Centrum Capital is planning to raise funds aggregating up to ₹ 1,500 crore, possibly to fund the proposed small finance bank venture of its step-down subsidiary, even it reported a consolidated net loss of ₹ 5.54 crore in the fourth quarter ended March 31, 2021 against a consolidated net profit of ₹25.05 crore in the year ago period. .
The fund raising in the backdrop of Centrum Financial Services Ltd (CFSL) getting ‘in-principle’ approval from the Reserve Bank of India to set up a small finance bank, which in turn is expected to takeover the scam-hit Punjab and Maharashtra Co-operative (PMC) Bank.
NCD issue
Specifically, the board of directors of Centrum Capital on Tuesday approved an enabling resolution for raising funds through the issuance of non-convertible debentures, up to ₹1,000 crores, subject to the approval of shareholders.
Further, the board also approved an enabling resolution for raising of funds through issue of equity shares through qualified institutional placements up to ₹ 500 crore subject to approval of the shareholders/ regulatory and/or statutory authorities as applicable.
Jaspal Bindra, Executive Chairman, Centrum Group, last week said that CFSL and BharatPe will commit ₹900 crore to the SFB in the first year. As and when required, the partners will commit ₹900 crore more. CFSL and BharatPe will be equal partners in the proposed SFB.
The minimum paid-up net worth requirement for starting an SFB is only ₹200 crore. Once CFSL takes over PMC Bank, it would get a ready-made branch network of about 100 branches in Mumbai and in a few States.
In FY21, Centrum Capital reported a consolidated net loss of ₹41.8 crore against a net profit of ₹71.57 lakh in FY20.
To roll out its new digital products and services in the future and augment its IT Infrastructure, HDFC Bank has launched a Digital Factory and an Enterprise Factory. The dual approach of building the Digital Factory along with an Enterprise Factory is part of the bank’s technology transformation agenda to run and transform the bank. The factories will be pivoted on APIs, data and cloud.
The bank proposes to strengthen capabilities for the Digital and Enterprise Factories by hiring up to 500 people over the next two years, from diverse backgrounds such as data analytics, AI, ML, Design Thinking, Cloud and DevOps.
“The Digital and Enterprise Factories will help us realise the strategy of ‘running’ the bank, while ‘building’ the bank for the future.” said Parag Rao, Group Head – Payments, Consumer Finance, Digital Banking & IT, HDFC Bank. “Since inception, we have led the digital transformation of the Indian financial services sector and continue to invest in technologies to improve customer experience and enhance efficiencies. This is changing the paradigm by redefining financial services and designing products and services by always keeping the customer at the centre.’’ he added.
The Enterprise Factory will upgrade legacy infrastructure, decouple existing systems and build its own capabilities by embracing open-source to build resilience and scale. The bank is also developing future-ready IP technologies and moving to a native cloud architecture in collaboration with fintech, niche technology and large IT companies.
Private sector lender HDFC Bank on Tuesday announced that it is setting up a Digital Factory and an Enterprise Factory to roll-out new digital products and services in the future and augment its IT Infrastructure.
The Digital and Enterprise factories will be pivoted on APIs (Application Programming Interface), data and cloud.
Tech transform agenda
The dual approach of building the Digital Factory along with an Enterprise Factory is part of the bank’s technology transformation agenda to run and transform the bank, it said in an official release. The bank has faced multiple outages in its mobile and net banking services over the past couple of years.
The bank is planning to hire up to 500 people over the next two years from diverse backgrounds such as data analytics, AI, ML, Design Thinking, Cloud and DevOps in a bid to strengthen capabilities for the Digital and the Enterprise Factories.
The Digital Factory will build new business and new solutions leveraging new tech stacks/applications and high resiliency and monitoring capabilities. This will be backed by the ability to support large volume growth and plan for upgrading technologies.
It is also developing future-ready IP technologies and shifting to a native cloud architecture in collaboration with niche technology companies, fintech and large IT companies.
“Ensuring reliability, availability, scalability and security will be at the core of the Digital Factory’s endeavours,” it said.
The Enterprise Factory will upgrade its legacy infrastructure, decouple existing systems and build its own capabilities, leveraging open-source for resilience and scale.
“The Digital and Enterprise Factories will help us realise the strategy of ‘running’ the bank, while ‘building’ the bank for the future,” said Parag Rao, Group Head – Payments, Consumer Finance, Digital Banking & IT, HDFC Bank.
“We are poised to capitalize on opportunities that higher digital adoption will bring in India.
Our endeavour is to provide seamless experience to our customers across all platforms, on the back of resilient infrastructure. This is changing the paradigm by redefining financial services and designing products and services by always keeping the customer at the centre,” added Rao.
The bank has been working on a Technology Transformation Agenda for its customers.
India Infrastructure Finance Company Ltd (IIFCL), a State-owned entity, on Tuesday made it clear that it was not looking to merge itself with the newly set up National Bank for Financing Infrastructure and Development (NaBFID), which is being positioned as the principal Development Financial Institution (DFI) for infrastructure financing in the country.
“There are no such plans. We have our plans for the future for IIFCL. Of course we would like to take the objectives of the Government forward. That is very very clear”, P.R.Jaishankar, Managing Director, IIFCL said when asked if there are any plans to merge IIFCL with NaBFID.
Stating that IIFCL would like to position itself as a leading innovative infrastructure lender, Jaishankar said that the institution would continue to roll out new innovative products in the infrastructure financing space in the coming days.
Net profit of ₹ 325 crore
IIFCL on Tuesday reported a consolidated net profit of ₹ 325 crore for the financial year ended March 31, 2021. This was a 246 per cent increase over net profit of ₹ 94 crore recorded in the previous year. During 2020-21, IIFCL recorded the highest ever sanctions and disbursements of ₹ 20,892 crore and ₹ 9,460 crore respectively, on a standalone basis.
On capital raising plans, Jaishankar said that IIFCL was adequately capitalised and had capital adequacy ratio of 31 per cent. “With this capital adequacy, there is potential to do additional business of ₹ 50,000 crore. The additional capital is required thereafter”, Jaishankar said.
Jaishankar however noted that IIFCL could raise debt resources of about ₹ 15,000 crore this fiscal to fund growth. Pawan Kumar, Deputy Managing Director, IIFCL clarified that the entire ₹ 15,000 crore will be mobilised from the domestic markets.
Keeping with its strategic intent to strengthen the monitoring and surveillance systems through digitalisation, IIFCL is now in the process of putting in place an online project monitoring system, first of its kind in India, for real-time project monitoring during construction phase by integrating high-end solutions like Drones, AI etc.
Also, IIFCL is in the process of establishing an in-house research and advisory wing, which would enable the institution in further bolstering its capabilities to provide policy advocacy, feedback, remedial action, innovative products and processes to government, regulatory bodies, project authorities and other stakeholders, Jaishankar said.
Muthoot Pappachan Group (MPG) has announced investment in fintech start-up Paymatrix through its flagship entity – Muthoot FinCorp Limited, and the associate company, The Thinking Machine Media Private Limited (TMM).
MPG acquired 54 per cent equity shareholding in Paymatrix through a combination of primary and secondary investment.
Paymatrix is a fintech start-up that was set up in 2016 by Mukesh Chandra Anchuri, Muralidhar Nayak Guguloth and Anusha KP, with a vision to streamline property rent payments and collections for tenants and landlords. It was incubated at IIIT-Hyderabad and Paypal accelerator had secured early-stage investments from investors including Xseed venture partners, IIIT-H seed fund, IIIT-H foundation, SucSEED Angel Network and Smartcity Dubai.
Portfolio diversification
Paymatrix started off with a simple proposition of enabling individuals to pay their property rent, rent deposit and maintenance payments online using credit cards. The start-up is one of the largest property rent payment and collection platforms in India, with a user base of 82,000+ and having processed ₹200 crore till date. In the last two years, Paymatrix diversified its portfolio by enabling payments beyond property rent to its customers.
The platform now enables individuals to pay for all their large-ticket monthly expenses, such as tuition fees, maintenance bills, vendor payments, etc, on credit card without the need for point-of-sale at the recipient end.
Competitive edge
Thomas John Muthoot, Chairman, Muthoot Pappachan Group, and Managing Director, Muthoot Fincorp Limited, said, “Muthoot FinCorp is currently going through several digital transformations on various fronts. We are extremely pleased to partner with Paymatrix and firmly believe that this investment will extend to our existing lending business a competitive edge in terms of expanding the product offering and foray into new markets and new customer segment.”
The Indian rupee slumped 10 paise to 74.20 against the US dollar in opening trade on Tuesday as rising crude oil prices weighed on investor sentiment.
At the interbank foreign exchange, the rupee opened lower at 74.18 against the dollar, then fell further to 74.20, registering a fall of 10 paise over its previous close.
On Monday, the rupee had settled at 74.10 against the US dollar.
“Asian currencies have started weak against the greenback this Tuesday morning and surging crude oil prices could continue to keep appreciation bias limited,” Reliance Securities said in a research note.
Global oil benchmark Brent crude futures rose 0.32 per cent to $75.14 per barrel.
Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading at 0.03 up 91.93 per cent.
“The US dollar index was flat this morning in Asian trade ahead of the Fed Chairman Powell testimony tonight. Investors will wait and watch if he confirms the hawkish outlook or tries to row back market expectations of faster tightening,” the Reliance Securities’ note said.
On the domestic equity market front, the BSE Sensex was trading 471.17 points or 0.90 per cent higher at 53,045.63, while the broader NSE Nifty advanced 144 points or 0.91 per cent to 15,890.50.
Foreign institutional investors were net sellers in the capital market on Monday, offloading shares worth ₹1,244.71 crore, as per exchange data.
Moody’s which reported stable collection rates for auto-loan asset-backed securities (ABS) rated by it in the quarter ended March 2021, sees them falling over the next three to six months.
The collection rates were similar to the pre-Covid levels in the March quarter, according to a report. Delinquency rates were also similar in the March quarter over the previous quarter.
The delay in the country’s economic recovery, rise in fuel prices is hurting the commercial vehicle segment. This will hit the performance of asset-backed securities backed by commercial vehicle loans, according to a report by Moody’s Investors Service earlier this month.
“Slowing economic activity in India due to the second wave will constrain commercial vehicle owners’ capacity to pay auto loans. As a result, commercial vehicle loan delinquencies will increase in India and collection rates will remain below March levels over the next three to six months,” according to Moody’s.
Sluggish economic activity will dampen demand for goods transportation and lower freight rates. This will reduce commercial vehicle operators’ incomes, and therefore, their ability to repay auto loans, the agency said.
Furthermore, fuel costs are rising following a depreciation of the rupee and state and central fuel tax changes, which have hiked up commercial vehicle operators’ costs and will further constrain their loan-repayment ability.
Cash reserves, excess spread and transaction structures will mitigate risks. The Indian asset-backed securities that Moody’s rates benefit from non-amortising cash reserves and substantial excess spread, providing liquidity and buffers against losses. Most deals also have timely interest and ultimate principal structures, which provide additional protection against liquidity risks.
Second wave harsh
The impact of the first Covid wave was cushioned with multiple measures such as regulatory moratorium, loan restructuring, additional funding through the emergency credit line guarantee scheme. Also, a sharp pent-up demand recovery raised optimism about faster-than-expected normalisation, according to India Ratings.
However, the outcome may be different during the second wave, due to the wide-scale impact, including rural areas and pent-up demand being absorbed already.
With reduced borrowers’ savings and rising operating costs due to fuel inflation, the excess capacity had its offsetting impact on freight contract renewals or market freight rates, all impacting borrowers’ cash flows.
Early demand indicators, such as the E-way bill, diesel consumption are showing signs of moderation and asset inflation (rising raw material prices like steel and cement) would impact demand offtake and thus load availability.
Thus, both demand and rising operating costs would moderate borrowers’ cash flows in the financial year 2021-22.
“Lenders’ collection efficiency would also be affected by restricted mobility as the second wave has spread across all geographies, the agency said, adding it has a negative outlook on commercial vehicle finance as an asset class.
There are emerging trends of rising loan tenures across vehicle financiers to reduce servicing burden for borrowers, however, these could lead to a rise in loss given defaults for collaterals.
State-owned Indian Bank on Monday launched its qualified institutional placement (QIP) of shares to raise around Rs 4,000 crore, setting the floor price at Rs 142.15 per share. The committee of directors on capital raising in its meeting held on Monday approved and authorised the opening of the QIP on June 21, Indian Bank said in a regulatory filing.
The committee approved the floor price for the QIP at Rs 142.15 per equity share. Floor price is the minimum price set for an issue, below which an offer cannot be made.
“The bank may, in accordance with the special resolution of the shareholders, at its discretion offer a discount of up to 5 per cent on the floor price in the QIP,” it added.
Further, a meeting of the committee is scheduled to be held on June 24, 2021 to consider and approve the issue price, including a discount for the equity share to be allotted to eligible qualified institutional buyers (QIBs), pursuant to the QIP, it said.
In March this year, the committee of directors had accorded approval for raising equity capital aggregating up to Rs 4,000 crore through QIP in one or more tranches.
The Reserve Bank of India (RBI) may have paved the way for the resolution of PMC Bank by granting an in-principle approval for small finance Bank (SFB) to Centrum Financial Services, but its executive chairman Jaspal Bindra says the business interest was not driven by PMC Bank alone. In an Interview with Ankur Mishra, he says the new bank is going to have all of the Centrum’s NBFC business, a good portion of BharatPe’s business, and PMC will also fold into the bank. He also says PMC Bank depositors will have to wait for clarity till the amalgamation scheme is finalised by the regulator. Excerpts:
What has been the reason for showing interest in PMC Bank?
We looked at it on a standalone basis and thought it (PMC Bank) is resolvable. We basically wanted to find a resolution which was better than liquidation for the lender. Our business interest was not driven by PMC Bank alone. We have looked at it as a bank which will also have PMC as a component. The new bank is going to have all of the Centrum’s NBFC business, a good portion of BharatPe’s business, and PMC will also fold into the bank. The reason for looking for a banking licence was to get a deposit franchise.
What was your proposal for the resolution of PMC Bank?
We are putting in some amount of capital. Now it is for RBI to draft a scheme and the government of India to approve it.
How much capital you are going to put into the new bank?
We have underwritten Rs 1,800 crore between partners (CFS and BharatPe), before we start diluting. Whether we dilute or not, Rs 1,800 crore is underwritten by us, of which Rs 500 crore will be there on Day one. Another Rs400 crore will be there within the first year, and other Rs900 crore will be available on tap from the partners. We will increase it as and when required depending on the growth of the business.
How will the procedure of acquiring PMC Bank work out?
Before we can amalgamate the PMC Bank, we will have to be an operational bank. Under Section 45 of the Banking Regulation Act, one can only prepare a merger scheme between two banks and therefore the process will start only once we have been converted into a bank. So, you need to necessarily become a bank first. Then an amalgamation scheme will be proposed to the government of India and then final notification will come after approvals.
How soon can we see small finance bank shaping up?
Our effort is to do as soon as possible, but there is some procedural time in terms of an EGM has to be called, and we have to incorporate our company. Some of these timelines are beyond our control. However, we are hoping to complete it as soon as possible. It will definitely happen within 120 days timeline.
You would have gone through the latest balance sheet of PMC Bank in detail. What are the immediate pain points and how you are going to deal with it?
In terms of pain points, there is a negative net worth and that is an issue in any financial institution. How I am going to deal with it? I cannot tell, because a lot of it will depend on what gets approved in the amalgamation scheme. So, the biggest pain point is the negative net worth which was created due to poor management and fraudulent transactions in the lending side. Otherwise, the bank was well known for good service. And that is what is really hurting depositors, because their money got misused.
What should PMC Bank depositors expect from new owners What is your intent to deal with depositors?
The intent is to start, we must get to a point which is better than liquidation. How much that will be dependent on the scheme.
Was there any discussion with RBI on PMC depositors?
Till this time, the clock was on standstill for PMC Bank depositors, and now at least the clock has started. Now, the question for depositors is when and how much they will be able to withdraw? I think after getting the licence we will be in position to discuss it with RBI.
How will you control PMC depositors moving out of the bank? What is the strategy there?
We will not want to stop PMC depositors. However, we will convince them that there is a new management and a new set-up. We will be able to manage things better. We will try that to an extent that is possible. However, one of the reasons we have been given licence is that if somebody calls for money, we will have to pay.
Is there any incentive you have planned for the depositors?
Over the next four months, we will be giving a thought to these kinds of things to create some incentives. Is there a way we can create some financial incentives? We will work on that. SFBs anyway pay higher than the market even today to depositors.
State Bank of India’s Central Board on Monday accorded approval for raising fresh Additional Tier 1 (AT-1) capital up to an amount of ₹14,000 crore.
The fundraising, subject to the Government’s concurrence, will be through the issuance of Basel III compliant debt instruments in US Dollar and /or Indian Rupee during FY 22, India’s largest bank said in a regulatory filing.
During FY21, SBI mopped up ₹6,500 crore via Basel III compliant debt instruments under AT-1 and ₹20,931 crore via Tier – 2 capital, as per the bank’s annual report.
During FY21, the bank redeemed AT-1 Bonds aggregating to ₹200 crore and Tier-2 Bonds aggregating to ₹16,647.83 crore.
In the annual report, Dinesh Kumar Khara, Chairman, said: “The bank is comfortably placed in terms of growth capital. Opportunities for lending in promising sectors will be explored to diversify the portfolio and contain risk.”
Capital adequacy
The report observed that the capital adequacy of the bank improved during the last financial year on the back of better capital planning, internal resource generation and containment of risk in banking books as reflected in 202 basis point (bps) reduction in credit risk-weighted assets on advances to gross advances ratio.
The capital adequacy position of the bank improved from 13.06 per cent in March last year to 13.74 per cent in March 2021. The CET (Common Equity Tier) 1 capital and AT-1 capital ratios put together increased by 44 bps to 11.44 per cent.
The bank also increased its Tier-II capital base to 2.30 per cent in March 2021 from 2.06 per cent the previous year.
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