI

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In a ruling that will help infrastructure and construction companies, the Delhi High Court said forcing a minimum claim period of 12 months for bank guarantees is wrongful, rejecting interpretations that existing laws rendered shorter claim periods void.

Ruling on a petition filed by engineering conglomerate Larsen & Toubro Ltd against Punjab National Bank, a single-judge bench of the High Court observed, “It is clear that respondent No 1 (PNB) is erroneously of the view that they are in law mandated to stipulate a claim period of 12 months in the bank guarantee, failing which the clause shall be void under Section 28 of the Contract Act.”

The court directed the lender to take a relook at such agreements.

“It (Section 28) deals with the right of the creditor to enforce his rights under the bank guarantee, in case of refusal by the guarantor to pay, before an appropriate court or tribunal,” Justice Jayant Nath observed in a 43-page order issued on Wednesday. It does not deal with the claim period – a time within which the beneficiary is entitled to claim the guarantee.

Experts said the ruling will particularly benefit infrastructure and construction companies that need to issue bank guarantees while fulfilling contracts for government bodies and public sector undertakings.

“This decision will have far-reaching consequences because it will give both banks and companies the much-needed flexibility in entering into contracts related to bank guarantees,” said Ashish K Singh, managing partner of law firm Capstone Legal.

Anil Goel, founder and chairman of insolvency professional company AAA Insolvency Professionals, said, “Construction companies bidding for projects should have the flexibility to bank guarantee from banks. Multiple options to get it should help them bid for more projects and save costs substantially.”

L&T, in its petition, argued that PNB’s insistence on a bank guarantee (BG) for 12 months, due to misinterpretation of Section 28, has unnecessarily made the company liable to pay commission charges for such extended BG when the principal contract would be for a much shorter period.

Also, companies have to maintain collateral security – or margin money against which a bank guarantee is issued – for supporting an extended claim period, which affects their capability to do business by entering new contracts, L&T said.

Hemant Kumar, group general counsel of L&T, confirmed the passing of an order by the Delhi High Court but refused to divulge any details.

An email query to PNB remained unanswered as of press time Friday.

L&T had made the Indian Banks’ Association (IBA) and the Reserve Bank of India (RBI) parties in the case.

As per the court order, PNB’s stand is due to letters issued by IBA on December 12, 2018, to its member banks, stating that if a bank issues a claim period of less than one year on top of the guarantee period then such a bank guarantee would not have the benefit of Exception 3 to Section 28 of the Contract Act.

Exception 3, inserted as an amendment to the Act in 2013, allowed lenders to limit the period to make a claim up to one year, down from the minimum of three years provided under the Limitation Act.

BGs are provided on a case to case basis depending on banks and individual clients. The margin money varies, but normally it is about 10-20% of the bank guarantee amount, industry insiders said.



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S&P, BFSI News, ET BFSI

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Global ratings agency S&P said has said its base case is that the global banking sector will continue to slowly stabilise as the economic rebound gains momentum and as support is gradually withdrawn. Should a re-intensification of risks occur, this will require more support from public authorities for the real economy.

For 11 of the top 20 banking jurisdictions, S&P estimates that a return to pre-Covid-19 levels of financial strength will not occur until 2023 or beyond. For the other nine, it estimates that recovery may occur by year-end 2022.

Strong support

The strong support by authorities for households and corporates over the course of Covid-19 has clearly helped banks, it said.
Lenders were also well-positioned going into the pandemic after banks bolstered their capital, provisioning, funding and liquidity buffers in the wake of the global financial crisis. S&P Global Ratings expects normalisation to be the dominant theme of the next 12 months as rebounding economies, vaccinations and state measures help banks bounce back much more quickly than was conceivable in the dark days of 2020.

“We see less downside risk for banks as economies rebound, vaccinations kick in and banks feel the stabilising effects of state intervention,” said S&P Global Ratings credit analyst Gavin Gunning.

“With no vaccine in October 2020, we believed at the time that 2021 could be a very difficult year for banks. State intervention on behalf of corporates and households — including significant fiscal and monetary policy support — is working and banks have benefited,” said Gunning.

Improving outlook

S&P’s net negative outlook for the global banking sector improved to 1 per cent in June from 31 per cent in October 2020. As at June 25, about 13 per cent of bank outlooks were negative. This is significantly lower than October 2020 when about one-third of rating outlooks on banks were negative.

Credit losses

Credit losses for Asia-Pacific banks could reach $585 billion by 2022, or nearly double the pre-Covid level raising credit costs for banks, S&P Global had said in June.

The credit costs of the Indian banking system may rise to 2.4 per cent by March 2022, compared to a base case of 2.2 per cent, according to the S&P report, “Intervention Worked: Credit Losses Set To Decline For Most Asia-Pacific Banks”.

“In India and Indonesia, where banks have suffered higher asset distress in recent years, the credit losses are set to trend closer to our expected long-term average in the coming years,” S&P had said.

Moratorium cushions blow

S&P had said moratoriums on loan repayments–together with fiscal, monetary, and policy support–have helped cushion the blow to borrowers in Asia-Pacific from the Covid outbreak and containment measures.

Credit losses are set to fall across most Asia-Pacific banking systems over the next two years, partly because targeted assistance to stretched borrowers will likely continue in many places until pandemic-related challenges substantially abate, it had said.



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Data storage norms: Mastercard submits audit report to RBI

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After being banned by the Reserve Bank of India (RBI) from issuing new cards, US-based payments technology major Mastercard on Friday said it has submitted an audit report to the regulator showing compliance with the local data storage norms.

The RBI had on July 14 put an indefinite ban on Mastercard from issuing new credit, debit and prepaid cards. The ban came into effect from July 22.

The restrictions were put in place because of the company’s failure to comply with local data storage norms that require payments companies to store data related to Indian customers only in the country.

“When RBI required us to provide additional clarifications about our data localisation framework in April 2021, we retained government-empaneled Deloitte to perform a supplemental audit to help demonstrate our compliance.

“We have been in a continued dialogue with the RBI from April through the report’s submission on July 20, 2021,” Mastercard said in a statement.

The company said since the RBI’s 2018 directive on data localisation and storage, it has worked closely with the central bank and Indian government to ensure that Mastercard is compliant with both the letter and the spirit of the order.

“This includes submitting reports as required by the RBI. We look forward to continuing our conversations with the RBI and reinforcing how seriously we take our obligations. We are hopeful that this latest filing provides the assurances required to address their concerns,” it said.

Further, the company said it is committed to put in whatever resources are required to meet any additional requirements raised by RBI and bring this matter to a close “expeditiously”.

“In the meantime, we remain focused on ensuring our current business continues to operate as usual, working in lockstep with our customers and partners to minimize any impact on cardholders,” it added.

Mastercard, a major card issuing entity, is the third company to have been barred by RBI from acquiring new customers over data storage issues, after American Express Banking Corp and Diners Club International.

RBI had said that Mastercard was found to be non-compliant with the directions on ‘Storage of Payment System Data’ despite being given adequate opportunities.

However, the regulator had said the ban on issuing new cards was not going to impact the services of the existing customers of Mastercard in India.

Mastercard is a payment system operator authorised to operate a card network in the country under the Payment and Settlement Systems Act, 2007 (PSS Act).

RBI’s circular on Storage of Payment System Data on April 6, 2018 had directed all system providers to ensure that within a period of six months the entire data relating to payment systems was stored only in India.

They were also required to report compliance to RBI and submit a board-approved System Audit Report conducted by a CERT-In empanelled auditor within specified timelines.

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

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NEW DELHI: 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.



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New IDBI owners may get RBI road map to cut stake, BFSI News, ET BFSI

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NEW DELHI: The Reserve Bank of India (RBI) is expected to provide a road map to the new owners of IDBI Bank for reducing their stake as the government seeks to sell its equity, along with shares held by Life Insurance Corporation (LIC) of India, by the end of the current fiscal year.

Although the RBI has not firmed up its views on new licensing norms for private banks, announcement of the new structure may help generate more interest in the lender, which the Centre has been seeking to reposition for two decades but with little success.

In the past, the RBI had indicated that the government’s stake sale and announcement of the new norms were not linked. Sources, however, said that the government has been in dialogue with the RBI on stake sale and the regulator was aware of the need to provide a road map for comfort to potential buyers.

The current guidelines stipulate 40% minimum shareholding in terms of the paid up capital or voting rights. Over 10 years, this needs to be diluted to 20-30% and further reduced to 15-26% between 12 and 15 years, depending on the licence vintage. An internal group set up by the RBI had proposed reworking these, apart from allowing corporate houses into the space.

Many of the bidders may seek clarity on these aspects. Recently, the department of investment and public asset management had said that the government and LIC would decide on the extent of stake sale during the process of finalising the deal.

Although private investors are keen that the government holds no stake, something that NITI Aayog too had noted in some of its recommendations, government sources said, the idea was to leave it to bidders to decide the best course of action. “Someone may want majority control, while someone may like to do with a lower stake. Let the bidders decide,” said a source.

The government currently holds 45.5% in the financial institution-turned-universal bank with LIC’s shareholding pegged at 49.2%. On Friday, the bank’s share rose 0.4% to close at Rs 37.9 on BSE but is still lower than LIC’s acquisition price. LIC had acquired shares in IDBI Bank in three tranches.



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Mastercard submits new audit to India after ban over data handling, BFSI News, ET BFSI

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Mastercard has submitted a new audit report to India’s central bank, it told Reuters, as it seeks to overturn a ban on card issuance linked to concerns over the U.S. giant’s handling of data processed abroad.

The Reserve Bank of India (RBI) on July 14 sent panic-waves through Indian banking partners by announcing a ban, effective from July 22, to prevent the U.S. giant from issuing new cards. It cited non-compliance with 2018 rules that required it to store payments data only in India.

The RBI imposed the ban after deciding a “system audit report” submitted by Mastercard’s auditor Deloitte in April was unsatisfactory, three sources familiar with its decision-making said, asking not to be named because of the sensitivity of the issue. Two of the sources said the RBI was reviewing the new report.

In a statement to Reuters, Mastercard said Deloitte performed a “supplemental audit” and a new report was submitted on July 20 to the RBI, six days after the ban was announced.

“We look forward to continuing our conversations with the RBI and reinforcing how seriously we take our obligations. We are hopeful that this latest filing provides the assurances required to address their concerns,” it said.

Deloitte declined to comment, citing confidentiality obligations. The RBI did not respond to a request for comment.

The sources said the RBI was concerned Deloitte’s audit did not clearly state how long Mastercard took to purge Indians’ card data that is processed abroad before being stored locally.

India’s 2018 rules do not restrict where the data is processed, but for “unfettered supervisory access”, the RBI mandates that within a day the data – including transaction details and amount – should be stored domestically.

Mastercard in 2018 said it had started storing data at a facility in India’s western city of Pune to comply. But it still processes a part of each Indian transaction through data centres abroad, and later transfers and stores that data in Pune, one of the sources said.

The RBI has given no details beyond a seven-line statement announcing the ban. The details of RBI’s concern with Deloitte’s submissions have not previously been reported.

American Express, whose Indian presence is much smaller than that of Mastercard and Visa, has also has been banned from issuing new cards since April for violating the 2018 rules.

A fourth person with direct knowledge of the matter said the RBI had given Mastercard multiple extensions to submit clarifications and RBI only issued the ban when Mastercard asked for more time when an extension to July 9 lapsed.

Mastercard did not comment on the extension and the situation in Pune.



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Auction of five-year G-Secs devolves on primary dealers

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The auction of the five-year Government Security (G-Sec) devolved on primary dealers (PDs) on Friday to the tune of 68 per cent of the notified amount, indicating the central bank’s discomfort with market players bid to buy the paper at lower price.

The auction of the remaining three securities sailed through. At the auction of the G-Sec/GS 2026 (coupon rate: 5.63 per cent), against the notified amount of ₹11,000 crore, the RBI devolved ₹7,465 crore on PDs.

The cut-off price on the aforementioned GS was lower at ₹99.53 (previous closing price: ₹99.62) and yield was higher at 5.7433 per cent (5.7210 per cent), respectively. Bond yields and prices are inversely related and move in opposite directions.

In the secondary market, this paper closed about six paise higher vis-a-vis the auction cut-off, with the yield thawing about 2 basis points.

The government raised ₹5,000 crore (including ₹1,000 crore greenshoe amount) via auction of the Floating Rate Bond maturing in 2033; ₹12,000 crore (including ₹2,000 crore greenshoe amount) via auction of GS 2035 (6.64 per cent); and ₹7,000 crore via auction of GS 2050 (6.67 per cent.

The price of the benchmark 10-year G-Sec maturing in 2031 (6.10 per cent) declined about 5 paise to close at ₹99.23 (₹99.28), with its yield rising about a basis point to 6.20 per cent.

Madan Sabnavis, Chief Economist, CARE Ratings, observed: “The government was able to raise ₹35,000 crore with the additional greenshoe option of ₹3,000 crore being accepted for 2 of the 4 papers that were issued. However, for the 5-year 5.63 per cent 2026 paper, which went with a cut-off 5.74 per cent, ₹7,465 crore devolved on the PDs.”

Sabnavis emphasised that the devolvement on PDs again today is reflective of the difference in market expectations on cut-offs and implied yields.

With this devolvement, the total devolvement so far this year is around ₹75,800 crore, while total issuances have been ₹4.96-lakh crore, he added.

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