Category: Banking & Finance

RBI warns of stress build-up in consumer credit, BFSI News, ET BFSI

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The pandemic and its fallout on the economy has made consumer lending riskier for banks even as it has been the only sector to help banks keep their loan books afloat at such times.

The delinquency rates for such loans are going up particularly for private sector banks and NBFCs during the pandemic warned the Reserve Bank of India‘s latest financial stability report. At the same time the second wave has also affected demand for such loans with a steep fall in demand in April , it said.

The Reserve Bank’s latest Financial Stability Report notes that the delinquency rates for consumer credit in private sector banks doubled from 1.2 per cent in January 2020 to 2.4 per cent in January 2021. While for NBFCs it went up from 5.3 per cent to 6.7 per cent in the same period. Overall consumer credit deteriorated after the loan moratorium programme came to an end in September 2020.

“While banks and other financial institutions have resilient capital and liquidity buffers, and balance sheet stress remains moderate in spite of the pandemic, close monitoring of MSME and retail credit portfolios is warranted.” the report said.

Consumer credit includes home loans, loans against property, auto loans, two-wheeler loans, commercial vehicle loans, construction equipment loans, personal loans, credit cards, business loans, consumer durable loans, education loans and gold loans.

The overall demand for consumer credit in terms of inquiries had stabilised in Q4’2020-21 after a sharp rebound during the festive season in Q3’2020-21 after the first COVID-19 wave receded. But the second wave, however, has sharply affected credit demand, with a steep fall in inquiries across product categories in April 2021. Growth in credit-active consumers- consumers with at least one outstanding credit account- and, outstanding balances, however, remains sluggish compared to the previous comparable period. For unsecured loans, the fastest-growing category in this segment, for example, fell from 39.4 per cent in January’20 to 6.5 per cent in FY’21. For home, which accounts for a major chunk of this segment, the growth rate of credit-active consumers slowed from 12.03 per cent to 0.3 per cent during the period.

On a positive note, loan inquiries are more from better-rated borrowers. “Loan approval rates remain healthy as the risk tier composition of inquiries shows a distinct tilt towards better-rated customers.” the central bank‘s report said.



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Razorpay partners Mastercard to make recurring payments secure

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Razorpay, a full-stack financial services company, has partnered with Mastercard to launch MandateHQ, a new recurring payment interface that will help banks comply with the new RBI guidelines on recurring payments.

Banks can adopt this MandateHQ solution in as little as seven days and enable their cardholders make recurring payments across their ecosystem in compliance with the RBI norms, Shashank Kumar, Co-Founder and CTO, Razorpay, told BusinessLine.

RBI framework

It maybe recalled that the RBI had issued a framework for processing e-mandates on recurring online transactions and had made additional factor of authentication mandatory for all recurring transactions below ₹5,000 on debit cards, credit cards, UPI and other pre-paid instruments. All stakeholders are required to ensure full compliance with the framework by September 30.

This RBI directive is applicable to all recurring payments, which were earlier debited automatically from customers cards (credit/debit/prepaid) for mobile, utility, and other recurring bills, as well as subscription payments for different OTT streaming platforms.

Kumar said that MandateHQ platform will help banks with end-to-end mandate life-cycle management, including creating, viewing, updating, cancelling and pausing mandates and processing debits for valid mandates. In addition, the mandate HQ platform will also help banks enable a 24-hour free debit notification via e-mail, SMS and WhatsApp. It will also provide end-users with a portal to manage card mandates, he added.

Indian consumers aim to spend more than APAC post Covid-19: Mastercard survey

“A lot of merchants are moving to digital economy, and our solution will help them charge their customers through debit cards and credit cards via recurring payments. It helps banks comply with RBI norms and enable their customers pay through digital payments. More importantly, it helps the consumers have a transparent view of all the mandates they have registered. With this solution, you as a consumer will always be in control of the mandates you had set up,” said Kumar.

Private banks

He also said that Razorpay is already piloting this solution with three private sector banks, and is in talks with 20 other banks to help integrate this technology into their existing payment infrastructure in the next few weeks.

Kumar also said that products such as MandateHQ will now encourage more businesses to start and adopt subscription-based business models. The new MandateHQ offering will help businesses across a variety of sectors such as insurance, utilities, content, SaaS, lending, and charitable donations, among others, to alter their payment models and introduce subscriptions, thereby delivering better value while sustaining revenue growth, he added.

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Bajaj Allianz General Insurance, Bank of India in distribution tie-up

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Bajaj Allianz General Insurance and Bank of India have entered into a corporate agency agreement.

This will enable distribution of Bajaj Allianz General Insurance’s products through the bank’s vast network of 5,084 branches, 80 retail business centres and 60 SME city centres across the country.

How Bajaj Allianz Life’s agency channel revved up to face pandemic woes

Personal and commercial products

“As a part of this agreement, Bajaj Allianz General Insurance will be offering a bouquet of personal lines of products such as motor insurance, health insurance, home insurance, travel insurance along with commercial line of products like engineering insurance, marine insurance to bank’s customers,” the two said in a statement on Wednesday.

ULIPs are gaining popularity, says Bajaj Allianz Life study

“Our tie-up with Bank of India is a great opportunity for us to not only strengthen our presence in urban areas, but also enhance our distribution to the remotest corners of the country,” said Tapan Singhel, MD and CEO, Bajaj Allianz General Insurance.

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Drip Capital partners with SBM Bank India to empower MSME exporters

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Drip Capital, a fintech provider of cross border trade finance, has partnered with SBM Bank India to offer trade financing solutions — customised for small and medium-sized exporters in India.

With this partnership, MSME exporters will be able to avail collateral-free working capital at competitive rates.

Commenting on the collaboration, Pushkar Mukewar, co-Founder and CEO, Drip Capital, said in a statement, “By partnering with SBM Bank India, we aim to provide collateral-free working capital to MSME exporters through our invoice discounting facility. This association is an example of how fintech companies are eager to partner with banks and other financial institutions to grow collectively by using technology to its very core.”

Focus on MSMEs

Neeraj Sinha, Head – Retail and Consumer Banking, SBM Bank India, said, “The Indian MSME sector is one of the largest exporters in the country. With India being rapidly ascending onto the map of the global supply chain, the MSME sector is set to play a major role in the coming years. It is therefore critical to design and deliver #smartbanking solutions to this segment that offer accessibility, affordability, and adaptive to the ever-changing demands. Towards this, it is our pleasure to partner with Drip Capital. We are sure, together, our solutions will help the Indian MSMEs become more competitive and resourceful.”

Unlike traditional financial institutions, Drip Capital leverages data analytics and technology to underwrite its transactions, allowing it to scale rapidly and provide a seamless financing experience to small businesses.

In the past, Drip Capital has partnered with several local and international banks to offer its financing solutions to SMEs in developing markets like India and Mexico as well as the US. Since its inception in 2016, the company has worked with over 1,500 sellers and buyers spread across 80+ countries.

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FREO partners with HDB Financial Services to offer lending solutions

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Neobank FREO has partnered with HDB Financial Services to offer a credit line and high-ticket personal loans to customers across multiple cities in India.

“The credit line is FREO’s flagship product. HDBFS in partnership with FREO will offer the credit line which enables consumers to get access to credit anywhere, anytime via a smartphone,” it said in a statement.

Customers will get a personalised amount approved which they can start using immediately. As they repay the borrowed amount, the credit limit is replenished and they can continue withdrawing as much as they need. Interest is levied only on the amount the consumer uses, and not on the overall limit.

High ticket personal loans

“This partnership offers consumers high-ticket personal loans of up to ₹10 lakh, which can be utilised for bigger expenses such as home renovation, buying a vehicle, planning a trip,” it further said.

The partnership will help FREO and HDBFS develop and deliver multiple financial products in sync with the needs of customers, encouraging them to borrow, save and smartly spend money for various purposes.

“We have a strong presence in more than 950 locations with over 1,300 branches pan-India. The association is a great step towards boosting the overall customer experience by providing them with easy finance through digital channels,” said G Ramesh, MD and CEO, HDB Financial Services.

Bala Parthasarathy, Co-Founder, FREO said, “We have collaborated with HDB Financial Services and aim to deliver a complete digital financial journey to customers which is easy and flexible.”

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Why IBC process has slowed down during pandemic, BFSI News, ET BFSI

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The Insolvency and Bankruptcy Code (IBC) is a vast improvement over the n the two earlier laws legislated to recover bad loans —the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB) and Sarfaesi.

Before IBC, resolution processes took an average of 4-6 years, after the enactment of IBC, they came down to 317 days.

However during the pandemic, the IBC process has been hit, with recovery rate dropping, and anxious lenders selling off assets at close to liquidation value or striking settlement deals with promoters.

Recovery rate

The recovery rate of IBC has fallen to 39.3% as of March 2021 from 46% as of March 2020. Of the total outstanding amount of Rs 1.32 lakh crore, only around Rs 25,944 crore was recovered in fiscal 2021, or a rate of 19.7%.

There has been a delay in the liquidation of companies. As of December 2020, around 69% of the liquidations were going on for more than one year, while in the case of 26% companies the process was on for more than two years.

Economic downturn

With huge capacity unutilised in the economy, companies are not looking to add more capacity, which is impacting the sale process at IBC. Barring sectors like steel where the product cycle has seen a turnaround, assets in other sectors such as textiles are not seeing much interest. While steel assets such as Essar Steel and Bhushan Steel were snapped up, those such as Alok Textiles were sold for much less.

The pandemic has increased operational challenges for the various parties involved in a CIRP, which resulted in limited cases yielding a resolution plan. The suspension of new proceedings under the IBC for the entire FY21 resulted in a sharp slowdown in the resolution process.

The slow judicial process in India allows the resolution processes to drag on, this was the same reason for slow recovery under SICA or RBBD.

Litigations by promoters not wanting to let the company out of their hands is also delaying the IBC process.

Lenders wanting to avoid delay in the recovery process and erosion of value are striking settlement deals with promoters, which defeats the purpose of the legislation.

Fiscal 2022 hopes

Financial creditors could realise about Rs 55,000 crore to Rs 60,000 crore in FY2022 through successful resolution plans from the IBC, estimates rating agency Icra. The higher realisation by the financial creditors would depend on the successful resolution of 8-9 big-ticket accounts, with more than 20% of estimated realisation for the year could be from these alone.



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Bitcoin swings as China regulators punish company over crypto, BFSI News, ET BFSI

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By Joanna Ossinger

Bitcoin fluctuated Tuesday after China’s central bank and a regulator in the capital city took action against a company that was allegedly providing cryptocurrency-related services.

The largest cryptocurrency had risen as much as 3.7% to $35,094 before dropping back after the People’s Bank of China and Beijing’s local financial regulator ordered a company in the city to cancel its business registration. As of 7:55 a.m. in New York it was trading 1% higher at $34,194.

Financial and payments institutions should not directly or indirectly provide virtual currency-related services, the PBOC and the Beijing regulator said in a statement. It named marketing, promotion and display, and location-setting among prohibited activities.

”Whilst not directly affecting crypto, China clampdown on tech firms is another example of it flexing its regulatory muscles against an industry whose oversight has been lacking,” said Antoni Trenchev, co-founder of crypto lender Nexo in London. “Bitcoin too is caught in China’s regulatory crossfire as it’s seen as a threat to the digital yuan.”

China has increased its focus on the cryptocurrency industry, adding restrictions on mining, trading and other services, as well as issuing cautions to entities like banks that might facilitate such transactions. Many miners have shut down or are trying to move out of the country, and mining metrics have showed the decreased activity.

The move came after some chart watchers had been eyeing the 50-day moving average above $36,000 as a potential zone to see a bullish breakout. However, Bitcoin has been stuck in a range of about $30,000 to $40,000 for weeks after dropping from its record near $65,000 reached in mid-April.

“Bitcoin has been trending sideways between $30,000 and $40,000 for the best part of seven weeks now,” Trenchev said. “I expect Bitcoin to remain stuck in this trend for the forseeable future, before grinding higher again.”



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SBI to auction two NPA accounts to recover dues of over Rs 313 cr, BFSI News, ET BFSI

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NEW DELHI: SBI will auction two non-performing accounts (NPAs) next month to recover dues of over Rs 313 crore, according to a notice by the lender.

The two accounts to be put up for e-auction on August 6 are Bhadreshwar Vidyut Pvt Ltd (BVPL) with a loan outstanding of Rs 262.73 crore and GOL Offshore Ltd with Rs 50.75 crore dues.

“In terms of the bank’s policy on sale on financial assets, in line with the regulatory guidelines, we place these accounts for sale to ARCs/banks/NBFCs/FIs, on the terms and conditions indicated there against,” SBI said in the notice.

The reserve price for the auction of Bhadreshwar Vidyut is set at Rs 100.12 crore and for GOL Offshore at Rs 51 crore.

SBI has asked the interested parties to do the due diligence of these assets with immediate effect, after submitting expressions of interest and executing non-disclosure agreement with the bank.

“We reserve the right not to go ahead with the proposed sale at any stage, without assigning any reason. The decision of the bank in this regard shall be final and binding,” SBI said.

BVPL was set up in 2007 as a special purpose vehicle promoted by OPG group, having substantial experience in power and steel sectors. In April 2019, ICRA moved the long term rating on bank facilities to the tune of Rs 2,062.40 crore to the company to ‘Issuer Not Cooperating’ category.

ICRA said it had been trying to seek information from the company to monitor its performance, but despite repeated requests, the management of the company remained non-cooperative. It had also advised lenders and investors of the company to exercise appropriate caution while using the rating action as it might not adequately reflect the credit risk profile of the company.

The Mumbai based GOL Offshore is engaged in the business of providing services to oil and gas extraction, excluding surveying.



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DHFL: Fresh round of voting by CoC on new distribution mechanism

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The Committee of Creditors of Dewan Housing Finance Corporation Ltd (DHFL) has initiated a fresh round of voting on a proposed new distribution mechanism.

Under the new proposal, unsecured financial creditors will be paid 40 per cent of their respective admitted claims, similar to the recovery of the secured financial creditors

The development comes after the National Company Law Tribunal held that the prayer sought by Axis Bank, YES Bank and L&T Finance to this end should be merged with the Resolution Plan Approval Order. It had also directed the Committee of Creditors of DHFL “to reconsider the distribution mechanism” for the applicants “as per its commercial wisdom”.

Sources said the Committee of Creditors met on July 5 to discuss the proposal. All other provisions of the original redistribution plan are the same.

“Between the approved distribution mechanism and the current proposed distribution mechanism, the incremental contribution by large secured FCs will be about ₹1,370 crore which is 3.64 per cent of the Resolution Plan Value,” said the proposal.

The recovery for fixed deposit holders would remain at about 23 per cent. They are expected to vote against the fresh proposal on the distribution mechanism.

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IIFL Home Finance’s NCD is win-win for investors and company, says Chairman Nirmal Jain

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IIFL Home Finance’s latest unsecured NCD issue is a good opportunity for retail investors to lock into high returns, Nirmal Jain, Founder and Chairman of IIFL Group said on Tuesday.

The housing finance arm of IIFL Group is currently in the market with a ₹1,000 crore public issue of unsecured NCD ( base issue size ₹100 crore and option to retain oversubscription of ₹ 900 crore) that offers a return as high as ten per cent (annual interest option) on an NCD (face value ₹1,000) with tenure of 87 months.

The NCD has been rated Crisil AA/stable by Crisil Ratings and BWR AA+/Negative (Assigned) by Brickwork Ratings India Private Ltd. IIFL Home Finance is a wholly owned subsidiary of IIFL Finance.

“Very rarely will investors get low risk and high returns combined together in a public issue. This is a win-win situation for investors and the company”, Jain said at a virtual press conference on Tuesday to announce the details of the offering.

Also read:IIFL Home Finance files draft shelf prospectus to raise ₹5,000 crore via NCDs

While retail investors can benefit from higher returns, the company also benefits in terms of Tier-II capital and thereby enable it to grow, he said.

The latest NCD offering , which will be listed on BSE and NSE, opened on Tuesday and closes on July 28.

Although the NCDs are unsecured, Jain believed that they were no different from secured bonds. Even rating agencies don’t see any difference when it came to assessing credit risk for secured and unsecured products, he added. “At the end of the day, the risk that investors take is on the entire company (conglomerate),” he said.

The last time IIFL Home Finance came with an unsecured bond issue was in 2013. That time also the company had offered interest rate higher than prevailing (bank) rates, Jain noted.

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