Category: Banking & Finance

Rising cases of Covid to hit securitisation volume in near term: Crisil

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Securitisation volume closed below the psychological ₹1-lakh-crore mark last fiscal (FY21 at ₹90,000 crore), down from the ₹1.9-lakh crore clocked in each of the previous two fiscals, according to Crisil Ratings.

Looking ahead, securitisation volumes in the near term could be impacted by rising Covid-19 cases and the resultant restrictions being imposed in a number of States, said the credit rating agency in a report

Fresh disbursements

Many NBFCs may be compelled to refocus their energies on collections, and fresh disbursements could take a back seat, it added.

“Containment measures, including a temporary suspension of movement (local and regional) and business activities, could inhibit borrower cash flows.

“If these impact collection efficiencies, they may again deflate returning investor confidence and inhibit securitisation volumes in the near term,” as per Crisil’s assessment.

Though securitisations surged in Q4 FY21 (to about ₹40,000 crore) to become the highest grossing quarter for the fiscal, they are still below pre-Covid levels.

One of the basic conditions for securitisation is legitimate sale or ‘true sale’ of underlying assets, which ensures the assets are not impacted due to bankruptcy of the seller after the sale – that is, they are bankruptcy remote of the seller.

“Over 100 entities securitised assets during the fiscal, with more than 15 entering the market for the first time. Private and public sector banks invested in more than two-thirds of securitisation issuances, while foreign banks invested in about 10 per cent.

“Mutual funds, insurance companies, NBFCs, and high-networth individuals (HNIs) accounted for bulk of the rest,” said Crisil in the report.

The agency observed that asset-backed securitisation (ABS) deals accounted for nearly two-thirds of securitised volumes in FY21 against 63 per cent in FY20.

Mortgage-backed securitisation (MBS) issuances, with underlying home loans and loans against property comprised the remaining, with investors drawing comfort from stable collection efficiency in MBS pools in the postmoratorium period.

Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings Ltd, said: “In the Indian milieu, mortgage loans have been appreciated as a safe asset class for investors, given low delinquencies and minimal losses historically.

“Bearing testimony to this, mortgage loan collection efficiencies recovered faster from the pandemic-driven slowdown than other asset classes last fiscal.”

Direct assignment (DA) transactions dominated issuance, with as much as 59 per cent (60 per cent in FY20) of the volume securitised through this route. Within DAs, issuance supported by the government-sponsored Partial Credit Guarantee Scheme accounted for 5 per cent of transactions. Securitisation through the pass-through certificate (PTC) route comprised the remaining 41 per cent (40 per cent).

Rohit Inamdar, Senior Director, Crisil Ratings Ltd, said: “The better-than-anticipated rise in volumes in the second half and, specifically final quarter of last fiscal, points to the resilience of this segment to interruptions brought on by the Covid-19 pandemic in the broader economy.”

Additionally, the track record of originators, improving collection ratios, and stable credit behaviour of borrowers may insulate the segment from much disruption in the current fiscal if the spread, intensity and duration of the pandemic and accompanying containment measures are not significant, he added.

 

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S Ramann takes charge as SIDBI chief

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Sivasubramanian Ramann took charge as the Chairman and Managing Director of the Small Industries Development Bank of India (SIDBI) on Monday.

His appointment as the head of SIDBI, which is the principal financial institution engaged in the promotion, financing and development of Micro, Small & Medium Enterprises (MSMEs), is for three years.

Prior to this appointment, Ramann was serving as the Managing Director and Chief Executive Officer of National E-Governance Services Ltd (NeSL), India’s first information utility, SIDBI said in a statement.

Ramann is an Indian Audit & Accounts Service (IA&AS) officer of 1991 batch. Prior to joining NeSL, he was the Principal Accountant General of State of Jharkhand between 2015 and 2016. He was also Executive Director with Securities and Exchange Board of India (SEBI) between 2006 and 2013.

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FinMin asks State-run banks, insurers to consider postponing promotion process

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The finance ministry has asked all public sector financial intermediaries to take cognisance of the prevailing Covid-19 pandemic situation and take appropriate steps to ensure that the promotion process factors in the constraints likely to be faced by their officers and staff.

The ministry emphasised that the officers and staff of the public sector financial intermediaries — public sector banks (PSBs), public sector insurance companies (PSICs) and financial institutions (FIs) — may be given adequate opportunity for participating in the promotion process.

Postponement of the promotion process may also be considered, it added.

The promotion process has coincided with a spike in Covid-19 cases across the country, along with lockdown/curfew and increase in micro-containment zones.

There also cases of bank employees or their family members being hospitalised due to Covid-19 infection.

When the Covid-19 pandemic set in last year, some of the public sector financial intermediaries went online for conducting promotion interviews.

Sanjeev K Bandlish, Convenor, United Forum of Bank Unions (UFBU), in a letter to the finance ministry, said: “In the current wave that is sweeping across the nation, we are distressed to note that already several bank employees and officers have died. It is shocking to note that some of them could not even get admitted to hospitals due to the dearth of beds.”

Govt should usher in five-day week

Bandlish sought reduced working hours, five-day banking and exemption from duty to employees with existing comorbidities, pregnant employees/officials, persons with disabilities (Divyangjan), among others.

Referring to the Centre recently declaring every Saturday as a public holiday for the Life Insurance Corporation of India (LIC) in the run up to its initial public offer, KS Krishna, General Secretary, All India SBI Employees’ Association, observed that bank employees too should get relief in the form of five-day week amid the raging pandemic.

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HDFC Bank CEO outlines ‘Technology Transformation’ plan to fix digital glitches, BFSI News, ET BFSI

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HDFC, which has been hit by several digital glitches since the past year, has embarked on a scale changing technology adoption and transformation agenda to help drive its ambitious future growth plans.

“Our aim is to “Keep Systems ALWAYS ON. ALWAYS SECURE. AND PERFORM at SCALE”. While we execute this Technology Transformation agenda, there will sometimes be pain and outages beyond our control. We must doubly resolve to reach out proactively to our customers / stakeholders and explain the path that we are traversing to make their experience with us smoother, faster and better,” HDFC Bank CEO Sashi Jagdishan wrote in a letter to staff.

Some of the specific initiatives the bank has embarked under Technology Transformation Agenda, according to Jagdishan, include:

1. Infrastructure scalability: We have invested heavily in the scale up of our infrastructure to handle any potential load that we will encounter for the next 3/5 years. We are also in the process of accelerating our cloud strategy to be on the cutting edge leveraging best in class cloud service providers.

2. Disaster Recovery (DR) resiliency:

a. We have strengthened our process of monitoring our Data Centre (DC) and have shifted key applications to new DC.

b. DR switch over for Disaster recovery resiliency has been completed for key customer facing applications including automating DR switch over for key applications.

c. Enhanced monitoring capabilities have been put in place to manage our Data centre operations and Resiliency processes.

3. Security Enhancements: We have strengthened our firewalls further. We have to be scanning the horizon for potential security issues and be ever prepared to face them. We haven’t had any security issues in the past. But this is always an important area of focus and action plans are underway for further robustness.

4. Monitoring mechanisms. An enhanced application monitoring mechanism has been put in place across the board to enable us to keep our IT systems Always On.
Reasons for glitches

On technical issues, Jagdishan gave an elaborate reasoning for failures:

November 2018: Crash of the New Mobile Banking App.

Reason: We faced an unprecedented demand to download the new mobile app. We have learnt and since refined our processes of managing the mobile banking app and has never faced any such challenges later. After the Nov 2018 initial launch, we have upgraded our mobile app seven times over the last two years and in all these instances it has been a smooth affair with no downtime or customer inconvenience whatsoever.

December 2019: Outage with Mobile Banking App

Reason: All banking systems are complicated and interconnected and each component has to work efficiently for us to deliver our promise to our customers. In this instance, one of the vendors system upgrade patch issue was faulty and the same has been addressed adequately. We have and will continue to reinforce vendor patch application.

November 2020: Outage at Data centre

Reason: A third party human error lead to the downtime. To remove this risk completely, we have taken several actions to mitigate such instances in future.

March 1, 2021: Net Banking/Mobile Banking downtime

Reason: The issue here occurred on account a faulty signature on our HIPS (Host Intrusion prevention software). This was an issue acknowledged by the manufacturer which impacted several global clients as well. The faulty signature resulted in slowing down response on Net banking and mobile banking. This has, since, been rectified.

March 31, 2021: Net Banking/Mobile Banking downtime

Reason: The issue occurred on account of a hardware component failure in one of our database servers resulting in a slow response to some of our customers. A large number of our customers were able to carry out their NB/MB activities in this period and we saw only a marginal dip in the number of transactions that day.

“To put things in perspective, in the last 28 months, we have had 5 instances of downtime. Every instance has hardened our resolve to do better keeping our customers in mind,” Jagdishan said.

Advice to staff
Business objectives should be driven keeping in mind the 3Cs that I wrote about in my last communication to you. It is Culture, Conscience and Customers. Continue to keep the humility quotient (HQ) high and make it part of your DNA. I have committed myself to be part of the on-going cultural transformation and I urge each one of you to inculcate and espouse the same mantra down the line. The broad macro opportunities continue to present themselves across the retail, MSME and Corporate Banking for a Bank like us and across geographies’ like semi-urban and rural markets, he said.



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HDFC Bank embarks on tech transformation agenda: MD tells employees

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Having faced multiple episodes of digital banking glitches in the last two years, HDFC Bank has embarked on a ‘Technology Transformation Agenda’ to provide safe and secure banking services to its customers.

HDFC Bank Managing Director Sashi Jagdishan in a letter to employees said the bank has faced five instances of downtime in the last 28 months and every instance has hardened the bank’s resolve to do better, keeping customers in mind.

Also read: RBI asks HDFC Bank to temporarily halt sourcing of new credit card customers

It is to be noted that the RBI temporarily barred HDFC Bank in December 2020 from launching new digital banking initiatives and issuing new credit cards after taking serious note of service outages at the lender over the last two years.

The bank was penalised by the RBI for two major outages, one in November 2018, and the other in December 2019.

Taking a stern view of the repeated outages, RBI Governor Shaktikanta Das had said in December that the regulator had some concerns about certain deficiencies and it was necessary that HDFC Bank strengthens its IT systems before expanding further.

Following this, the bank embarked on a scale-changing technology adoption and transformation agenda to help drive future growth plans.

Giving details of the Technology Transformation Agenda, Jagdishan said that the bank has invested heavily in the infrastructure to handle any potential load that it might encounter in the next three to five years.

“We are also in the process of accelerating our cloud strategy to be on the cutting edge leveraging best-in-class cloud service providers,” he added.

As part of the agenda, he said, the bank has strengthened the process of monitoring the Data Centre (DC) and has shifted key applications to new DC.

“We have strengthened our firewalls further. We have to be scanning the horizon for potential security issues and be ever prepared to face them. We haven’t had any security issues in the past. But this is always an important area of focus and action plans are underway for further robustness,” the letter said.

The country’s largest private sector lender assured employees that their bonuses, promotions and increments are safe like last year despite Covid-19 challenges.

“In the current financial year, there will be some pandemic-related challenges for sure. The beauty of this organisation is the ability to rally around, tap the opportunities and grow. The story of the bank will not be any different in this financial year and in the coming times,” he said in his address.

The bank will continue to invest in resources to grow in the identified segments or sectors and geographies, it added.

“Business objectives should be driven keeping in mind the 3Cs that I wrote about in my last communication to you. It is Culture, Conscience and Customers. Continue to keep the humility quotient (HQ) high and make it part of your DNA,” he said.

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SBM bets on tie-ups to grow India ops; not to add branches

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SBM Bank India, the wholly-owned subsidiary of the Mauritian government’s SBM, is betting on partnerships with fintechs and non-bank entities to grow its business here and is not interested in growing its branch network like DBS Bank India did with an acquisition, a top official has said.

SBM Bank India wants to grow its business through granular liabilities collection and booking fees by aiding in various banking transactions, its Managing Director and Chief Executive Sidharth Rath told PTI.

It may be noted that DBS, the only other wholly-owned subsidiary, acquired struggling private sector lender Lakshmi Vilas Bank last year, which gave it access to 563 branches.

“DBS has their own strategy. Yes, they have gone for inorganic growth … we are also doing inorganic but through partners, let me put it this way,” Rath said.

When asked specifically if it will be interested in tie-ups or deals where equity changes hands – which are otherwise referred to as ‘inorganic’ growth – Rath said at present, it is focused to grow through technology-led and digital-led platforms.

“Going forward, one doesn’t know what it (SBM) would be, how it is going to look, but it is going to be under them (parent State Bank of Mauritius) only,” he said, not discounting the possibility of a strategic partnership, a public issue or even an acquisition like DBS.

The bank is not keen on adding to its brick and mortar branch network, which right now consists of six outlets in metro cities and two in unbanked rural areas, Rath said, adding that it may at best look at adding two more branches in FY22.

The strategy for the new fiscal year will be to scale up on the foundation of the partnership-led model by getting new customers or forging new tie-ups.

A large part of the focus is on driving retail business, which consists only 10 per cent of the ₹3,500-crore loan book as of March 31, and take it to 25 per cent by end of next fiscal, Rath said.

Neeraj Sinha, head of consumer and retail banking at SBM, explained that there are a slew of fintechs that have developed the right platform, user interface and also a customer base, which are looking at growing, and can help by tying up with a bank.

Being an upstart venture, SBM is open to tie-up with such entities so as to create win-win proposition for both the partners and also the end customer, he said, giving out details of some of the over 20 partnerships it has.

He said as part of one partnership, it has tied up with an entity which will help connect it with those having credit rejections repeatedly. Against a fixed deposit with the bank, SBM will lend the person and help build a better credit history over a period of time, he said.

Similarly, given the working capital shortage with small businesses, it has a tie-up where a non-bank gives it access to those desirous of getting the card. The customer makes a fixed deposit (FD) with the bank to get the card and enjoy a 30-day credit like the one available for any consumer, he said.

Sinha said that already, over a fourth of its current account deposits are courtesy such tie-ups and the number of customers onboarded through such pacts is 1.5 lakh.

“I am not competing with them (the partners), and hence, I am also the natural choice for the fintechs to come and work with. Lack of size becomes an advantage for me there. This is a typical challenger bank strategy,” Sinha said.

The bank’s overall balance-sheet including both advances and deposits stood at ₹6,000 crore as on March-end, the share of the low-cost Current Account Saving Account (CASA) deposits was 21 per cent and the capital buffers were at 24 per cent.

When asked if the bank will need any capital, Rath hinted that there will be no need, pointing out that one needs to deliver on the capital as well. He, however, added that whenever needed, the parent will be giving the capital.

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ESAF Small Finance Bank raises ₹162 crore through preferential allotment

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ESAF Small Finance Bank has raised ₹162 crore as equity through preferential allotment of shares.

A total of 2.18 crore shares were allotted preferentially to certain investors in the HNI category including some existing investors, leading to a dilution of around 5 per cent at ₹75 per share. The shares were priced at 2.64 times pre-issue, and 2.45 times post issue, of book value as of September 30, 2020.

“The additional capital raised will strengthen the Capital Adequacy by about 250 basis points and will support our ambitious growth plan set for FY22. The overwhelming response shown by our investors during these tough times gives us the confidence to aim big. Considering the comfortable capital position and subdued market outlook on BFSI stocks, we have decided to postpone the IPO scheduled for the last financial year,” said K Paul Thomas, MD & CEO, ESAF Small Finance Bank.

Award for Esaf Small Finance Bank

Growth numbers

The bank has also registered significant growth during challenging times. As per the unaudited results, it has achieved a 26 per cent growth in gross business during FY2020-21. It reported a 28 per cent rise in total deposits to ₹9,000 crore and advances crossed ₹8,413 crore at a growth of 23.61 per cent as on March 31. Total business crossed ₹17,412 crore against ₹13,835 crore in the year-ago period.

CASA growth was at 82 per cent, thanks to the focused strategies adopted by the bank. The CASA component stood at 19.42 per cent vis-a-vis 13.66 per cent recorded in the previous year. The bank also opened 96 new outlets during the year ended March 31, to take the total number of branches to 550.

Esaf SFB gets nod for IPO

At present, ESAF Small Finance Bank has presence in 19 States and two Union Territories in India with a client base of 4.3 million-plus.

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Despite healthy Q4 result, HDFC Bank believes tough times have begun for FY22, BFSI News, ET BFSI

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Amid the second COVID-19 wave, India’s largest private sector lender HDFC Bank reported on Saturday, an 18.2% y-o-y rise in net profit to Rs 8,186.51 crore for the quarter ended March. The Bank had posted a net profit of Rs 6,927.69 crore in the year-ago period. The Bank’s Net Interest Income also witnessed a 12.6% y-o-y rise to Rs 17,120 crore in the quarter under review, as compared to Rs 15,204 crore in the year-ago period.

HDFC Bank on Saturday also said that it has set aside ₹500 crore as provisions to cover the Supreme Court-directed compound interest refund to all borrowers during the March-August period.

Srinivasan Vaidyanathan, CFO of the bank, said that while the Indian Banks’ Association (IBA) is still working out the methodology of computing the refund, It is estimated that the waiver bill would be in the range of ₹7,000-7,500 crore. To be sure, the government has borne the waiver cost of ₹6,500 crore for borrowers of up to ₹2 crore in certain sectors announced last October.

In a regulatory Filing the private lender further added that the impact of COVID-19, including changes in customer behaviour and pandemic fears, as well as restrictions on business and individual activities, has led to significant volatility in global and Indian financial markets and a significant decrease in local economic activities.

The slowdown during the year has led to a decrease in loan originations, the sale of third party products, the use of credit and debit cards by customers and the efficiency in collection efforts.

“The extent to which the COVID-19 pandemic, including the current “second wave” that has significantly increased the number of cases in India, will continue to impact the Bank’s results will depend on ongoing as well as future developments, which are highly uncertain, including, any new information concerning the severity of the COVID-19 pandemic and any action to contain its spread or mitigate its impact whether government-mandated or elected by us.” HDFC Bank said in a statement, addressing the recent surge in covid cases in the country.

Lockdowns not only disrupt loan growth but also impact loan repayment collections. Banks are expected to give the true picture of their asset quality in the March quarter after the Supreme Court refused to extend the standstill on reporting of bad loans till August 31.

Early signs of asset quality impact are already visible for HDFC Bank. For the March quarter though, the lender reported gross bad loan ratio of 1.32%, which captures the true picture of asset quality given that judicial standstill on bad loan recognition has been lifted. Investors will now keenly monitor any changes in the lender’s asset quality and its commentary in the wake of the second wave of Covid-19 infections.

Despite healthy Q4 result, HDFC Bank believes tough times have begun for FY22Another major aspect that investors will keenly watch is the impact of the Reserve Bank of India’s order on issuances of new credit cards on the lender’s credit card business. The Reserve Bank of India (RBI) had asked the lender to halt all new issuances of credit cards and digital services offerings till the time it sorts out its technological issues.



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Investor group calls for banks to set tougher climate targets, BFSI News, ET BFSI

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By Simon Jessop and Ross Kerber

LONDON – A group of investors managing $11 trillion in assets has called on banks to set tougher emissions targets ahead of a meeting of world leaders aimed at accelerating efforts to fight climate change.

The group, which includes Pimco, the world’s biggest bond investor, and Britain’s biggest asset manager, Legal & General Investment Management, said they wanted lenders to set ‘enhanced’ pledges to decarbonise their lending books.

While a number of the world’s biggest banks have already said they have an ‘ambition’ to reach net zero greenhouse gas emissions by 2050, many have yet to specify how they plan to do so and continue to fund heavy emitting activities.

“The problem we face today is that too many banks are failing to consider climate harm when they make financing decisions, and too much money is being ploughed into carbon-intensive activities that we so desperately need to move away from,” said Natasha Landell-Mills, Head of Stewardship at Sarasin & Partners.

As the United States gears up to host the April 22-23 Leaders Summit on Climate, the investor group said it wanted banks to speed up their efforts, including by setting interim targets to get to net-zero emissions by mid-century or sooner.

Bank remuneration committees should also ensure that variable pay is tied to hitting the targets, they added, while material climate risks should be included in the lenders’ published accounts.

A number of banks have already said they plan to increase investment in green energy and other activities that will help in the transition to a low-carbon economy, but the investor group said more was needed and the spend should not be considered as offsetting lending to dirtier projects.

Crucially, the investors said banks also needed to set “explicit criteria” for the withdrawal of financing to “misaligned” activities that run counter to the net zero pathway of sectors and industries.

The group of 35 investors, operating through the Institutional Investors Group on Climate Change, said it had opened talks with 27 of the world’s largest banks and expected to expand the list over time.

(Reporting by Simon Jessop; Editing by Kirsten Donovan)



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New modus operandi by fraudsters to withdraw money from ATMs, BFSI News, ET BFSI

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In view of increasing incidents of Man in the Middle (MiTM) attacks on ATMs, all banks have been asked to enhance their safety norms for ATMs through end-to-end encryption in the network, officials said.

In a recent communication to all banks, the central government has said the MiTM attacks have been increasing under which messages sent by ‘ATM Switch‘ to ‘ATM Host‘ are altered by attackers to withdraw cash fraudulently.

Investigations by security agencies have found that cyber fraud gangs have started adopting a new modus operandi to withdraw money from ATMs, a security official aware of such incidents said.

According to the investigators, the fraudsters first tamper with the network (LAN) cable of the ATM. Declined messages from ‘ATM Switch’ are altered to successful cash withdrawal transaction responses, and subsequently cash is withdrawn from the ATM.

The attacker first inserts a device between the ATM machine and the router or switch in the ATM premises.

This device has the capability to modify the responses back from authorisation host (ATM Switch) which is connected to ATM through network. The attacker then uses restricted cards (or blocked cards) to submit a withdrawal request.

When the ‘ATM Switch’ sends a declined message, the attacker in the middle alters the response to approve the transaction and subsequently withdraws cash, the official

In view of this modus operandi, the banks have been directed to ensure end-to-end encryption in the communication between the ‘ATM Terminal’ or PC and the ‘ATM Switch’, another official said.

Network cables, input/output port within the ATM premises should be concealed and physically secured or protected, the banks have been told.

A similar advisory has also been issued by the Reserve Bank of India.

As per the information reported to and tracked by the Indian Computer Emergency Response Team (CERT-In), altogether 1,59,761 cyber security incidents pertaining to digital banking were reported in 2018, a total of 2,46,514 incidents in 2019 and 2,90,445 incidents were reported in 2020.

These incidents include phishing attacks, network scanning and probing, viruses and website hacking.

There has been a 46 per cent rise in digital transactions in 2019-20 in comparison to 2018-19.

The Ministry of Home Affairs holds regular interactions with state governments and Union Territory administrations and advises them to expedite the disposal of cyber crime incidents, with a special emphasis on those relating to women and children, the official said.

The CERT-In is the national technology arm to combat cyberattacks and guard the Indian cyberspace.



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