Category: Banking & Finance

Ritesh Saxena, IndusInd Bank, BFSI News, ET BFSI

Banking & Finance

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Maintaining the cost of acquiring customers digitally is not easy as multiple banks & Fintechs are targeting the same set of customer base segment as compared to the physical branch led model where the costs are fixed.

Organisations acquiring customers digitally have often been at the mercy of aggregators and big search engines and so is the case similar with banks trying to funnel in customers through digital marketing and other platforms.

Ritesh Saxena, Head – Direct Banking at IndusInd Bank in a conversation with ETBFSI talks about the strategy at IndusInd Bank with digital acquisition, how digital marketing plays a role, important metrics and the partnership model. Edited Excerpts:

Ritesh Saxena, Head – Direct Banking, IndusInd Bank

Q. What is the strategy for digital business at IndusInd Bank?

The banking service is digital in nature with cash being the only physical aspect. To a large extent digital business in banking is evolving as compared to 3-4 years back when a lot of digital enablement was in nature of servicing only and not a way of doing business.

As a challenger bank, we had to be aggressive. Digital business evolved in two stages, one organic and inorganic – website, social media presence, ATMs which are web-enabled, mobile applications are now transformed into customer acquisition channels whereas previously functioned more from servicing point. Regulations and public infrastructure like Aadhar has helped a lot, we brought onboarding platforms on our web to acquire for both our asset & deposit customers.

KYC is just one part of onboarding, the customer does not give any business till he transacts or passes credit worthiness test. Getting these journeys completely digital, frictionless and seamless is important to ensure prospective customers don’t drop off.

Investments have gone beyond technology infrastructure, like – analytics, evolving credit models, partnerships with payment service providers. These internal and external parts come together to funnel the customer in and service them. The loss in physical onboarding through branches was off-set by digital acquisition channel through digital marketing with seamless onboarding to ensure there was no blip to business.

Q. How is digital marketing leveraged for direct digital business?Digital marketing is the other area of evolution which is core to digital business. While we create the digital platforms, we need to have a digital plan to work with platforms like Google and Facebook to get the right economics of acquiring customers. All Fintechs, start-ups have realised that creating a product, simple user journey is perhaps the easier part given all the tech evolution is happening, but getting the customer economics in (cost of customer acquisition) which does not kill you is tough. Reality is these Big Tech platforms don’t let you do digital marketing in a cost-friendly manner. That is the sad story which a lot of start-ups face and burn a lot of cash.

We banks don’t have investors (VC) funds to burn to get customers as it’s a P&L involved decision of optimising your cost of acquisition through various digital marketing initiatives like SEO, Redirecting advertisements and a lot of other initiatives.

Getting a customer and is he really worth following as few might funnel but not all are worth following. These are things that take time to perfect and eventually get the right implemental economics.

Digital marketing led acquisition is a different ball game as physical acquisition costs are fixed and given. Also, important to note banks are eyeing for the same pie of the business on the same medium for the same customer, unit economics really matters here.

Fintechs have mono-product lines as compared to banks that have multiple products, if a customer funnels in and may not have qualified for a credit card; we can pitch him a credit card against his FD so he gets serviced by some other product.

Most customers are price sensitive and everything is price led, it allows you to optimise the investments to get the customer by ensuring if he is not satisfied with one product you are able to get him another product and it’s a win-win.

Q. How does it work with the existing customer base?

Existing customers have been traditionally covered by RMs or through branches or contact centers for cross-sell or upgrading. The new digital platforms backed by analytics have allowed us to run it centrally without the need of assisted channels as a start point.

The bank has invested in a very Deep Artificial Intelligence led engine which runs across products and client databases from different segments like deposit to credit card to vehicle finance. I have that same universe within the bank. All we need is to create an ability similar to what aggregators (like Paisabazaar, Bank Bazaar) created for the open market.

A lot of good work and actual business has happened on the asset cross sell which is personal loan and credit card offerings to customers who keep their salary account or deposit account with us. More than 50% of our retail lending, deposit and even wealth business happens through digital channels and not just through open market but through a lot of analytics led, direct to customer, app based, email based and if required even tele-assisted follow-up for closure and a lot of these businesses have moved out of branches.

This is the next version of retail banking in India, if IndusInd Bank has 2000 branches in India which do an X business, for it to go 2X do we need 2X branches? or can I move all of the next X business to digital platforms without having to put a brick and mortar branch. That’s essentially the go-to. Physical channels will continue but a lot of the assisted business is moving to the sky RM models (digital).

Q. How are the metrics around digital marketing?

We doubled and tripled the investments in the digital marketing front across products and services not because we wanted to offset the dip in branch led business but because more customers were reaching out through these digital platforms. Pull-based business opportunities like health insurance were also in demand; a lot of digital marketing initiatives got fast tracked.

Video KYC changed the economics and at a fraction of physical cost we can do the physical KYC and do multiple business with him or would’ve been only one business of deposit before video-KYC where the customer wasn’t verified face-to-face.

On vectors being measured, earlier things were not straight through; most of our digital marketing arrangement partners were on the basis of cost per lead which captured mobile number either paid on per lead or impressions. Now the straight through journey changed the equation on this, earlier you were at the mercy of the aggregators and what would be the quality of the lead as banks make money on conversion of that lead.

The equation has moved from paying per lead to paying per converted customer and some of those have helped focus to target better and ensure that the same lead is not going to dozens of banks and see sub-optimal conversion.

Digital business is not only about aggregator arrangements it’s also on the payment side where merchant aggregators which are country wide operating in the payment gateway space and non-digital merchant led aggregators like old-age Pine Labs and similar players and how they’ve metamorphosed and deeply integrated with banks through APIs.

These payment partners get merchant customers to bank equivalent to current account journeys which have been created with more control as entity verification is bigger science than individual verification. For entities, you’ve to check their registrations, office, etc. all these risk parameters have been added to the onboarding mechanism and we have been among the first ones to launch a digital current account onboarding.



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YES Bank shifts to new Santacruz HQ, BFSI News, ET BFSI

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Mumbai: The Yes Bank management and other executives on Tuesday relocated to the bank’s new headquarters at Santacruz in suburban Mumbai, which earlier housed Anil Dhirubhai Ambani Group’s headquarters. The bank has begun the process of vacating 10 floors of its rented premises in Indiabulls Finance Centre and shifting to the new premises, which is now called Yes Bank House.

“We are vacating the premises floor by floor and the complete transition will happen over a period of two months,” said Yes Bank MD & CEO Prashant Kumar. He said every month the bank will bring down its rental costs. Last week, the bank’s board approved the shifting of the registered office within the city.

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RBI proposes removing cap on interest rates for micro-lenders

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The regulator has proposed to provide a fact sheet on pricing to the borrower by the lending institutions for maintaining transparency.

The Reserve Bank of India (RBI) has proposed a slew of measures to protect micro-finance borrowers from over-indebtedness and enable competitive forces to bring down the interest rates. In a consultative document released on Monday, RBI has proposed to remove the ceiling on interest rates for micro-finance lenders, among other key measures.

Currently, the margins for NBFC MFIs are capped at 12% over and above its cost of funds. Similarly, RBI has suggested not to charge any pre-payment penalty from borrowers. It said there should be no requirement of collateral for giving loans. The Reserve Bank has advocated a greater flexibility in the frequency of repayments for all micro-finance loans. Among other key measures, RBI has proposed to link the loan amount to household income in terms of debt-income ratio.

“Considering the low savings of these households, at least half of their income should be available to meet their other expenses,” RBI said in its consultative document on micro-finance. “Existing loans to the households which are not complying with the limit of 50% of the household income, shall be allowed to mature,” the regulator further said. It has also proposed to do away with two lender exposure rules for a borrower. Currently, not more than two NBFC-MFIs can lend to the same borrower as per RBI’s regulations.

The central bank also observed that all lenders tend to charge high interest rates in line with rates charged by NBFC-MFIs. Ultimately, the borrowers are deprived of the benefits from enhanced competition as well as economy of scale, even in a falling interest rate regime.

The prescribed ceiling on lending rate for NBFC-MFIs has had an unintended consequence of not allowing competition to play out and most lenders have similar levels of pricing.

The regulator has proposed to provide a fact sheet on pricing to the borrower by the lending institutions for maintaining transparency.

The suggested framework in the consultative document is intended to be made applicable to the micro-finance loans provided by all entities regulated by the Reserve Bank. It is aimed at protecting borrowers of such loans from over-indebtedness as well as enabling competitive forces to bring down the interest rates by empowering the borrowers to make an informed decision, RBI said.

The comments and suggestions on the consultative document can be sent by July 31, 2021.

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RBI’s FAQs addresses some key concerns

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The Reserve Bank of India (RBI) has clarified that its “one year look back” stipulation introduced in its April 27 circular on appointment of statutory auditors in public sector banks, Urban Cooperative Banks and NBFCs will only be applicable prospectively, that is, from financial year 2022-23.

This look back stipulation was introduced to ensure that the audit firm had not provided any non-audit services to the Group entities during the 12 months period before the audit firm was appointed in the bank or NBFC concerned.

RBI clarifies

The RBI has now, in the Frequently Asked Questions (FAQ) on the April 27 circular, clarified that this look-back condition will not apply for auditor appointments for FY 2021-22.

In another significant clarification, the RBI has modified the earlier April 27 prescribed blanket kind of restriction on appointment of audit firms as auditors of banks and NBFCs in situations where the concerned audit firm had provided audit or non-audit service to any group entity of that bank or NBFC.

Cap on assignments

While earlier this norm was seen to be applicable across the Group, the RBI has now in the FAQ made it clear that this restriction does not apply to all group entities, but applies only to entities in the Group that are RBI regulated.

Also, the central bank has in the ‘Frequently Asked Questions’ issued on its April 27 circular made it clear that the cap (upper limit) on number of assignments an audit firm can undertake in a year in respect of banks, UCBs and NBFCs are applicable for audit of all RBI regulated entities, irrespective of their asset size. It maybe recalled that April 27 circular of RBI had stipulated that an audit firm cannot do audit of more than four commercial banks, eight NBFCs and eight UCBs in a year.

Experts’ speak

Jamil Khatri, Partner, BSR& Co LLP, said the concerns of the industry in the areas of the short rotation period, the requirements for joint audit and the cap on the number of audits that can be done by an audit firm, have not been addressed in the current set of clarifications.

Amarjit Chopra, former CA Institute President, said that RBI’s clarification on the one year look back norm and also on the group entity aspect is quite pragmatic and will provide flexibility in the appointment of auditors.

Ashok Haldia, former Secretary of the CA Institute, said that the FAQ has opened the door for an audit firm engaged in audit/non-audit work of group entity (not regulated by RBI) to be appointed as statutory auditor of any of the RBI regulated entity within the group. However, the board/audit committee may find it challenging to assess and take responsibility that there is no conflict of interest and independence of auditor is ensured, as required in FAQ, as in most cases it may be difficult to disentangle explicit and implicit relationship that exists between group entities. These may find it difficult to justify in case doubt arises in future, he added.

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Bottomline back in black, IOB wants to be out of PCA, BFSI News, ET BFSI

Banking & Finance

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Chennai, With its bottomline back in black after a long time, the Indian Overseas Bank (IOB) has approached the Reserve Bank of India (RBI) seeking it be taken out of the Prompt Corrective Action (PCA) fold, a top official said.

Managing Director & CEO Partha Pratim Sengupta also said that the IOB plans to raise additional funds of about Rs 2,000 crore from a follow-on equity issue and Rs 1,000 crore by issue of bonds.

Addressing reporters, Sengupta said the bank has approached the RBI to be taken out of PCA as its financial metrics have turned good.

The bank also said it plans to come out of PCA by focusing on loan recovery, low cost deposits and less capital consuming advances.

The bank closed last fiscal with a net profit of Rs 831 crore as against a net loss of about Rs 8,527 crore.

The total income for the year ended March 31, 2021 stood at about Rs 22,525 crore as against about Rs 20,712 crore for FY20.

According to Sengupta, the income from treasury operations had beefed up the bank’s other income and the reduction in cost of funds contributed to the profitability.

In a regulatory filing, the IOB said its Board has approved the issue of 125 crore equity shares at an appropriate premium to the public by way of follow-on public offer/rights issue with or without participation of the government.

The Board also decided that the issue could also be to qualified institutional buyers, employee shareholders, and on preferential basis to insurers and mutual funds.

It also approved the issue of Basel III compliant tier II bonds up to Rs 1,000 crore in one or more tranches on private placement or public issue.

On March 31, 2021, the IOB had received Rs 4,100 crore as capital infusion by the government at an issue price of Rs.16.63 per equity share of Rs.10 each.

During the year under review, IOB’s total business stood at Rs 3,79,885 crore (deposits Rs 2,40,288 crore, advances Rs 1,39,597 crore) up from Rs 3,57,723 crore (deposits Rs 2,22,952 crore, advances Rs 1,34,771 crore).

The bank said it had recovered about Rs 6,831 crore from non-performing assets (NPA) accounts last fiscal.

The bank’s gross NPA (GNPA) reduced from 14.78 per cent as at March 31, 2020 to 11.69 per cent as at March 31, 2021.

The net NPA (NNPA) went down from 5.44 per cent, as at March 31, 2020, to 3.58 per cent as at March 31, 2021.

Sengupta said IOB is targeting GNPA of less than 10 per cent this fiscal.

According to him, the bank has identified about Rs 8,000 crore loan for restructuring and a cash recovery target of about Rs 4,600 crore.

Sengupta also said that the IOB had merged 53 branches last fiscal and one or two branches may be merged this year.



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Step-up working capital loans to street vendors: RBI nudges PSBs

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The Reserve Bank of India (RBI) has impressed upon public sector banks (PSBs) the need to step up working capital loans up to ₹10,000 to street vendors, who have taken the brunt of the COVID-19 pandemic and consequent lockdowns.

Given that the livelihood of street vendors (SVs) has been adversely affected in the two waves of the pandemic, the central bank is keen that Banks mount a larger outreach under the PM Street Vendor’s AtmaNirbhar Nidhi (PM SVANidhi) scheme, said a top banker.

As on June 14, 2021, lenders (including Banks, non-banking finance companies, and microfinance institutions) received a total of 42,27,999 applications under the PM SVANidhi scheme, which was launched last year.

However, the ratio of the number of loans sanctioned and disbursed as a percentage of the total applications was only 58 per cent, as per Ministry of Housing and Urban Affairs (MoHUA) data.

The ratio of the number of loans disbursed to loans sanctioned stood at 84.41 per cent. As a result, total loans approved and disbursed by lenders stood at ₹2,457.85 crore and ₹2,059.46 crore, respectively.

According to MoHUA data, the average days to sanction a loan to SVs was 20 days. About 60 per cent of loans disbursed were to male SVs, with the remaining disbursed to female SVs. The average age of the loan applicant was 41 years.

The banker quoted above said the scheme could be tweaked to ensure more coverage of SVs.

The number of SVs accepting digital payments stood at 19,31,272. These vendors received a cashback of ₹50.53 lakh

Street vendors selling vegetables, fruits, ready-to-eat street food, tea, cloth & handloom, beauty & fashion accessories, footwear, artisan products, etc., and barber shops, cobblers, paan shops, laundry services have suffered untold misery in the pandemic.

Covid-19 related lockdowns forced the aforementioned entities to shutter business either temporarily or permanently.

As per the PM SVANidhi scheme, the individual lending institution can form Joint Liability Groups (JLGs) of eligible vendors. The Common Interest Groups (CIGs) of street vendors, already formed by States, can be converted into JLGs by lending institutions.

The scheme has been designed to help formalise the street vendors and open up new opportunities to move up the economic ladder.

Total Applications

Sanctioned

Disbursed

42,27,999

24,63,301

20,79,392

AMOUNT

₹2,457.85 cr

₹2,059.46 cr

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Indian Overseas Bank Q4 profit rises over 2-folds to ₹350 crore

Banking & Finance

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State-owned Indian Overseas Bank (IOB) on Monday reported a jump of over two times in its net profit at ₹349.77 crore in the last quarter of the fiscal ended March 2021.

The bank had posted a net profit of ₹143.79 crore in the same period a year ago.

Total income during Q4FY21 rose to ₹6,073.80 crore as against ₹5,484.06 crore in Q4FY20, IOB said in a regulatory filing.

Provisions for bad loans and contingencies for the reported quarter increased to ₹1,380.46 crore as against ₹1,060.38 crore parked aside in the corresponding period a year earlier.

For the full year 2020-21, the bank reported a net profit of ₹831.47 crore. There was a net loss of ₹8,527.40 crore in 2019-20.

Total income during the year increased to ₹22,524.55 crore from ₹20,712.48 crore in the previous fiscal year. Bank’s asset quality showed improvement with the gross non-performing assets (NPAs) falling to 11.69 per cent of the gross advances as of March 31, 2021 from 14.78 per cent by year ago same period.

In value terms, the gross NPAs or bad loans were of the order of ₹16,323.18 crore, down from ₹19,912.70 crore.

Net NPAs fell to 3.58 per cent (₹4,577.59 crore) from 5.44 per cent (₹6,602.80 crore).

The bank said its board of directors has approved the capital plan for 2021-22 under which it will issue equity shares up to a maximum extent of 125 crore shares by way of follow on public offer/rights issue.

The issue may be with or without participation from the government or to qualified institutional buyers (QIBs), the lender said.

It may be also on a preferential basis to LIC and other insurance companies or mutual funds/QIBs. The issuance of shares is subject to shareholders approval, IOB said.

Besides, the board also approved to raise tier II capital by issuing Basel III compliant bonds up to ₹1,000 crore in one or more tranches. The issue may be through a private placement or to retail segment by public issue, either domestically or overseas, it added. IOB scrip traded at ₹21.20 apiece on BSE, up 2.66 per cent from previous close.

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RBI extends timeline for advisory group to submit feedback to GoAs assisting Regulatory Review Authority

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The Reserve Bank of India (RBI) has extended the timeline for submission of feedback and suggestions from all regulated entities, industry bodies and other stakeholders to the Group of Advisors (GoA) assisting the Regulation Review Authority (RRA 2.0) by 15 days till June 30.

This has been done keeping in view the Covid-19 related disruptions and based on the requests received from stakeholders, RBI said in a statement.

RRA 2.0

RRA 2.0 has been set up initially for a period of one year from May 1, 2021. M Rajeshwar Rao, Deputy Governor, RBI, was appointed as the Regulations Review Authority in April 2021.

Also read: RBI sets up advisory group to assist Regulatory Review Authority

To make central bank’s regulations and compliance procedures more effective, On May 7, the RRA constituted a six-member Advisory Group headed by S Janakiraman, Managing Director, State Bank of India, to support it in reviewing the them with a view to streamline and rationalise them.

The terms of reference of RRA 2.0 include making regulatory and supervisory instructions more effective by removing redundancies and duplications, if any; and to obtain feedback from regulated entities on simplification of procedures and enhancement of ease of compliance. The authority will seek to reduce compliance burden on regulated entities by streamlining the reporting mechanism; revoking obsolete instructions if necessary and obviating paper-based submission of returns, wherever possible.

The RRA will examine and suggest the changes required in dissemination process of RBI circulars/ instructions.

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Black fungus fully covered under health covers: Star Health MD

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Claims for black fungus or mucormycosis are fully covered under health insurance covers, said S Prakash, Managing Director, Star Health and Allied Insurance.

“Black fungus has to be 100 per cent settled by insurance. Insurance has to pay for any infection, bet it viral, bacterial or fungal and such claims have to be fully approved by all insurance companies and all policies,” Prakash said, adding that the insurer is honouring all such claims.

Mucormycosis has emerged as one of the significant complications of Covid-19, although it happens in other cases too.

The medical costs for treating the disease are high and there is also need for prolonged hospitalisation.

Also read: Indians already ravaged by virus now slammed with medical debt

Prakash said, insurers are now trying to track Covid-19 complications based on the International Classification of Disease or ICD code.

“We have created a separate ICD code, WHO has also given an ICD code for Covid complications. With this, we should be able to track more and more complications related to Covid in days to come,” he told BusinessLine in an interaction.

The standalone health insurer has incurred Covid related claims of ₹1,530 crore in 2020-21 and worth ₹990 crore this fiscal.

Rising demand

Prakash said that the demand for health insurance is increasing but families now prefer to take a comprehensive cover rather than opt for the Covid specific Corona Rakshak or Corona Kavach policies.

“Star Health is still offering Corona Rakshak and Corona Kavach policies. But these were designed with the expectation that the pandemic would be contained in a few months. Now people are preferring to buy a standard mediclaim cover, as they feel that short term covers are not enough or really meaningful,” he said.

The average sum insured for families has also increased to ₹5 lakh, he noted.

He also said the insurer is not differentiating amongst customers who have had Covid-19 for medical insurance policies.

“Star is not imposing any specific guidelines for people who have recovered from Covid-19. No questions are being asked, they will be considered like any common person without exclusions or loading of premium,” he said.

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Wadhawan, Dhoot may lose assets as banks move to invoke personal guarantees, BFSI News, ET BFSI

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The business tycoons whose bankrupt companies have been sold for a small fraction of the loans they owed may not be let off easily.

Lenders are in the process of appointing advisors to arrive at a fair value of their assets following the Supreme Court’s order on invoking personal guarantees of defaulting promoters.

Banks are assessing the value of assets held by promoters of at least 40 companies that are under the insolvency process, according to a report.

The promoters whose value of assets is being determined include Kapil and Dheeraj Wadhwan of DHFL; Videocon promoters Venugopal and Rajkumar Dhoot; Lanco Infratech’s Madhusudhan Rao and family, IVRCL’s Sudhir Reddy and Jatin Mehta of Winsome Diamonds.

Armed with the Supreme Court go-ahead to seize assets of personal guarantors, banks are looking to recover money parked in family trusts.

Many of the family trusts created by businesspeople are meant primarily to protect their assets from potential claims related to their companies, such as in bankruptcies. Neither lenders nor agencies such as the Enforcement Directorate or income tax department have been able to penetrate these asset protection trusts.

The SC verdict

The Supreme Court had upheld the validity of the Centre’s notification allowing banks to proceed against personal guarantors for recovery of loans given to a company under the Insolvency and Bankruptcy Code (IBC).

A bench comprising justices L Nageswara Rao and S Ravindra Bhat held that approval of resolution plan under the IBC does not discharge personal guarantors of their liability towards the banks.

“In the judgment, we have upheld the notification,” Justice Bhat said while reading out the conclusion of the judgement which decided as many as 75 petitions pertaining to the validity of the notification.

Petitioners had challenged the November 15, 2019 notification issued under the IBC and other provisions in as far as they relate to personal guarantors to corporate debtors.

Upholding the validity of the notification, the top court ruled that initiation of an insolvency resolution plan for a company does not absolve corporate guarantees given by individuals from paying up the dues to financial institutions.

The IBC law

Under the IBC law, banks can go after the family trusts formed by promoters or those who have given personal guarantees, provided there is a fraud or siphoning of money involved as per provisions of the IBC.

Promoters of several Indian companies had earlier accused their professional managers of fraud and diverting company funds. But they would not get any respite from the IBC as lenders will now invoke their personal guarantees.

SBI action

SBI was one of the respondents to the 74 petitions and challenges by promoters on invocation of personal guarantees. It has been in the forefront of invoking guarantees of promoters of defaulting companies. It had invoked Rs 1200 crore of guarantees given by Ambani for defaulting companies Reliance Communications and Reliance Infratel.

In January SBI had also approached the Mumbai bench of the NCLT to initiate invoking guarantees by the Videocon Industries Dhoot brothers totalling Rs 11,500 crore.

It had also taken Bhushan Power & Steel promoter Sanjay Singal to court to recover Rs 12,276 crore dues to the bank for which he was a guarantor. All these promoters had challenged these actions in court.



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