As India stares at lockdowns and curbs for the entire May, banks and NBFCs are Lenders are bracing for a further deterioration in asset quality metrics, cheque-bounce rates and collection ratios.
Collection levels had already dropped to 10% for lenders and cheque-bounce rates had increased in segments like small and medium enterprises, commercial vehicles and microfinance.
Analysts see cheque bounce levels rise by another 3-4% while collection ratios dropping by nearly 5% in May alone
Cheque bounces are back to January 2021 levels after improving in March with Maharashtra, Madhya Pradesh, Punjab, and Telangana are seeing higher check bounce rates, HDFC Bank said in its Q4 results.
Dishonoured cheques in April (half-way through the month) have risen slightly, possibly due to some panic caused by worsening medical conditions,” HDFC said after its Q4 results.
Till the first week of April, the worst affected state was Maharashtra but now many states have been severely impacted by the fresh pandemic surge. NBFCs and small finance banks face a bigger hit.
Axis Bank too has said collections are likely to get impacted in the coming weeks and it was watching the situation closely. No cover this time
Banks, which got protection and support by a swift moratorium on loans when the pandemic first struck, have no such cover this time.
As the second wave intensifies, most of the relief measures and schemes announced by the government and Reserve Bank of India have expired. On top of it, the central bank is non-committal on moratoriums.
In today’s conditions, there is no need for a moratorium,” RBI governor Shaktikanta Das said after the central bank’s monetary policy review. However, that statement was before the second Covid wave worsened.
RBI stress test
Bank NPAs may rise to 13.5% under the baseline stress test scenario by September, the highest in more than 22 years, according to the RBI’ financial stability report in January this year.
The gross bad loan ratio of banks which stood at 7.5% as of 30 September, could almost double to 14.8% under a severe stress scenario, RBI warned. Under the severe stress scenario, RBI has assumed a 7.6% economic contraction in the six months to 31 March and a tepid 3.8% growth in the first half of the next fiscal. However, uncertainty over vaccines and the severity of the Covid wave hobbles the 3.8% growth projection.
The last time banks saw such stress was in 1996-97 when the bad loan ratio rose to 15.7%.
BoM earned a net profit of Rs 165 crore in the January-March quarter. The bank has recovered Rs 508 crore from the toxic account of Bhushan Power and hopes to get another cheque of almost the same amount from IL&FS soon. In an interaction with ETBFSI, A S Rajeev, MD & CEO of Bank of Maharashtra, said he does not see a major impact of the second wave for his bank. He also mentioned that they are seeing notable results of end-to-end digital lending platforms which they have created. Edited excerpts.
A S Rajeev, MD & CEO of Bank of Maharashtra
Q. Is there any other account other than Bhushan Power in the future where you are expecting some big recoveries?
The amount may not be as huge as Bhushan, but there are a number of accounts in different stages, and the amount may vary between Rs 50 crore to Rs 100 crore. But we are expecting something big from the IL&FS account, it will take some time though. We are expecting between Rs 500 crore to Rs 600 crore from it. Most of the accounts we have fully written off, it will help us to improve the profitability.
Q. How much did you disburse under ECLGS? Are you also keeping funds ready to disburse to MSMEs once the second wave ebbs? Have you spotted new SMEs?
We have lent around Rs 2,400 crore under this scheme. Our MSME growth last year was 36%. Out of that 12% came from ECLGS scheme. Now most of this, about 90-95%, we have already disbursed. Repayments on these accounts are on schedule. The total MSME accounts we restructured were around Rs 650 crore. To attract MSMEs, we have launched a scheme ‘Ghar Wapsi’, we have the database of the last 5-6 years, and we are approaching those customers who left us. Such accounts are in the range of Rs 500-600 crore. We expect around Rs 1,500-1,600 crore of advances in this segment. Also, this year our agriculture portfolio grew 13-16%. There was a good monsoon, and with settlement schemes, we had a good recovery. This year, we created another portfolio of gold loans. It also picked up really well with Rs 2,000 crore jewellery loans. We reduced our interest rates to the lowest in the industry.
Q. The second wave is grappling the country far more significantly. Do you see challenges in recovery, collections?
At present, there are no major challenges. We have not started to see such difficulties yet. Since we are flagging the account status every month, we performed the portfolio analysis in April and didn’t find something challenging. What we are seeing is that stress in the portfolio is not there like the last time during complete lockdown that happened for one, one and a half month. So there is no stress at present in the portfolio or the repayments. Also, it’s local lockdown and has not started affecting the economy. If it continues for some more time, it may affect the economy. Our feeling is that in another 1-2 weeks the situation may change.
Q. Do you see a slowdown in credit demand this quarter?
Generally, the first quarter of the FY is always negative. It is either negative or the growth rate would be 1-2%. Because banks are busy with miscellaneous things such as audits, transfers, promotions, etc. My experience states that there is not much of credit growth during the period of April and May. So even if the economy is affected by slightly localised lockdown, it will be hit only corporate customers. Sowing starts in June, so agricultural lending will start from then. So if you see a 14-16% growth rate per year in any banking system, either it is negative by 1-2% or positive by 1-2% in the first quarter. So geometrically you can see that if 2% is the growth rate in June, for the second quarter it would be 4-5%, for the third quarter it would be 8-10% and so on.
Q. What kinds of digital adoption has BOM done recently? What kinds of digital capabilities are you building?
We have digital products out there. Last year, we incorporated Loan Management System, which is end-to-end digital for loan advancement or sanctioning loans. There is no cap here on the loan amount. Any amount including corporate loans can be disbursed digitally on the Loan Management System. MSMEs can upload their documents to the system. There are certain agencies we have integrated with such as the income tax department, sales tax department, Crisil, Google reports, etc, which undertake the task of vetting as well. It is done parallelly within 2-3 minutes. There is no manual intervention. Only final approvals have to be done by respective authorities. We have also put in place SAP models. There are some models we are still working on and making changes like UAT. Our entire audit system is digitised. An auditor need not go to any other place. Sitting in their place they can do the audit. Digital signatures are also used, and in every area, 100% digitisation has been made. With such an efficient system, it also helps us in declaring our quarterly results early.
The RBI has imposed a monetary penalty of Rs 3 crore on ICICI Bank for “contravention of certain directions issued by the RBI contained in Master Circular on ‘Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks’ dated July 1, 2015”, the central bank said in a statement.
It, however, added the action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers.
Giving details, the RBI said an examination of correspondence in the matter of shifting of securities from one category to another revealed, inter alia, contravention of the directions.
A notice was issued to ICICI Bank advising it to show-cause as to why penalty should not be imposed on it for failure to comply with the directions issued by the RBI.
After considering the bank’s reply to the notice, oral submissions made in the personal hearing and examination of additional submissions made by it, the RBI said it came to the conclusion that the charge of non-compliance with RBI directions was substantiated and warranted imposition of monetary penalty.
Uday Kotak had sold 56 million shares held by him in the bank for at least Rs 6,913.75 crore through a block deal to reduce his stake to 26%.
Kotak Mahindra Bank’s MD and CEO Uday Kotak on Monday said he would be with the bank at least till his term ends. On his succession plans, Kotak said the bank’s board would act in a manner which is appropriate and responsible.
The comments from Kotak came after the Reserve Bank of India (RBI) issued guidelines that the MD and CEO of a private bank cannot have a tenure of more than 15 years. RBI had earlier approved the re-appointment of Uday Kotak as MD & CEO of Kotak Mahindra Bank for three years in December 2020.
“Right now, my tenure is till December 2023 and you are going to see me at least till then,” Kotak said. He said succession planning is a continuous process for any institution. “Our board members are fully aware of their responsibilities and they will act in a manner, which is appropriate and responsible.” he added.
Kotak had a prolonged disagreement with the central bank over his personal holding in the private lender. He had moved the Bombay HC in December 2018 against an RBI diktat on reducing promoter holding to 15% by March 2020. The matter was resolved after RBI allowed the promoter stake to be reduced to 26%.
Uday Kotak had sold 56 million shares held by him in the bank for at least Rs 6,913.75 crore through a block deal to reduce his stake to 26%.
The Reserve Bank of India (RBI) Governor on Monday discussed the outlook on potential stress on balance sheets of non-banking financial company-micro finance institutions (NBFC-MFIs) in the backdrop of the second wave of the Covid-19 pandemic.
The meeting also took stock of credit flows to borrowers of NBFC-MFIs. These entities give credit to economically dis-advantaged groups.
In a video-conference with the chiefs of select NBFC-MFIs, RBI Governor Shaktikanta Das discussed issues including assessment of current economic situation, and liquidity scenario.
The Governor emphasised the supervisory expectations in terms of maintaining their business resilience and managing risks prudently.
Das advised the NBFC-MFIs to pay focussed attention on strict adherence to fair practices code, improve customer grievance redress mechanism and strengthen their IT systems in the interest of the institutions and their customers.
The meeting was also attended by Deputy Governors M. K. Jain, M.D. Patra and a few other senior officials of RBI.
SBI Life Insurance reported a net profit of ₹532.38 crore in the fourth quarter of financial year 2020-21, almost the same as its net profit at ₹530.67 crore reported during the same period of financial year 2019-20.
Its net profit increased 2.36 per cent to ₹1,455.85 crore in FY21 as compared to ₹1,422.17 crore in FY20. For the quarter-ended March 31, 2021, its net premium income grew a robust 31.1 per cent to ₹15,555.74 crore as against ₹11,862.98 crore in the same period previous fiscal.
Solvency ratio
The private sector life insurer’s 13th month solvency ratio stood at 87.92 per cent as on March 31, 2021 as against 86.14 per cent for FY20. Solvency ratio was 2.15 as on March 31, 2021 versus 1.95 as on March 31, 2020.
“Assets under management has grown by 38 per cent from ₹1.6 lakh crore as on March 31, 2020 to ₹2.2 lakh crore as on March 31, 2021 with debt-equity mix of 73:27 and more than 90 per cent of the debt investments are in AAA and sovereign instruments,” it said in a statement on Monday.
IDBI Bank is considering picking up a stake in the National Asset Reconstruction Company (NARCL) which is being set up jointly by banks to clean up their books.
Rakesh Sharma, MD & CEO at IDBI Bank said that large public sector and private sector banks will be investing in NARCL, with each bank taking less than 10 per cent stake. So, IDBI Bank will also consider investing in the company, Sharma said. He observed that consortium loans (₹500 crore and above) will be transferred to NARCL. The quantum of stressed loans to be transferred to NARCL will be a reasonably good number so that the bank is able to reduce its gross non-performing assets, he added.
In her Union Budget speech on February 1, 2021, Finance Minister Nirmala Sitharaman said that an Asset Reconstruction Company and an Asset Management Company would be set up to consolidate and take over the existing stressed debt and then manage and dispose of the assets to Alternate Investment Funds and other potential investors for eventual value realisation.
Private sector lender Kotak Mahindra Bank posted a 32.8 per cent jump in its standalone net profit for the quarter-ended March 31, 2021 at ₹1,682.37 crore. Its standalone net profit stood at ₹1,266.6 crore in the fourth quarter of fiscal year 2019-20 (FY20).
For the full fiscal 2020-21, the lender’s standalone net profit increased by 17.11 per cent to ₹6,964.84 crore versus ₹5,947.18 crore in FY20.
Growth in NII
Its net interest income grew by 7.9 per cent to ₹3,843 crore in the fourth quarter of last fiscal as against ₹3,560 crore in the same period in the previous fiscal.
Net interest margin was down at 4.39 per cent from 4.72 per cent a year ago.
Other income increased by 30.9 per cent to ₹1,949.53 crore in the fourth quarter versus ₹1,489.39 crore a year ago.
Provisions rise
Provisions increased by 12.6 per cent to ₹1,179.41 crore in the fourth quarter last fiscal as against ₹1,047.47 crore in the corresponding period of the previous fiscal.
The bank did not make any Covid-19 related provisions in the fourth quarter and retained the Covid-19 provision at ₹1,279 crore.
Gross non-performing assets increased to ₹7,425.51 crore or 3.25 per cent of gross advances as on March 31, 2021 as against 2.25 per cent a year ago. Net NPAs also rose 1.21 per cent of net advances as on March 31, 2021 versus 0.71 per cent a year ago.
Deposits grew 6.6 per cent to ₹2.8 lakh crore in FY21 on an annual basis while advances increased by 1.8 per cent to ₹2.23 lakh crore. The bank’s Board recommended a dividend of ₹0.90 per equity share for FY21.
Newly appointed Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar will oversee the functioning of eight departments, including Currency Management, External Investments & Operations, and Payment and Settlement Systems.
The central bank, in a statement, said he will also manage departments such as Government and Bank Accounts, Information Technology, Foreign Exchange, Internal Debt Management, and the Right to Information (RIA) Division.
Rabi Sankar was Executive Director of RBI before being elevated to the post of Deputy Governor (DG). His appointment as DG is for a period of three years or until further orders, whichever is earlier, RBI said.
The Reserve Bank of India (RBI) has imposed a monetary penalty of ₹3 crore on ICICI Bank for non-compliance with its directions in the matter of shifting of securities from one category to another.
The central bank, in a statement, said the monetary penalty has been imposed on the Bank for contravention of certain directions contained in its Master Circular on ‘Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks.’
“This penalty has been imposed in exercise of powers vested in RBI under the provisions of…the Banking Regulation Act, 1949 (the Act),” RBI said in a statement.
This action is based on the deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers, the statement added.
RBI observed that an examination of correspondence in the matter of shifting of securities from one category to another revealed, inter alia, contravention of the aforesaid directions issued by it.
“In furtherance to the same, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed on it for failure to comply with the directions issued by RBI,” the statement said.
After considering the bank’s reply to the notice, oral submissions made in the personal hearing and examination of additional submissions made by it, RBI came to the conclusion that the aforesaid charge of non-compliance with RBI directions was substantiated and warranted imposition of monetary penalty, the central bank said.
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