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The Reserve Bank of India has approved the appointment of Vishwavir Ahuja as the Managing Director and CEO of RBL Bank for a one-year period with effect from June 30, 2021.
“The re-appointment is subject to the approval of shareholders at the ensuing Annual General Meeting,” RBL Bank said in a regulatory filing on Friday.
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Starting August 1, you will be able to get your salaries and pensions credited over the weekend, too, with the National Automated Clearing House (NACH) becoming available on all days of the week.
RBI Governor Shaktikanta Das announced the move on Friday. “In order to further enhance customer convenience, and to leverage the 24×7 availability of RTGS, NACH which is currently available on bank working days, is proposed to be made available on all days of the week effective from August 1, 2021,” he said.
NACH is a bulk payment system operated by the NPCI and facilitates one-to-many credit transfers. Over 40.6 crore transactions (credits and debits) were presented on the NACH platform in May.
Amidst the rising adoption of digital payments, the move is set to benefit customers. Apart from getting salaries and pensions over weekends, customers will also be able to make payments such as EMIs and SIPs over the weekend.
Das noted that NACH has emerged a prominent mode of direct benefit transfer (DBT) to a large number of beneficiaries and has helped transfer of government subsidies on time.
At present, it is available on days banks work and auto debit transactions are not processed on holidays.
Vishwas Patel, Chairman, Payments Council of India, said it will speed up payments. “As IMPS, NEFT and RTGS are moving into real-time payments, NACH being available on all days will help employees get salaries on time, faster and even on weekends,” he said.
Jithesh PV, Vice-President and Head, Digital Banking, Federal Bank, said: “More partners such as NBFCs and products like bill payments may move to NACH as it is now available on all days making it a more convenient platform.”
“Availability of NACH on all days will further the financial inclusion objectives through DBT,” said SS Mallikarjuna Rao, MD and CEO, Punjab National Bank.
Also read: Non-banking finance cos seek easier rules for cancelling NACH mandates
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The earlier FSR released in January 2021 had projected that the gross non-performing assets (GNPAs) of banks may rise to 13.5% by September 2021 in the baseline scenario.
By Nitin Jain
In Feb 2021, RBI announced a structure for a proposed bad bank, “What you call a bad bank is not really that; an ARC-type entity will be set up to take over bad loans from the books of public sector banks and it will try to resolve just like any other ARC,” RBI Governor Shatikanta Das had said.
Though no formal structure has been announced yet, we understand basis news reports, that a National Asset Reconstruction Company Limited (NARCL) is going to be set up to take over NPAs from banks. The Promoters are likely to be power finance companies while the PSU banks will hold the remaining equity stake in the ARC. As per recent news reports, state-owned banks have shortlisted 28 loan accounts to be transferred to the NARCL with a total of Rs 82,500 crore of loans due, and further loans could also be transferred such that the AUM is over Rs 2 lakh crore. The list of borrowers includes big names such as Videocon Oil Ventures Limited (VOVL), Amtek Auto, Reliance Naval, Jaypee Infratech, Castex Technologies, GTL, Visa Steel, Wind World, Lavasa Corporation, Ruchi Worldwide, Consolidated Construction.
Normally the NPA loans at the time of takeover by an ARC are valued around 30-40% of the principal amount. However, as we understand from news sources, in the case of NARCL the loans may be acquired at the current book value. The NARCL would pay 15% in cash and the balance 85% in security receipts or any other proportion as they may decide. Further, the government would provide a guarantee to the security receipts issued by the bad bank. Let’s assume that a bank sells a loan of Rs 100 to NARCL. Now, if the Bank has already made 75% provisions for the loan, then the book value of this loan is Rs 25, and 15% of Rs 25 i.e. Rs 3.75 is cash to be paid to banks. Thus, using these assumptions, for taking over say Rs 2 lakh crore of bad loans, a cash outflow of Rs 7,500 crores and issuance of SRs worth Rs 42,500 crore may be required. (Please note that these assumptions have been taken for the purpose of explaining this concept only and are not indicative or confirmatory in any nature).
Pros
-Cleans the balance sheet of the banks.
-Will provide immediate relief to the banking system which will now be facing fresh NPA on account of disruption due to Covid.
-Banks will become capitalized and ready for fresh lending.
-Faster decision making by one body (NARCL) v/s Consortium of banks.
-A secondary market can be created for the SRs which have a sovereign backing, that would provide further liquidity to the banks.
Con
The actual recovery of these loans may be lower than the book value of the loans transferred, thereby could lead to erosion of capital at NARCL over the medium and long term.
-If NARCL will need to take decisive, focused steps to recover these loans, otherwise the process may not be successful.
-The process entails transferring the bad loans at current date, and recovery or resolution to happen in future.
-May lead to aggressive fresh lending by Banks.
Taking control of management of these companies from the Promoters. The RBI had demonstrated effective management of DHFL, by taking over the board and appointing an administrator to manage the company and find a resolution.However, a Bad Bank, or even a network of bad banks, will not make the losses disappear. The losses, or non-performing loans, transferred to a bad bank will still exist. The process may allow better recovery of these loans in future. It will be important for the banks to review their lending policies and put in place a robust risk management system. Further, it would be crucial to see how NARCL will manage these bad assets. I believe that one will require specialized expertise for recovery of these bad assets such as:
-Interim Crisis Management in these Companies – restructuring, reducing costs, identifying surplus assets and to sell these assets to generate liquidity, and providing transparent and clear communications to all stakeholders.
-Classification of bad loans by sector. The Government already has significant expertise in the Road/ Highways and Power Sector via its Undertakings. However, expertise may need to be built in other sectors via sector experts to facilitate day-to-day management of the operations of the company and to find a viable resolution to preserve value.
-Provisioning policies of NARCL will need to be reviewed such that they are in accordance with the tenor/ maturity of the SRs issued.
-NARCL will need to take a decision as to the route to be taken for recovery from the bad loan. Some potential routes could be:
Though the ‘Bad Bank’ appears to be a sweet pill for the banking sector to get rid of their immediate problems, it would be a tough task ahead for the proposed NARCL to preserve the tax- payers’ monies over the medium and longer term.
(Nitin Jain is a veteran corporate and investment banker having worked in banks like Standard Chartered Bank and Bank of America. He is a Restructuring Expert and is also an Insolvency Professional registered with IBBI. The views expressed in the above article are the author’s personal views.)
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Country’s largest lender State Bank of India (SBI) has sanctioned a loan of ₹3725 crore for the development of Noida International Airport (NIA) which is being developed by Yamuna International Airport (YIAPL) and will be the second airport in National Capital Region (NCR).
A statement issued by YIAPL said that the funding is a crucial milestone for the project as it validates the financial viability of the project while also outlining the next steps for the establishment of NIA.
“The entire loan of ₹3725 crore has been underwritten by SBI on a door-to-door loan tenor of 20 years,” Christoph Schnellmann, Chief Executive Officer of YIAPL said. Further he mentioned that the project will not only boost the Indian economy but will also help in employment generation in Uttar Pradesh and Delhi NCR region.
The airport is being developed in close partnership with the government of Uttar Pradesh and the Central government. The State government’s continued support towards the project has been vital in the process so far. YIAPL now looks forward to the conclusion of the UP government’s resettlement and rehabilitation process and the start of the construction of the airport, the statement mentioned.
Zurich Airport International AG (ZAIA), a fully owned subsidiary of Flughafen Zurich AG, is the main shareholder of YIAPL and is injecting ₹2005 crore into the development of NIA.
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The Reserve Bank of India (RBI) has decided to purchase Government Securities (G-Sec) aggregating ₹1.20 lakh crore in the second quarter (July-September) of FY22 under its G-Sec Acquisition Programme or G-SAP 2.0.
Under G-SAP 2.0, RBI will be purchasing G-Secs aggregating ₹20,000 crore more than under G-SAP 1.0.
The third and last tranche of open market purchase of G-Secs aggregating ₹40,000 crore under G-SAP 1.0 will be held on June 17, 2021. Of this, ₹10,000 crore would constitute a purchase of state development loans (SDLs).
Under the programme, RBI commits upfront to a specific amount of open market purchases of G-Secs to enable a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.
The endeavour is to ensure congenial financial conditions for the recovery to gain traction.
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RBI said, “NACH has emerged as a popular and prominent digital mode of direct benefit transfer (DBT) to large number of beneficiaries. This has helped transfer of government subsidies during the present COVID-19 in a timely and transparent manner. NACH is currently available only on the days when banks are functional. In the interest of customer convenience, and to take advantage of the availability of RTGS on all days of the year, it is proposed to make available NACH on all days of the week throughout the year, effective August 1, 2021.”
NACH has enabled large scale direct benefit transfer programmes of several government schemes to a large number of beneficiaries and helped government transfer subsidies during the Covid-19 pandemic.
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“On NPA position our expectation is that whatever projection we have given in the last FSR, it will be within that. At the end of the March it looks the figures are quite manageable,” RBI Governor Shaktikanta Das told reporters after the Monetary Policy.
“I would not say anything beyond that because the numbers are coming in and our teams are assessing and we will spell out the details in the financial stability report,” he said.
Stable capital position
He said a large number of banks, both in public and private sectors, have raised additional capital from the market through out last year.
“I have mentioned in my statement the need to build up provisioning and capital buffers. so that is the message we are giving to banks and NBFCs that they need to augment their capital because there could be some stress arising out of the second wave. That is still an assessment.”
The overall capital position of the banks both in the public and private sector is at very stable levels and they are meeting the regulatory requirements, with some being even much higher.
Financial stability report
Banks’ gross non-performing assets may rise to 13.5% by September 2021, from 7.5% in September 2020 under the baseline scenario, according to the Financial Stability Report (FSR) released by RBI in January this year.
If the macroeconomic environment worsens into a severe stress scenario, the GNPA ratio may escalate to 14.8%, the report had said.
“The stress tests indicate that the GNPA ratio of all scheduled commercial banks (SCBs) may increase from 7.5% in September 2020 to 13.5% by September 2021 under the baseline scenario,” the FSR report added.
Among the bank groups, public sector banks’ (PSBs) GNPA ratio of 9.7% in September 2020 may rise to 16.2% by September 2021 under the baseline scenario, it noted.
The gross non-performing asset (GNPA) ratio of private sector banks (PVBs) and foreign banks (FBs) may increase from 4.6% and 2.5% to 7.9% and 5.4%, respectively, over the same period.
In the severe stress scenario, the GNPA ratios of PSBs, PVBs and FBs may rise to 17.6%, 8.8% and 6.5%, respectively, by September 2021, the report said.
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Bank of India (BoI) reported a standalone net profit of ₹250 crore in the fourth quarter ended March 31, 2021 against a net loss of ₹3,571 crore in the year ago quarter. The profit came on the back of a rise in other income and lower non-performing asset (NPA) provisions.
Net interest income (difference between interest earned and interest expended) was down 23 per cent y-o-y at ₹2,936 crore (₹3,793 crore). Other income, including income from non-fund based activities such as commission, exchange, brokerage, fees, forex income, profit/ loss on sale of investments, and recovery from written off accounts, rose 22 per cent to ₹2,053 crore (₹1,688 crore).
Also read: Bank of India net rises to ₹541 crore in Q3
Loan loss provisions were 58 per cent lower y-o-y at ₹3,089 crore (₹7,316 crore).
Gross NPAs declined to 13.77 per cent of gross advances as at March-end 2021 against 14.78 per cent as at March-end 2020. Net NPAs declined to 3.35 per cent of net advances as at March-end 2021 against 3.88 per cent as at March-end 2020.
Global net interest margin declined to 2.01 per cent as at March-end 2021 against 2.90 per cent as at March-end 2020.
Global deposits increased by 13 per cent y-o-y to ₹6,27,113 crore. Global advances nudged up 1.46 per cent y-o-y to ₹4,10,436 crore, mainly on the back growth in domestic retail, agriculture and MSME advances, and Government & Government-guaranteed advances.
During the quarter the total reduction in NPAs was higher at ₹5,830 crore (₹2,944 crore). About 81 per cent of this reduction was on account of write-offs.
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The Reserve Bank of India (RBI) has decided to extend a special liquidity facility of ₹16,000 crore to the Small Industries Development Bank of India (SIDBI) to support the funding requirements of micro, small and medium enterprises (MSMEs), particularly smaller MSMEs and other businesses, including those in credit-deficient and aspirational districts.
SIDBI can tap this facility for on-lending / refinancing through novel models and structures.
Also read: SIDBI launches quick credit delivery schemes to support Covid-19 preparedness
“This facility will be available at the prevailing policy repo rate for a period of up to one year, which may be further extended depending on its usage,” RBI Governor Shaktikanta Das said.
RBI had extended fresh support of ₹50,000 crore on April 7, 2021 to all-India financial institutions (AIFIs) for new lending in 2021-22. This included ₹15,000 crore to SIDBI.
With the new facility announced on Friday, the total liquidity support to SIDBI goes up to ₹31,000 crore.
Krishnan Sitaraman, Senior Director & Deputy Chief Ratings Officer, CRISIL Ratings, said: “The ₹16,000-crore special liquidity facility through SIDBI will provide some cash-flow relief to MSMEs and small borrowers through refinancing / on-lending.
“This will help beneficiaries recover and stabilise operations once the lockdowns start easing and the business environment improves.”
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“It is a very hypothetical question at this point of time. With regards to printing of notes, the central banks have their own models, own assessments, I have seen many remarks which have come,” RBI governor said responding to a query at the post monetary policy press conference.
Central banks take decisions on so many complex factors, which relate to financial, stability, inflation, stability of exchange rate, he said.
Government borrowings
At the moment the borrowing requirement of states and Centre, the Reserve Bank of India has been able to handle it very successfully last year, he said, adding that the borrowing rates were lowest in 16 years last year. This time also the RBI has taken measures in the form of GSAP I and II. In addition to the GSAP option of Rs 60,000 crore done so far, the RBI has injected Rs 36,400 crore through other operations in the secondary market in the NDS home operations, he said.
The borrowing is going on smoothly and that is how the situation is, he said.
Money printing clamour
Former finance minister P Chidambaram too had advised money printing to fight the crisis. “We have the space and the sovereign right to print money. If at any point the government feels that too much is being printed, it can always stop printing money. But at the moment, I think printing money is clearly advised,” Chidambaram had said
Kotak Mahindra Bank CEO Uday Kotak has said that India needs to expand its balance sheet and print money to support the economy ravaged by the ongoing Covid-19 crisis.
“In my view, this is the time to expand the balance sheet of the government, duly supported by the Reserve Bank of India (RBI) for monetary expansion or printing of money. The time has come for us to be doing some of that. If not now, when?” Kotak had told a television channel last month.
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