Category: Banking & Finance

Banks ready to transfer 37 NPAs worth ₹92,000 crore to NARCL

Banking & Finance

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Banks have so far zeroed-in on 37 stressed assets, with exposure aggregating to about ₹92,000 crore, that can be transferred to the National Asset Reconstruction Company Ltd (NARCL), which is being set up by lenders jointly.

The assets to be transferred to NARCL include those of Videocon Industries, Reliance Naval & Engineering, and Essar Power Gujarat and Coastal Energy, according to bankers. Banks had lent to these entities as part of a consortium.

“Suppose the ₹92,000-crore exposure is transferred to NARCL at 70 per cent haircut. So, it will buy the exposure at ₹27,600 crore. Of the ₹27,600 crore, lenders will get upfront cash of 15 per cent (₹4,140 crore) and the balance (₹23,460 crore) by way of Security Receipts (SRs), which are likely to have government guarantee (partial/full),” said an executive of a state-owned bank.

Upfront cash

The upfront cash that NARCL will give will result in provision write-back for the lenders, though it will be small.

“NARCL may buy all the loans put together at 30 per cent. But if the recovery is higher, say, 40 per cent, lenders will get the benefit via SRs,” the executive quoted above said.

He underscored that a few more Joint Lenders Forum meetings will be organised to arrive at a consensus on transferring more stressed assets.

The criteria prescribed by the Indian Banks’ Association (IBA) for the transfer of stressed assets to NARCL is that they should have been 100 per cent provided for, not be categorised as fraud, and should not be close to a resolution or recovery.

The IBA is spearheading the formation of NARCL in consultation with the Finance Ministry and the Reserve Bank of India. Stressed assets with principal outstanding of ₹500 crore and above, aggregating about ₹1.5-lakh crore, are expected to be transferred to NARCL.

Besides banks, state-owned non-banking finance companies in the power sector — Power Finance Corporation and Rural Electrification Corporation — are likely to contribute to the equity of NARCL and sell to it the stressed assets in their portfolio.

Will alter balance-sheets

NARCL may structurally alter the balance-sheets of lenders in such a way that it will further the government’s agenda of divesting its stake in IDBI Bank and privatising two public sector banks. Once chunky stressed assets are out of their books, the valuation of these banks will improve, making them more saleable, say market experts.

Finance Minister Nirmala Sitharaman, in her Budget speech on February 1, observed that the high level of provisioning by PSBs on their stressed assets calls for measures to clean up their books.

In this regard, she had said that an Asset Reconstruction Company and an Asset Management Company would be set up to consolidate and take over the stressed debt and then manage and dispose of the assets to Alternate Investment Funds (AIFs) and other investors for eventual value realisation.

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Karnataka Bank Q4 net up 14.83 per cent

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Karnataka Bank Ltd registered a net profit of ₹31.36 crore during the fourth quarter of 2020-21 as against a net profit of ₹27.31 crore in the corresponding period of the previous fiscal, recording a growth of 14.83 per cent.

The board of directors of the bank, which met on Wednesday, approved the audited annual financial results for the period ended March 31 and also recommended a dividend of 18 per cent to be approved in the ensuing 97th annual general meeting.

The bank registered a net profit of ₹482.57 crore for 2020-21 as against ₹431.78 crore in 2019-20, recording a growth of 11.76 per cent.

Terming the annual result as the best result during tough conditions triggered by the pandemic, Mahabaleshwara MS, Managing Director and Chief Executive Officer of the bank, said this clearly demonstrates the resilience of the bank.

The all-time high annual net profit, the highest ever CRAR of 14.85 per cent, very satisfactory PCR of 70.05 per cent, a new high of 31.49 per cent in CASA, over 90 per cent digital transactions, moderation in NPAs, etc., all indicate that economic prescription of the bank for Covid era – ‘Conserve, Consolidate and Emerge Strong’ – has provided the much-required immunity, he said.

Also read: Karnataka Bank gets additional director

The retail and mid-corporate advance, which has been the focus areas of the bank as part of its credit realignment initiative, has registered a growth of 6.34 per cent. The overall credit portfolio has seen negative growth as there was a degrowth of 53.44 per cent under the large corporate sector.

He said the ratio of retail, mid-corporate, large corporate has improved to 52.98 per cent, 33.79 per cent, 13.23 per cent as against 45.49 per cent, 28.71 per cent, 25.80 per cent as of March 2020.

“Even though we have been successful in overcoming the adverse impact of the pandemic under wave 1.0, we will continue to be ‘cautious and conservative’ in handling wave 2.0 as well, by keeping intact all our efficiency maximisation efforts,” he said.

‘Economic vaccines’

Various ‘economic vaccines’ such as restructuring, guaranteed emergency credit line, etc., being rolled out by the RBI and the Government would definitely help the needy borrowers and the banking industry alike to effectively overcome the challenges in a resilient way, he said.

Stating that the non-performing assets (NPA) have also moderated, he said the gross NPAs of the bank stood at ₹2,588.41 crore constituting 4.91 per cent as of March 31, 2021 as against ₹2,799.93 crore constituting 4.82 per cent as on March 31, 2020.

The net NPAs also moderated to ₹1,642.10 crore constituting 3.18 per cent from ₹1,755.01 crore as on March 31, 2020 constituting 3.08 per cent. Even though both the gross NPAs and net NPAs amounts have come down, the marginal increase in percentage term is mainly on account of denominator effect, he said.

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Karnataka Bank gets additional director

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Karnataka Bank Ltd has appointed Balakrishna Alse S, former Executive Director of Oriental Bank of Commerce (OBC), as Additional Director (Non-Executive, Independent) at its board meeting held on Wednesday.

During his 35 years of tenure at Corporation Bank, Alse had worked in Agriculture Policy and Lending, Credit Sanctions, Credit Risk Management, HR, Integrated Risk Management (as Chief Risk Officer) and Information / Cyber Security (as Chief Information Security Officer). He also had concurrent charge of Chief Vigilance Officer for over seven months.

In his capacity as Executive Director of OBC, he was overall-in-charge of Corporate Credit, Stressed Assets Management, Recovery, Accounts including Audit and Balance Sheet, Risk Management, Digital Banking, Cyber security, etc.

He retired as an Officer on Special Duty at Punjab National Bank (PNB), post amalgamation of OBC with PNB.

Welcoming Alse on the board, Mahabaleshwara MS, Managing Director and Chief Executive Officer of the bank, said in a press release that Alse’s experience and expertise in all facets of banking is expected to provide guidance and value addition in further enhancing the effectiveness of the board.

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With no cushion like last time, second Covid wave poses challenges for auto lenders

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The second Covid-19 wave will have a material impact on automobile lenders’ asset quality as borrowers are grappling with reduced capacity utilisation and increased operating costs due to rising fuel cost, which would reduce their ability to service debt, says a report of India Ratings.

The impact of the first covid wave was cushioned with multiple measures that boosted optimism and recovery. However, the outcome may be different during the second wave, due to the widescale impact, including rural areas and pent-up demand being absorbed already.

Collections hit

April 2021 collections for most of the lenders remained at a decent level since the first 15 days were broadly normal across the nation. Top public sector bank State Bank of India had 95-96 per cent collection efficiency in April 2021. However, increase in localised and regional lockdowns has impacted collections of the lenders for the month of May 2021, according to industry representatives.

India Ratings estimates that the collection efficiency for the first fortnight of May could be lower by 5-7 per cent on the top of a similar decline in April over March 2021.

With reduced cash flows and rising operating cost 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 prices of raw materials such as steel and cement) would impact demand offtake and thus load availability. Thus, both demand and rising operating cost would moderate borrowers’ cash flows in FY22.

Restricted mobility

Lenders’ collection efficiency would also be affected by restricted mobility as the second wave has spread across all geographies. Thus, the rating agency has a negative outlook on commercial vehicle finance as an asset class.

There are emerging trends of rising loan tenures across vehicle lenders to reduce servicing burden for borrowers. Incrementally, all vehicle segments would be impacted by the pandemic as it gets widespread, hindering business activity and thus affecting borrowers’ cash flows.

Capacity utilisation levels have been significantly affected across the heavy commercial vehicle segment. The earlier estimate of replacement demand driving lenders’ growth would take a backseat, as normalisation would be a long-drawn process with borrowers looking at increasing utilisation on existing fleet rather than purchasing new vehicles.

Lenders would be impacted in the medium term due to restricted mobility and moderating borrowers’ cash flows. Collections have become difficult due to the surge in infected cases and would impact asset quality during the first half of this fiscal, said India Ratings.

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ZipLoan partners with InCred to provide micro-loans to MSMEs

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Fntech firm ZipLoan has partnered with InCred to extend micro-loans to micro, small and medium enterprises that are unable to access financial services from traditional banking players.

“InCred and ZipLoan entered into co-lending partnership to facilitate wider and deeper reach of institutional credit in the MSME segment by leveraging each other’s strengths in terms of size, scale and technology,” the company said in a statement.

The microloans will be ranging from ₹1 lakh to ₹10 lakh with tenure upto 36 months.

Under the partnership, ZipLoan will originate and process unsecured retail business loans as per jointly created credit parameters and eligibility. InCred will have 80 per cent of the total loan on its books while the remainder will be on ZipLoan’s books.

ZipLoan will manage the loan servicing throughout the loan life cycle.

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ESAF Small Finance Bank’s operating profit up by 28% in FY21

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ESAF Small Finance Bank has recorded a 28 per cent increase in its operating profit for the year ended March 31. The figure increased from ₹324.70 crore to ₹415.84 crore despite the challenges faced during the year.

Deposits have grown by 28 per cent from ₹7,028 crore to ₹8,999 crore for the year ended March 31, 2021.

The net profit for the year ended March 31 stood at ₹105.40 crore compared to ₹190.39 crore over the same period last year. Further, the bank as a prudent measure holds provision above the RBI requirement in the standard category to the extent of ₹91 crore as of March 31, 2021.

K Paul Thomas, Managing Director and CEO of ESAF Small Finance Bank, said, “The bank has improved operating profit and total business despite the challenges posed by the pandemic. With the support of customers and their unwavering faith in us, we could also enhance our presence across the country. The reduction in the PAT was mainly due to the higher provisions during the fiscal.”

Due to a severe crisis at the grass-root level due to the pandemic, the collection efficiency was adversely impacted thereby increasing the gross NPA level at 6.70 per cent and Net NPA by 3.88 per cent, he said.

Gross advances increased by 27 per cent from ₹6,606 crore to ₹8,415 crore, while total business reached ₹17,425 crore, a growth of 26 per cent.

During the year, the bank has raised Tier I capital amounting to ₹162.59 crore by way of a private placement. As on March 31, the bank serves over 43 lakh customers through 550 branches and 308 customer service centres.

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Manappuram Finance Q4 PAT up 18% at ₹468 crore

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Manappuram Finance Ltd has posted an 18 per cent growth in its consolidated profit after tax in Q4 of FY21 at ₹468.35 crore against ₹398.20 crore in the year-ago quarter. As a result, the consolidated PAT for the full year was ₹1,724.95 crore, an increase of 16.53 per cent over the previous year’s figure of ₹1,480.30 crore.

The operating income for the year stood at ₹6,330.55 crore, up by 15.83 per cent over ₹5,465.32 crore. The Board of Directors approved payment of an interim dividend of ₹0.75 per share of the face value of ₹2.

V.P. Nandakumar, MD & CEO, said: “Our performance is particularly satisfactory given the multiple challenges faced throughout this pandemic affected year. Despite all the disruptions due to lockdowns, the consequent slowdown in economic activity and consumption, and volatility in gold prices, we have succeeded in posting our best ever full-year results, with significant growth in business and profitability.”

The consolidated Assets under Management (AUM) stood at ₹27,224.22 crore, up by 7.92 per cent compared to ₹25,225.20 crore. Growth was led by gold loans, which grew by 12.44 per cent to reach ₹19,077.05 crore. During the year, aggregate gold loan disbursements went up to ₹263,833.15 crore from ₹168,909.23 crore in the previous year. As of March 31, the number of live gold loan customers stood at 25.9 lakh.

Besides gold loans, the company’s microfinance subsidiary, Asirvad Microfinance Ltd, also reported meaningful growth in business closing the year with an AUM of ₹5,984.63 crore, an increase of 8.76 per cent over ₹5,502.64 crore reported in the previous fiscal. On the other hand, the Vehicle and Equipment Finance division reported an AUM of ₹1,052.56 crore, a decline of 21.70 per cent over the year being the fallout of the pandemic induced slowdown. The home finance subsidiary contributed ₹666.27 crore to the total AUM, against ₹629.61 crore in the previous year. Overall, the non-gold businesses contributed a share of 30 per cent to the total portfolio.

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Pension funds: PFRDA revises sponsor’s capital requirement criteria

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Pension fund regulator PFRDA is keen that sponsors and pension funds set up by them are strong enough to ride the current growth wave in the pension sector. Towards this end, it has tweaked the capital requirement norms for sponsors of Pension Funds, stipulating higher paid-up capital and networth for those looking to set up such funds.

A sponsor – individually or jointly– of a pension fund should have atleast ₹25 crore in paid-up capital on the date of making application as a sponsor and positive tangible networth of at least ₹ 50 crore on the last date of each of the preceding five financial years, the PFRDA has now ruled.

“The way we see growth in pension sector in last few years, we believe that in days to come it will grow even further. We felt the sponsors should be adequately capitalised and then only the pension funds they set up can perform well. This has prompted us to bring this change as earlier they could apply with networth of ₹25 crore,” Supratim Bandyopadhyay, Chairman, Pension Fund Regulatory and Development Authority (PFRDA), told BusinessLine.

He also said that all existing pension fund managers – eight of them – will be given six months time to conform to the new dispensation of having networth of at least ₹50 crore. Hitherto, the minimum networth requirement for them was placed at ₹25 crore, and some of them were already at levels above the ₹25 crore threshold.

Pension AUM

India’s pension assets under management (AUM), which recently crossed the ₹6-lakh crore mark, has been growing at frenetic pace of over 30 per cent. The PFRDA sees the overall AUM at this growth rate touch ₹30 lakh crore by 2030. ByMarch-end 2021, PFRDA expects pension AUM to touch ₹7.5-lakh crore.

Pension AUM cross ₹6-lakh crore: PFRDA Chief

This latest PFRDA move to enhance the capital requirement of sponsors comes at a time when the pension regulator is expected to soon open an ‘on tap’ window of 30-40 days for those looking for pension fund manager’s licences.

The on-tap window could also prompt some of the existing mutual fund players to take a serious look at the pension sector and enter this space, say market observers.

Another important reason why sponsors and pension funds need to be capitalised better is the PFRDA plan to allow pension funds offer minimum assured return scheme (MARS) products to customers. As such assured return scheme would entail risk, it is better to be well capitalised to take care of eventualities, said experts.

ThePFRDA had recently come up with a Request for Proposal for appointment of a consultant to help the regulator design the MARS.

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Cyber attacks on banks can trigger more rating action, warns S&P, BFSI News, ET BFSI

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The banking sector is becoming more exposed to cybercrime after the Covid pandemic accelerated digitalisation and remote working, which can impact ratings, S&P Global Ratings said on Tuesday.

Cyber attacks can harm credit ratings mainly through reputational damage and potential monetary losses, the ratings agency said in a report titled ‘Cyber Risk In A New Era: The Effect On Bank Ratings.’

Banks and other financial institutions are attractive targets for cyber criminals because they possess valuable personal data and play a critical role in servicing particular financial or economic needs and segments.

“Cyber attacks have had only a limited effect on bank ratings to date but can trigger more rating actions in the future as cyber incidents become more frequent and complex,” said Credit Analyst Irina Velieva.

Weak governance

Institutions with weak risk governance are less prepared for, and therefore more vulnerable to cyber attacks, it said.

“Although it is crucial to learn from previous attacks and strengthen cyber-risk frameworks in real time, the appropriate detection and remediation of attacks takes precedence because the nature of threats will continue to evolve,” S&P said cyber defence will become an increasingly important part of entities’ general risk management and governance frameworks, in need of increasing spending and more sophisticated tools.

“We acknowledge, however, that this might not be straightforward for many entities, especially the ones with weaker risk-control frameworks and insufficient budget allocated for cyber defence.”

Threats to banks

According to RBI’s annual report for 2019-20, the amount involved in banking frauds grew 2.5 times to Rs 1.85 lakh crore in 2019-20 compared with Rs 71,500 crore in 2018-19.

The internet banking system works through a wide set of applications, networking devices, internet service providers, and many other entities. All of these are potential entry points for attackers.

Several banks and financial establishments use third-party services from other merchants and fintechs. If those outsider merchants don’t have appropriate security set up, the bank could land in a soup.

Under spoofing, hackers find a way to imitate a financial institutions’ website’s URL with a website that looks and functions the same. When customers enter their login data in an impersonated website, the data is then taken by the cybercriminals to utilise it later.

Cybercriminals can utilise a person’s personal and financial data and commit fraud. A privacy breach in a bank can also lead to the information of the bank’s customers being sold or purchased on the dark web by other cybercriminals.



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ICICI Bank launches facility to link UPI ID with digital wallet

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Private sector lender ICICI Bank has launched a facility for linking a Unified Payments Interface (UPI) ID with its digital wallet, ‘Pockets’.

The facility is a departure from the current practice under which UPI IDs can be linked with a savings bank account.

“This initiative enables users to undertake small-value daily transactions directly from their Pockets wallet using UPI in a safe and secure manner,” said ICICI Bank in a statement on Wednesday, adding that it would help them streamline the number of transactions being undertaken daily from their savings account and, thus, de-clutter their savings account statement of multiple entries.

“Further, it expands the convenient usage of UPI to young adults like college students, who may not have a savings account,” it said.

10 lakh customers of other banks using ICICI Bank’s mobile app

New users, including those who are not customers of ICICI Bank, can now instantly get a UPI ID, which is automatically linked to Pockets, while customers who already have a UPI ID will get a new ID when they log on to the Pockets app.

Ties up with NPCI

The bank has collaborated with National Payments Corporation of India to link its ‘Pockets’ digital wallet to the UPI network.

“Our research suggests that users are keen to link their UPI ID with their digital wallet, so that they can directly use the balance in the wallet for smaller transactions while using their savings account only for the larger ones. We believe the facility will provide immense convenience and the advantage of secured UPI payments to customers using Pockets wallet,” said Bijith Bhaskar, Head, Digital Channels and Partnership, ICICI Bank.

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