Credit costs to remain elevated for NBFCs: CARE Ratings

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Credit rating agency CARE Ratings expects credit costs to remain elevated for non-banking finance companies (NBFCs) in FY22 amid the second wave of Covid-19 pandemic.

For FY22, CARE Ratings expects a level of stress, especially in the loan portfolio under restructuring and those which were under moratorium, the impact is likely to be visible in the next one year.

“As such, delinquencies are estimated to rise moderately,” according to a report by the credit rating agency.

The agency observed that NBFCs have been grappling with a succession of uncertain events since 2016 — demonetisation, Goods and Service Tax (GST) implementation, liquidity crisis in 2018 and Covid-19 pandemic in 2020.

These uncertain events derailed growth, disrupted collections and increased loan loss provisioning across asset classes.

Financial metrics

“From Q4 (January-March) FY20, credit costs across major NBFC sub-segments reported substantial increase and has remained at elevated levels. This affected the financial metrics for H1 (April-September) FY21 negatively,” the report said.

Also read: FIDC seeks relief measures in wake of second Covid wave

The agency assessed that after September 2020, the economy re-opened with signs of revival which led to improvement in the sector, collections inched closer to pre-Covid levels and growth gathered momentum. But the second wave of Covid-19 has pulled back the recovery gains with subsequent impact on asset quality.

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Banks roll out special schemes to protect, treat employees amidst Covid surge

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With bank employees continuing to service customers at branches amidst surging Covid-19 cases, banks have initiated special measures to ensure their safety and provide medical help.

With daily Covid -19 caseload at over three lakh, lenders have rolled out more measures this time around, than last year beyond, rostering of employees and limiting banking hours to 10 am to 2 pm.

“We are using a lot of analytics to identify containment areas, high risk areas and are using Artificial Intelligence and Machine Learning for rostering of employees. We are shifting transactions digitally. We have to understand that the number one priority is to keep everybody safe,” said Anup Bagchi, Executive Director, ICICI Bank.

HDFC Bank has converted three of its training centres based out of Bhubaneswar, Pune, and Gurugram into isolation facilities for Covid positive employees.

“These facilities have been equipped with first line assistance and will have round the clock nurses and visiting doctors. Immediate medical help from a nearby hospital will be made available if required,” it said in a recent statement.

Last week, Axis Bank released a detailed four-page document ‘With You’ that lists helpline numbers, resources, and confidential counselling services for employees and their dependents.

“Our current focus is on employee health and safety. At the start of the crisis last year, we had taken a call that we would transition to a hybrid work model. In regions we are calibrating presence in response to regulatory guidance and implementing rostering where WFH is not feasible,” said Rajkamal Vempati – EVP and Head, Human Resources, Axis Bank.

Bankers point out that while banking is an essential service, bank employees are not treated as frontline workers.

“It is an extremely unfortunate situation. Had bankers been able to get vaccinated, many of the deaths would have been prevented,” Soumya Datta, General Secretary, All India Bank Officers’ Confederation.

Industry estimates peg that there have been about 1,000 Covid-19 related deaths and lakhs bank employees being infected.

“We are an essential services… we are all exposed (to customers). We don’t have the luxury. But we are not allowed vaccinations, not allowed to board trains, not allowed to board buses. So, what kind of essential services we are? More push should be there,” Bagchi had told reporters in a media call on April 29.

The Indian Banks’ Association has advised banks to curtail working hours and also said that they should only carry out essential services at branches including cash deposits and withdrawals, clearing of cheques, remittances and government transactions.

But Datta said many states are yet to allow this move. He also pointed out that about 30 per cent bank branches in the country are single officer branches. In such branches, it is difficult to do rostering as there is no back up officer available.

Earlier this month, the Finance Ministry had written to the Ministries of Home Affair and Health and Family Welfare for vaccination against Covid-19 of employees of all banks and the National Payments Corporation of India, irrespective of their age, on an urgent basis.

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Shriram Housing Finance to provide free vaccination to customers, BFSI News, ET BFSI

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In an industry first, mortgage lender Shriram Housing Finance has decided to provide free vaccination to its 20,000 affordable housing customers. The company would roughly spend Rs 1000 per loan as vaccination cost and would cover two members in a family. It estimates to spend nearly Rs 2 crore to provide free vaccination to its customers.

The mortgage lender had earlier announced that it would bear the vaccination cost of its employees.

“Customers in the affordable housing space are not very well off and for them even the small sum to be incurred in vaccination through private players can become a big deterrent, this in turn can derail the vaccination drive,” said Ravi Subramanian, MD, Shriram Housing Finance. “We would be reaching out to all customers with details of this program.”

Several banks including State Bank of India, HDFC Bank, ICICI Bank, Axis Bank have said that they would bear the vaccination cost of employees.

State Bank of India has set up an internal task force to extend immediate assistance to its members.

A Quick Response Team (QRT) headed by a General Manager has been set up at Corporate Centre for monitoring the COVID position at the whole Bank level,” said Rana Ashutosh Kumar Singh, DMD (HR) & Corporate Development Officer, SBI. “Similar teams headed by Deputy General Managers have been set up in all 17 Circles for monitoring the COVID situation in their area and providing assistance to staff and their family members.”

HDFC Bank has converted its training centres in Pune, Bhubaneswar and Gurgaon into isolation centres to deal with Covid-19-related emergencies for employees with symptoms. The bank has also tied up with hotels across the country for rooms.

Some banks have started tying up with doctors who could guide employees in dealing with their Covid-19-related fears. About 1.5 million people are employed across Indian banks.



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SBI General Insurance FY21 net profit rises 32%

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SBI General Insurance reported a 32 per cent increase in its net profit to ₹544 crore in 2020-21 as against ₹412 crore in the previous fiscal.

Its gross written premium (GWP) also grew 22 per cent to ₹8,312 crore last fiscal from ₹6,840 crore in 2019-20.

Solvency ratio was 2 in 2020-21 versus 2.27 in 2019-20. Combined ratio was 99.8 per cent last fiscal as against 98 per cent in the previous fiscal.

“SBI General’s corporate growth was primarily led by its expansive pan-India reach enabled by the increasing number of distribution partners in bancassurance, OEM tie-ups and digital integration like Indian Overseas Bank, Yes Bank, KIA Motors, Honda Siel Cars, Ford Motors, Tata Motors Pvt. Ltd., TVS Motors, Royal Enfield, Suzuki Motor Cycles, Jeep, Railyatri,” it said in a statement on Friday.

The private sector general insurer has also enhanced its customer base by more than three crore customers during 2020-21. The cumulative number of customers served till date adds up to about 8.7 crore, it said.

“Fiscal year 2020-21 demanded special focus on the Health and SME lines, and we managed to maintain a balanced growth. We are also scaling up our product bouquet and adopting digital disruptions to offer instant insurance solutions even at the distributor part, for the ease of customers,” said PC Kandpal, MD and CEO, SBI General Insurance.

In its 11 years of operations, the company has shown steady growth for the past four years, while maintaining a positive track record of underwriting.

The company declared and paid an interim dividend of 10 per cent during 2020-21.

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HSBC to StanChart predict demise of business travel for bankers

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Jetting off at a moment’s notice to visit clients was second nature for many investment bankers before the pandemic struck. After more than a year of lockdowns and remote working, plenty of executives are now saying the days of regular globe trotting are gone for good.

There “will definitely be much less travelling,” Nordea Bank Apb Chief Executive Officer Frank Vang-Jensen said Thursday, while Standard Chartered Plc’s finance boss Andy Halford told Bloomberg Television he expects travel costs to reduce sharply: “We see a step change down in the level of travel once we normalise out of this.”

Earlier this week, HSBC Holdings Plc Chief Financial Officer Ewen Stevenson said his bank was budgeting for travel costs to fall by half, with greater reliance on “video technology and having people go on fewer, longer trips when they do travel.”

The changes — once unthinkable — are the latest adjustments to office life staples now the pandemic has proved the case for remote working. Banks are shrinking their real estate footprints as outfits including Deutsche Bank AG and UBS Group AG say they are open to making flexible working the norm, although some Wall Street firms have been more skeptical of the shift. Goldman Sachs Group Inc. CEO David Solomon has said work-from-home is an “aberration.”

Cutting back on flights could mean big savings, as well as environmental kudos.

HSBC has said travel costs were down $300 million in 2020, suggesting an annual saving of $150 million going forward if behavioral changes stick. JPMorgan Chase & Co. spent about $800 million on global travel and expenses in 2019, according to a Business Travel News ranking.

A fall in that revenue spells trouble for airlines, which count business passengers as their most lucrative market. The route between London’s Heathrow and New York’s JFK airports generated about $1.2 billion in revenue for British Airways alone in the year through March 2019, according to estimates by data company OAG.

Still, Airbus SE CEO Guillaume Faury said on Thursday in a Bloomberg TV interview that he expects business travel to come back eventually, though it will lag behind the recovery for other parts of the market such as leisure and family trips.

Some bankers agree. JPMorgan CEO Jamie Dimon said in November he doesn’t think business travel will slip as much as expected because firms may see a competitive advantage in visiting clients in person.

“If I’m the gung-ho person, I want to get the business, taking that trip may be much different than saying I’ll meet you in a Zoom,” Dimon said. “I think people like me will travel as much and Zoom more.”

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Covid-19 challenge: FSDC Sub-Committee members resolve to remain vigilant

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The members of the Sub-Committee of the Financial Stability and Development Council (FSDC) on Thursday resolved to remain vigilant and proactive to ensure that financial markets and financial institutions continue to be resilient in the face of fresh challenges brought on by the resurgence of the pandemic.

The members also discussed their assessment of the scenario emerging from the second wave of the Covid-19 pandemic, RBI said in a statement.

The virtual meeting of FSDC’s Sub-Committee was attended by top officials of all financial sector regulators, Secretaries of the Department of Economic Affairs, Department for Financial Services, Department of Revenue, Ministry of Corporate Affairs, Ministry of Electronics and Information Technology, Chief Economic Adviser and top RBI officials.

The meeting, which was chaired by RBI Governor Shaktikanta Das, undertook an extensive review of the major developments in the global and domestic economy as well as in various segments of the financial system, the central bank said.

The members also discussed various inter-regulatory issues. The Sub-Committee reviewed the activities of various technical groups under its purview and the functioning of State Level Coordination Committees (SLCCs) in various states / UTs.

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How pandemic ushered in payments revolution in India, BFSI News, ET BFSI

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They may not be of big value, but many swipes have helped usher in a retail payments revolution right amid the pandemic.

While there has been a slowdown in the wholesale transaction value, the volumes have grown huge. A similar surge was seen in the immediate aftermath of the demonetisation of high-value notes in 2016.

Transactions through National Electronic Funds Transfer (NEFT), National Electronic Toll Collection (NETC), and the Bharat Bill Payment System (BBPS) grew robustly in fiscal 2021 over the previous year. Retail payment platforms such as Unified Payments Interface (UPI), Immediate Payment Service (IMPS), and National Automated Clearing House (NACH) saw a near doubling of both transaction volume from 12.5 billion to 22.3 billion, and value from Rs 21.3 lakh crore to Rs 41 lakh crore.

Volumes galore

UPI transaction volumes surged 43.2% in the first quarter of the last fiscal, 98.5% in the second quarter 104.6% in the third and 112.5% in the fourth quarter.

While IMPS volumes degrew 9.6% in Q1, they rose 26% om Q2. 40.5% in third quarter and 42.9% in the fourth quarter.

National Automated Clearing House (NACH) volumes grew 32.8 in the first quarter, 13 in second, 0.9 in third while they degrew 10.2 in the fourth.

BBPS volumes grew 66% in Q1, 103.2 in Q2, 84.4 in Q3 and 102.7 in Q4 while National Electronic Toll Collection, the NHAI’s Fastag system logged 83.9 growth in Q1, 249.2 in Q2, 195 in Q3 and 75.3 in the fourth quarter.

On the other hand, RTGS volumes degrew 26.2 in Q1, logged 3.1 in Q2, 10.2 in third and 31.1 in the fourth quarter.

NEFT volumes degrew 3.9% in the first quarter, grew 9.8 in second, 23.2 in third, 17.8 in the fourth quarter.

Value wise

UPI transactions scored an impressive growth value-wise too with the first quarter seeing 43.2% growth, the second 98.5%, the third 104.6% and the fourth 112.5%.

IMPS degrew 4.8 in Q1 but picked up in the second quarter with 27.9% growth, 34.6% in Q3 and 40.6% in the fourth quarter.

NACH transactions grew 20.4% value-wise in the first quarter, 10.3 in Q2, 6.8 in Q3, 1.3 in Q4.

BBPS logged 62.4% growth in the first quarter, 108.9% in the second, 83.5% in the third and 131.9% in the fourth quarter.

NETC transactions valuewise grew 61.4% in Q1, 181% in Q2, 139.3% in Q3, 66.2% in Q4.

On the other hand, RTGS transactions’ value degrew for the entire fiscal, falling 37.9 in the first quarter, 28.6% in the second, 7.7% in Q3 and 2.9% in the fourth quarter.

NEFT degrew 20.9% in the first quarter but grew 12.4% in second, 26.6% in third and 15.4% in the fourth quarter.

After demonetisation

RBI data shows a spurt in digital transactions immediately after demonetisation. Transactions through debit card at point of sale terminals and m-wallets increased by 134% and 163%, respectively, between October 2016 and December 2016.



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Banking is an essential service; allow vaccinations for bankers on priority, asks ICICI Bank, BFSI News, ET BFSI

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ICICI Bank on Thursday said it is “much better” prepared to restrict the impact of the second coronavirus wave on its operations because of last year’s experience but appealed for banks’ employees to be allowed to take vaccinations on a priority basis as they are rendering an essential service. The second largest lender warned that if banking services were to fail, it can have an adverse impact on the economic activity, and hence it is pertinent for ensuring that at least the branch staff is allowed to take vaccinations.

The comments come at a time when localised lockdowns are being announced across many pockets of the country in view of the rising COVID infections, which are breaching the 3 lakh mark daily and also resulting in over 2,000 officially counted deaths.

“We are an essential services… we are all exposed (to customers). We don’t have the luxury. But we are not allowed vaccinations, not allowed to board trains, not allowed to board buses. So, what kind of essential services we are? More push should be there,” its executive director Anup Bagchi told reporters.

He warned that if banking operations get affected, we may have to face an economic crisis as well after the ongoing health crisis, and cited the case of a single automated teller machine shutting down for seven days to illustrate his point.

There is a case for “higher sensitivity” when classifying essential services, Bagchi said, stressing that there are other essential services also and bankers exposed to customers in branches should be allowed to vaccinate because they are exposed to walking-in customers.

Starting May 1, the central government has allowed every adult the chance to get vaccinated. However, concerns are being raised about the efficacy of such a move because of lack of vaccine stocks.

Meanwhile, Bagchi said the bank is much better prepared to take on the second wave of the pandemic because it had a system in place to take care of the disruptions coming because of the lockdowns as compared to last year’s experience, where it had to overhaul things.

Bagchi said an end-to-end digital journey where there is no need for a physical touch at all is essential while extending banking services and after the announcement of the national lockdown last year, it had to work on ensuring the same.

Further to the same, the bank on Thursday launched a ‘merchant stack’ which will help deliver seamless banking services, including a zero-balance current account, instant credit, a digital store management, a loyalty programme and other value added services to the 2 crore merchants nationally.

Bagchi compared the new services akin to a master switch where the customers will not be forced to come to the bank repeatedly for newer services, and added that the bank has put in place a refined data analytics back-end which will take care of loan decisions based on dynamic data points such as the transactions happening at the merchant’s end, inventory before giving the working capital credit of over 6 months.

From a risk perspective, Bagchi said the bank has built a strong portfolio in the business banking side, where its ability to make use of the data it possesses has ensured that the credit costs are less than 1 per cent as against double-digit figures for some lenders.

Declining to give a target of the number of customer relationships they are looking at, Bagchi said the fintechs cannot offer an end-to-end service like banks can.

For ICICI Bank, revenues from the stack can flow from fees, interest on credit offtake, float on balances in the accounts and merchant discount rate, he said.



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Central bank e-cash could ‘challenge’ role of big banks, Bank of France says, BFSI News, ET BFSI

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Central bank digital cash could give new types of businesses access to ultra-cheap central bank funding and lessen the role of big banks in settling large transfers, a senior Bank of France official said on Thursday.

With high stakes involved in the development of e-cash, the Bank of France is part of the European Central Bank’s research into how a future digital euro could be used both in wholesale bank-to-bank lending and in everyday retail banking.

A wholesale central bank digital currency could spark demand from financial firms which don’t currently have access to central bank money, Denis Beau, deputy governor of the Bank of France, told an online seminar organised by the OMFIF think-tank.

“Even if these actors would be … subject to similar regulatory requirements, the role of large banks in the settlement of transfer orders in central bank money would be challenged,” Beau said.

The world’s biggest central banks, including the ECB, are revving up work on issuing digital cash, aiming to use its flexibility to improve payment systems, ease some of the complexities of negative interest rates and ensure they don’t cede too much control to digital currencies.

The scope and scale of the central bank digital currency research varies from country to country.

The People’s Bank of China is in the advanced stages of testing a digital yuan that would be used by both individuals and businesses. The Bahamas has a fully working digital ‘Sand Dollar’ while Switzerland has successfully tested large-scale bank-to-bank digital currency transactions.

Meanwhile, U.S. Federal Reserve Chair Jerome Powell said on Wednesday that China’s digital yuan plans would not push the Fed to rush its own digital dollar plans.



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RBI joins network for greening financial system, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) on Thursday said it has joined the Central Banks and Supervisors Network for Greening the Financial System (NGFS) as a member. The central bank joined the NGFS on April 23, 2021. Green finance assumed significance in the context of climate change.

Launched at the Paris One Planet Summit on December 12, 2017, the NGFS is a group of central banks and supervisors willing to share best practices and contribute to the development of environment and climate risk management in the financial sector, while mobilising mainstream finance to support the transition towards a sustainable economy.

The RBI said it expects to benefit from the membership of NGFS by learning from and contributing to global efforts on green finance, which has assumed significance in the context of climate change.

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