Anchor investor Bay Tree India cuts stake in YES Bank to 5.40%

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Bay Tree India Holdings I LLC has cut its stake in YES Bank further from 6.03 per cent as at March-end 2021 to 5.40 per cent now.

Bay Tree India Holdings (BTIH) had 7.48 per cent stake in YES Bank as at December-end 2020.

BTIH, which is a part of New York-based Tilden Park Capital Management, was the biggest anchor investor in YES Bank’s further public offer (FPO) in July 2020.

It invested about 55 per cent of the ₹4,098 crore the bank mopped up from anchor investors. Overall, the bank raised ₹14,850 crore (net of share issue expenses) through the FPO.

Along with BTIH, Axis Bank and Kotak Mahindra Bank, too, cut their stake in the private lender in the fourth quarter of FY2021.

As at March-end 2021, Axis Bank and Kotak Mahindra Bank’s shareholding in YES Bank came down to 1.96 per cent (2.39 per cent as at December-end 2020) and 1.52 per cent (1.76 per cent), respectively.

State Bank of India (SBI) continues to be the biggest investor in YES Bank, with 30 per cent stake. India’s largest bank reduced its stake in the private sector bank from 48.21 per cent to 30 per cent in the second quarter of FY21.

Troubled financials

YES Bank reported a net loss of ₹3,788 crore in the fourth quarter ended March 31, 2021 against a net profit of ₹2,629 crore in the year ago quarter.

In the reporting quarter, the bank made a substantial provision of ₹6,510 crore towards bad loans against ₹1,100 crore in the year ago quarter.

The bank’s net interest income was down 22.5 per cent year-on-year (y-o-y) to ₹987 crore. Non-interest income rose 36.6 per cent y-o-y to ₹816 crore.

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Private banks cut unsecured loans, stay safe in Covid storm, BFSI News, ET BFSI

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Wondering why pesky calls offering personal loans have reduced during the last few months?

After the pandemic started, most private sector banks have scaled down their unsecured loan business and relied on home and government-guaranteed loans.

Lenders are going slow once again on micro nance loans, credit cards and personal loans, as they see these unsecured loans to have become riskier amid the second wave of the pandemic.

The prudence has helped them in reducing the risk of defaults during the second wave.

The banks now cater to small business loans that are guarantee by the government under the Emergency Credit Line Guarantee Scheme. They have also focused on home loans that are secured by a mortgage. SBI last year hit Rs 5 lakh crore home loans target and set a stiff target for the segment.

Portfolio shrinks

Kotak Mahindra has reduced its unsecured portfolio to 5.8% of the total assets in FY21 from 7.5% earlier.

While ICICI bank grew its home loans by 21% year on year, its loan book grew in single digits. The bank also brought down its loan against shares and other securities by 8% and shrunk its two-wheeler loans by 4%.

Axis Bank has cut its share of unsecured loans to small businesses to 11% in FY21 from 15% in FY20.The bank has made 100% provisions for restructured unsecured loans.

IndusInd Bank too remains cautious on unsecured lending and limit the segment to 5% of total loans and go slow on three-wheeler loans.

Cautious stance

Personal loans in the banking industry grew at a slower pace of 10.2 per cent in the last fiscal year ended March 31, compared with more than 15 per cent the preceding year. Consumer durable loans were the worst hit and contracted by more than 21 per cent between March 2020 and 2021 against 47.6 per cent growth in the prior year.

Credit card outstanding totalled Rs 1.16 lakh crore at the end of March, a 7.8 per cent increase in a year against more than 22.5 per cent growth in fiscal 2020.

The growth in home and government-guaranteed loans has helped lenders expand the balance sheet even as they shied away from unsecured loans. By making 100% provisions for unsecured loans, private banks would not have to take a major hit in the first quarter despite the second wave of the pandemic buffeting the economy.



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Bay Tree India Holdings sells over 2 per cent stake in YES Bank

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Anchor investor Bay Tree India Holdings I LLC has sold over 2 per cent stake in YES Bank through open market transactions.

According to a regulatory filing, Bay Tree India Holdings I LLC, which held 7.48 per cent stake in YES Bank earlier, sold 52.15 crore shares representing 2.08 per cent of equity stake in multiple tranches between January 6 and May 6, 2021.

Post the sale, stake of Bay Tree India Holdings I LLC in YES Bank stands at 5.40 per cent.

In July 2020, YES Bank garnered ₹4,098 crore from anchor investors, a day ahead of its follow-on public offering.

Bay Tree India Holdings I, owned by Tilden Park, was the largest anchor investor, investing ₹2,250 crore in YES Bank for an allocation of 1,87,50,00,000 (7.48 per cent) shares.

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IOB, Central Bank privatisation bid runs into RBI hurdle, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) is likely to delay regularising struggling state-run lenders that are under the prompt corrective action (PCA) framework as it has reservations over their capital adequacy levels.

This may derail the privatisation prospects of Indian Overseas Bank and Central Bank, which are reported to be among the four banks shortlisted by the government for privatisation.

Indian Overseas Bank (IOB), UCO Bank and Central Bank of India are currently under the stringent PCA of RBI.

The RBI objection

In FY21, the government infused Rs 20,000 crore in ve banks through the instruments. Central Bank of India was the biggest beneficiary with Rs 4,800 crore, followed by Indian Overseas (Rs 4,100 crore), UCO Bank (Rs 2,600 crore).

However, the RBI has raised questions over the government’s bank capital infusion programme through non-interest-bearing bonds, according to a report.

The RBI reasons that capital infusion through bonds cannot be taken at face value and, therefore, these banks may still be short of regulatory capital, they said. In such a situation, they will continue under the PCA framework. Under the PCA regime, business restraints are imposed on struggling banks until they regain health.

The government went ahead despite RBI’s initial reservations and now the regulator has expressed serious concerns. The entire fund infusion through such bonds will then not count toward regulatory capital.

RBI is not inclined to pull these lenders out of the PCA framework based on such capital infusion and may further direct lenders to recalculate their capital adequacy ratio based on the actual value of the bonds.

The PCA status

All three banks under PCA Indian Overseas Bank, UCO Bank and Central Bank have reported net non-performing assets (NPAs) below levels that trigger PCA. However, on the proforma net NPA front, Central Bank falls short as its NNPA is 6.58% against the 6% required to be out of PCA.

Even after PCA exit, these banks may still be under RBI watch. In the case of IDBI Bank, which has committed to comply with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis, RBI has said the lender would be under continuous monitoring. “It has been decided that IDBI Bank be taken out of PCA framework, subject to certain conditions and continuous monitoring,” RBI had said.

Privatisation bid

Four banks on the privatisation shortlist included Bank of Maharashtra, Bank of India, Indian Overseas Bank and the Central Bank of India.

Two public sector banks and one general insurance company are expected to be disinvested this year in addition to the divestment of IDBI Bank, Finance Minister Nirmala Sitharaman had announced during Budget presentation last month.

Bringing the banks out of PCA could boost their valuations in the event of privatisation.



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RBI appoints Jose J Kattoor as Executive Director, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank of India has appointed Jose J Kattoor as Executive Director (ED), the central bank said in a statement on Monday.

Prior to being promoted as ED, Kattoor was heading Bengaluru Regional Office of the Reserve Bank as Regional Director for Karnataka.

He will look after Human Resource Management Department, Corporate Strategy and Budget Department and Rajbhasha Department.

Kattoor has, over a span of three decades, served in communication, human resource management, financial inclusion, supervision, currency management and other areas in the Reserve Bank.

He holds a post-graduate qualification from Institute of Rural Management, Anand, Bachelor of Law from Gujarat University, and Advanced Management Program (AMP) from Wharton School of Business, Pennsylvania, besides having earned professional qualifications, including Certified Associate of Indian Institute of Banking and Finance (CAIIB).



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RBI modifies norms for undertaking govt business by private banks, BFSI News, ET BFSI

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The Reserve Bank on Monday came out with modified guidelines that allow sound private sector banks to undertake government business, whether at the Centre or in states. According to the modified norms, scheduled private sector banks, which are not under the Prompt Corrective Action (PCA) framework of the RBI, can undertake government business after executing an agreement with the central bank.

“Scheduled private sector banks, not having agency banking agreement with RBI, but intend to handle government agency business, may be appointed as agents of RBI upon execution of an agreement with RBI.

“This will be subject to the condition that the concerned bank is not under PCA framework or moratorium at the time of making the application or signing of the agreement with RBI,” the central bank said in a notification.

It may be mentioned that the Finance Ministry in February 2021 had lifted the embargo imposed in September 2012 on further allocation of government business to private sector banks.

In view of the lifting of the embargo, the RBI has decided to revise the framework for authorising Scheduled Private Sector Banks as agency banks of RBI for conduct of government business.

The notification further said existing private Sector agency bank with whom RBI already has agency banking agreement and who are authorised to do government agency business may continue to do these government agency businesses for Central and/or State Governments without taking any fresh approval from the central bank.

It also said once RBI authorises a bank for any government business, separate approval from RBI with regard to mode (physical or e-mode) and area of operations is not required and the same will be decided by the CGA (for Central Government) or the Finance Department of the State Government, keeping the RBI informed in the matter.



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Chola MS Insurance posts ₹374-crore PBT in FY21

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Cholamandalam MS General Insurance Company Ltd (Chola MS), a joint venture between the Murugappa Group and Mitsui Sumitomo Insurance Group, Japan, has reported a profit before tax of ₹374 crore and a gross written premium (GWP) of ₹4,388 crore in FY21.

In the previous fiscal, the company reported a GWP of ₹4,398 crore and a profit after tax of ₹149 crore.

The company’s performance drew level with the previous year’s volumes despite the pandemic induced lockdown and economic slowdown, said a statement.

Profit before Taxes (PBT) grew by 47 per cent to ₹374 crore supported by strong investment income of ₹804 crore with the investment corpus crossing ₹11,000 crore.

During FY21, Covid-19 related health claims of over ₹140 crore rendered the Combined Ratio (CoR) higher at 107.28 per cent.

“Despite the slowdown in lending among our major financier partners, Chola MS has attained growth in volumes from newer channel acquisitions, growth in fire line of business in bancassurance, OEM programmes and in-agency business across motor and health,” said Suryanarayanan V, Managing Director, Chola MS.

Higher growth rate

The Company had a 14 per cent growth in Q4 (Jan-March quarter) against the year-ago quarter which was higher than the industry growth.

Chola MS expects to sustain higher than industry growth rate in FY21-22.

The Company re-oriented its product mix across and within motor segment to step up volumes in commercial lines and retail health and in cars and two-wheelers.

Chola MS had a market share of 2.6 per cent and ranked 8th amongst private players in the general insurance industry.

 

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‘Green bonds, a sustainable capital option for climate change projects’

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Green bonds have the potential to provide sustainable capital for climate change projects such as electric vehicles, mass rapid transport systems, water and irrigation management and renewable energy.

“While India has seen sustained investment in renewable energy over the last 8-10 years, which has resulted in accelerated growth for the sector, significant investments are still required. And the Indian economy requires massive long term, cost-effective financing for other green sectors, where green bonds could provide the much needed support,” according to Deepto Roy, Partner Project & Project Finance, Shardul Amarchand Mangaldas & Co.

In an exclusive interaction with BusinessLine, Deepto Roy explains how green bonds could make a difference by adoption of a national investment strategy aligned with a transition to low-carbon and climate-resilient development. Excerpts:

How do you see green bonds bridging funding requirements and making a difference?

Green bonds can help drive down cost of capital for sustainable projects, where the proceeds are exclusively utilised for financing climate change mitigation. Raised by corporates or by financial institutions for lending to renewable projects, they address the high cost of infrastructure funds and can help in ensuring better return on equity while driving down tariffs.

Infrastructure financing available in India typically suffers from asset-liability mismatches, where the project revenues do not necessarily track the repayment obligations of the financing. Bond refinancing can address this situation.

Bank debt has been a primary source of funding for the renewable sector. But banking funds are limited and subject to sectoral limitations and liquidity concerns for the financial institutions. For continuous growth bank funds need to be cycled effectively.

How has the green bond market evolved over the years? What are its prospects?

In 2015, Exim Bank and IDBI became the first Indian issuers of green bonds. They were followed by YES Bank and China Light & Power Wind Farms India. In 2016, NTPC, Axis Bank and PNB Housing Finance raised green bonds, the latter two for funding “green buildings”.

Later in 2017, IREDA and the Indian Railways Finance Corporation (IRFC) raised green bonds from the market. In the same year, the Securities & Exchange Board of India (SEBI) issued the “Disclosure Requirements for Issuance and Listing of green bonds”.

Also in 2017, Jain Irrigation raised one of the few non-renewable power specific green bonds. It was intended to finance water use infrastructure.

In 2018 the State Bank of India raised $650 million in certified climate bonds. In October 2019 India joined the International Platform of Sustainable Finance (IPSF) to scale up environmental friendly investments.

What are the challenges in deployment of green bonds in the country?

The development of the green bond market necessarily depends on the development and strengthening of the general corporate bond market. India’s sovereign credit rating of BAA2 means that many green bonds need credit enhancement to attract international investors. Multilateral development banks such as the International Finance Corporation (IFC) and the Agence Francaise re Development (AFD) have credit enhancement support in the past and they would continue to play an important role.

The renewable sector is also facing a number of challenges, which make financing green bonds challenging such as rapidly falling tariffs, delays in execution of power purchase agreements after signing of bids and cancellation of tenders post issuance of letters of allotment.

There is worldwide increases in the price of modules and other solar plant components and additional expenditure on account of the imposition of Basic Customs Duty (BCD) from April 2022 and potential delays in claiming contractual relief.

So what is the way forward for the Green Bond market?

India has became the second largest green bond market among developing countries in 2020, but the size of the market is one-tenth that of China. An RBI study on green bonds show that the cost of raising green bonds have remained higher than other bonds; and green bonds constituted only 0.7 per cent of the bonds issued in India since 2016. Clearly there is a long way to go for the Green Bond market, although over subscription of the offerings that have happened seem to indicate that significant appetite exists in the market.

The size and the penetration of the Green Bond market can go up with the encouragement of more robust foreign exchange risk management mechanisms. This will make Indian green bonds more attractive. Further, there is a need for mechanisms for a rupee denominated bond market which can be accessed by international investors.

And there is a need to create tools and certification methods for green tagging sustainable projects on the books of financial institutions and governments and building project pipelines that can underlie future green bond issuances.

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Performance of Banks on Govt schemes to be monitored for continuation as Agency Banks

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Scheduled private sector banks (PvSBs) intending to handle government agency business as agency banks of the Reserve Bank of India (RBI) can do so upon execution of an agreement with the latter.

This will be subject to the condition that the concerned bank is not under Prompt Corrective Action (PCA) framework or moratorium at the time of making the application or signing of the agreement with RBI.

Revised guidelines

The central bank on Monday issued “revised guidelines/ framework for authorising Scheduled PvSBs as agency banks of RBI for conduct of government business attracting agency commission” following lifting of the embargo put in place from September 2012 by Department of Financial Services (DFS), Ministry of Finance (MoF) on further allocation of Government business to private sector banks.

RBI said the performance of the agency banks, on a matrix of various government initiatives and Schemes, may be reviewed from time-to-time by the government in consultation with RBI based on which the permission given to the concerned bank to undertake government business could be potentially withdrawn.

Eligible transactions

Among the transactions relating to government business undertaken by agency banks that are eligible for agency commission are: revenue receipts and payments on behalf of the Central/State Government; pension payments in respect of Central / State Governments; Special Deposit Scheme (SDS) 1975.

The other transactions that are eligible for agency commission are: Public Provident Fund (PPF) Scheme, 1968; Senior Citizen Savings Scheme (SCSS), 2004; Kisan Vikas Patra, 2014 and Sukanya Samriddhi Account; and any other item of work specifically advised by Reserve Bank as eligible for agency commission (that is Relief Bonds/ Savings Bonds etc. transactions) .

The choice of accrediting an agency bank (including scheduled private sector agency bank) for any particular government agency business rests solely with the concerned Central Government Departments /State Governments.

Further, Government Departments/ State Governments have the option to discontinue the arrangement after giving notice to the concerned agency banks, keeping RBI informed.

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India Inc’s overseas borrowing touches $9.23 billion, a two year high in March

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External commercial borrowings (ECBs) of Indian corporates have hit a two-year high of $9.23 billion in March 2021. Prior to this, the overseas borrowing of India Inc touched a monthly high of $12.18 billion in March 2019.

The spike in overseas borrowing comes after months of lacklustre demand for external debt due to surplus liquidity in the domestic market, muted credit demand and absence of major expansion plans by Indian corporates since the onset of the pandemic.

After hitting an historic high of $52 billion in FY20, overseas borrowing of India Inc fell sharply since the beginning of FY21. Overseas debt of Indian companies fell to $3.51 billion in the first quarter of FY21 after recording a high of $19 billion in the previous quarter. However, with multiple phases of unlocking and rebound in economic activity, the external fund-raising picked up momentum to reach $9 billion in the second quarter, $7 billion in third and $16 billion in the last quarter of the previous fiscal.

“The lower borrowings from the overseas markets in the current financial year can in large part be attributed to the pandemic-led economic and business disruptions that have made corporates reluctant to borrow and add to their liabilities amid uncertainties about the future business and economic conditions,” CARE Ratings said in its Debt Market Review for February 2021.

Sudden spike

The sudden spike in ECBs in March 2021 can largely be attributed to Indian Railway Finance Corporation (IRFC) which alone raised $4.92 billion under RBI’s approval route for the purpose of ‘Infrastructure development’.

“I would not immediately connect the increase in overseas borrowing directly with economic revival. Increase in overseas borrowing could be for a variety of factors such as lower cost of funds, greater liquidity in the international market, negative interest rates in many jurisdictions,” said Adity Chaudhury, Partner, Argus Partners.

She, added that India Inc’s latest results show a healthy recovery post the first wave of Covid-19 and point towards an economic revival but growth in overseas funding will depend on a variety of factors pointed above.

For the full year, India Inc’s overseas borrowing stood at $35.06 billion in FY21, lower than $52 billion fund raise in FY20 and $41 billion in FY19.

Top borrowers

Reliance Industries topped that list of overseas borrowers in FY21 raising a little over $7 billion or 20 per cent of the total ECB fund raise of India Inc followed by IRFC ($4.08 billion), REC Limited ($1.95 billion), Adani Ports ($1.75 billion) and ONGC Videsh Rovuma ($1.60 billion).

On a sectoral basis, the financial services sector continues to be the major borrower of overseas debt with a total fundraising of about $10 billion, followed by Coke and refined petroleum manufacturers ($8 billion) and Electricity, gas, steam and air conditioning supply ($3 billion).

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