Category: Banking & Finance

HDFC Bank cautious on retail biz, BFSI News, ET BFSI

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Mumbai: The second wave of the pandemic has turned HDFC Bank cautious with respect to retail loans. The bank’s overall retail loan book shrank from Rs 5.27 lakh crore at the end-March 2021 to Rs 5.23 lakh crore at the end-June. Retail loans fell with a drop in credit card outstandings, auto loans, two-wheeler loans and loans against securities.

According to HDFC Bank’s chief financial officer Srinivasan Vaidyanathan, credit card outstanding shrank to Rs 60,429 crore in end-June from Rs 64,674 crore in end-March because of a drop in revolving credit. He said that the focus was on the quality of credit and around three-fourths of the bank’s credit card customers have deposits that are on average five times the credit card outstanding. He was addressing analysts in a conference call after the bank’s results for the first quarter of the current fiscal.

Speaking in the same call, head (retail assets) Arvind Kapil said that the bank was now seeing buoyancy returning to the personal loan segment and expects good growth in future.

The bank, which is facing a freeze on issuing new cards, has completed an audit of its IT systems as required by the RBI and is now waiting to hear from the central bank. Even as it awaits the RBI’s nod for resuming card issuance, the bank is rapidly growing its card-acceptance business. Vaidyanathan said that the bank already has 2.3 million merchant-acceptance points and it has a 50% market share of merchants being on-boarded for card acceptance as against 40% last year.

HDFC Bank’s chief credit officer Jimmy Tata said that, during the quarter, things had not been the most orderly because of the second wave. “We were pretty much back to pre-Covid level until March, till the second wave hit us in April. We found our staff getting infected rapidly and we stopped going out on recovery calls. Most of the work was work-from-home. It is only in the month of June that we had the ability to start going out,” he said. In the second quarter, there has been a high level of vaccinations in the bank and staff have returned to the office for calling on borrowers.

According to Tata, the one product segment that has seen a non-Covid impact was diesel commercial vehicles (CVs), because they have not been able to pass on the sharp hike in fuel costs. He said that the bank was watching the portfolio as it would take two quarters for the price hike to be passed on. “We expect that by the festival season, things would have been brought back on an even keel, with cost increases passed on.”

On the cards business, Srinivasan said that HDFC Bank’s debit card issuance would not be hit because of the ban on Mastercard except for a couple of co-branded cards. He said that cards contribute between one-fourth to a third of the bank’s fee income in any quarter.



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Gold loans, best option amid the Covid pandemic

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The demand for gold loans surged in the last fiscal as lenders, in general, turned cautious in the wake of Covid-19 pandemic, which impacted lives and livelihoods. With the traditional funding avenues being clogged, borrowers found it convenient to secure credit for their personal and business needs by pledging their gold jewellery.

This was adequately supported by the spike in gold prices, especially between April 2020 and August 2020, when gold prices went up by about 25 per cent. The Reserve Bank of India (RBI) also relaxed the loan-to-value (LTV) of these loans (for non-agricultural purposes) from 75 per cent to 90 per cent for banks till March 31. While the prices came down from the peak witnessed in August 2020 as of March 2021, it was marginally higher than in the beginning of the year. Loans against gold jewellery are typically less rigorous vis-a-vis other types of loans, and are largely based on the assessment of the ornaments being pledged. The above, along with the counter-cyclical nature of this asset segment, bodes well for borrowers, especially for the non-prime borrower segments, whose income levels are more vulnerable to adverse economic cycles.

Bank credit grows

The bank credit to this segment, under the personal credit category, grew at about 81 per cent during the last fiscal to ₹605 billion in March 2021. Over the last two years, the overall bank credit to this segment grew at a compounded annual growth rate (CAGR) of 56 per cent, while overall bank credit and the banking personal credit segment grew at a CAGR of 6 per cent and 13 per cent, respectively.

The country’s largest bank, SBI, saw its personal gold loans grow by about 465 per cent on a year-on-year basis during the last fiscal. Banks also extend agricultural loans against gold jewellery for their rural borrowers.

Non-banking finance companies (NBFCs) also saw their asset under management (AUM) grow by about 27 per cent compared with the overall NBFC credit growth of about 4 per cent during the last fiscal. NBFCs’ credit to this segment stood at about ₹1.1 trillion as of March 2021 against the estimated gold security, weighing about 350-400 tonne.

Bank credit grew by about 34 per cent on a year-on-year basis in May 2021 and is expected to be moderate vis a vis the last fiscal, while NBFC credit is expected to grow at about 14-16 per cent in the current fiscal. Various estimates put India’ gold holdings at about 25,000 tonnes, which provides a large scope for this segment to grow going forward in the long term.

Limited documentation

Product delivery for the NBFCs is better vis a vis banks, as they offer quick loans with limited documentation. The interest rates offered by the NBFCs are higher and in the range of 12-26 per cent (average ~20-22 per cent) per annum depending on the tenor, repayment patterns etc, while banks charge an interest rate of 8-10 per cent per annum. The convenience offered by the NBFCs and their gold-loan focussed branches, however, help in keeping the turnaround time much lower than the banks.

The gold loan business has been branch-centric in the past and NBFCs have been taking initiatives to digitise the process, and some also offer door-step credit and gold collection facilities.

The pace of digitalisation, involving online transactions for securing credit and repayments, improved with the pandemic-induced business disruptions, and is currently estimated at 20-25 per cent of the overall NBFC gold loan AUM. Banks, on the other hand, have tied up with smaller NBFCs and fintechs to improve their penetration.

The gold price movement is a crucial factor and could have an impact on the segmental asset quality; entities, however, have adapted to this risk by either lowering their loan tenure (3/6/9 months vis a vis the typical tenor of 12 months) or by ensuring regular collections of interest (monthly or quarterly vis a vis bullet payments) while maintaining the 12-month tenure, thereby, securing themselves against any large swings in gold prices. Generally, loans with a 12-month tenure get repaid in 5-6 months or get renewed basis the prevailing gold price.

Maximum decline

Looking at the gold prices trends over the last 10 years, the maximum decline witnessed in gold prices in a quarter was about 10 per cent, while it saw a maximum of about 15 per cent decline over a six-month period. Lenders typically have an option to call for additional collateral if the LTVs increase beyond the regulatory stipulated levels of 75 per cent and could auction the gold jewellery offered for security.

Auctions have been as high as 21-22 per cent of the opening portfolio for some NBFCs in the past (FY13-FY14); while there have been instances of under-recovery in the interest accrued on the overdue loans, especially the loans originated before the imposition of LTV cap by the RBI, loan losses in these auctions have been quite negligible.

The average annual credit cost for the large NBFCs, over the last 10 years, is about 0.4 per cent, and maximum credit cost observed during this period was about 1 per cent. Short tenure, small ticket size, conservative LTV (65-70 per cent) and access to collateral make this a go-to asset class for lenders when the credit risk perception is unfavourable.

 

(The writer is Vice-President & Sector Head, ICRA)

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The turnaround story of Indian Overseas Bank

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The turnaround story of a private sector entity gets a lot of attention while the tendency is to brush off anything that pertains to a public sector organisation’s success.

The Chennai-headquartered public sector lender Indian Overseas Bank’s efforts in achieving a turnaround in six years is nothing short of an impressive saga. The turnaround experience of the 84-year-old bank provides a valuable lesson on team effort, and also busts several myths about the leadership of public sector entities.

Amid speculation over its privatisation and the euphoria over its benefits, the successful turnaround of Indian Overseas Bank (IOB) is worth recounting as to how the team pulled it off.

The crisis started for the public sector lender in 2015-16 when the bank posted a net loss of ₹454 crore after reporting strong profit several years before that. The losses started mounting to ₹2,897 crore in FY16 and ₹3,417 crore in FY17.

A few major factors were reported to have caused deterioration in IOB’s performance.

Borrowing normally takes place after a clear plan for deployment. Else, it will cause a huge interest burden. But in IOB’s case, huge overseas borrowings, with no proper plan for deployment, caused a huge dent to the balance sheet.

Aggressive lending

With adequate capital in hand, the company resorted to aggressive lending, particularly to large corporates. While its exposure to this large corporate segment increased significantly, which was never a case in the history of IOB earlier, most of the large corporate accounts turned bad (NPA) in the subsequent months, wreaking havoc on the bank’s balance sheet.

The exposure to large corporate grew significantly from a small share in the book to fund-based exposure of ₹84,634 crore and non-fund exposure of ₹17,478 crore in 2014-15.

Also, reckless branch expansion without adequate resources, led to more branches incurring losses. Between 2010-11 and 2013-14, the bank opened more than 1,250 new branches which never happened in the history of IOB.

To add to the bank’s woes, poor IT systems and absence of a mechanism for monitoring customer complaints worsened the situation.

High contraction of credit led to rise in gross NPAs and the situation started turning worse with poor credit offtake and ballooning bad loans in the subsequent years. Consequently, the bank was put under the PCA (prompt corrective action) programme by the RBI from September 2015.

R Subramaniakumar, who served Punjab National Bank, was appointed as MD and CEO of the bank in May 2017. When he took charge, the bank reported its highest-ever net loss, Gross NPA of more than ₹35,000 crore and net NPA close to ₹20,000 crore. Also, almost one-fourth of the branches were making losses with a huge number of customer complaints.

Turnaround programme

In 2017, R Subramaniakumar and his team embarked on a massive turnaround programme, with a multi-pronged strategy under which it used INR surplus swap option, rebalanced its portfolio by significantly reducing exposure to large corporates, brought in huge HR focus, and perfected the IT systems.

“The revival programme was taken up with participation of entire IOB staff, unions and others as everyone showed enthusiasm for the revival of the bank,” says a former top official of the bank.

Under HR focus, the management resumed promotions to boost the morale of staff, which was at historic low due to various issues. People were recognised for work and performance. Another important focus area that contributed to the turnaround was the restoration of IT system. Since there was no centralised mechanism to monitor complaints and offer solutions, complaints surged, and at one point, there were more than 9,000 complaints, including disputes in ATM and other issues. The formation of multiple IT teams with additional training support from IT major Infosys helped reduce complaints drastically over a period of 6 months with several processes getting automated. The number of loss-making branches was reduced to low single-digits from 25 per cent earlier.

“IT automation gave a big boost to the bank by way of stability, customer confidence while boosting the morale of staff,” says a former senior official of the bank.

Under rebalancing of credit portfolio plan, the bank moved away from the large corporate segment and created a separate team for mid-corporate loans, while accelerating the focus on RAM (retail, agriculture and MSME) segment, the share of which grew significantly from 40 per cent in 2017 to 65 per cent in the subsequent years (now RAM is about 74 per cent of total domestic advances). Also, CASA share was increased to one-third in FY18 from one-fourth earlier (now it has touched 43 per cent), while additional focus on non-interest income has boosted its performance.

IOB’s multi-pronged initiatives started yielding positive outcomes; it exhibited improvement in reducing the gross and net NPAs and upgraded the provision coverage ratio from 53.63 per cent in FY17 to 71.39 per cent in FY19. Automation of NPA administration like transparent OTS settlement and identifying the early warning signal accounts helped the bank contain fresh slippages and improved the NPA recovery.

The bank carried forward the turnaround measures under Karnam Sekar, who took charge as the MD and CEO of the bank in July 2019. Though losses continued, the December 2019 quarter saw its net NPA falling below six per cent, helped by the government’s capital infusion of ₹4,360 crore and other measures.

Returns to black

With reduction in NPAs and provisions, the bank swung into profit mode in Q4 of FY20 and it maintained its profitability in the following four quarters. Finally, the bank returned to black after suffering losses for six years in a row.

IOB’s net profit in March 2021 quarter more than doubled to ₹350 crore (₹144 crore in March 2020 quarter). Its net NPA declined to 3.58 per cent in March 2021 quarter from 5.44 per cent in March 2020 quarter.

For FY21, it posted a net profit of ₹831 crore against a net loss of ₹8,527 crore in FY20. Its gross NPA was ₹16,323 crore, while net NPA was below ₹5,000 crore (₹4,578 to be precise). Provision coverage ratio has improved from 53.63 per cent in FY17 to 90.34 per cent in FY21.

The current MD and CEO, Partha Pratim Sengupta, said it was a great achievement by Team IOB to script the turnaround and the bank was confident of continuing the performance in the coming years.

The bank has written to the RBI to move out of the PCA framework and the exit will help the bank focus on future growth and other opportunities. It has also planned for a capital infusion of ₹2,000 crore in this fiscal to support its growth plans.

Senior officials of the bank say IOB carries huge potential to emerge as one of the strongest banks in the mid-segment as it has introduced strategic changes, supported by the motivated staff.

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How PSU banks are catching up in the digital world, BFSI News, ET BFSI

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– By Amol Dethe & Ishwari Chavan

The banking sector in India, in response to evolving forces of consumer behaviour shift, demographics and technology, has gone through some significant changes in the past decades.

Almost every sector in the economy reflects the massive impact technology has had on them. But the banking sector, in particular, has been aggressively adapting and transforming in the face of constantly evolving technology.

The notion holds that the Public sector banks (PSBs) have lagged their private counterparts in adapting to these changes. But the PSBs have geared up and banking experts believe the future does look good for PSBs.

PSBs adopting tech

The PSBs have already started investing heavily in technology. Artificial Intelligence, blockchain technology, and robotic process automation are the key innovations that are likely to impact the banking scenario in India in a transformative way.

The field of artificial intelligence has produced several cognitive technologies. Individual technologies are getting better at performing specific tasks that only humans could do. It is these technologies that PSBs may focus their attention on. Analytics can improve customer understanding and personalisation. PSBs are in the process of aggressively adopting these technologies that enhance bank and customer engagement.

Speaking at the ETBFSI session on Digital future of PSU Banks, Raj Kiran Rai, MD & CEO, Union Bank of India and V G Kannan, former CEO, Indian Banks’ Association shared their insights and experience on how PSBs are transforming.

Rai said, “Based on the transactions of a customer, these models can predict if he/she can be a potential housing loan customer, a potential vehicle loan customer, or a personal loan customer. So it helps to do targeted marketing. We are still in the initial phases of using it. But we are investing a lot in this.”

Developing skills

PSBs are heavily recruiting the young population while skilling and reskilling them. Rai mentioned that the average age of employees has come down to 38. He added that the “tech-savvy” young can be easily skilled and reskilled through the e-learning modules that are being introduced. Prioritising the employees who can read and analyse large data over traditional number-crunching can be increasingly seen as a pattern.

Among other skills, marketing is one of the most valuable skills for the digital future of PSBs. According to Rai, marketing skills are where public sector employees are lacking. He said things will take off very fast once the digital products are marketed, pushed to customers, and made comfortable to use.

Fast Moving Consumers & FinTechs

VG Kannan, Former Chief Executive, Indian Banks’ Association, said, “The more and more the customers can use these things, the load on the bankers will come down and they can make it more efficient, provide higher interest rate and provide better services at a lower cost. So it’s going to be a win-win for everyone.”
While a large section of the population in India will be comfortable using digital products, banks will still have to maintain a physical presence, especially in rural areas where the customers are more inclined towards it.

Financial Literacy Centres (FLCs) can play an important role in promoting financial literacy by creating awareness about banking services. Thus, integrating the informal and formal financial sectors can further make digital banking services more accessible to a large chunk of the population that otherwise prefers the physical branches.

Furthermore, to stay relevant in an ever-evolving customer pool, PSBs need to make the most out of the dynamic changes in the BFSI sector in the country. The success of these banks will largely depend on the alliances they form. Thus creating innovative partnerships will ensure the growth of PSBs.

It is no more about banks versus FinTech. Partnerships between banks and FinTech companies will allow banks early access to innovative technologies while the FinTechs would benefit from the vast experience and infrastructure of the PSBs. Both Kannan and Rai believe that a lot of such partnerships may be witnessed over the coming years.

The very technologies that drive revolutionary transformations also invite security risks with them. Technologies are getting sophisticated, and so are the cyber risks. Thus, for PSBs to ensure a secure infrastructure may be very crucial.

Rai and Kannan concurred that growth through innovation is where the PSBs are headed.



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Cooperation Ministry: Cooperatives’ financial heft seen behind Centre’s bid for greater control

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There are about 8.5 lakh co-operatives in the country with roughly 38 crore members. Of these, 1,539 are urban cooperative banks (UCBs) and 97,006 rural ones with a combined asset size of as much as Rs 17-18 lakh crore, an official source told FE.

From a tiny wing of the agriculture ministry with less than a dozen employees in a nondescript corner of Krishi Bhawan, the department of cooperation’s morphing into a full-fledged ministry last week, with Amit Shah at its helm, is seen as having not just political but economic ramifications.

There are about 8.5 lakh co-operatives in the country with roughly 38 crore members. Of these, 1,539 are urban cooperative banks (UCBs) and 97,006 rural ones with a combined asset size of as much as Rs 17-18 lakh crore, an official source told FE.

These cooperative banks, both urban and rural, account for an overwhelmingly large share of the cooperative sectors’ finances. While many of them are starved of capital and riddled with management woes, the co-operative banking sector, as a whole, still retains much financial as well as political clout over voters at the critical grassroots level. Against this backdrop, the Centre’s bid to regulate policies governing co-operatives through the new ministry assumes significance.

Some of the large UCBs are cash-rich, and this makes them a potent financial force. The deposit base of UCBs stood at Rs 5 lakh crore as of March 2020 (deposits constitute about 90% of the cooperatives’ resource base). Their loan portfolio was as high as Rs 3 lakh crore at the end of FY20, constituting a sizeable share of credit flow in the overall cooperative sector, mainly to agriculture.

Similarly, the UCBs’ cash reserves grew 7.9% on year to Rs 5,812 crore in FY20 and balances with banks rose 8.6% to Rs 66,212 crore. Their investments stood at Rs 1.62 lakh crore in FY20, 60% of which were in central government securities and another 27% in state government papers. Their asset size stood at Rs 6.2 lakh crore as of March 2020.

Once the financials of rural co-operative banks are included, the asset size sees a substantial jump. These rural co-operatives make up 65% of the total asset size of all co-operative banks put together, according to an RBI assessment.

Given the financial prowess of many of the co-operatives and the sheer large number of their members, the political parties that exercise considerable control over them potentially have a significant advantage over others in times of elections. For instance, the Congress and the NCP have tremendous clout over them in Maharashtra, the BJP in Gujarat and the Left parties in Kerala.

No wonder, opposition parties have called the move to carve out the ministry of cooperation from the agriculture ministry a “political mischief” and an onslaught on the country’s federal structure. Co-operatives, being a state subject (the Union government’s role is mostly restricted to multi-state co-operative societies), should be overseen by the states and the new ministry must not be used to usurp their power or curb their innovation, they say.

For instance, to fund development activities and ease credit flow to farmers, Kerala formed the Kerala Cooperative Bank (KCB) (branded Kerala Bank) by merging district cooperative banks. The KCB is now the country’s largest cooperative bank with as many as 820 branches. The state’s ministry of cooperation lists as many as 11,892 cooperative societies that function across sectors, including agriculture, dairy, industry and services such as banking and hospitality.

More importantly, many of the cooperatives, thanks to their opaque structure and severe governance issues, are allegedly used to funnel black money. The crisis at the Punjab Maharashtra Co-operative (PMC) Bank and some others in recent years are a testament to it.

Of course, the government last year amended the Banking Regulation Act to bring urban and multi-state co-operative banks under the RBI regulation. While the move aims to protect the interests of depositors and better scrutinise the affairs of these cooperative banks, given the enormity of the task, strict supervision and regulation will take some time to evolve to the desired standards. Moreover, the sphere of the RBI regulation is limited to only those offering banking services and doesn’t cover the entire universe of co-operatives.

According to the notification issued by the government, the new ministry will deal with general policy in the field of cooperation while other relevant ministries will be responsible for cooperatives in their respective fields. For example, IFFCO will continue to be driven by the policies of the fertiliser ministry and Gujarat Cooperative Milk Marketing Federation (Amul) by the dairy ministry. Agri cooperative Nafed, which undertakes the procurement of oilseeds and pulses, will remain with the agriculture ministry.

So, the new ministry will get to oversee the central registrar of cooperative societies that regulate and govern all multi-state cooperative societies, a function that was earlier undertaken by the agriculture ministry.

The step assumes significance as some of the financial companies were allegedly converted to multi-state cooperatives to evade regulating authorities like RBI and Sebi.

As of December 2020, there were 1,469 registered multi-state co-operative societies. Maharashtra led the pack of states with 622 of them, followed by Delhi (153), Uttar Pradesh (149), Tamil Nadu (124) and Rajasthan (74).

Rejecting criticism of the move, government officials say the much-neglected co-operative sector will get its due share of attention now following the formation of a dedicated ministry and catalyse a bottom-up growth approach. It will bolster the country’s cooperative movement and deepen its reach at the grassroot level, they add.

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Paytm Payments Bank may soon apply for conversion to Small Finance Bank

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Paytm Payments Bank, an associate entity of IPO-bound Paytm, may consider applying for conversion into a Small Finance Bank (SFB) on completion of the required time period under law.

If the firm is successful in conversion, Paytm Payments Bank will be able to undertake additional banking activities such as lending.

The plan to consider applying for conversion into a SFB has been disclosed in the draft red herring prospectus filed by One 97 Communications (Paytm) with SEBI recently for the digitial financial services major’s ₹16,600 crore initial public offering (IPO).

Currently, under the existing RBI guidelines for ‘on tap’ licensing of Small Finance Banks in private sector, existing payments banks with successful track record of at least five years can apply for conversion into SFB.

Moreover, an internal working group of the RBI had recently suggested that a successful track record of three years may be considered sufficient for such conversion.

It maybe recalled that Paytm Payments Bank got its licence to operate as a payments bank from the RBI in 2017.

Net profits

Meanwhile, for the year-ended March 31,2021, Paytm Payments Bank, which has the largest scale among all payment banks, had recorded net profit of ₹17.88 crore on sales of ₹1,987.84 crore, financial data disclosed in the prospectus showed.

One 97 Communications owns 49 per cent equity interest in Paytm Payments Bank, while the rest 51 per cent is owned by Vijay Shekhar Sharma.

The objective of a payments bank is to widen the spread of payment and financial services to small business, low income households, migrant labour workforce in secured technology driven environment. A payments bank is like any other bank without involving any credit risk. It can carry out most banking operations but cannot provide loans or issue credit cards. It can accept demand deposits up to ₹2 lakh, offer remittance services, mobile payments/transfers/purchases and other banking services like ATM/debit cards, net banking and the third party fund transfers.

As at end-March 2021, Paytm Payments Bank had 6.4 crore bank accounts and demand deposits of ₹5,200 crore (including savings accounts, current accounts, fixed deposits with partner banks and balance in wallets). As of March 31, 2021, more than 50 percent of its registered merchants (over two crore20 million) hold an account with Paytm Payments Bank.

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IDBI Bank to explore avenues to grow corporate credit: Rakesh Sharma

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IDBI Bank may explore avenues to grow its corporate credit book, especially in the mid-corporate segment, in a risk-calibrated and cautious manner, following the exit from the Reserve Bank of India’s (RBI) Prompt Corrective Action (PCA) framework, according to MD & CEO Rakesh Sharma.

The bank’s loan book composition of retail to corporate advances was at 62:38 as at end-March 2021, against 56:44 as at end-March 2020.

When IDBI Bank was brought under PCA in May 2017, its loan book composition of retail to corporate advances was at 43:57.

“The exit from the RBI’s PCA framework (with effect from March 10, 2021) has unlocked huge potential for your bank as it can now undertake a wide-range of banking activities and tap the emerging opportunities to boost its business performance. Your bank will continue to remain committed towards its strategic positioning as a retail-oriented bank with focus on growing the share of the loan book of retail and small & medium-sized enterprises,” Sharma said in a message to the shareholders.

When RBI initiates PCA for a bank, it imposes restrictions on the expansion wholesale portfolio, branch expansion, dividend distribution, among others.

PCA is invoked by RBI when a bank breaches any of the four risk thresholds relating to capital, asset quality, profitability and leverage.

IDBI Bank was able to reduce its Risk Weighted Assets (RWA) from Rs 1.59 lakh crore as at end-March 2020 to Rs 1.57 lakh crore as at end-March 2021. According to Sharma, this was a consequence of shifting towards a more retail-oriented portfolio mix, coupled with certain strategic capital conservation measures.

The IDBI Bank Chief said, “Since the muted operating environment clouds the outlook for the lending activity, your bank will focus on maximising fee income. At the same time, to boost the bottom-line, your Bank will work towards minimising its operating expenses and increasing productivity.”

MR Kumar, Chairman, IDBI Bank, in his message to the shareholders, observed that it is inevitable that the year ahead will be peppered with challenges stemming from wavering confidence among businesses as well as consumers as also sputtering momentum of economic activities.

“A health emergency of this magnitude has demanded extraordinary responses and outcomes from all the affected population, businesses as well as policymakers. Under these circumstances, the Bank remains committed to being with its customers and ensuring seamless delivery of financial services and will participate in the relief measures to mitigate the impact of the crisis,” Kumar said.

He underscored that IDBI Bank is cognisant of the elevated risks in the operating environment and will take steps to remain strong and resilient and be well-positioned to absorb potential losses that could arise.

Meanwhile, referring to the Government’s directive of rationalisation of overseas operations, IDBI Bank said it is undertaking necessary steps.

IDBI Bank has one overseas branch at Dubai International Financial Centre (DIFC). It has completed 11 years of operations.

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IBA to soon move application to RBI for setting up Rs 6,000-cr bad bank, BFSI News, ET BFSI

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Having secured licence from the Registrar of Companies, the Indian Banks’ Association (IBA) will soon move an application to the Reserve Bank of India (RBI) to set up a Rs 6,000-crore National Asset Reconstruction Company Ltd (NARCL) or bad bank, according to sources.

With registration of the company, the process for putting an initial capital of Rs 100 crore is on as per the guidelines, the sources said adding that the next step will be audit and then move application to the RBI seeking licence for the asset reconstruction company.

The RBI in 2017 raised capital requirement to Rs 100 crore from the earlier level of Rs 2 crore keeping in mind higher amount of cash required to buy bad loans.

Legal consultant AZB & Partners has been engaged for seeking various regulatory approvals and fulfilling other legal formalities.

The initial capital would come from eight banks who have committed, and the NARCL would expand the capital base to Rs 6,000 crore subsequently after the RBI’s nod, the sources said.

Other equity partners would join after the RBI’s licence and even the board would be expanded, the sources added.

IBA, entrusted with the task of setting up a bad bank, has put a preliminary board for NARCL in place. The company has hired P M Nair, a stressed assets expert from State Bank of India (SBI), as the managing director. The other directors on the board are IBA Chief Executive Sunil Mehta, SBI Deputy Managing Director S S Nair and Canara Bank‘s Chief General Manager Ajit Krishnan Nair.

Finance Minister Nirmala Sitharaman in Budget 2021-22 announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books.

“Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt,” she had said in the Budget Speech. It will manage and dispose the assets to alternative investment funds and other potential investors for eventual value realisation, she had said.

Last year, IBA made a proposal for the creation of a bad bank for swift resolution of non-performing assets. The government accepted the proposal and decided to go for an asset reconstruction company and asset management company model in this regard.

Meanwhile, state-owned Canara Bank has expressed its intent to be the lead sponsor of NARCL with a 12 per cent stake.

The proposed NARCL would be 51 per cent owned by PSBs and the remaining by private sector lenders.

NARCL will take over identified bad loans of lenders. The lead bank with an offer in hand of NARCL will go for a ‘Swiss Challenge‘, wherein other asset reconstruction players will be invited to better the offer made by a chosen bidder for finding higher valuation of a non-performing asset on sale.

The company has picked up those assets that are 100 per cent provided for by the lenders. Banks have identified around 22 bad loans worth Rs 89,000 crore to be transferred to NARCL in the initial phase.



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Q1 performance: HDFC Bank profit up 16.1% to Rs 7,730 crore

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Other income of the bank grew 54.3% y-o-y at Rs 6,288.5 crore. The four components of other income were fees and commissions of Rs 3,885.4 crore, foreign exchange and derivatives revenue of Rs 1,198.7 crore, gain on sale or revaluation of investments of Rs 601.0 crore.

Amid disruptions due to Covid-19, the largest private lender HDFC Bank on Saturday posted lower than estimated net profit of Rs 7,730 crore during the June quarter as the asset quality of the bank worsened. Although the net profit of the bank registered a 16.1% year-on-year (y-o-y) growth, the bottomline missed the Rs 7,931-crore consensus estimate by Bloomberg. The net interest income (NII) of the lender, however, grew 9% y-o-y to Rs 17,009 crore, but remained flat sequentially.

The bank has acknowledged that business activities remained curtailed for almost two-thirds of the quarter due to Covid-19, which has led to a decrease in retail loan originations, sale of third-party products, card spends and efficiency in collection efforts. The lower business volumes, coupled with higher slippages, resulted in lower revenues, as well as an enhanced level of provisioning.

Provisions during the quarter increased 24% y-o-y to Rs 4,831 crore, compared with Rs 3,892 crore in the year-ago quarter. Provisions and contingencies for the quarter included specific loan loss provisions of Rs 4,219.7 crore and other provisions of Rs 611 crore. The core net interest margin (NIM) of the bank declined 10 basis points (bps) sequentially to 4.1%, compared to 4.2% in the March quarter.

The asset quality of the lender worsened during the June quarter. Gross non-performing assets (NPAs) ratio of the lender declined 8 bps to 0.48%, compared to gross NPAs of 0.4% in the previous quarter. However, net NPAs ratio improved 5 bps to 0.45% from 0.5% in the March quarter. The total credit cost ratio remained at 1.67%, compared to 1.64% in the March quarter and 1.54% in the quarter ending June 30, 2020.

The bank said it has restructured loans worth Rs 7,800 crore, under the Reserve Bank of India’s one-time restructuring scheme. This included Rs 5,457 crore worth retail loans, and Rs 1,735 crore worth of corporate loans. The bank has also restructured loans worth Rs 608 crore to other borrowers under the scheme.

Other income of the bank grew 54.3% y-o-y at Rs 6,288.5 crore. The four components of other income were fees and commissions of Rs 3,885.4 crore, foreign exchange and derivatives revenue of Rs 1,198.7 crore, gain on sale or revaluation of investments of Rs 601.0 crore.

Total advances rose 14.4% y-o-y to Rs 11.5 lakh crore, of which retail loans were up 9.3% y-o-y to Rs 4.58 lakh crore. Similarly, commercial and rural banking loans were up 25% from a year ago to Rs 3.86 lakh crore. The bank also said wholesale loans were up 10% y-o-y to Rs 3.14 lakh crore.

Total deposits of the bank grew 13.2% y-o-y to Rs 13.4 lakh crore. CASA deposits grew by 28.1% y-o-y with savings account deposits at Rs 4.2 lakh crore and current account deposits at Rs 1.85 lakh crore.

The bank’s total capital adequacy ratio (CAR) as per Basel III guidelines was at 19.1% as on June 30 against a regulatory requirement of 11.075%.

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