Category: Banking & Finance

ESAF Small Finance Bank files Rs 998 crore IPO papers with Sebi, BFSI News, ET BFSI

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NEW DELHI: ESAF Small Finance Bank has filed preliminary papers with capital markets regulator Sebi to raise Rs 998 crore through an initial public offer (IPO).

The Rs 997.78-crore public issue comprises fresh issue of equity shares worth Rs 800 crore and an offer for sale of Rs 197.78 crore by existing selling shareholders, the draft red herring prospectus (DRHP) filed with Sebi showed.

Under the offer for sale, promoter will be selling shares worth Rs 150 crore, PNB MetLife would be offloading shares to the tune of Rs 21.33 crore, Bajaj Allianz Life will offer shares of Rs 17.46 crore, PI Ventures will sell Rs 8.73 crore worth shares and John Chakola will offer shares worth Rs 26 lakh.

The bank may consider a pre-IPO placement of equity shares for an aggregate amount up to Rs 300 crore. If the pre-IPO placement is undertaken, the amount raised from such placement will be reduced from the fresh issue.

Proceeds from the fresh issue will be used to augment the bank’s Tier – I capital base to meet future capital requirements.

ESAF Small Finance Bank is one of the leading small finance banks in India in terms of client base size, yield on advances, net interest margin, assets under management compound annual growth rate (CAGR), total deposit CAGR, loan portfolio concentration in rural and semi-urban areas and ratio of micro loan advances to gross advances.

As at May 31, 2021, the small finance bank had over 4.68 million customers in 21 states and two union territories.

Axis Capital, Edelweiss Financial Services, ICICI Securities and IIFL Securities have been appointed as merchant bankers to advise the bank on the IPO.

The equity shares of the bank will be listed on BSE and NSE.



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To strengthen TReDS, Factoring Amendment Bill passed by Lok Sabha, BFSI News, ET BFSI

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The Factoring Amendment Bill which was introduced in the Lok Sabha last year was passed on Monday. The Bill seeks to amend the Act of 2011 and widen the scope of entities which can engage in factoring business.

This Bill is aimed at increasing the traction on the Trade Receivables Discounting System (TReDS) platform introduced by the Reserve Bank of India in 2014.

The Bill will also help the micro, small and medium enterprises (MSME) which are plagued by the issues of delayed payments. Finance minister Nirmala Sitharaman said that the government had also accepted the recommendations by the Standing Committee which had looked into the Bill last year.

Commenting about the Bill, Ram Iyer, Founder & CEO, Vayana Network, said, “This has been a much-needed intervention. Allowing non-NBFC factors and other entities to undertake factoring is expected to increase the supply of funds available to SMEs. This may result in bringing down the cost of funds and enable greater access to the credit-starved small businesses, ensuring timely payments against their receivables. The recommendations of the Standing Committee are expected to increase the traction of TReDS platforms. Steps like integration with GSTN, mandatory listing of the government dues and direct filing of charges will improve the operational efficiency and acceptability of the platforms among the financiers.”

TReDS, which was introduced to improve liquidity with small businesses, has not been able to take off properly. According to the data accessed by ET, of the total transaction volume of about Rs 36,000 crore conducted by the three TReDS exchanges in India so far, only Rs 2,700 crore was from central public-sector enterprises (CPSEs).

TReDS works as an exchange between lenders, buyers and MSMEs. Lenders bid to settle the claims of an MSME supplier upon the acknowledgment of the invoice by the buyer. The buyer then repays the lender, which is usually a bank, after a predetermined period.

There is no collateral involved, and lenders consider the buyer’s credit rating while paying the supplier. RXIL, Invoicemart and M1Xchange are the three TReDS platforms.

(With inputs from ET Bureau)



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To strengthen TReDS, Factoring Amendment Bill passed by Lok Sabha, BFSI News, ET BFSI

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The Factoring Amendment Bill which was introduced in the Lok Sabha last year was passed on Monday. The Bill seeks to amend the Act of 2011 and widen the scope of entities which can engage in factoring business.

This Bill is aimed at increasing the traction on the Trade Receivables Discounting System (TReDS) platform introduced by the Reserve Bank of India in 2014.

The Bill will also help the micro, small and medium enterprises (MSME) which are plagued by the issues of delayed payments. Finance minister Nirmala Sitharaman said that the government had also accepted the recommendations by the Standing Committee which had looked into the Bill last year.

Commenting about the Bill, Ram Iyer, Founder & CEO, Vayana Network, said, “This has been a much-needed intervention. Allowing non-NBFC factors and other entities to undertake factoring is expected to increase the supply of funds available to SMEs. This may result in bringing down the cost of funds and enable greater access to the credit-starved small businesses, ensuring timely payments against their receivables. The recommendations of the Standing Committee are expected to increase the traction of TReDS platforms. Steps like integration with GSTN, mandatory listing of the government dues and direct filing of charges will improve the operational efficiency and acceptability of the platforms among the financiers.”

TReDS, which was introduced to improve liquidity with small businesses, has not been able to take off properly. According to the data accessed by ET, of the total transaction volume of about Rs 36,000 crore conducted by the three TReDS exchanges in India so far, only Rs 2,700 crore was from central public-sector enterprises (CPSEs).

TReDS works as an exchange between lenders, buyers and MSMEs. Lenders bid to settle the claims of an MSME supplier upon the acknowledgment of the invoice by the buyer. The buyer then repays the lender, which is usually a bank, after a predetermined period.

There is no collateral involved, and lenders consider the buyer’s credit rating while paying the supplier. RXIL, Invoicemart and M1Xchange are the three TReDS platforms.

(With inputs from ET Bureau)



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MSME bankruptcies involving less than Rs 1 crore put on fast-track with pre-pack law, BFSI News, ET BFSI

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The government has introduced a bill in the Lok Sabha to amend the insolvency law and provide for a pre-packaged resolution process for stressed MSMEs.

The proposed amendments would enable the government to notify the threshold of a default not exceeding Rs 1 crore for initiation of pre-packaged resolution process. The government has already prescribed the threshold of Rs 10 lakh for this purpose.

The Insolvency and Bankruptcy Code (Amendment) Bill, 2021 will replace the ordinance that was promulgated on April 4 as part of efforts to provide relief for MSMEs adversely impacted by the pandemic.

The bill seeks to have a new chapter in the Code to facilitate pre-packaged insolvency resolution process for corporate persons that are Micro, Small and Medium Enterprises (MSMEs).

The process

Generally, under a pre-packaged process, main stakeholders such as creditors and shareholders come together to identify a prospective buyer and negotiate a resolution plan before approaching the National Company Law Tribunal (NCLT). All resolution plans under IBC need to be approved by NCLT.

The bill seeks to specify a minimum threshold of not more than Rs 1 crore for initiating pre-packaged insolvency resolution process as well as provisions for disposal of simultaneous applications for initiation of insolvency resolution process and pre-packaged insolvency resolution process, pending against the same corporate debtor.

There would be a penalty for fraudulent or malicious initiation of pre-packaged insolvency resolution process or with intent to defraud persons, and for fraudulent management of the corporate debtor during the process.

Further, punishment would be meted out for offences related to pre-packaged insolvency resolution process.

“Unlike the CIR Process where the control is transferred to the Interim Resolution Professional, in this process, the control remains with the existing management and only in case of fraud, the NCLT may shift control to Resolution Professional. The process is intended to be swift and efficient.

The timeline for completion of the pre-packaged insolvency resolution process is shorter than the normal Corporate Insolvency Resolution (CIR) period.

What experts say

Rajiv Chandak, Partner at Deloitte India, said the bill covers provisions pertaining to pre-packaged insolvency process for MSME units.

“Lenders are awaiting similar provisions for larger corporates. Pre-packaged insolvency can help in resolving stress early and cut resolution time for corporates staring at default,” he added.

Anoop Rawat, Partner, Insolvency & Bankruptcy at Shardul Amarchand Mangaldas & Co said the amendments are in line with the IBC ordinance that was promulgated on April 4, 2021.

“It gives better visibility of resolution as compared to a normal CIR process since a base resolution process need to be in place prior to initiation of the process at NCLT,” Rawat noted.

Government measures

In the wake of the pandemic, the government has taken various steps including increasing the minimum amount of default to Rs 1 crore for initiating a corporate insolvency resolution process.

Besides, the government had suspended fresh filing of corporate insolvency resolution applications in respect of defaults arising during the period between March 25, 2020, and March 24, 2021.

To deal with emerging market realities, the Code has been amended on earlier occasions also.

The Code, which came into force in 2016, was enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals.



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Equitas board approves merger of holding company with bank

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Both EHL and Equitas Small Finance Bank are listed on the stock exchanges and EHL holds a 81.98 % stake in the bank.

The board of directors of Equitas Small Finance Bank (ESFBL) has approved a scheme of amalgamation of Equitas Holdings (EHL ) with ESFBL. The scheme is awaiting approvals from the Reserve Bank of India and Sebi. EHL is the holding company of the ESFBL.

Upon the scheme’s coming into effect, each of the equity shareholders of EHL would be allotted 226 equity shares of Rs 10 each, credited as fully paid up of ESFBL, in respect of every 100 equity shares.

ESFBL had, in July 10, clarified that the Reserve Bank of India (RBI) had permitted the Chennai-headquartered bank to apply to the banking regulator for the approval of its amalgamation scheme, which would facilitate the merger of promoter entity EHL with the bank.

In accordance with the RBI small finance bank licensing guidelines and the RBI clarification issued on January 1, 2015, a promoter of small finance bank can exit or cease to be a promoter after the mandatory initial lock-in period of five years, depending on the RBI’s regulatory and supervisory comfort and Sebi regulations in this regard at that time.

In the case of ESFB, the said initial promoter lock-in expires on September 4, 2021, and the bank had requested RBI if a scheme of amalgamation of the promoter and holding company (EHL) with the bank, resulting in the exit of the promoter, could be submitted to the RBI for approval, prior to the expiry of the five years.

Both EHL and Equitas Small Finance Bank are listed on the stock exchanges and EHL holds a 81.98 % stake in the bank.

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IndusInd Bank net profit doubles on lower provisions

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The capital adequacy ratio (CAR) stood at 17.57% during the quarter under review, compared to 15.16% as on June 30, 2020.

IndusInd Bank on Tuesday reported a 112% year-on-year (y-o-y) jump in net profit to Rs 975 crore for the quarter ended June 2021, on the back of reduced provisioning and higher other income. Provisions declined 18% YoY to Rs 1,844 crore, but remained flat sequentially. The lender’s operating profit increased 9.4% YoY to Rs 3,130 crore as the net interest income (NII) grew 8% YoY to Rs 3,564 crore. Other income increased 18% YoY to Rs 1,781 crore.

The net interest margins (NIM) declined 22 basis point (bps) YoY and seven bps quarter on quarter (QoQ) to 4.06%.
MD and CEO Sumant Kathpalia said, “The economy once again showed resilience with higher activity levels compared to the first wave, supported by effective fiscal and monetary support. The first few weeks of July are giving us confidence that collection efficiency is returning as clients are paying back in time.” The collection efficiency fell in April and May, but quickly picked up in June to 96%, he added.

The lender’s asset quality worsened during the June quarter. Gross non-performing assets (NPAs) ratio increased 21 basis points to 2.88%, compared to gross NPAs of 2.67% in the previous quarter. Similarly, net NPAs ratio increased 15 basis points to 0.84% from 0.69% in the March quarter. In the quarter ended June 30, the bank added Rs 2,762 crore worth bad loans, owing to collection issues during the quarter. Of this, Rs 2,342 crore came from the consumer finance book.

“The bank has followed a conservative provisioning approach with net NPA of 0.84% and a surplus provision of Rs 2,050 crore outside this for contingencies if any,” Kathpalia said. The lender has strengthened its balance sheet by increasing provision coverage ratio (PCR) to 72% in June 2021 from 67% in June 2020.

Non-interest income got a boost from core-fee income, which increased 78% YoY to Rs 1,214 crore. Operating expenses, however, grew 14% YoY to Rs 2,166 crore in the June quarter, as against Rs 1,902 crore for the corresponding quarter of the previous year.

Advances grew 6% YoY to Rs 2.1 lakh crore, but remained flat sequentially. The bank was cautious in loan growth, given the challenging operating environment, Kathpalia said. Corporate advances, however, rose 10% YoY to Rs 92,407 crore. “We’re seeing a lot of demand from large corporate borrowers. The only issue there is price. Still, we will manage to either be at industry growth levels, or might exceed it in corporate lending,” Kathpalia said, adding the bank may report credit growth of 16-18% for the ongoing fiscal.

Deposits grew 26% YoY and 4% QoQ to Rs 2.7 lakh crore. Current account savings account (CASA) deposits increased to Rs 1,12,349 crore with current account deposits at Rs 32,422 crore and saving account deposits at Rs 79,927 crore. CASA deposits comprised 42% of total deposits as of June 30, 2021, compared to 40% during Q1FY21.The capital adequacy ratio (CAR) stood at 17.57% during the quarter under review, compared to 15.16% as on June 30, 2020.

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Mastercard to file an independent audit report

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In a bid to get the ban on issuing new cards revoked, payments major Mastercard is planning to submit an additional audit report by an independent agency to the Reserve Bank of India to show its compliance with the data localisation norms

According to sources close to the development, Mastercard has already submitted to the RBI its annual System Audit Report showing compliance with the data norms, but there were delays in sending a supplemental audit report due to which the central bank barred the company from issuing cards.

The company hopes the additional report will address the RBI’s concerns and enable Mastercard to go back to business as usual, said a source.

Reports rejected

According to banking industry sources, the initial system audit report was found to be deficient by the RBI. “The compliance by Mastercard was not satisfactory. The company had been dragging its feet on meeting the regulatory norms,” said a source aware of the regulatory processes.

Mastercard is understood to have taken time in submitting a third-party audit report on compliance with data localisation norms and had not appointed a domestic auditor certified by CERT-in. A part of the payments data on the Indian leg of the transaction being processed abroad was not deleted within the mandated 24 hours.

‘Slight delay’

To an email query from BusinessLine, Mastercard said: “When RBI required us to provide additional clarifications about our data localisation framework in April 2021, we engaged our government- empanelled, audit firm to address those points. That report was slightly delayed and submitted to the RBI on July 20, 2021.”

“We are hopeful that this latest filing provides the assurances and insights required to address their concerns and move toward a resolution on the matter,” it said, adding that it is focussed on ensuring that its current business continues to operate as usual.

“Since the RBI’s 2018 directive on data localisation and storage was issued, we have worked closely with the RBI and the Indian government to ensure we are compliant with both the letter and the spirit of the order,” Mastercard said.

Mastercard has been betting big on the Indian market with plans to invest $1 billion over a five year period to build digital payment infrastructure and work on innovations in the digital payments space.

It has also been one of the largest players in terms of issuances for cards and plans of many banks have been impacted by the ban.

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Govt of UT of Ladakh gets RBI nod to acquire 8.23% stake in J&K Bank

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The Reserve Bank of India has accorded its approval to the Government of the Union Territory (UT) of Ladakh to acquire 8.23 per cent of the paid-up equity capital of Jammu and Kashmir Bank Ltd as on the date of enforcement of Jammu and Kashmir Reorganisation Act, 2019 ( October 31, 2019).

This move follows the Government of Jammu and Kashmir’s October 30, 2020, Order regarding the transfer of 8.23 per cent shareholding (about 4.58 crore equity shares) in Jammu and Kashmir Bank as of October 31, 2019, to the UT of Ladakh, the bank said in a statement.

This is subject to compliance with the relevant provisions of Banking Regulation Act, 1949, RBI Master Direction on Prior approval for the acquisition of shares or voting rights in private sector banks, Master Direction on Ownership in Private Sector Banks, among others, it added.

As of June end 2021, the Government of Jammu and Kashmir was the majority shareholder, owning 68.18 per cent stake in the bank.

The bank, which declared its financial results on July 14, reported a net profit of ₹317 crore in the fourth quarter ended March 31, 2021, against a net loss of ₹294 crore in the year-ago quarter and a net profit of ₹66 crore in the December 2020 quarter.

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UCO Bank posts four-fold rise in Q1 profit at ₹102 crore

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Riding on the back of a higher net interest income and other income UCO Bank saw over four-fold rise in net profit at ₹102 crore for the quarter ended June 30, 2021, as against ₹21 crore same period last year.

Net interest income increased by 15 per cent at ₹1,460 crore from ₹1,267 crore same period last year.

“There has been an improvement across all parameters including net interest income, other income, treasury income and recovery from written off accounts. This has given a boost to our operating profit and net profit,” Atul Kumar Goel, MD and CEO, UCO Bank, said at a virtual press conference here on Tuesday.

Other income rises

Other income during the period under review increased by around 25 per cent to ₹970 crore from ₹774 crore same period last year.

On a sequential basis, net profit was up by around 28 per cent as compared to ₹80 crore during the quarter ended March 31, 2021.

The bank’s advances during the quarter under review grew by around five per cent at ₹1,20,849 crore against ₹1,15,236 crore same period last year. Goel expects credit offtake to pick up during the subsequent quarters backed by a steady demand.

“We have recovered from the Covid induced slowdown witnessed in April and May. And things are expected to improve. There is a lot of demand (for credit) from corporates, NBFCs, MSME etc. We are hoping for a growth of around 10 per cent in credit this year,” he said.

Total deposits grew by around nine per cent at ₹2,12,097 crore as on June 30, 2021, as against ₹ 1,95,119 crore same period last year.

NPAs decline

Gross non-performing assets (NPA) reduced to ₹11,322 crore as on June 30, 2021 from ₹16,576 crore last year. Gross NPA as a percentage to advances also came down to 9.37 per cent as against 14.38 per cent last year.

Net NPA also reduced to 3.85 per cent (4.95 per cent).

The bank’s provision coverage ratio increased to 88.53 per cent as on June 2021, up from 86.50 per cent same period last year.

Total provisions increased by 21 per cent to ₹1,127 crore (₹932 crore). Provision for NPA increased by nearly 50 per cent at ₹845 crore (₹565 crore).

Capital adequacy ratio stood at 14.24 per cent and CET-I ratio at 11.32 per cent as June 30.

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Karnataka Bank net profit down by 46%

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Karnataka Bank Ltd (KBL) registered a net profit of ₹106.08 crore in the first quarter of 2021-22 as against a net profit of ₹196.38 crore in the corresponding period of 2020-21, recording a decline of 45.98 per cent.

Speaking to BusinessLine after the meeting of the Board of Directors on Tuesday, to approve the financial results for quarter ended June 30, Mahabaleshwara MS, Managing Director and Chief Executive Officer of the bank, said KBL continued to be a profitable bank even during the tough times. The reduction in net profit on a year-on-year basis is mainly on account of decline in treasury gains, which is dependent on the yield movements.

Compared to the sequential previous quarter — Q4 of FY 21 — the net profit is up by 3.38 times, he said. The net profit was at ₹31.36 crore during fourth quarter of 2020-21. Sequentially, on a quarter-on-quarter basis, the net profit was higher by 238.26 per cent over the fourth quarter ended March 2021, he said.

The net interest income of the bank was at ₹574.79 crore for the quarter ended June 30 as against ₹459.14 crore for Q4 of 2020-21.

NPA declines

“In spite of the Covid-affected economy, the asset quality has improved both in terms of absolute numbers and on percentage basis,” he said. The gross NPA (non-performing assets) of the bank declined to 4.82 per cent as at June 30, compared to 4.91 per cent in the sequential previous quarter of FY 21. The gross NPAs in absolute terms declined to ₹2,549.06 crore during Q1 of 2021-22 from ₹2,588.41 crore in Q4 of 2020-21, and ₹2,557.64 crore in Q1 of 2020-21.

The net NPAs also declined to 3 per cent during Q1 of 2021-22 from 3.18 per cent at the end of Q4 of 2020-21, and 3.01 per cent as at June 30, 2020. In absolute terms, net NPAs declined to ₹1,552.95 crore during Q1 of 2021-22, from ₹1,642.10 crore in Q4 of 2020-21 and ₹1,630.65 crore in Q1 of 2020-21.

“Going forward, the bank will continue to further consolidate on credit, CASA (current account, savings account) and asset quality,” he said.

Capital

The bank may go for augmenting the capital through QIP route, depending on the market condition. Even though the CRAR is comfortable at 14.58 per cent, the decision to go for QIP route was taken mainly with an intention to onboard a few suitable institutional investors, he said, adding the process would be taken forward after the due approval of the shareholders.

On Tuesday, the scrip of Karnataka Bank closed at ₹59.05 on BSE, down 1.17 per cent, against the previous close of ₹59.75.

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