Category: Banking & Finance

Centrum-Bharatpe joint venture to pump Rs 1,800 crore into PMC on merger, BFSI News, ET BFSI

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The joint venture floated by Centrum Group and digital payments startup Bharatpe for launching a small finance bank will infuse Rs 1,800 crore capital into troubled Punjab & Maharashtra Cooperative Bank (PMC) on its merger with the proposed bank, a top Centrum official has said. Last Friday, the Reserve Bank gave an in-principle approval to Centrum Financial Services, a step-down arm of the diversified financial services group, to set up a small finance bank (SFB) provided it took over the troubled PMC Bank.

The in-principle approval has been in specific pursuance to Centrum Financial Services’ offer on February 1, 2021 in response to the expression of interest notification dated November 3, 2020 published by the PMC Bank, the RBI said.

This paves the way for ending nearly two anxious years for the PMC depositors whose over Rs 10,723 crore are still stuck in the crippled cooperative bank that has been under RBI administrator since September 2019.

To launch SFB, the Centrum Group has sewed up an equal joint venture with Resilient Innovations, an arm of Gurugram-based Bharatpe. But Centrum Capital will be the promoter of SFB, under the prevailing laws, the group said.

“We (the SFB joint venture) have set aside Rs 1,800 crore for the SFB, which eventually will be pumped into PMC once the government scheme for merger is notified. Of the Rs 1,800 crore, Rs 900 crore will be invested in the first year by the joint venture split equally between the two and the remaining capital in stages,” Jaspal Bindra, executive chairman of Centrum Group, told over the weekend.

Whether they will take over the more than Rs 6,500 crore of NPAs of PMC and also the over Rs 10,700 crore of its deposits, Bindra said that will be known only after the government notified the merger scheme.

“What terms and conditions the government will set in the merger scheme will decide the fate of huge bad loans and losses. In fact, this is the only little unknown we have as of now,” Bindra quipped.

That the groups have allocated nine-times more capital over the RBI mandate of Rs 200 crore for the SFB shows the seriousness of the promoters. If it succeeds, this will be the first SFB in nearly six years — the first set of SFB licences were issued in August 2016, when the monetary authority also made such licensing on-tap.

Bindra, who was the group executive director and chief executive for Asia Pacific at Standard Chartered Bank till 2015, joined Centrum in April 2016 as executive chairman and picked up around 25 per cent, also said they will surrender all their NBFC licences before launching the SFB.

“The RBI has given us 120 days to complete the other “fit and proper conditions” to seek the final licence, which I am very confident of meeting well in time. In fact, we will be seeking the final licence as soon as possible,” he said.

Asked he chose a startup to form an equal joint venture for its banking foray, Bindra said, for one, very few players have the technological edge that Bharatpe has. “For another, we’ve been having strong business relationships with the Gurugram startup since the very first day of its operations.”

“So we are known to each other since 2018 and moreover our businesses complement each other and the SFB will definitely be a tech-driven bank for sure. In fact, we have had a full joint agreement in place much before we sought the licence and we joint bided for the licence,” he added.

Asked if the focus on technology will lead to branch rationalisation of PMC, he said when it comes to lending it will be tech driven “but for deposit raising we have to have branches. So in effect we may have to retain the branches to a large extent”.

The city-based Centrum Group, founded by Chandir Gidwani and Khushrooh Byramjee in 1977, has a diversified fee business and a lending platform for institutions and individuals. It offers investment banking, mid-corporates & SME lending, and broking for institutions and retail. It also provides MSME credit, wealth management, affordable housing and micro lending, apart from private debt and venture capital.

Centrum Capital, which is listed on the exchanges, reported a net loss of Rs 16.02 crore in Q3 of FY21 as against a net profit of Rs 3.35 crore in Q3 of FY20 as its income declined 7.2 per cent to Rs 123.12 crore in the quarter.

On the other hand, 2.5-year-old Bharatpe closed FY21 with an operating income of over Rs 700 crore, up from Rs 110 crore in FY20, driven by its credit business that closed the year with a loan book of Rs 1,600 crore, its president Suhail Sameer had told last week.

As of March 2020, PMC’s deposits stood at Rs 10,727.12 crore, advances at Rs 4,472.78 crore and gross NPAs at Rs 3,518.89 crore and net loss of Rs 6,835 crore, with a negative networth of Rs 5,850.61 crore.

The PMC book was so bad that as much as 73 per cent of its assets worth over Rs 6,500 crore of the total Rs 8,880 crore loans were to the crippled developer HDIL and all of them had turned dud by September 2019.

A good portion of the deposits are of senior citizens and cooperative societies including an RBI officers association. Its share capital is Rs 292.94 crore.

Bindra said they are yet to finalise the name for the SFB but added it will not be PMC for sure. The board is more or less in place and I will certainly be a part of it, he said.



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NCUI, BFSI News, ET BFSI

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Cooperative body NCUI has welcomed the RBI’s in-principal nod to Centrum Financial Services for the takeover of PMC Bank, but said all depositors should get back their deposits without any condition. Paving the way for the takeover of crisis-ridden Punjab and Maharashtra Cooperative Bank (PMC), the Reserve Bank of India on Friday granted in-principle approval to the Centrum Financial Services to set up a small finance bank.

Centrum Financial Services was one of the applicants for the takeover of the PMC Bank.

Reacting to RBI’s in principle approval to Centrum Financial Services, NCUI President Dileep Sanghani in a statement said, “This is indeed welcome. However, it should be ensured that all the depositors should get back their deposits without any conditionality.”

However, he said it would have been better if all the big UCBs should have mobilised the funds together to revive the bank.

National Federation of Urban Cooperative Banks and Credit Societies Ltd (NAFCUB) President Jyotindra Mehta said, “This is in accordance with the wishes of the sector, and the depositors. This will no doubt boost the image of the sector. However, the culprits who committed the fraud in the bank must be punished.”

GH Amin, Chairman, Cooperative Bank of India, and Chairman, Gujarat State Cooperative Union welcomed the move. “It is a good gesture, of taking over a crisis-hit bank by a small finance bank, and reviving it. The depositors will get an assurance of getting back their deposits.”

National Federation of State Co-operative Banks Ltd (NAFSCOB) MD Bhima Subrahmanyam said, “The move is indeed appreciable. However, all the depositors should get back their deposits without any conditionality”.

Large urban cooperative banks should have taken over PMC Bank and started a small finance bank, as the PMC had an excellent image before the fraud happened, he added. Subrahmanyam is also President International Cooperative Banking Association.

On Friday, the RBI gave ”in-principle” approval to the Centrum Financial Services Limited’s offer of February 1, 2021, for the takeover of PMC Bank Ltd.

The PMC Bank had invited Expression of Interest (EoI) from eligible investors for investment/ equity participation for its reconstruction and had received four proposals.

In September 2019, the RBI had superseded the board of PMC and placed it under regulatory restrictions, including cap on withdrawals by its customers, after detection of certain financial irregularities, hiding and mis-reporting of loans given to real estate developer HDIL.

The restrictions have been extended several times since then. PMC’s exposure to HDIL was over Rs 6,500 crore or 73 per cent of its total loan book size of Rs 8,880 crore as of September 19, 2019.

Initially, the RBI had allowed depositors to withdraw Rs 1,000 which was later raised to Rs 1 lakh per account to mitigate their difficulties.

In June 2020, the RBI had extended the regulatory restrictions on the cooperative bank by another six months till December 22, 2020.

As of March 31, 2020, PMC Bank”s total deposits stood at Rs 10,727.12 crore and total advances at Rs 4,472.78 crore. Gross non-performance assets of the bank stood at Rs 3,518.89 crore at end-March, 2020.



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Insurers seek re-pricing of Corona Kavach, Corona Rakshak policies

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Worried by rising claims and low premium, insurers have approached the insurance regulator IRDAI for a re-pricing of the Corona Kavach and Corona Rakshak policies.

Insurers point out that these low ticket policies were expected to be for a short duration, but with the pandemic continuing, they are turning out to be expensive propositions for them and hitting their balance sheets.

 

“The industry as a whole has asked for repricing of Corona Kavach and Corona Rakshak. We priced it around June 2020, and the actual peak has been five to 10 times of the expectation. These products are a guaranteed loss of money,” said a source privy to the development.

Sources said general insurers discussed the issue with IRDAI recently and shared data on losses.

 

“Insurers too have to report to their shareholders. These schemes were supposed to be for a short duration and no one had thought that Covid cases and claims would rise to such an extent,” noted another insurer.

Covid-specific covers

The Corona Kavach and Corona Rakshak policies were launched last year based on IRDAI guidelines by all insurers to provide Covid-specific cover to customers.

 

Corona Kavach is a family health insurance policy for Covid-19 with sum insured between ₹50,000 and ₹5 lakh available with a term of three and a half months, six and half months and nine and half months. Premiums are as low as ₹150 in some cases.

Corona Rakshak is a defined benefit policy with a sum insured between ₹50,000 and ₹2.5 lakh.

 

Comprehensive cover

Many insurers are now advising customers to move to Aarogya Sanjeevani, which is the standard health policy, which would provide more comprehensive health cover. Some insurers said that customers, too are preferring to shift to a full-fledged health cover.

 

“One of the objectives, when these policies were launched, was that they would educate customers about the benefits of health insurance and they would eventually migrate to full fledged covers,” noted an insurer.

A recent note by ICICI Securities said that industry-wide Covid claims till May 14, 2021 was 1.5 million in terms of number and $3.1 billion in value compared to 11.1 million in numbers and $2.1 billion in value in 2020-21.

 

“Our channel checks indicate that industry losses are higher on Covid-specific polices (Corona Kavach and Corona Rakshak),” it said.

The general insurance industry has over ₹24,000 crore of Covid related claims to date from the beginning of the pandemic.

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PMC Bank’s resolution could become a template for rescuing other weak UCBs

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Depositors of about 50-odd weak urban co-operative banks (UCBs), which are currently under the Reserve Bank of India’s Directions, may now have some hope of getting back their deposits.

This hope arises from the proposed amalgamation of the scam-hit Punjab and Maharashtra Co-operative (PMC) Bank with a small finance bank (SFB) that will be floated by the Centrum Financial Services and BharatPe combine.

Template for weak UCBs

Co-operative sector experts say if the amalgamation fructifies, it could become a template for rescuing other weak UCBs in the country. Since April 1, 2015, 52 UCBs (as on December 11, 2020) have been placed under All Inclusive Directions by the Reserve Bank, as per the RBI’s latest Report on Trend and Progress of Banking in India.

 

Once a UCB is placed under Directions, deposit withdrawal is capped. The bank also cannot grant or renew any loans and advances, make any investment, incur any liability, among others. While stressed UCBs are placed under Directions by the central bank to nurse them back to health, many stay under Directions for years, bringing a lot of misery to depositors.

September 2020 amendment

Jyotindra Mehta, President, The National Federation of Urban Cooperative Banks and Credit Societies , observed that resolution of weak UCBs has brightened after the September 2020 amendment to the Banking Regulation (BR) Act, 1949, as a UCB can be merged with any bank, be it a SFB, universal bank or another UCB. “Earlier, merger was not possible. There was only takeover of the assets and liabilities of weak UCBs by another bank. But now a clear path to resolution via amalgamation is available,” Mehta said

There have been earlier instances of commercial banks taking over specific assets and liabilities of UCBs. In 2009-10, Indian Overseas Bank took over specific assets and liabilities of Pune-based Shree Suvarna Sahakari Bank. In 2011-12, Bank of Baroda took over around 15 branches of Mumbai-based Memon Co-operative Bank.

Also read: PMC Bank receives 1,229 applications for deposit withdrawal

Saraswat Bank, India’s largest UCB, had acquired seven stressed UCBs (Maratha Mandir Co-operative Bank, Mandvi Co-operative Bank, Annasaheb Karale Janata Sahakari Bank, Murgha Rajendra Sahakari Bank, Kolhapur Maratha Co-operative Bank, South Indian Co-operative Bank and Nashik People’s Co-operative Bank) during the 2006-2009 period.

Co-operative banking expert Vinayak Tarale underscored that BR Act, 1949, was amended in the wake of the debacle at PMC Bank.

“PMC Bank’s resolution, if successful, can become a test case. Other small finance banks too may feel encouraged to takeover distressed UCBs and expand their area of operation. The acquiring banks will get a ready-made branch network and customers,” he said.

Tarale emphasised that on an average, priority sector advances (loans to micro and small enterprises, housing, agriculture, etc. account for about 50 per cent of UCBs overall loan portfolio and this could engage SFBs’ attention.

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Life after LIBOR: MCA shows the way on corporate financial reporting

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Corporate India and the financial sector, including banks, now have guidance on financial reporting of the transactions undertaken with new interest rate benchmarks that are to replace the London Interbank Offered Rate (LIBOR) at the end of this year. The Ministry of Corporate Affairs (MCA) has effected amendments to several accounting standards to cover the International Accounting Standards Board’s Phase 2 amendments, Interest Rate Benchmark Reform finalised in August last year.

These changes to existing Indian accounting standards are expected to smoothen financial reporting under the replacements for LIBOR.

LIBOR was a favourite benchmark and an estimate of the rate at which big banks in London lent to each other. Every day, bankers got borrowing costs for each of the LIBOR’s five currencies — US dollar, British pound sterling, Japanese yen, Swiss franc and the euro — for periods ranging from overnight to a year.

SeveralA diversity of candidates recommended by the central banks of the US, Japan, Switzerland, UK and the EU are going to replace LIBOR as the benchmark rates, said experts in the financial sector. A major issue in the transition is that LIBOR is based on an average of bank lending rate. However, the replacement rates are based on the actual overnight money market transactions.

Replacement rates

Central banks around the world have established their own replacement rates. In the case of the dollar, it is the secured overnight financing (SOFR), while it is the sterling overnight index average (SONIA) for the pound; the Tokyo overnight average rate (TONAR) for the yen; the Swiss average rate overnight (SARON) for the Swiss franc and the Euro short term rate (ESTR) for the euro.

Sandip Khetan, Partner and National Leader, Financial Accounting Advisory Services (FAAS) at EY India said: “MCA has issued Interest rate Benchmark Reform – Phase 2 Amendments and has consequently made amendments to IND AS 109, IND AS 107, IND AS 104 and IND AS 116 (Indian accounting standards). We recommend that entities complete their assessment of the accounting implications of the scenarios they expect to encounter as they transition from LIBORs to RFRs and accelerate their programmes to implement the new requirements. Where the Phase 2 amendments introduce new areas of judgment, entities need to ensure they have appropriate accounting policies and governance in place.”

Prateek Aggarwal,Partner, Nangia & Co LLP said the amendments made by MCA to various Indian Accounting Standards pertains to the the changes required in the relevant standards post Phase 2 of Interest Rate Benchmark Reforms and also due to the issuance of Conceptual Framework for Financial Reporting under Indian Accounting Standards.they believe the changes made by MCA are in line with the earlier recommendations by ICAI.

“Some of these Guidance/disclosures will enable users of financial statements to understand the effect of these changes, e.g. interest rate benchmark reform changes require an entity to disclose information about the nature and extent of risks to which the entity is exposed arising from financial instruments subject to interest rate benchmark reform and how the entity manages these risks and the entity‘s progress in completing the transition to alternative benchmark rates,” he said.

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Kerala government seeks moratorium on repayment of loans, BFSI News, ET BFSI

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The Kerala government has approached the Centre to put in place a moratorium on repayment of loans till December 31 in order to provide relief to individuals in the unorganised sector, MSMEs, agriculture and others adversely affected by COVID-19 pandemic and the subsequent lockdown.

Kerala has sought a moratorium of loans without accrual of interest and penal interest during the moratorium period.

Kerala Finance Minister K N Balagopal, in a letter to Union Finance Minister Nirmala Sitharaman, said the impact of the second wave induced lockdown has adversely affected the economic and social well-being of all sectors of the society.

“…it is felt that the burden of repayment of the loans taken by individuals, especially those in the unorganised sector, MSMEs and agriculturalists is particularly onerous at this time, and these sections need some relief by way of moratorium on the repayment of loans at least till December 31, 2021,” Balagopal said in a letter dated June 16.

He said the state government has taken all steps to ameliorate the hardships faced by the people, especially the vulnerable sections.

“I request your kind intervention to put in place a moratorium on repayment of loans at least till December 31, 2021 without accrual of interest and penal interest during the moratorium period,” he said in the letter.

The Finance Minister pointed out that the economy of Kerala has been under considerable stress since 2018 due to successive natural disasters including the massive floods which lashed the state wreaking havoc in most of the districts.

The outbreak of COVID-19 in early 2020 further exacerbated the stress on the economy, he added.



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Karnataka Bank declares loan to Reliance Home Finance as fraud, BFSI News, ET BFSI

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Private sector Karnataka Bank has declared accounts of Reliance Home Finance and Reliance Commercial Finance a fraud with combined loan outstandings of over Rs 160 crore to the lender.

The bank has reported to the Reserve Bank regarding frauds in the credit facilities extended earlier to two listed companies — Reliance Home Finance with loan outstanding of Rs 21.94 crore and Reliance Commercial Finance Rs 138.41 crore as fraud, Karnataka Bank said in a regulatory filing.

The lender said it has been dealing with Reliance Home Finance since 2015 and with Reliance Commercial Finance since 2014.

With regard to loan to Reliance Home Finance, as many as 24 lenders were part of a multiple banking arrangement, while in case of Reliance Commercial Finance as many as 22 lenders were part of the loan arrangement.

Karnataka Bank said its share in the multiple banking arrangement to Reliance Home Finance is 0.39 per cent and to that of Reliance Commercial Finance is 1.98 per cent. The lender said it has made provision up to 100 per cent in both the cases against the loan given to the companies.

“Both the accounts were classified as NPA (non-performing assets) and have been fully provided for. As such, there is no impact on the financials of the bank going forward,” Karnataka Bank said.

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HDFC Bank to buy stake worth over Rs 1,906 crore in group’s general insurer from parent, BFSI News, ET BFSI

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HDFC Bank on Saturday said its board has given its approval to buy more than 3.55 crore shares in group firm HDFC ERGO General Insurance Company for over Rs 1,906 crore from the parent company Housing Development Finance Corporation (HDFC). “The board of directors of HDFC Bank at its meeting held on June 18, 2021 has approved the purchase of 3,55,67,724 equity shares of Rs 10 each, representing 4.99 per cent of the outstanding issued and paid-up capital of HDFC ERGO General Insurance Company Ltd from HDFC Ltd,” HDFC Bank said in the filing.

HDFC is the promoter and related party of the bank.

The purchase is to happen at a price determined on an independent evaluation report, subject to receipt of necessary approvals including regulatory approvals and approval from shareholders of the bank, it said.

“The aggregate consideration for purchase of 3,55,67,724 shares of HDFC ERGO is Rs 1,906.43 crore, i.e. Rs 536 per share,” it said further.

HDFC ERGO General Insurance had a gross written premium of Rs 12,444 crore for the year ended March 2021. The company’s net worth stood at Rs 2,927 crore.

The private sector general insurer is one of the fastest growing companies among the peers with its gross written premium growing at a 35 per cent compounded annual growth rate (CAGR) over the last 13 years.

“The proposed transaction enables the bank to participate in the growth opportunity of HDFC ERGO and augment HDFC ERGO’s growth prospects leading to long-term value creation by HDFC ERGO to its shareholders,” it said.

The bank has been a distribution partner of the insurer since 2009.

The transaction, indicative to be closed by September this year, will require approval from insurance sector regulator Irdai and banking regulator RBI. Any other necessary regulatory or government approval will be evaluated prior to the share purchase agreement, HDFC Bank said.



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Muthoot Capital Services net profit declines to Rs 8.9 crore in Q4 of FY21

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Muthoot Capital Services Ltd has posted a net profit of Rs 8.9 crore in Q4 of FY21 as against Rs 13.6 crore in the same quarter last year. The net profit for the whole year was Rs 52.2 crore against Rs 60.2 crore of previous year.

The total income for the quarter touched Rs 109.6 crore. With things slowly starting to return back to normal, the company while continuing to adopt a conservative approach disbursed total loans amounting to Rs 290.9 crore during the quarter.

The total AUM reached Rs 2088.5 crore at the end of the quarter, including the assigned portfolio of Rs 16.6 crore.

Thomas George Muthoot, Managing Director, Muthoot Capital Services Ltd, said, “While we saw some improvement, the challenging period for business is still continuing in view of the second wave that the country is witnessing. While the business is expected to do well going forward due to various requirements of social distancing, need for your own personal vehicle, the trends seen during the last festive season etc, it could be a month or so more before we start moving towards normalcy. The pre-Covid levels could be a quarter away. While we are hopeful of volumes to return based on the festivals in the locations that we are doing business in, it is the pent-up demand and the postponed demand/ volume that we are confident of driving our volumes in the next 3 quarters.”

Madhu Alexiouse, Chief Operating Officer said, “During the last two quarters of FY 21 we were seeing increased demand and while in March there was a pause in growth, the other months were excellent. But with the second wave coming up in the second half of the current year, things did stop for a while.

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Karnataka Bank reports frauds of ₹160.35 cr in 2 cases

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Karnataka Bank Ltd has informed the BSE that it has reported to the Reserve Bank of India frauds in the credit facilities extended to two listed companies. The total amount of fraud reported in these two credit facilities stood at ₹160.35 crore.

The bank said both these accounts were classified as NPA (non-performing asset), and have been fully provided for. “As such, there is no impact on the financials of the bank going forward,” it said. An outstanding amount of ₹138.41 crore has been treated as fraud in the case of Reliance Commercial Finance Ltd, and 100 per cent provision has been made. The percentage of bank’s share in the multiple banking arrangement was 1.98 per cent. There were 22 lenders under multiple banking arrangement in this case. It said the company was dealing with the bank since 2014.

Also read: Karnataka Bank gets additional director

In the case of Reliance Home Finance Ltd, an outstanding amount of ₹21.94 crore has been treated as fraud, and 100 per cent provision has been made. The percentage of bank’s share in the multiple banking arrangement was 0.39 per cent. There were 24 lenders under multiple banking arrangement in this case. It said the company was dealing with the bank since 2015.

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