Category: Banking & Finance

SEBI has imposed a penalty of ₹25 crore on private sector lender YES Bank in the matter of Additional Tier 1 bonds.

It has also imposed a fine of ₹1 crore on Vivek Kanwar, who was the head of the bank’s Private Wealth Management Team, and of ₹50 lakh each on Ashish Nasa and Jasjit Singh Banga, who were part of the team.

Noting that more such complaints are being received by SEBI even after initiation of these proceedings, the order further said: “Therefore, on account of such misrepresentation and fraud perpetrated on its own customers, which lured them and induced them to buy these risky AT-1 bonds and also induced some of them to alter their position from FDs to these AT1 bonds, such acts have to be viewed seriously. Therefore, I consider a penalty of ₹25 crore on Noticee 1 in terms of Section 15HA of SEBI Act is justified as it is commensurate with the violations and will also have a deterrent effect,” said the adjudication order on Monday.

The bank and others have to pay the penalty within 45 days of the receipt of the order.

Gave false hope

The case pertains to YES Bank selling AT-1 bonds to its investors, terming them as Super Fixed Deposits, and assuring them that they were as safe as Fixed Deposits.

As part of its reconstruction scheme in March 2020, YES Bank wrote of ₹8,415 crore of these bonds, leaving investors in the lurch.

Many of them then approached SEBI with their complaints against misrepresentation and mis-selling. Individual investors were not informed about all the risks involved in subscription of AT-1 bonds, they contended.

In its order, SEBI referred to the Show Cause Notice that 1,346 individual investors had invested approximately ₹679 crore in the AT-1 bonds, out of which 1,311 individual investors were existing customers of YES Bank who invested approximately ₹663 crore.

“Further, I note that 277 customers had existing Fixed Deposits with Noticee 1 (YES Bank) and they prematurely closed their existing Fixed Deposits and re-invested an amount to the extent of ₹80 crore in these AT-1 bonds, which were subsequently written down,” said the order.

SEBI appointed an adjudicating officer on October 26, 2020, and issued show cause notices on October 28, 2020. It initiated hearings this year.

Owing to pandemic-related challenges and supply chain disruptions amid the global shortage in semiconductors, mobile phone-makers under the production-linked incentive (PLI) scheme are finding it challenging to meet the scheme’s targets for 2022 as well after having already missed the 2021 targets.

“The situation is very stressful at the moment for mobile manufacturers,” SN Rai, owner of Lava International Ltd, told BusinessLine. When asked if Lava is confident of meeting the targets this year, he said: “It looks difficult (and) extremely unlikely primarily because of two to three reasons. One is the pandemic. We don’t have an issue on our domestic demand, but there is an issue on the export demand because of the pandemic, primarily in countries like Africa and other places. And the most critical (factor) is that because of this pandemic the supply chain is badly disrupted. We have a serious shortage of chipsets and semiconductors worldwide. So, these are the multiple reasons due to which we believe that it’s not feasible to achieve the target and take credit of the incentives.”

Lava’s investment

Lava had made an investment of ₹50 crore to qualify for the PLI scheme. Now, with meeting the targets for the PLI scheme this year looking uncertain, it would accrue losses to this extent, said Rai.

On whether it would be possible for mobile manufacturers to meet the target this year, Pankaj Mohindroo, Founder and National President of the Indian Cellular Association, said: “With the way the Covid-19 cases are rising, it can be challenging – we can’t say how the economy will pan out. All PLI applicants have shown their intent of achieving the targets by making required investments, building up additional capacities, and inducting new manpower for ramping the production. However, due to the global pandemic, there can be unforeseen challenges, which can affect production and supply chain which is beyond any one control.”

“We are hopeful that if the present pandemic conditions do not worsen, then manufacturers will be able to achieve their targets,” Mohindroo added.

“This year, I think manufacturers will be more ready to meet the targets. Last year, the lockdowns were happening for the first time ever. Now, most companies are ready to deal with the situation and keep manufacturing running,” said Prachir Singh, Senior Research Analyst, Counterpoint Research.

The primary reasons for mobile manufacturers missing the targets, which were meant to be met by March 31, 2021, were the chip shortages through 2020; factories remaining non-operational for longer than expected amid the pandemic; and the delay in components reaching factories owing to India-China tensions during June and July last year, said Upasana Joshi, Associate Research Manager, Client Devices at IDC India.

“Last year has been very challenging because of the global pandemic and the geopolitical situation. Despite these difficult unprecedented times, most of the global and India players have made the investments as per the commitments, but due to unprecedented circumstances, most of them were not able to achieve the PLI targets,” explained Mohindroo.

The PLI scheme came into being with an aim to create a conducive environment for manufacturing by offering incentives comparable to other countries to attract large investments into the manufacturing sector. In the case of PLI for mobile phones and specific electronic equipment, the incentive structure was 4-6 per cent of the incremental sales over the base year.

With the challenges relating to the pandemic persisting and the semiconductor shortage looming large, what can the government do to help mobile manufacturers? “Easing or relaxation extended till early next FY is one of the ways to balance this out as supply shortages is a global phenomenon and expected to end not before end of 2021,” said Joshi.

Meets target

According to industry insiders, Samsung is the only company that has met the PLI scheme targets for FY21.

Given this backdrop, a pertinent question would be whether the PLI scheme targets for mobile manufacturers are unrealistic. “When the PLI scheme was designed and finalised in January 2020, the targets which were set were reasonable, but no one was aware that we will be hit by this global pandemic so hard and adding to it we will be facing geo-political challenges which has affected movement of goods, manpower and disrupted supply chain. In normal times, the industry would have achieved these incremental targets,” said Mohindroo.

Reserve Bank of India (RBI) Governor Shaktikanta Das, on Monday, advised bank chiefs to remain watchful of the evolving situation amid the second wave of Covid-19 pandemic.

He asked them to continue taking measures proactively for maintaining their business continuity, sharpening business strategies, and raising adequate capital for strengthening balance sheets.

At meetings with the MD and CEOs of public and private sector banks over video conference, Das underscored the importance of credit flows in sustaining the nascent economic recovery. The meetings were also attended by Deputy Governors MK Jain, M Rajeswar Rao and a few other senior officials of the RBI.

The Governor also emphasised the need for banks to maintain close vigil on the payments and other IT systems operated by them, and fortifying those for enhanced efficiency and resilience so as to offer seamless and uninterrupted customer service.

Mini-lockdowns

The aforementioned observations by Das come even as some States have begun imposing lockdowns/ mini-lockdowns to stem the second wave of the pandemic.

Last year, just before the country went into lockdown (from March 25 till May 31), the central bank had created a crack team of 150 officers, staff and service providers for essential services such as currency in circulation, retail and wholesale payment and settlement systems, reserve management, financial markets and liquidity management, financial regulation and supervision, and a host of other services so that the nation may survive Covid-19.

Banks and financial institutions rose to the occasion then, ensuring normal functioning of the financial system. The Governor had praised their efforts.

The other issues that were discussed at today’s meeting include the progress in the implementation of Covid Resolution Framework; outlook on stressed assets; capital augmentation; liquidity scenario and monetary transmission; credit flows to different sectors, including to stressed sectors, MSMEs, retail.

Vaccination programme

In a statement last week, Das observed that prospects for 2021-22 have strengthened with the progress of the vaccination programme.

The recent surge in infections has, however, imparted greater uncertainty to the outlook and needs to be closely watched, especially as localised and regional lockdowns could dampen the recent improvement in demand conditions and delay the return of normalcy, he added.

ICRA has estimated the gross non-performing assets (GNPAs) of housing finance companies (HFCs) for FY21 to be higher by 50-100 basis points compared to FY2020, and will remain elevated in FY22 as well.

HFCs, which were already facing growth moderation and asset quality woes in the wholesale segment, witnessed an even more challenging operating environment in FY21 due to Covid-19-induced disruptions, the credit rating agency said in a report.

Asset quality

ICRA assessed that these HFCs not only witnessed slowdown in disbursements and hence moderation in portfolio growth, but also witnessed increased pressure on asset quality in 9M (April-December) FY21.

However, steady growth in disbursements in the last two quarters, driven by gradual pick-up in demand for housing credit, has provided some hope of incremental growth trajectory.

Sachin Sachdeva, Vice-President and Sector Head, Financial Sector Ratings, ICRA, said: “Given the cash flow stress faced by the borrowers, the overdues of HFCs increased in 9M FY21 as reflected by proforma (assuming no asset classification dispensation as per the Supreme Court’s order) GNPAs of around 2.7 per cent as on December 31, 2020, compared to reported GNPA of 2.4 per cent as on March 31, 2020.

“The asset quality indicators could be further impacted in Q4 (January-March) FY21.”

The report said the on-book portfolio growth moderated for HFCs in 9M FY21 (compared to March 2020) to 4.3 per cent (excluding the portfolio of one large player, which had sizeable write-offs) from portfolio growth of 6 per cent year-on-year (yoy) in FY20.

However, with revival in demand for housing credit in the industry in the last two quarters, most of the HFCs have already reached near pre-Covid level disbursements and are targeting to achieve further higher disbursements in Q4 FY21.

“This is expected to push up the growth rate for FY21 to 6-8 per cent. Thereafter, ICRA estimates the growth of 8-10 per cent for on-book portfolio of HFCs in FY22,” the report said.

Sachdeva noted that notwithstanding the improvement in business in Q3 (October-December) FY21 and Q4 FY21, relatively lower business growth than the earlier years, and asset quality pressures would moderate the profitability for the HFCs in FY21.

Nevertheless, healthy provision cover maintained by most of the entities, is expected to provide cushion and protect the profitability from Covid-related asset quality stress in FY22, he added.

“While HFCs are expected to regain their profitability and growth trajectory in FY22, the rising Covid-19 infections and localised lockdowns remain a concern area. HFC’s ability to maintain the growth momentum and keep slippages under control would be critical for maintaining the credit profile,” he said.

Kotak Mahindra Bank has decided to continue its special interest rate on home loans of 6.65 per cent per annum.

“In the interest of consumers and on the back of strong demand trends, Kotak continues to offer possibly the lowest home loan interest rate in the market,” it said in a statement on Monday, adding that the rate is applicable across all loan amounts.

“Both fresh home loan applicants and balance transfer cases are eligible for interest rates beginning at 6.65 per cent per annum. Interest rates are linked to borrowers’ credit score and the Loan to Value ratio,” Kotak Mahindra Bank further said.

The move comes at a time when State Bank of India’s concessional home loan rate came to an end on March 31, 2021. The lender has restored the original interest rates starting from 6.95 per cent.

Kotak Mahindra Bank had earlier said the special home loan rate was available until March 31, 2021.

However, Ambuj Chandna, President, Consumer Assets, Kotak Mahindra Bank, noted that there has been a healthy growth in home sales in recent months led by several factors, including the drop in home loan interest rates. The bank also sees it as an excellent opportunity to build a quality home loan book.

“We expect this trend to continue with consumers keen to purchase and live and work in their own homes. We would like to assure home buyers that Kotak stands by them and our home loan rate continues unchanged at 6.65 per cent per annum,” he said.