Category: Banking & Finance

Covid surge sparks demand for Insolvency and Bankruptcy Code suspension yet again, BFSI News, ET BFSI

Banking & Finance

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With the Reserve Bank of India unveiling a rescue package that stops short of offering loan moratoriums, lenders now want suspension of the Insolvency and Bankruptcy Code, which was reanimated on March 24 after being suspended for a year.

Banks are planning to petition the government to keep the IBC process under suspension to help companies restructure their finance to face the renewed vigour of the pandemic, according to a report.

Also, the court proceedings are hampered due to the pandemic with courts hearing only urgent matters.

Experts are seeking an extension of IBC to 3-6 months and taking a call after that depending on the situation.

Industry body Assocham has also urged the government to reimpose a moratorium on taking debt-ridden firms to the NCLT under the IBC till December this year following the severe second wave of coronavirus. In a representation to the Finance Ministry, the chamber said that given the increasing pressure on businesses, it would be imperative to extend the NCLT (National Company Law Tribunal) moratorium to ensure that the pandemic “does not wreak havoc” on the economy.

Virtual hearings

With Maharashtra in partial lockdown to curb Covid-19 infections, experts have said that some high-stake bankruptcy cases in Mumbai could be affected by virtual hearings.

The disposal rate in virtual trials is quite low and could add to the pendency of cases if the state’s restrictions persist for a longerduration. While there has been no official notification, all case hearings in the state have shifted to the virtual platform.

There were more than 20,000 cases pending with the National Company Law Tribunal as of December 2020 and a bulk of them are with the Mumbai NCLT.

With the IBC suspension having been lifted, the number of applications is bound to increase rapidly. Online hearings could add to the existing pressure on the tribunals, which may lead to a further slowdown of resolutions through the IBC process.

The government recently issued an ordinance to provide a pre-packaged scheme – an efficient alternative insolvency resolution framework – for micro, small and medium enterprises (MSMEs). This is set to quicken the resolution process and reduce litigation.

The status of IBC cases

Out of the total 3,774 cases or corporate insolvency resolution processes (CIRPs) filed since the Insolvency and Bankruptcy Code (IBC) came into existence in 2016, 1,604 cases, or 43 percent have closed, by way of resolution, liquidation or other means. The rest 57 percent are ongoing with many overshooting the 330-day maximum time limit.

Of the 1,604 closed cases, only 14 percent have found a resolution, whereas 57 percent have ended in the liquidation of the companies.

Interestingly, the 72% cases of CIRPs ending in liquidation were already defunct and under the Board for Industrial and Financial Reconstruction.

About 312 cases have been closed on appeal or review or settled, 157 have been withdrawn; 914 ordered for liquidation and 221, saw approval of resolution plans.

The recovery rate for resolved cases under IBC is 44% with Rs 1.84 lakh crore recovered so far of the Rs 4.13 lakh crore admitted claims.

In case of the 12 large defaulters identified by RBI, the creditors recovered Rs 1.36 lakh crore from eight cases that have been resolved so far, with recoveries ranging from as low as 17 percent of claims in the case of Alok Industries, to almost 100 percent for Jaypee Infratech.



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Nine ways banks will benefit from the RBI’s Covid rescue package, BFSI News, ET BFSI

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The Reserve Bank of India governor Shaktikanta Das has announced a slew of measures for the economy to fight Covid. These will help banks face pandemic distress better.

RBI has announced debt recast schemes to small businesses and MSMEs which had not participated in the resolution last year. This will enable banks to offer help to the sound borrowers who are facing trouble during the second Covid wave.

The new recast scheme offers more flexibility to banks as for a borrower whose debt was recast under the resolution framework last year, that moratorium period can be increased or the residual tenure can be stretched for up to two years.

Banks are also allowed to reassess the working capital limits for small units and MSMEs whose debt has been recast earlier, giving room to lenders to help borrowers.

RBI India has not announced a moratorium on loan and interest payments during the ongoing wave, giving much relief to banks. Moratoriums affect credit discipline, and with banks likely to take a hit on the ‘interest on interest’ burden for over Rs 2 crore loans offered during the last moratorium, they may be less inclined to fresh moratoriums.

Through the Rs 10,000 crore special three-year long-term repo operations, or SLTRO, Small Finance Banks can support small business units, micro as also other unorganised-sector ones, as it allows fresh credit of up to Rs 10 lakh per borrower. SFBs can also categorise fresh loans to smaller microfinance institutions that have assets of up to Rs 500 crore as priority sector loans.

The RBI has also extended the period for the relief given earlier this year, allowing banks relief from CRR on exposures of up to Rs 25 lakh to micro, small and medium enterprises.

The central bank has allowed lenders to use 100% of their floating and counter-cyclical provisions to make specific provisions for non-performing assets (NPAs). This will help them gear up for loan losses that may arise due to severe hit to several economic segments.

With banks reluctant to lend despite Rs 6 lakh crore surplus liquidity in the system, the RBI has incentivised banks by offering extra 60 basis points for surpluses parked in the reverse repo against the loans extended by banks. These loans will be classified as priority sector lending also and the banks need not take direct exposure but can pass on through another intermediary such as NBFC.

The RBI has relieved pressure on prices of bonds held by banks as it has announced another round of the GSAP-1 for Rs 35,000 crore. The central bank will buy back bonds from the market, leading to a rise in their demand and prices. This has led to a rally in bond prices with the benchmark yield slipping below 6%.



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RBI allows lenders to revamp MSME accounts under Covid-19 related stress

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The Reserve Bank of India (RBI) has allowed lenders to extend the facility for restructuring existing loans of micro, small and medium enterprises (MSMEs) without a downgrade in the asset classification under the “Resolution Framework 2.0” given the uncertainties created by the resurgence of the Covid-19 pandemic.

Among the conditions specified by the central bank for restructuring existing MSME loans include: the aggregate exposure, including non-fund based facilities, of all lenders to the borrower should not exceed ₹25 crore as on March 31, 2021; and the borrower’s account should have been a ‘standard asset’ as on March 31, 2021. Further, the borrower’s account should not have been restructured earlier.

RBI said the restructuring of the borrower account has to be invoked by September 30, 2021.

The decisions on applications received by the lenders from their customers for invoking restructuring under this facility should be communicated in writing to the applicant by the lending institutions within 30 days of receipt of such applications.

Further, the restructuring of the borrower account has to be implemented within 90 days from the date of invocation.

Upon implementing the restructuring plan, lenders have to keep the provision of 10 per cent of the borrower’s residual debt.

RBI asked lending institutions to put in place a Board approved policy on the restructuring of MSME advances at the earliest, and in any case, not later than a month.

In respect of accounts of borrowers, which were restructured in terms of the MSME restructuring circulars, lending institutions have been permitted, as a one-time measure, to review the working capital sanctioned limits and/or drawing power based on a reassessment of the working capital cycle, reduction of margins, etc. without the same being treated as restructuring.

The decision with regard to above should be taken by lending institutions by September 30, 2021.

RBI said accounts provided relief under these instructions will be subject to subsequent supervisory review about their justifiability on account of the economic fallout from Covid-19.

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No freezing a/c for KYC, digital proof can be final, BFSI News, ET BFSI

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The RBI on Wednesday relaxed KYC (know-your-customer) norms to enable the process to be completed remotely and prevent banks from freezing accounts in which such data has not been updated.

“In respect of customer accounts where periodic updation of KYC is due and pending as on date, no restrictions on operations shall be imposed till December 31, 2021, for this reason alone, unless warranted under instructions of any regulator/ enforcement agency/ court of law,” the RBI said in a circular. Earlier, SBI had given similar instructions to its branches after a directive from the finance minister through a tweet.

While the central bank’s directive gives relief to customers of all RBI-regulated entities, a larger reform is the enabling of digital KYC. Currently, banks are completing the KYC process for individuals remotely using video-based customer identification (V-CIP). This process has been extended for businesses including proprietorship firms, authorised signatories and beneficial owners of legal entities.

Earlier, accounts opened using Aadhaar-based e-KYC were treated as ‘limited KYC’ accounts. These will now be treated as fully compliant accounts. Entities looking to complete the KYC process can now use KYC Identifier of Centralised KYC Registry (CKYCR) for V-CIP.



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Bankers, BFSI News, ET BFSI

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MUMBAI: Bankers on Wednesday welcomed the measures announced by RBI as a nuanced attempt to address not just economic concerns but public health issues as well.

SBI Chairman Dinesh Kumar Khara said the unscheduled statement from Governor Shaktikanta Das has targeted moves to alleviate the troubles faced by multiple sectors.

“…the series of measures announced today reflect a novel approach. The decision to create a dedicated Rs 50,000 crore fund for ramping up Covid related healthcare infrastructure reflects RBI’s commitment to transcend boundaries by addressing not only economic health but also public health,” he said in a statement.

He also appreciated the decision to augment the lending firepower of small finance banks (SFBs) through priority sector tag, restructuring framework for individuals and small businesses, cash reserve ratio flexibility for lending to SMEs and the measures to help the state governments through ways and means advances relaxations.

MFIN, a self-regulatory organisation of micro-lenders, was very appreciative of the attempt to infuse liquidity for small MFIs by classifying and recognising SFBs’ lending to smaller NBFC-MFIs as priority sector lending.

The body’s chief executive Alok Misra said Das had met sector representatives looking at the “severity of the situation” and followed it up with the steps on Wednesday.

From the non-bank lenders, Mahindra Finance‘s Managing Director and Vice Chairman Ramesh Iyer said the measures aimed at individuals, small businesses and micro borrowers are a timely move, and welcomed the restructuring proposals.

“It’s (restructuring) an important announcement looking at the present economic landscape, this will provide as an impetus for businesses to recover from COVID-19 pandemic blues,” he said, adding that the moves to rationalise certain components of the extant KYC (know your customer) norms will support financial institutions to operate in a more efficient way.

Paul K Thomas, who heads the ESAF Small Finance Bank, said the RBI’s core focus on small lending and the last-mile delivery of credit to individuals and small businesses and the schemes to boost the provision of immediate liquidity to SFBs will go a long way in expediting economic recovery.

SFBs will now be permitted to give fresh lending to smaller micro-finance institutions (MFIs) with asset size of up to Rs 500 crore for on-lending to individual borrowers as priority sector lending.

This will add impetus to the SFBs who have been consistently playing a prominent role by acting as a conduit for the last-mile delivery of credit to individuals and small businesses, he said.

Private sector lender Kotak Mahindra Bank’s Group President for Consumer Banking, Shanti Ekambaram said the RBI has announced some timely liquidity measures that will provide relief to the most vulnerable by ensuring credit flow to individuals and small businesses and also give them greater repayment flexibility.

Viral Sheth, finance controller at Moneyboxx Finance, said several states with a huge rural population like Uttar Pradesh, Bihar and West Bengal are witnessing sharp rise in new cases and it was imperative to provide a helping hand to vulnerable sections of individuals and small businesses.



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AIBEA opposes govt decision to privatise IDBI Bank, BFSI News, ET BFSI

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All India Bank Employees’ Association (AIBEA) has opposed the government’s move to privatise IDBI Bank, terming the decision as a “retrograde” move. The association said the government should control a minimum of 51 per cent share capital of the bank.

The bank came into trouble as some private corporate houses cheated IDBI Bank by not repaying the loans taken, while the need of the hour is to take action against the defaulters and recover the money, the bank union said in a statement.

The Cabinet on Wednesday gave in-principle approval for strategic disinvestment along with transfer of management control in IDBI Bank in line with the Budget announcement earlier this year.

The central government and LIC together own more than 94 per cent equity of IDBI Bank.

“The need is to take action on the defaulters and recover the money. Unfortunately, now the decision has been taken to sell the bank to a private company. IDBI Bank is a national asset and should not be sold away in this fashion. It is a retrograde move,” AIBEA said.

If sold to a private company, the existing reservation in jobs for SC/ST category will be withdrawn, it said, adding this is social injustice to the unemployed youth of this country.

The only major problem of the bank is its huge bad loans of Rs 36,000 crore as of March 31, 2021 (22 per cent). Out of the operating profit of Rs 1,900 crore for the year ended March 2021, Rs 1,500 crore have been set off for provision for bad loans, AIBEA Secretary General C H Venkatachalam said.

“Now to camouflage these ills of the bank, the bank is being sold away. We express our strong protest against this decision and urge upon the government not to proceed with the sale of IDBI Bank,” he said.

AIBEA said bank’s deposits of Rs 2.3 lakh crore is people’s money and it should be used for their welfare and national development, not for the private corporate loot.

IDBI was started as a Development Financial Institution (DFI) in the 1960s. It was later converted as IDBI Bank much against the statute approved by Parliament earlier, it added.

It said the bank played a leading role in financing industrial development in the country.



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RBI provides Rs 50,000-crore liquidity for extending Covid-19 loans to healthcare

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SS Mallikarjuna Rao, MD and CEO of Punjab National Bank, said on-tap liquidity of Rs 50,000 crore for Covid-related health care sector along with the incentives for banks like priority sector classification and higher interest on surplus liquidity window will ease access to emergency health services.

By Ankur Mishra

The Reserve Bank of India (RBI) on Wednesday announced immediate liquidity of Rs 50,000 crore for banks for enabling them to extend Covid loans to healthcare entities. This liquidity window available at the repo will remain open till March 31, 2022. Under this scheme, banks can provide fresh lending support to vaccine manufacturers, hospitals and also patients for treatment, among others.

Banks are also being incentivised for quick delivery of credit under the scheme through extension of priority sector classification up to March 31, 2022, RBI governor Shaktikanta Das said. The loans will continue to be classified under the priority sector till repayment or maturity, whichever is earlier.

In an interaction with CNBC TV 18, State Bank of India (SBI) chairman Dinesh Kumar Khara said measures will help in creating health infrastructure and will encourage banks to create Covid books. Banks are expected to create a Covid loan book under this scheme. Such banks will be eligible to park their surplus liquidity up to the size of the Covid loan book under the reverse repo window at a rate which is 40 bps higher than the reverse repo rate.

Khara further said two vaccine manufactures have reached out to SBI for loans, and they can be given loans under the new facility.

Bankers also feel that the scheme from the RBI will ease access to emergency health services. CII president Uday Kotak said, “RBI governor has taken the financial sector battle against Covid 2.0 head on with a clear focus on protecting lives and livelihoods.”

SS Mallikarjuna Rao, MD and CEO of Punjab National Bank, said on-tap liquidity of Rs 50,000 crore for Covid-related health care sector along with the incentives for banks like priority sector classification and higher interest on surplus liquidity window will ease access to emergency health services.

Under the scheme, banks can provide fresh lending support to a wide range of entities including vaccine manufactures; importers/suppliers of vaccines and priority medical devices; hospitals/dispensaries; pathology labs; manufactures and suppliers of oxygen and ventilators; importers of vaccines and COVID related drugs; logistics firms and also patients for treatment.

Echoing the views of bankers, Rashmi Saluja, executive chairperson, Religare Enterprises, said: “The central bank has shown lot of foresight by announcing flow of unhindered liquidity to the healthcare sector in order to boost production of vaccine, Covid-related medicines and ramp up oxygen supplies.” This special lending window of Rs 50,000 crore has been classified under priority sector lending and will ensure steady flow of loans to the healthcare sector, she added.

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Yes Bank expects 15% loan growth in FY22: Prashant Kumar, managing director and chief executive officer

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Overall, I think there would be some impact, but not much.

Yes Bank is expecting a loan growth of 15% in the current financial year (FY22). In an interview with Ankur Mishra, managing director and chief executive officer Prashant Kumar says 15% credit growth in FY22 will not be difficult as the bank has disbursed Rs 15,000 crore even in the March quarter. He says current wave of Covid-19 will have some impact, but not to the extent of last year. Excerpts:

What is your assessment on the impact of pandemic? Has the bank done any stress test?
This is too early. My reading is that economic impact will not be that much, compared to what happened last year. Last year was complete lockdown, everything was closed. It came to almost zero, but this year there are only restrictions. Lot of activities are happening. But definitely there is going to be some impact. Last month, we have seen all-time-high GST collections of Rs 1.4 lakh crore, industrial production is happening, movement of goods are happening. So, once we hit the peak, it will start coming down. And now we have the vaccine available. So, economic recovery will happen much faster.

Related News

How has been collection efficiency in the March quarter (Q4FY21) and during April? Has there been some impact of Covid-19 so far?
We have reached to the pre-Covid levels during the March quarter as far as collection efficiency is concerned. In the March quarter, our collection efficiency remained somewhere around 96%. In the first 15 days of April, we were at the same level. We are still awaiting data after April 15. Overall, I think there would be some impact, but not much.

You have managed your credit deposit (CD) ratio at 102% in Q4 in line with the target to keep it around 100%. Now, as the deposits are growing rapidly, how do you plan to keep the balance?
On the deposits part, we are continuously reducing rates. Last one year, we have reduced more than 100 basis points (bps) on fixed deposits (FDs). On the savings side also, we have reduced rates. Basically, we have to keep balance in deposits growth in terms of what are the opportunities for credit. We are looking for a credit growth of around 15% for overall book. And if credit growth is 15%, deposits has to grow more than 15%. But definitely not at a very high rate. We are not looking to gain market share in deposits or remain very aggressive, but it is more in terms of managing our asset liability. So, if we see due to liquidity more deposits would be coming, we will further reduce our rate of interest.

What gives you confidence for loan growth of 15% in FY22?
I think that should not be difficult because even in the last quarter we have disbursed Rs 15,000 crore. It is not reflecting in our number as we have made additional provisions which reduce your net loan book. Secondly, we were following a strategy on the corporate side for some of the assets where the concentration was high. So, that exercise is now over. Going forward, it will be only growth. The only caveat is that pandemic should not bring any unexpected surprise.

NII de-growth during the March quarter has been attributed to interest reversals and one-offs. How do you see NII growth going forward?
If you don’t have that kind of slippage, your NII growth will be largely in line with your loan growth. So going forward, double-digit growth of NII should be definitely possible in FY22.

What is your outlook on net interest margins (NIMs)?
We are expecting to reach at 3% till March quarter in the current financial year (Q4FY22).

Overall, you were able to do Rs 4,933 crore cash recovery in FY21. What is your target for June quarter and FY22, considering the pandemic?
It is very difficult to guide for June quarter, but definitely we should be able to reach at least Rs 5,000 crore cash recovery during FY22. Why I am saying this is because we were able to achieve a similar target in six months of FY21 as first two quarters (Q1FY21 and Q2FY21) were almost a washout. And we were immediately recovering from reconstruction and moratorium. The recovery can be more than Rs 5,000 crore during FY22. We can definitely do better than FY21.

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Collections, disbursements picked up in March quarter: Equitas SFB

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MD & CEO P N Vasudevan told analysts at an earnings call post announcement of March quarter results that the bank had a reasonably good quarter as collections and disbursements continued to pick up across the product segments.

Equitas Small Finance Bank (Equitas SFB) said the bank had a reasonably good fourth quarter as collections and disbursements continued to pick up across the product segments. The vehicle finance portfolio, in particular, has done better than its initial assessment.

The Chennai-headquartered bank said it continued to focus on collections in March and achieved collection efficiency of 108.51% while its billing efficiency stayed at 91.12%. Collection efficiency represents total collections during the month as a percentage of March total EMI due, while billing efficiency represents only the EMI collected as a percentage of March total EMI due.

MD & CEO P N Vasudevan told analysts at an earnings call post announcement of March quarter results that the bank had a reasonably good quarter as collections and disbursements continued to pick up across the product segments.

“On the liabilities front, the team has done an excellent job across all indicators, be it retail growth, fee income, digital traction, branch productivity. We are seeing a very good traction,” he said.

However, he added that with fresh lockdowns and restrictions being announced across various parts of the country and the ambiguity of what impact it would have on the customer segment, guidance for the current year looked quite difficult to make at this point in time.
Vasudevan said as of March 31, the bank’s advances grew 17% year on year and about 81% was of secured loans. Its flagship product, small business loan, continues to show reasonable growth.

Used car advance crossed Rs 120 crore, which was launched in the end of the last financial year. MSE finance, started post conversion to a bank, continues to do well and now contribute 7% of the overall book.

He said the bank acquired 4.76 lakh liability accounts in FY2021 as compared to 1.59 lakh in FY2020, which is almost like three times or a 300% jump. This was largely led by the bank’s multiple digital initiatives, improved productivity and a very strong leadership. Deposit grew by 58% YoY, savings account grew by 174% and 45% quarter on quarter.

According to him, the bank has fairly reached its destination product mix level, with micro finance at 18%, small business loans at 45%, commercial vehicle at around 25% and the remaining being SME and NBFC lending. He maintained that the bank had achieved a steady product mix. “Our affordable housing loan, which we started about an year ago, has started to contribute and then there are few supplementary products like used car and gold loan,” he said, adding, “We are not really looking to launch any new vertical as such because we are fairly comfortable with the product mix that we have today.”

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RBI opens ₹50,000-cr liquidity tap for banks to on-lend to healthcare sector

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To cushion the economic impact of the second wave of Covid-19, the Reserve Bank of India swung into action on Wednesday, announcing a slew of measures aimed at easing the financing constraints being faced by vaccine manufacturers and importers of life-saving equipment, besides small/medium businesses and individuals.

The central bank announced a special on-tap liquidity of ₹50,000 crore with tenor up to three years at repo rate (4 per cent) for lending to emergency healthcare required to fight Covid crisis. The macro impact of the scheme can be gauged from the fact that ₹50,000 crore is roughly 9 per cent of India’s total health expenditure of ₹6-lakh crore under private final consumption expenditure in 2019-20. Unveiling these measures, Governor Shaktikanta Das emphasised that the central bank is committed to go unconventional and devise new responses as and when the situation demands.

“Major beneficiaries of the announced healthcare liquidity scheme would be pharmaceutical manufacturers, vaccine-makers, healthcare equipment manufacturers, hospitals and diagnostic players. Penetration of hospitals/dispensaries may increase as players can now opt for capex funding. Also, diagnostic chains can use this opportunity to penetrate into Tier-II cities and beyond,” said Rahul Prithiani, Director, Crisil.

Markets rise

The stock markets gave a thumbs-up to the RBI moves. The Sensex, which was trading just around 40-50 points higher in the morning, closed with gains of 424 points, or 0.88 per cent, at 48,677. The Nifty closed higher by 0.84 per cent or 121 points at 14,671.

To provide support to small businesses, micro and small units, and unorganised sector entities affected by the Covid second wave, the RBI said it will conduct special three-year long-term repo operations (SLTRO) of ₹10,000 crore at repo rate for small finance banks (SFBs), to be deployed for fresh lending of up to ₹10 lakh per borrower. This will be available till October 31, 2021.

To address liquidity issues of smaller microfinance institutions, SFBs have been permitted to consider fresh lending to the MFIs (with asset size of up to ₹500 crore) for on-lending to individual borrowers as PSL.

Individuals, small businesses and MSMEs, which did not resort to any of the earlier restructuring frameworks, having an aggregate exposure of up to ₹25 crore and were classified as ‘Standard’ as on March 31, 2021, will be eligible to be considered for restructuring under Resolution Framework 2.0 for Covid-related stressed assets.

Resolution Framework

This restructuring is open up to September 30, 2021 and will have to be implemented within 90 days of invocation. In respect of individual borrowers and small businesses that availed themselves of loan restructuring under Resolution Framework 1.0, where the resolution plan permitted moratorium of less than two years, the RBI said lending institutions can modify such plans to increase the period of moratorium and/or extend the residual tenor up to a total of two years. For small businesses and MSMEs restructured earlier, lending institutions can, as a one-time measure, review the working capital sanctioned limits.

To further incentivise inclusion of unbanked MSMEs into the banking system, the current incentive to deduct credit disbursed to new borrowers from banks’ deposits for calculation of the cash reserve ratio (CRR) has been extended further. This exemption, currently available for exposures up to ₹25 lakh and for credit disbursed up to the fortnight ending October 1, 2021, has been extended till December 31, 2021.

INTO THE BREACH, AGAIN

  • ₹10,000-cr special long-term repo operations for SFBs to lend to individuals and small biz
  • Restructuring of Covid-related stressed assets of individuals, small biz and MSMEs
  • Rationalisation of compliance to KYC requirements
  • Utilisation of floating provisions and countercyclical provisioning buffer for banks
  • Relaxation in overdraft facility for State governments

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