Category: Banking & Finance

After a steady growth in last few years, external commercial borrowings (ECBs) of domestic microfinance companies have more than halved in FY21 amid a sharp decline in fresh disbursements, coupled with ample liquidity and competitive interest rates in the domestic market.

According to RBI data, overseas borrowing of microfinance institutions (NBFC-MFIs) fell to $59.29 million between April 2020 and February 2021. In contrast, their borrowing during the corresponding period last year stood at $137 million.

“One of the primary reasons (for lower borrowing) could be the overall cut back on fresh disbursements by MFIs, especially in the first two quarters of FY21,” said Aastha, Partner, Argus Partners, adding: “Microfinance borrowers, having been the worst hit by the pandemic and the consequent lockdown, were unable to repay their loans and the collection operations (largely cash-based) of MFIs also took a major hit. These liquidity issues would have led MFIs to go slow on lending and conserve capital.”

Disbursements pick up

According to the recent edition of Micrometer, loans disbursed by NBFC-MFIs fell sharply from ₹19,661 crore in March 2020 to mere ₹570 crore in June 2020. The disbursements, however, picked up to ₹10,617 crore in September and touched ₹19,696 crore as of December quarter.

“Almost the first 6-9 months was quite muted last year. We had lockdowns from March to August. Even when we opened up in September, the focus was more on collections and recoveries and getting the existing clients activated so the focus was not much on disbursements,” said Manoj Kumar Nambiar, Managing Director, Arohan Financial Services.

He also added that the various measures taken by the RBI and the government to provide liquidity support to MFIs last year have also helped large and mid-sized MFIs, who typically go for market borrowings through non-convertible debentures (NCDs) and ECBs, to tide over the liquidity crisis.

Overseas borrowing by MFIs has been growing over the last few years. From a mere $15.97 in FY18, ECBs of microfinance players went up to $52.81 million in FY19. ECB fundraising touched an all-time high of $143 million in FY20.

Just to be clear, banks and NBFCs still continue to be the major source of borrowing for MFIs. According to Micrometer, outstanding borrowings of NBFC-MFIs as on December 2020 stood at ₹58,564 crore. Of the total borrowings, banks alone contributed 35.9 per cent, while non-bank entities accounted for 21.2 per cent. ECBs account only for 3.2 per cent of the total borrowings.

Ample liquidity

Industry players say that the ample liquidity and interest rate arbitrage in the domestic market is also one of the reasons for the decline in demand of overseas loans in recent months.

“If domestic liquidity is available at a fairly reasonable price, why would you go for something which is complex and which requires a fair bit of coordination between foreign investors, hedging requirements, local arrangement, listing requirements and legal opinions,” said Arohan’s Nambiar, adding, “ECBs are not very easy transaction as compared to straightaway taking an online term loan from the banks.”

However, with the second wave Covid-19 sweeping across the country, Nambiar expects the demand for credit from the bottom of the pyramid to go up and to the extent of growth, additional disbursements will happen, and companies may tap overseas funding if the interest rates are competitive.

“The ongoing second wave of the pandemic may lead to continued economic slowdown. However, given the need for credit in the MFI sector and the pent-up demand due to the pandemic, once economic activity starts to pick up, MFIs would continue to tap the ECB market for their funding requirements,” said Argus Partners’ Aastha.

Our Bureau

Prices of Government Securities (G-Secs) rose on Friday after the previous day’s sharp fall as the RBI did not devolve the 10-year benchmark G-Sec on primary dealers despite rejecting all bids for it at the auction.

The price of the 10-year benchmark (carrying 5.85 per cent coupon rate) ended up 27 paise at ₹98.275 (previous close ₹98.01), with its yield thawing about 4 basis points to 6.0885 per cent (6.1256 per cent).

Rejects all bids

Of the three G-Secs that were being auctioned, the RBI rejected all bids it received for the benchmark 5.85 per cent GS 2030. However, it did not devolve this paper on PDs, which underwrite the auctions. The government was planning to borrow ₹14,000 crore through this paper.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “The yield on the 10-year benchmark G-Sec had gone up to 6.17 per cent in the secondary market before the auction. So, market participants would have bid at a higher yield at the auction of this paper.

“But the RBI doesn’t want the yield to go up. So, there was no borrowing through this paper. The government only borrowed via the short-term paper (maturing in 2022) and the long-term paper (2061).”

The government borrowed ₹5,090 crore via auction of the 3.96 per cent GS 2022 (against the notified amount of ₹3,000 crore) and ₹6,236.80 crore via auction of the 6.76 per cent GS 2061 (against the notified amount of ₹9,000 crore).

So, the government borrowed only ₹11,327 crore out of the planned borrowing of ₹26,000 crore at the weekly auction of three G-Secs.

“The yields came down because neither the RBI accepted bids at the auction of the 10-year paper nor did it devolve this paper on PDs,” said Irani.

He observed that the yield curve is inverted, with the yield of the nine-year at 6.5044 per cent higher that 10-year’s 6.0885 per cent.

G-Sec prices had tumbled on Thursday as the RBI purchased some of the securities under its G-Sec Acquisition Programme (G-SAP) at lower than previous closing price.

UK Home Secretary Priti Patel has signed off on the order to extradite Nirav Modi, wanted in India on fraud and money laundering charges related to the estimated $2-billion Punjab National Bank (PNB) scam case, senior Indian diplomatic sources in the UK said on Friday.

Modi, 50, who remains behind bars at Wandsworth Prison in south-west London, has 14 days to apply for permission to appeal against the Home Secretary’s order in the High Court in London.

Back on February 25, the Westminster Magistrates’ Court had concluded that the diamond merchant has a case to answer before the Indian courts, leaving the sign off on the order with the Cabinet minister.

He had allegedly perpetrated the fraud in Punjab National Bank in collusion with his uncle Mehul Choksi.

After a two-year-long legal battle, District Judge Samuel Goozee had ruled that Modi only has a case to answer in the Indian courts but that there is no evidence to suggest he would not receive a fair trial in India.

He also dismissed the human rights concerns that Modi’s medical needs would not be addressed as per several Indian government assurances.

“I am satisfied that there is evidence upon which NDM [Nirav Deepak Modi] could be convicted in relation [to] the conspiracy to defraud the PNB. A prima facie case is established,” the judge noted.

A prima facie case to have been established on all counts of charges brought by the Central Bureau of Investigation (CBI) and Enforcement Directorate (ED) money laundering, intimidation of witnesses and disappearance of evidence, he had said.

Under the UK Extradition Act 2003, the judge sent his findings to the Secretary of State for Home Affairs. It is the UK Cabinet minister who is authorised to order an extradition under the India-UK Extradition Treaty and has two months within which to make that decision.

The CBI had registered the case on January 31, 2018 against Modi, Choksi and others including then officials of Punjab National Bank on a complaint from the Bank on the allegations that the accused had hatched a criminal conspiracy amongst themselves to defraud the public sector bank by fraudulently issuing Letters of Undertaking.

Letters of Undertaking are a guarantee that a bank gives to banks abroad where its client approaches for credit.

The figure swelled to Rs 13,000 crore when similar frauds by companies of his uncle Mehul Choksi, an alleged co-conspirator, came to light, officials said.

Investigation showed that the accused officials of the Punjab National Bank, in conspiracy with said owners of the firms and others, had fraudulently issued a large number of LoUs to overseas banks for obtaining buyer’s credit in favour of said three firms without any sanctioned limit or cash margin and without making entries in the core system of the bank.

The first charge sheet was filed on May 14, 2018 against 25 accused,including Modi. The second charge sheet was filed on December 20, 2019 against 30 accused people, including the 25 charge-sheeted earlier in respect of 150 outstanding fraudulent LoUs which had resulted in wrongful loss of nearly Rs 6,805 crore to PNB.

It was also alleged that Modi in conspiracy with other accused had siphoned off the funds obtained as buyer’s credit through dummy companies established by him in Dubai and Hong Kong, which were shown as exporter of Pearls to three Nirav Modi firms and importer of Pearl studded jewellery from his firms.

Modi had escaped from India on January 1, 2018 before registration of the case in CBI. A non-bailable arrest warrant was issued by the trial court against him, followed by a red corner notice in June 2018 by Interpol.

He was arrested by the UK Police in London in March 2019 and his repeated applications for bail, were rejected by the Westminster Magistrates’ Court and High Court, London.

After the second charge sheet was filed, additional evidences were submitted to the Court in London for the total fraud amount of Rs 6,805 crore (approx.). In addition, second extradition request for the offences of intimidating the witnesses and destruction of evidence was also submitted to the UK government.

In extradition requests, CBI submitted voluminous oral and documentary evidence to substantiate the charges of criminal conspiracy, cheating, criminal breach of trust, criminal misconduct by public servants, destruction of evidence and criminal intimidation of evidence.

India is a designated Part 2 country by virtue of the Extradition Act 2003, which means it is the minister who has the authority to order a requested person’s extradition after considering a number of further issues.

Under the provisions of the act, the Secretary of State had to consider the possible imposition of the death penalty, in which case extradition cannot be ordered; the rule of specialty, which prohibits a person being dealt with in the requesting state for matters other than those referenced in the extradition request; and whether or not the person was in the UK following extradition from another state, in which case that states permission must be obtained before extraditing to a third state.

If these factors do not prevent extradition, the minister had two months within which to sign off on Judge Goozee’s February 25 order. The Home Secretary’s order rarely goes against the court’s conclusions, as she has to consider only these very narrow bars to extradition which did not apply in Nirav’s case.

However, as witnessed in the extradition case of former Kingfisher Airlines chief Vijay Mallya – who remains on bail in the UK while a “confidential” matter, believed to relate to an asylum request, is resolved – there is still some way to go before Nirav can be formally moved from Wandsworth Prison in London to Barrack 12 Arthur Road Jail in Mumbai and face trial in India.

The judge had informed Nirav Modi of his right to seek an appeal in the High Court and has up to 14 days to make that application after the Home Secretary makes her decision known. Any appeal, if granted, will be heard at the Administrative Division of the High Court in London.

It is also possible to appeal to the UK Supreme Court but this is only possible if the High Court certifies that the appeal involves a point of law of general public importance, and either the High Court or the Supreme Court gives leave for the appeal to be made.

Nirav’s legal team did not immediately confirm if he intends to appeal against order and he will remain behind bars at Wandsworth Prison on judicial remand until the next stage in the legal process.

KR Srivats

The management of Life Insurance Corporation (LIC) of India has decided to implement the much-awaited wage revision, bringing cheer to its over one lakh employees.

The wage revision will see a 16 per cent increase in the gross pay and will be implemented from August 1, 2017, said sources close to the development.

MR Kumar, Chairman, LIC, had on Thursday evening conveyed the implementation of the wage revision to union leaders in an information-sharing session through video conferencing, they added. The latest wage revision was due from August 1, 2017. The wage revision is usually implemented for a five-year period.

The Finance Ministry, which had already given an in-principle nod for the proposal sent by LIC management, has notified the wage revision, sources added. It maybe recalled that LIC management had earlier made a wave revision offer of 16 per cent. While making this offer of 16 per cent, the management had also announced a 100 basis point cut in rate of interest on housing loans availed by various cadre of employees

This wage revision of 16 per cent is getting implemented in a year when the insurance behemoth is slated to hit the capital markets with the country’s largest ever initial public offering. The centre is hoping to mop up atleast ₹1-lakh crore from LIC through the initial public offering. The Centre may divest upto 10 per cent stake in the insurance behemoth for this purpose.

Public holiday

In another development, the Department of Financial Services (DFS) in the Finance Ministry has announced that every Saturday will be a public holiday for LIC.

Citibank India’s consumer banking operations could be an attractive proposition for a number of domestic private sector banks, many of which are keen to shore up their retail book, especially credit cards.

Market share

With over 26.45 lakh credit cards as on February-end, Citibank India commands over six per cent of the country’s credit card market. In its annual results for 2019-20, the bank had said “average spends per card is 1.4 times higher than the industry average”.

The lender also has 16.56 lakh outstanding debit cards as on February-end.

Citi, in fact, brought the concept of credit cards and ATMs into the country in 1980s. Brokerage firm Jefferies, in a note, said Citi’s exit from the retail business in India may open opportunities for Indian private banks, credit-card players, and foreign banks in the country.

Siji Philip, Senior Research Analyst, Axis Securities, said Citi’s credit card segment will find many suitors owing to its affluent client mix. “SBI Cards will be a key beneficiary on improved visibility of market share gains. We expect top private banks like ICICI, Kotak to reach out to acquire client stock in this segment,” said Philip, adding that overall it is a positive event for the domestic banking industry.

While private sector lender HDFC Bank, which is the top credit card issuer in the country with 1.51 crore outstanding cards as on February 28, has been directed by the Reserve Bank of India to temporarily halt sourcing of new credit card customers, others such as SBI Cards, YES Bank and RBL Bank have been working to ramp up issuances.

“It will be interesting to see who acquires Citi’s business in India. In terms of credit cards, it could possibly be a smaller or mid-sized private bank or if the whole consumer banking business is divested, it could even be taken by a foreign bank keen on expanding its India operations,” noted a former banker who did not wish to be named on the issue.

As on March 31, 2020, Citi had 29 lakh retail customers and has nearly three dozen branches in the country.