Category: Banking & Finance

Our strategy would be to focus on what we are doing well and spruce up our distribution, says Ageas Federal Life Insurance head

Banking & Finance

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The surge in Covid infections in the second wave of the pandemic is likely to impact the life insurance sector in terms of new business, renewals, the persistency, claims, said Vighnesh Shahane, Managing Director and CEO, Ageas Federal Life Insurance. In an interview with BusinessLine, he outlined plans for the year and said the company will focus on distribution. Edited excerpts:

What are the prospects for life insurers given the impact of the second wave of Covid-19?

The first wave was an unknown entity and the worst we thought would be a lockdown and that economic mobility and the economy would be impacted. So we braced up for a loss of livelihood, lesser premium, lesser renewal and a little increase in mortality. This time around, its more lethal, and it’s going to impact the economy. It will impact the new business, renewals, the persistency, claims of insurance companies — life and health will go out of the roof.

With rising deaths, how will it impact the life insurance sector in terms of claims?

In the first wave, for our company at least, the mortality was in range. Mortality also depends on the lines of business, the market, the channels and the products offered. We were pretty conservative as we were not in the group business for term policies, we had withdrawn some products for adverse mortality experience. For example, we are not in the PM Jeevan Jyoti Yojana as we are not sure of the mortality. This time, the pandemic is impacting a younger cohort. And the infection and deaths in some of the markets where we are quite aggressive, like Kerala, Delhi, Mumbai and UP is picking up. I would expect our mortality claims to also spike. As of now, there’s no evidence. We’ve been tracking the second wave separately and internally.

What has been your total Covid claim?

Our total claims net of reinsurance for 2020-21 was about ₹84 crore, out of which Covid related was exactly 25 per cent at ₹21 crore. That’s representative of the industry. This wave, it could be a little more.

Going forward, what is the company’s strategy in terms of growth and products?

We just declared our results and we did well across all parameters, except topline to an extent. We did reasonably well in topline also but maybe not as well as three to four years ago when we had the full muscle of IDBI Bank. Our strategy would be to keep doing what we are doing well and spruce up our distribution. It could be a new banca partnership. Also, a focus on scaling up proprietary channels like agency, group, online, direct sales team. So the focus should be on distribution.

What is your distribution mix?

About 80 per cent is banca, out of which 99 per cent would be Federal Bank. Of the remaining, 10 per cent is agency, five per cent is direct sales and five per cent is group, online, brokerage.

Do you expect the demand for protection and term products to continue?

Protection products would be a focus because not only is there customer demand, but it’s also a very profitable product from an insurance company perspective. Our focus has always been on a balanced product mix. There is a segment of customers, especially Kerala and the HNIs who prefer ULIPs, and there are some lower end customers who take safety and prefer guaranteed returns, non participating guaranteed returns plans.

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Our strategy would be to focus on what we are doing well and spruce up our distribution, says Ageas Federal Life Insurance head

Banking & Finance

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Read More/Less


The surge in Covid infections in the second wave of the pandemic is likely to impact the life insurance sector in terms of new business, renewals, the persistency, claims, said Vighnesh Shahane, Managing Director and CEO, Ageas Federal Life Insurance. In an interview with BusinessLine, he outlined plans for the year and said the company will focus on distribution. Edited excerpts:

What are the prospects for life insurers given the impact of the second wave of Covid-19?

The first wave was an unknown entity and the worst we thought would be a lockdown and that economic mobility and the economy would be impacted. So we braced up for a loss of livelihood, lesser premium, lesser renewal and a little increase in mortality. This time around, its more lethal, and it’s going to impact the economy. It will impact the new business, renewals, the persistency, claims of insurance companies — life and health will go out of the roof.

With rising deaths, how will it impact the life insurance sector in terms of claims?

In the first wave, for our company at least, the mortality was in range. Mortality also depends on the lines of business, the market, the channels and the products offered. We were pretty conservative as we were not in the group business for term policies, we had withdrawn some products for adverse mortality experience. For example, we are not in the PM Jeevan Jyoti Yojana as we are not sure of the mortality. This time, the pandemic is impacting a younger cohort. And the infection and deaths in some of the markets where we are quite aggressive, like Kerala, Delhi, Mumbai and UP is picking up. I would expect our mortality claims to also spike. As of now, there’s no evidence. We’ve been tracking the second wave separately and internally.

What has been your total Covid claim?

Our total claims net of reinsurance for 2020-21 was about ₹84 crore, out of which Covid related was exactly 25 per cent at ₹21 crore. That’s representative of the industry. This wave, it could be a little more.

Going forward, what is the company’s strategy in terms of growth and products?

We just declared our results and we did well across all parameters, except topline to an extent. We did reasonably well in topline also but maybe not as well as three to four years ago when we had the full muscle of IDBI Bank. Our strategy would be to keep doing what we are doing well and spruce up our distribution. It could be a new banca partnership. Also, a focus on scaling up proprietary channels like agency, group, online, direct sales team. So the focus should be on distribution.

What is your distribution mix?

About 80 per cent is banca, out of which 99 per cent would be Federal Bank. Of the remaining, 10 per cent is agency, five per cent is direct sales and five per cent is group, online, brokerage.

Do you expect the demand for protection and term products to continue?

Protection products would be a focus because not only is there customer demand, but it’s also a very profitable product from an insurance company perspective. Our focus has always been on a balanced product mix. There is a segment of customers, especially Kerala and the HNIs who prefer ULIPs, and there are some lower end customers who take safety and prefer guaranteed returns, non participating guaranteed returns plans.

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RBI to Banks: Lend to healthcare space within 30 days of availing funds

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The Reserve Bank of India (RBI) on Friday said Banks should lend to stakeholders in the Covid-related healthcare infrastructure and services within 30 days from the date of availing funds from it under the ₹50,000 crore“On-Tap Term Liquidity Facility to Ease Access to Emergency Health Services scheme”.

As per the scheme, there is no tenor restriction regarding lending by Banks. However, they will have to ensure that the amount borrowed from RBI should be backed by lending to the specified segments until the scheme’s maturity.

 

The scheme, which opens an on-tap liquidity window of ₹50,000 crore for Banks with tenors of up to three years at the repo rate till March 31, 2022, has been launched to boost immediate liquidity, ramping up Covid-related healthcare infrastructure and services in the country.

The scheme will remain operational from May 07, 2021, till March 31, 2022.

Scope of lending

Banks can provide fresh lending support to a wide range of entities under the scheme, including vaccine manufacturers; importers/ suppliers of vaccine and priority medical devices; hospitals/ dispensaries; pathology labs and diagnostic centres; manufacturers and suppliers of oxygen and ventilators; importers of vaccines and Covid-related drugs; Covid-related logistics firms and also patients for treatment.

RBI will aggregate requests from Banks and release funds every Monday (on the subsequent working day if Monday is a holiday) by initiating a 3-year repo contract with the requesting bank.

If a bank places multiple requests during the week, all such requests will be aggregated, and a single repo contract will be created on the date of operation.

The eligible collateral and margin requirements for availing funds under the scheme will remain the same as applicable for Liquidity Adjustment Facility operations.

Additional incentives

The central bank said Banks could park their surplus liquidity up to the size of the Covid loan book they build in a special 14-day reverse repo window to be conducted on each reporting Friday.

RBI will offer 40 basis points higher interest than the current reverse report rate on such liquidity.

The first such special reverse repo operation will be held on May 21, 2021. These 14-day reverse repo operations would continue till March 31, 2022 and will be reviewed thereafter.

Banks are being incentivised for quick delivery of credit under the scheme through the extension of priority sector lending (PSL) classification to such lending up to March 31, 2022.

RBI said Banks desirous of deploying their own resources without availing funds under the scheme for lending to the specified segments mentioned above would also be eligible for the additional incentives.

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LIC further relaxes claim settlement process

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Amidst the second wave of the Covid-19 pandemic surging across the country, Life Insurance Corporation of India has further relaxed processes for settlement of claims.

To facilitate speedy settlement of death claims in the prevailing situation where death has occurred in a hospital, LIC will accept alternate proofs of death instead of a death certificate issued by the municipal authorities.

Alternate proofs of death would include death certificate, discharge summary or death summary containing clear date and time of death issued by the government, ESI, Armed Forces or corporate hospitals and counter-signed by LIC class I officers or Development Officers of 10 years standing along with the cremation or burial certificate or authentic identifying receipt issued by the relevant authority.

“In other cases, Municipal Death Certificate will be required as earlier,” LIC said in a statement on Friday.

Life certificates

For Annuities with return of capital options, production of life certificates is waived for annuities due up to October 21 this year, it further said.

LIC would also accept life certificates sent through email in other cases and has introduced life certificate procurement through video call process.

To address the difficulties experienced by policyholders in submitting documents required for claim settlement in servicing branch, submission of documents has been allowed in any nearby LIC office.

LIC further said that starting May 10, all its offices will work from Monday to Friday between 10 am and 5:30 pm. Saturdays will be a public holiday for LIC.

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HDFC Q4 net profit surges 42 per cent

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Housing Development Finance Corporation (HDFC) Ltd reported a 42.4 per cent jump in its standalone net profit at ₹3,179.83 crore for the fourth quarter of 2020-21.

Its standalone net profit was ₹2,232.53 crore in the fourth quarter of 2019-20.

For the full fiscal 2020-21, HDFC’s net profit however, declined 32.3 per cent to ₹12,027.3 crore versus ₹17,769.65 crore in 2019-20.

Also read: HDFC Bank unveils organisational changes to power future growth

“The profit numbers for the year ended March 31, 2021 are not comparable with that of the previous year. In the previous year, the corporation had recorded a fair value gain consequent to the merger of GRUH Finance with Bandhan Bank amounting to ₹9,020 crore,” HDFC said in a statement on Friday.

For the quarter ended March 31, 2021, HDFC reported a net interest income of ₹4,065 crore, which was 14 per cent higher compared to ₹3,564 crore in the previous year.

Net interest margin for the year ended March 31, 2021 stood at 3.5 per cent.

As at March 31, 2021, ₹4,479 crore is being restructured under the RBI’s Resolution Framework for Covid-19 related stress, amounting to 0.8 per cent of the assets under management.

Of the loans being restructured, 27 per cent are individual loans and 73 per cent non-individual loans.

Gross non-performing loans as at March 31, 2021 stood at ₹ 9,759 crore or 1.98 per cent of the loan portfolio.

During the quarter ended March 31, 2021, individual loan disbursements grew by 60 per cent over a year ago.

“The month of March 2021 witnessed the highest levels in terms individual receipts, approvals and disbursements. Growth in home loans was seen in both, the affordable housing segment as well as high-end properties,” HDFC said.

The board recommended a dividend of ₹23 per equity share of face value of ₹2 each for the financial year 2020-21.

It also approved the re-appointment of Keki Mistry as the Managing Director (designated as Vice Chairman and Chief Executive Officer) of HDFC for a period of three years with effect from May 7, 2021, subject to approval of the members at the ensuing AGM.

Further, the board approved issuance of Redeemable Non-Convertible Debentures (secured or unsecured) and any other hybrid instruments (not in nature of equity shares) up to ₹1.25 lakh crore during a one year period.

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Public sector banks losing market share in loans to private sector rivals

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The proposed privatisation of two public sector banks (PSBs) in FY22 could accentuate the already declining market share of PSBs in loans, with the share of private sector banks (PvSBs) expected to go up further.

A realignment of market share in loans has been happening in the banking space over the last four years.

PSBs’ (or state-owned Banks) market share in loans declined to around 59 per cent (of all scheduled commercial banks’ outstanding credit) in December 2020 against around 65 per cent in December 2017.

However, during this period, PvSBs market share rose to around 36 per cent from around 30 per cent, going by Reserve Bank of India data.

The aforementioned development comes in the backdrop of PSBs turning cautious on loan growth in the face of stress in their balance sheets and IDBI Bank getting classified as a PvSB following the Life Insurance Corporation of India becoming its promoter with management control in January 2019.

Consolidation exercise

PSBs loan growth also slackened as some of them focussed their energies on streamlining operations following mega-mergers within the grouping.

Dena Bank and Vijaya Bank got amalgamated with Bank of Baroda with effect from April 1, 2019.

The aforementioned consolidation exercise was followed by mega-mergers in PSB space in FY20-21.

With effect from April 1, 2020, Oriental Bank of Commerce and United Bank of India merged with Punjab National Bank; Syndicate Bank merged with Canara Bank; Andhra Bank and Corporation Bank merged with Union Bank of India; and Allahabad Bank merged with Indian Bank.

During the last four years, PvSBs pressed ahead with loan growth. Many larger and mid-sized PvSBs were neither constrained by capital nor weighed down too much by bad loans.

Realignment & privatisation

Now, if the Government makes good on its Budget announcement of privatising two PSBs in FY22, the market share of State-owned banks could shrink further by about 3-4 percentage points, with the share of PvSBs correspondingly going up.

In 2018, Uday Kotak, Managing Director & CEO, Kotak Mahindra Bank, observed that private sector banks’ market share will go up significantly and be on a par with that of public sector banks in the next five years.

“…This major mega trend in the redefinition of the industry structure is something which is playing out as we talk,” Kotak then said.

Banking expert V Viswanathan assessed that PvSBs are focussing on credit to small and medium enterprises (which offer collateral), wholesale trade, home loans and related top-up loans, loan against property, auto loans and personal loans, among others, in a big way.

Meanwhile, small finance banks have grown their market share in loans to about 1 per cent in December 2020 from about 0.22 per cent in December 2017. Foreign banks’ share came down to 3.98 per cent from 4.44 per cent.

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To get RBI funds at 4%, can lend at up to 20%, BFSI News, ET BFSI

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Last year it was fintech firms that got a boost from the digitisation wave in banking, this time small finance banks (SFBs) are getting a push.

The Rs 10,000-crore support from the Reserve Bank of India (RBI) as part of its pandemic relief measures announced on Monday is set to make small finance banks more competitive. The SFBs would get such funds at 4% for three years, which is significantly lower than their average cost of lending. The new facility would help them to get about 1-1.5% positive carry on the borrowed funds, even after investing the same amount into government securities as mandated by the central bank.

This window is an opportunity for SFBs with surplus g-secs to turn competitive as the lenders can deploy the available fund at a higher spread. Small banks generally lend at rates in the range of 10-20% depending on borrowers’ profile.

The banking system including small finance banks is sitting on a cash surplus of Rs 7.12 lakh crore.

Banks carrying surplus short-term securities could liquidate it and deploy the funds for lending.

SLTRO boost

Reserve Bank of India (RBI) has announced a special long-term repo operation (SLTRO) for small finance banks, amid the second wave of Covid cases in the country. The central bank will conduct the special operation of Rs 10,000 crore at repo rate, Das said.

“Small finance banks (SFBs) have been playing a prominent role by acting as a conduit for the last-mile supply of credit to individuals and small businesses,” Das said during an unscheduled address.

“To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic, it has been decided to conduct special three-year long-term repo operations of Rs 10,000 crore at repo rate for the SFBs, to be deployed for fresh lending of up to Rs 10 lakh per borrower,” Das said, adding that the facility will remain open till October 31, 2021.

Priority loans

The RBI also has decided to allow the classification of priority sector lending for loans given by small finance banks (SFB) to micro-finance institutions (MFI) for on-lending to individuals.

The decision has been taken to address the liquidity issues of MFIs amid the severe Covid crisis.

RBI Governor Shaktikanta Das said: “In view of the fresh challenges brought on by the pandemic and to address the emergent liquidity position of smaller MFIs, SFBs are now being permitted to reckon fresh lending to smaller MFIs (with asset size of up to Rs 500 crore) for on-lending to individual borrowers as priority sector lending.” This facility will be available up to March 31, 2022.



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Muthoot Finance ties up with NIRA to offer personal loans

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Muthoot Finance Limited has announced its collaboration with fintech NIRA as part of its strategy to strengthen its digital footprint.

Through this partnership, salaried customers can avail a personal loan of up to ₹1 lakh from Muthoot by downloading the NIRA app from Google’s Play store.

NIRA is a Bengaluru-based fintech offering small ticket personal loans to salaried workers from India’s middle class. They offer loans to borrowers starting at incomes as low as ₹12,000 per month. This partnership will help Muthoot Finance build its unsecured lending book.

Pradeep, Head – Personal Loan, Muthoot Finance said, “We are excited to have this tie-up to enhance our personal loan growth with quality. Muthoot Finance is also aggressively moving towards an end-to-end digital process, and this tie-up is one of the initiatives in the same direction.”

Rohit Sen, CEO and co-founder at NIRA, said: “Muthoot is a trusted brand Pan-India, and trust is a vital ingredient in the provision of financial services. This partnership bolsters our ability to continue our mission of providing accessible formal credit at affordable rates and in a timely manner to India’s mass market.”

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Fintech start-up LenDenClub turns profitable in Q4 of FY21

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Three-year-old fintech start-up LenDenClub, a peer-to-peer lending platform, has disbursed loans worth nearly ₹600 crore in FY21, up from ₹60 crore in the previous fiscal and has turned profitable in Q4 of FY21.

The company is eyeing a five-fold growth in the next two years and aims to disburse ₹1,200 crores worth of loans in FY22.

The company has provided loans to over 1,30,000 unique borrowers and cumulatively 3,60,000 loans, primarily to young salaried professionals. It processes over 25,000-30,000 loan applications and disburses about 15,000 loans every month. The P2P lender currently has a user base of over 15 lakh borrowers and 4.5 lakh lenders on its platform.

Business growth

“At LenDenClub we have grown 1,000 per cent y-o-y and 43 per cent of our customers are repeat customers who rely on us during their tough times. Even amidst the pandemic, we identified the consistency in the investment flow and business grew exponentially. We have seen a considerable growth with respect to all aspects of our business – be it business numbers, headcount/manpower, geographic reach etc. As a company we are growing very fast, thanks to our collaborative team efforts, and became profitable in FY20-21. Our sustainable focused approach has helped us become the first P2P lending company in the industry to turn profitable as on Q4, 2021,” Bhavin Patel, CEO and co-founder, LenDenClub told BusinessLine.

“We believe that the current year will also witness muted growth in the first quarter and then grow exponentially over the next three quarters,” he said.

Recently, LenDenClub also became the first P2P lending company to integrate with Google Pay, going live on its platform, allowing customers to borrow and lend seamlessly, along with making payments. Additionally, the fintech lender has expanded its flagship digital lending platform InstaMoney pan-India.

Financial inclusion

From its presence in seven States, the company has expanded its offering to borrowers from over 19,000 pin-codes. This has benefited population living in rural regions not covered by banks especially, in the small ticket loan category of up to ₹10,000. The company has one of the lowest NPAs in the digital lending space of 3.95 per cent.

LenDenClub aims at fostering financial inclusion and in serving the marginalised, low-income groups and credit-starved MSMEs. The company hopes to scale up disbursement volumes to ₹500 crore on a month-on-month basis by FY23-24, while working towards becoming one of the top lending institutions in the country.

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