Category: Banking & Finance

Union Bank of India net zooms 254% on higher NII, other income

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The lender has strengthened its balance sheet by increasing provision coverage ratio (PCR) by 156 bps to 81.43% in June 2021. Cost to income ratio of the bank improved by 320 bps y-o-y to 46.51% during Q1FY22.

Public sector lender Union Bank of India on Thursday reported a 254% year-on-year (y-o-y) jump in its net profit to Rs 1,181 crore for the quarter ended June 2021 due to a rise in core income and other income.

The bank’s net interest income (NII) increased 10% y-o-y and 30% quarter-on-quarter (q-o-q) to Rs 7,013 crore. Similarly, other income of the bank surged 98% y-o-y to Rs 2,901 crore, which included Rs 256 crore recovery from Kingfisher Airlines during the quarter. The rise in core income and non-interest income boosted operating profit of the lender by 31% y-o-y to Rs 5,303 crore.

The strong performance was despite an 11% y-o-y and 7% q-o-q increase in provisioning to Rs 4,122 crore. Net interest margins (NIM) also improved 30 basis points (bps) y-o-y and 70 bps sequentially to 3.08%. Rajkiran Rai G, MD and CEO of the bank, said that the collection efficiency of the bank had dipped to 82% during the month of April 2021 due to Covid-19 restrictions. “However, the collection efficiency has now improved to 92%,” he said.

Non-interest income of the lender surged due to higher fee-based income and treasury income, among others. Core fee based income increased 41% y-o-y to Rs 1,064 crore. Similarly, treasury income surged 92% y-o-y to Rs 1,214 crore.

The asset quality of the lender remained a mixed bag during the June quarter. Gross non-performing assets (NPAs) ratio of the lender improved 14 bps to 13.6%, compared to gross NPAs of 13.74% in the previous quarter. However, net NPAs ratio increased 7 bps to 4.69% from 4.62% in the March quarter.

The lender has strengthened its balance sheet by increasing provision coverage ratio (PCR) by 156 bps to 81.43% in June 2021. Cost to income ratio of the bank improved by 320 bps y-o-y to 46.51% during Q1FY22.

Advances remained flat at Rs 6.55 lakh crore. “With the expectation of normalcy by September 2021, the bank expects a credit growth of 8-10% by March, 2022,” Rai said.

Deposits grew 2% y-o-y to Rs 9.08 lakh crore, but declined 2% sequentially. The share of current account savings account (CASA) in total deposits improved 309 bps y-o-y to 36.39%, compared to 33.3% in June, 2020. The capital adequacy ratio (CAR) improved 170 bps y-o-y to 13.32% during the June quarter, compared to 11.62% in the year-ago period.

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Punjab & Sind Bank back in black on higher other income, lower provisions

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Provision coverage ratio (PCR) strengthened further at 84.22%, compared to 69.2% in June 2020. The bank was able to cut down the cost to income ratio to 55.73% in the June quarter, compared to 67.33% in Q1FY21. (File image)

Public sector lender Punjab & Sind Bank on Thursday reported a net profit of Rs 174 crore for the quarter ended June 2021 (Q1FY22). It had incuured a loss of Rs 117 crore in Q1FY21. The lender was back in black due to a surge in other income and reduced provisioning. Total provisions were down 31% year-on-year (y-o-y) to Rs 237 crore, compared to Rs 343 crore in the corresponding quarter last year (Q1FY21). Other income of the lender grew 127% y-o-y to Rs 349 crore.

S Krishnan, MD and CEO of the bank, said that lender has shown robust and resilient performance in almost all the business parameters, despite the pandemic. He added that bank continued its special focus on NPA recovery and, thus, recovered Rs 858 crore including recovery of Rs 124 crore in technically written-off (TWO) accounts.

The asset quality of the lender improved during the June quarter. The gross non-performing assets (NPAs) ratio of the lender improved 43 basis points (bps) to 13.33%, compared to gross NPAs of 13.76% in the previous quarter. Similarly, net NPAs ratio also improved 43 bps to 3.61% from 4.04% in the March quarter.

Provision coverage ratio (PCR) strengthened further at 84.22%, compared to 69.2% in June 2020. The bank was able to cut down the cost to income ratio to 55.73% in the June quarter, compared to 67.33% in Q1FY21.

While the advances of the lender grew 10% y-o-y to Rs 67,933 crore, deposits grew 16% y-o-y to Rs 98,478 crore. Current accounts and savings account (CASA) deposits grew by 14.29% y-o-y to Rs 30,832 crore.

The capital adequacy ratio of the lender remained at 17.62% at the end of June quarter, compared to regulatory requirement of 10.875%.

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UBI net profit soars by 255% at ₹1,181 cr

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Union Bank of India (UBI) soared 255 per cent year-on-year (yoy) in the first quarter standalone net profit at ₹1,181 crore on the back of robust growth in other income.

The Bank had reported a net profit of ₹333 crore in the year ago quarter.

In the first quarter ended June 30, 2021, net interest income (NII) was up about 9.50 per cent yoy to ₹7,013 crore (₹6,403 crore in the year ago quarter). 

Other income, comprising income from activities such as commission, fees, earnings from foreign exchange and derivative transactions, profit and loss from sale of investment and recoveries from written off accounts, jumped 98 per cent yoy to  ₹2,901 crore (₹1,462 crore). 

Slippages in the reporting quarter were higher at  ₹7,049 crore (₹1,750 crore in the year ago quarter). MSMEs accounted for 45 per cent of the total slippages, followed by ”large corporate & others” and agriculture (about 20 per cent) and retail loans account (15 per cent).  

Loan loss provisions nudged up a tad to ₹2,492 crore (₹2,451 crore). Standard assets provisions soared 167 per cent to ₹1,096 crore (₹410 crore).

Rajkiran Rai G, MD & CEO, said the Bank expects reduction in gross non-performing assets (NPAs) through recovery & upgradation at ₹13,000 crore, including ₹5,600 crore via the National Company Law Tribunal route, in FY22. In the reporting quarter, the recovery & upgradation was at ₹4,341 crore.

The Bank identified 17 accounts aggregating about ₹7,700 crore so far to transfer to the National Asset Reconstruction Company Ltd.

Gross NPAs declined to 13.60 per cent of gross advances as at June-end 2021 against 14.95 per cent as at June-end 2020.

Net NPA position, however, improved to 4.69 per cent of net advances as at June-end 2021 against 4.97 per cent as at June-end 2020.

Total deposits increased by 1.79 per cent yoy to ₹9,08,528 crore, with low-cost current account, savings account (CASA) deposits proportion in domestic deposits rising to 36.39 per cent from 33.30 per cent as on June-end 2020. 

Gross advances declined 0.77 per cent yoy to ₹6,45,091 crore. Within this, domestic advances edged up 0.16 per cent yoy to ₹6,30,237 crore and overseas advances declining 29 per cent yoy to ₹14,854 crore.

Global net interest margin rose to 3.08 per cent from 2.78 per cent in the year ago quarter.

 

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Special Long-Term Repo Operations: SFBs slow to borrow via RBI window

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Small Finance Banks (SFBs) seem to be in no hurry to borrow from the RBI’s special liquidity window , if one goes by the amount they have drawn since this facility was operationalised in May.

In the Special Long-Term Repo Operations (SLTRO) conducted by the Reserve Bank of India in May, June and July, SFBs cumulatively borrowed only ₹1,640 crore against the notified amount of ₹10,000 crore. They can still borrow the unutilised amount of ₹8,360 crore till October.

Industry experts attributethise to many SFBs having ample liquidity and the muted credit demand from the micro, small and medium enterprise (MSME) segment.

Some even cited constraints in terms of pledging SLR (statutory liquidity ratio) securities (investments made by banks in Government Securities/G-Secs and State Development Loans/SDLs) with the RBI to borrow three-year money via the special liquidity window. (SLR is the slice of deposits Banks have to invest in G-Secs and SDLs. Currently, it is at 18 per cent of deposits.)

In early May, the RBI had announced that it will conduct three-year SLTRO (one each every month from May through October) of ₹10,000 crore at the repo rate (4 per cent) for the SFBs. The unutilised amount is carried forward to the subsequent auction. This is to provide further support to small business units, micro and small industries, and other unorganised sector entities affected by the Covid second wave.

The SLTRO funds drawn by SFBs have to be deployed for fresh lending of up to ₹10 lakh per borrower. This facility is available till October 31, 2021.

“Though SLTRO is an excellent facility as it brings down our cost of funds and incentivises us to lend, liquidity-wise, most SFBs are currently comfortable. In our case, we have not found a direct use case for the facility at this point of time,” said a senior official of an SFB.

The official observed that if credit demand were to pick up, then instead of disposing off excess SLR securities that SFBs have, SLTRO may offer a better route to raise resources.

A senior executive with another SFB underscored that when a bank pledges SLR securities with the RBI, they become encumbered. Since the pledged/encumbered securities are deducted for the purpose of arriving at SLR, banks are mindful of maintaining SLR above the minimum threshold of 18 per cent of deposits.

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Vauld raises $25 million Series A led by Valar Ventures

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Cryptocurrency platform Vauld has raised $25 million Series A led by Valar Ventures, a VC firm founded by Peter Thiel, Andrew McCormack, and James Fitzgerald. Other investors like Pantera Capital, Coinbase Ventures, CMT Digital, Gumi Cryptos, Robert Leshner, and Cadenza Capital also participated in the round.

The funding will be used to support its international growth and licensing as well as expand its retail crypto banking and investing platform. Vauld will also use this capital to hire at least a hundred new team members.

Vauld has built a platform for people to globally access and grow capital through lending and trading cryptocurrencies. In partnership with its respective exchange and custody partners, Binance and BitGo, Vauld claims to have users in over 160 countries. The company has raised a total of $27 million in funding till date.

“We’ve seen great momentum with Vauld and we attribute it to both our technology as well as our customer support. This capital will help propel Vauld to the next level of growth,” said Darshan Bathija, Vauld co-founder and CEO.

While Vauld is headquartered in Singapore, the majority of its team is based in India. The company claims to have seen more than 200x growth in its global user base over the last year. Vauld reported 124.4 per cent quarter-over-quarter growth in AUM between the first quarter of the fiscal year 2021 to the second quarter of the fiscal year 2021.

“Valar’s focus is on transformative financial services companies. What cemented the deal is Vauld’s global positioning and ambitions and the vision Darshan and his team have. We look forward to Vauld benefiting from our understanding of how to build a global business across Europe, Asia, and North America,” said Andrew McCormack of Valar Ventures.

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We have a deep conviction in the India growth story: Uday Kotak

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Private sector lender Kotak Mahindra Bank is ready to grow at a substantially faster pace and plans to invest more in technology and digital platforms, and also look at opportunities in the unsecured retail finance.

In his message to shareholders in the bank’s annual report, Uday Kotak, Managing Director and CEO, Kotak Mahindra Bank said the lender has undertaken a mindset shift to make retail and commercial lending the focus, in addition to the corporate and deposit franchise.

Home loans

“For example, we are leveraging our low cost of funds to offer a competitive interest rate on home loans. Home loans give us an opportunity to build a longer-term relationship with customers,” he said, adding that the bank will get bolder in unsecured retail finance too. The bank will hold its AGM on August 25.

Also read: Strata raises $6-mn Series A from Kotak Investment Advisors, et al

Kotak further said that the bank “will not shy away” from taking bolder bets. “Today, we have a much lighter balance sheet and with sufficient capital in our hands, we are ready to grow substantially faster, but on our terms,” he said, adding that it has a deep conviction in the India growth story and confidence in risk management capabilities.

Emphasising on the importance of technology, he said it is the epicenter around which businesses will revolve and so needs more investments.

“The other area that takes precedence for us is higher investments in strengthening our digital and technology platforms and offerings. The future may be uncertain, but we can be confident that it belongs to technology,” he said.

‘Customer-centric’

The bank will also shift its business model towards being even more customer-centric.

“While customer-first was always the byword that we lived by, the needs of the customer are now even more front and centre. Our model will revolve principally around customers and business decisions will be taken with the customer at the core,” he said.

Also read:Kotak Mahindra Bank launches emergency personal loans for Covid treatment

He also stressed on the need for inclusive and sustainable growth. “Growth that is inclusive and that takes into account the environment, is socially responsible and scores high on governance and ethics. Doing good and doing well go hand in hand,” he said.

He also underlined that for the financial sector, the disproportionate importance of risk management has come to the fore.

“The industry also needs to stop postponing the inevitable and kicking the can down the road,” he said, adding that upfront action with an eye on enduring, sustainable growth, not swayed by quarterly, short-term results is a must for the future of a healthy Indian financial sector.

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Covid effect: Rise in claims impacts insurers

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Insurance companies have been battling a deluge of Covid-related claims that impacted their bottomlines in the first quarter of the fiscal.

While general insurance companies have seen a spike in health claims since the start of the pandemic last year, life insurance companies have reported higher claims after the second wave.

Future claims

Apart from a drop in net profits in the quarter ended June 30, 2021, life insurers also increased provisions and reserves for future Covid-related claims. A number of companies are looking at another round of price hikes – both in health and term policies.

SBI Life Insurance, in an analyst call after the first quarter results, indicated that it received over 28,000 death claims in the first quarter of the fiscal, with gross claims of ₹1,576 crore and net of reinsurance claims of ₹1,315 crore.

“For the quarter, gross Covid claims stood at ₹732 crore, while net of reinsurance claims stood at ₹570 crore,” said Motilal Oswal in a report on SBI Life Insurance.

HDFC Life Insurance also reported a steep rise in death claims, with peak claims in the second wave at around three to four times the peak claim volumes during the first wave.

“We paid over 70,000 claims in the first quarter,” it said in a regulatory filing. The gross and net claims provided for amounted to ₹1,598 crore and ₹956 crore, respectively.

ICICI Prudential Life Insurance registered total claims for the first quarter of the fiscal at ₹1,119 crore compared to ₹354 crore last fiscal. Net of reinsurance claims amounted to ₹500 crore for the insurer.

Non-life insurers

Similarly, Covid-related claims also impacted non-life insurers.

For ICICI Lombard General Insurance, Covid-related health claims shot up to ₹600 crore in the first quarter of the fiscal from ₹340 crore a year ago.

In an analyst call after its results, the insurer said that given the adverse claims experience, it has raised its pricing on selective renewals and in group health business by about 15 per cent to 20 per cent.

In the investor presentation, Bajaj Allianz General Insurance said that though the severity of Covid claims was lower than the peak severity observed in 2020-21, the frequency of Covid claims has increased – 82 per cent of the total Covid claims of last fiscal were already booked during the first quarter of 2021-22.

Experts point out that premium growth has been good and is slowly reverting to pre-pandemic levels.

“The impact of Covid is evident on insurance companies in the first quarter, but we will have to see how the pandemic plays out and whether the expected third wave is as intense as the second wave.

“We are yet to reach pre-pandemic level, but premium growth is likely to see traction in the fiscal,” said Saurabh Bhalerao, Associate Director – BFSI Research, CARE Ratings.

Most insurers, however, stress that they are well placed to deal with Covid-19 claims, but are also watchful of a possible third wave.

“The mortality claims were in line with expectations for life insurance companies. There could be some more claims in the coming months from the first wave due to a lag in reporting,” said an executive with a life insurance company.

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SEBI in talks with Centre on setting up of Repo Clearing Corporation

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Capital Markets regulator SEBI is in talks with the Central government on setting up of a Repo Clearing Corporation as part of efforts to develop a vibrant corporate bond market in the country, G Mahalingam, Whole-Time Member, has said.

Talks on with AMCs

Addressing an e-conclave on ‘Roadmap for economic Rebound’, organised by the industry body Assocham, Mahalingam said SEBI recognises that Repo market is one of the important pillars for having a vibrant corporate bond market. He highlighted that SEBI has been in talks with various asset management companies who are willing to bring the initial funding for Repo Clearing Corporation.

Also read: Why bonds have become attractive to large firms

“Once you have a good Repo Clearing Corporation, the repo market will gain lot of traction as credit risk vanishes out of the horizon and there will be a central counter party settlement,” he said. “SEBI is also in active discussion with the government on the budget announcement of introducing a new backstop facility for government purchase of corporate bonds that may fail,” he added.

Behind US, Korea, Brazil

Mahalingam noted that corporate bond outstanding in India was ₹36-lakh crore, which was about 18 per cent of the country’s GDP. “While this 18 per cent looks healthy, India is actually lagging far behind the US which has ratio of 124 per cent or South Korea where it is far excess of 50 per cent or Brazil where it it is close to 70 per cent,” he added. The development of our corporate bond market is therefore critical and has to play an important role for the rebound of the economy in a big way, he said.

Also read:A segmented banking system can boost credit

Mahalingam highlighted that there is a section of people who contend that development financial institutions (DFIs) are bound to come in a big way to help in economic recovery. “I am not sure if DFIs will come back but what needs to be developed in the country is the corporate bond market. We have been talking for some time on this. But I see flurry of activity in the last nine months where government has been playing a very proactive role with RBI and SEBI taking a good number of measures,” he said.

He stressed the need for both insurance companies and provident funds have to be a little forthcoming when it came to investing in corporate bonds. Most insurers are not prone to taking extra risk although there has been regulatory relaxations. “Insurance companies are well positioned to take risk. But they generally stick to AAA bonds and don’t go below that,” Mahalingam noted.

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Home First Finance posts 9.1% drop in Q1 net profit at ₹35 cr

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Home First Finance Company reported a 9.1 per cent drop in its net profit for the first quarter ended June 30, 2021 to ₹35.1 crore against a net profit of ₹38.61 crore in the same period last fiscal.

Its total income grew 5.8 per cent to ₹142 crore in the first quarter of the fiscal from ₹134 crore a year ago.

Impairment on financial instruments, however, shot up to ₹13.04 crore, registering a 192.4 per cent increase from ₹4.46 crore a year ago and impacted the bottomline.

Disbursements surged by 477 per cent on an annual basis to ₹305 crore in the April to June 2021 quarter.

GrossStage3 is at 1.9 per cent as on June 30, 2021 and NetStage3 is at 1.4 per cent.

Manoj Viswanathan, Managing Director and CEO, Home First Finance Company, said, “Our performance in the first quarter of 2021-22 was strong, considering that we had to deal with a severe second wave of Covid. We recorded an AUM growth of 18.5 per cent year on year. We expect the upward trend to continue as the overall opportunity remains large; supported by low-interest rates and muted house prices, driving strong business growth.”

The company has sanctioned and implemented resolution plans under the RBI’s resolution framework 2.0 for 208 borrowers having aggregate exposure of ₹20.73 crore as on June 30, 2021.

The technology-driven affordable housing finance company listed on the stock exchanges in February this year.

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Punjab & Sind Bank Q1 net rises 8% sequentially to ₹174 cr

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Aided by smart growth in operating profit and improved cash recovery from NPAs, Punjab & Sind Bank (PSB) on Thursday reported an 8 per cent growth in net profit for the first quarter ended June 30 at ₹174 crore. This public sector bank had recorded a net profit of ₹161 crore in the March quarter this year. In the first quarter last fiscal, PSB had recorded net loss of ₹117 crore.

It maybe recalled that PSB had staged a turnaround in the January-March 2021 quarter as it recorded profit for the first time after eight consecutive quarters of net losses.

Speaking to BusinessLine on the financial performance for Q1, S Krishnan, Managing Director & CEO, PSB, said that strong performance on operations and improved cash recovery helped the bottomline performance for the quarter under review.

Operating profit grew 136.21 per cent sequentially on a quarter-on-quarter basis to ₹411 crore. On a year-on-year basis, the operating profit grew 81.86 per cent when compared to operating profit of ₹226 crore recorded in same quarter last fiscal.

Cash recoveries

Krishnan said that PSB had made cash recoveries of about ₹700 crore in the first quarter this fiscal and this was higher than previous quarter.

“I still stick to my earlier statement made post the March quarter results that the bank will be able to post profits in each of the quarters this fiscal. We have achieved this for Q1 and will be able to do so in the coming quarters as well,” he added.

Net interest margin improved 25 basis points to 1.95 per cent on a quarter-on-quarter basis.

Net interest income (NII) grew 7.82 per cent to ₹579 crore from ₹537 crore in June quarter last year. On a quarter-on-quarter basis, NII increased 16.97 per cent.

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