Category: Banking & Finance

Dhanlaxmi Bank Part-Time Chairman G Subramonia Iyer resigns, BFSI News, ET BFSI

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Dhanlaxmi Bank on Thursday said its Part-Time Chairman G Subramonia Iyer has resigned, on personal grounds. “G Subramonia Iyer, part-time chairman and independent director of the bank, has submitted his resignation from the board of directors of the bank vide his letter dated December 2, 2021,” the bank said in a regulatory filing.

His resignation is to be effective from December 31, 2021, it added.

“G Subramonia Iyer has informed that he was tendering his resignation owing to certain urgent and emergent domestic and personal reasons and there were no other material reasons for his resignation,” it added.

Shares of Dhanlaxmi Bank on Thursday closed at Rs 14.14 apiece on the BSE, down by 0.42 per cent from the previous close.

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Bank deposits contract in the post Diwali fortnight, BFSI News, ET BFSI

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Banks deposits contracted by over a lakh crore in the post Diwali fortnight as investors applied in huge amounts for the big ticket IPOs lined up during the fortnight ended November 19

Aggregate deposits in the banking system dipped Rs 2.67 lakh crore during the fortnight ended November 19 to Rs 157.8 lakh crore, latest RBI data indicates. Both demand and term deposits contracted sharply during the fortnight by Rs 1.52 lakh crore and Rs 2.67 crore respectively.

Analysts attribute this largely to investors using the money parked in banks to apply for many big ticket IPOs during the fortnight. These included PayTM, Sapphire Foods and paisabazar.com among others. “The sharp contraction in deposits during the fortnight is probably driven by withdrawal for IPOs ” said an economist with a foreign bank. “There was a big jump in deposits in the previous fortnight.”

But on a long-term basis deposits continue to post a strong growth despite banks lowering interest rates earned on them. Weighted average term deposit rates have fallen by over 50 basis points-bps over the last one year. Yet, the year-on-year deposit growth is 9.8 per cent as of November 19, as bank deposits continue to be a risk free avenue of investment for savers. It is reckoned that bank deposits account for nearly half of household financial savings in India as they have been typically risk averse. But this mind-set is slowly changing, experts say.

As for credit, there was a modest pick-up of Rs 1,158 core during the fortnight. But on a long-term basis, banks are seeing a pick-up in loan demand as economic activity picks up following easing of lockdown induced restrictions. On a year-on-year basis, credit growth worked out to 6.9 per cent as of November 19, compared to less than 6 per cent a few years ago.

As per the latest data on sectoral deployment of bank credit, loans to large corporates rose 0.5 per cent (on a year-on-year basis) to Rs 22.7 lakh crore in October compared to a contraction of 1.8 per cent a year ago. All major segments except services including agriculture, industry and retail posted higher growth rates over previous year.



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Cautious banks drastically cut education loans as income, job losses rise, BFSI News, ET BFSI

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The bank credit is ticking up for industry and allied sectors in line with the economic revival, but certain segments continue to stay in doldrums.

Credit to commercial real estate and education loans shrunk by 0.5% and 8.7% on year, respectively, in October.

According to RBI data on sectoral credit deployment, loans to the industry sector increased 4.1% on year to Rs 28,54,571 crore as on October 22. On the other hand, loans to commercial real estate fell 0.5% on year to Rs 2,53,582 crore while education loans credit deployment by banks by 8.7% to Rs 47,260 crore.

Experts say banks have sharply reduced exposure to unsecured credit and are focusing on secured home loans and working capital needs of high rated corporate borrowers. While they are focusing on growing the mortgage book, banks have reduced exposure to commercial real estate, given the uncertain times.

Education loan NPAs

Nearly 9.55% of education loans extended by PSU banks were labelled as non-performing assets (NPAs) as on December 31, 2020, with loans for engineering and nursing courses topping the chart.

Job and income loss and drop-out rates during the pandemic were key factors behind the surge in education loan NPAs.

Rising unemployment rate is posing major challenges to the banking system as the repayment ability of the borrowers are getting impacted accordingly.

About Rs 8,587 crore loans over 366,260 accounts have turned bad as of December 2020.

As on December 31, 2020, there are 24.84 lakh education loan accounts with an outstanding of Rs 89,883.57 crore across the country. Out of these, about 9.55% or 3.66 lakh accounts with an outstanding of Rs 8,587.10 crore have turned NPAs, the parliament was informed.

The highest defaults were in loans extended for engineering courses as Rs 4,041.68 crore spread over 176,256 accounts as on December 31, 2020.

COVID-led spike

Interestingly, the NPA rate has dropped to 7.61% in FY20 end from 8.11% in FY18. It stood at 8.29% in FY19. The category has witnessed higher NPAs than other categories of retail loans including housing, vehicle, that saw bad loans in the range of 1.52% and 6.91% in FY20 While NPAs in the housing, vehicle and other retail sector loans have remained below 2%, consumer durables NPAs have trebled to 6.91% as on March 2020 from 1.99% in March 2018.

Reserve Bank of India
Reserve Bank of India

Rising graph

Led by a rise in lending to micro and small, and medium industries, bank loans to the industry sector grew a 4.1% on year in October, sharply higher than 2.5% a month ago and contraction of 0.7% a year ago, according to the RBI data.

Loans to large corporates rose 0.5% (on a year-on-year basis) to Rs 22.7 lakh crore in October compared to a contraction of 1.8 % a year ago.

All major segments, except services including agriculture, industry and retail posted higher growth rates over the previous year. Overall bank credit rose 6.9% in October compared to 5.2% a year ago according to the latest data on sectoral deployment of bank credit released by the Reserve Bank of India.

Government schemes like emergency credit guarantee schemes targeted at such borrowers also seemed to have played a part in the pick-up in lending to these corporate borrowers during the festival season.

The 10.7% growth in gross capital formation in Q2’21-22 is driven primarily by public capital expenditure although there are also signs of a pickup in private capex in the current fiscal.



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Dhanlaxmi Bank’s part-time chairman resigns from board

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Sources in the bank said that Iyer resigned due to health reasons.

Dhanlaxmi Bank said in a regulatory filing on Thursday that part-time chairman and independent director of the bank G Subramonia Iyer has submitted his resignation from the board of directors of the bank, owing to certain urgent and emergent personal reasons.

The Kerala-based bank has been in the news recently for all the wrong reasons, including an RBI advisory to ensure transparency in the nomination process of directors and follow best corporate governance practices. Sources in the bank said that Iyer resigned due to health reasons.

The lender currently has just five directors against the maximum strength of 11. It also has two RBI nominees on board as additional directors. It does not have a chartered accountant on board as director after the tenure of the former chartered accountant-director ended on September 30,2020. Some shareholders,including former directors, have also approached the court after the bank board rejected their candidature, moved under Section 160 of the Companies Act. The bank reported a 74% year-on-year decline in its second quarter net profits to `3.66 crore, with bad loans increasing.

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November post-Diwali was sluggish for banks, says Kotak Institutional Equities

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The share price of lenders (banks) saw a decline in November, while non-lenders (insurance and capital markets) saw only a minor decline, Kotak Institutional Equities said in its report. Kotak further said that payment activity saw marginal month-on-month (m-o-m) decline after the festive (Diwali) season and the loan growth too continued to be sluggish with no sharp recovery in any specific segment barring SME despite a low interest rate environment.

Kotak believes that with the asset quality issues gradually receding, they see spreads decline but loan demand issues remain.

“November was a sluggish month for the BFSI sector as the Bank Nifty registered a decline of 9 per cent. Non-frontline private banks saw the sharpest decline of 14 per cent, while non-lenders (capital market players and insurance companies) resisted the downward momentum. Frontline private banks also saw a drawdown, with HDFC Bank performing relatively better. NBFCs outperformed the bank index. On a 12-month horizon, PSU banks have outperformed the Bank Nifty quite meaningfully. The emergence of a new Covid strain has put pressure on the market, but we wait to see if the spread could result in another set of mobility restrictions in India,” Kotak Institutional Equities said in its report.

Highlights from the report

Payments data continues to be strong, albeit with marginal m-o-m decline

Daily payments data for November from RBI indicates that strong trends in payments continued across payment systems, with marginal mom decline on the back of the festive season in October. In particular, a representative subset of card spends data indicates that spends in November were robust, although marginally lower mom. UPI transactions also saw a similar trend. Bank credit growth stood at ~7% levels with negligible growth from the corporate segment and a marginally better performance on the retail side. Loan growth has been sluggish, but seems to have bottomed out and we expect to see some strengthening in the trend.

NIM expansion unlikely

As per the latest data from RBI, deposit rates were flat m-o-m at around 5.1%. Both private and PSU banks have reduced their TD rates by around50 bps over the past 12 months. Wholesale deposit cost (as measured by CD rates) has seen a much sharper decline. It has been broadly stable in FY2022. The gap between repo and 1-year TD rate for SBI stands at 100 bps after declining from peak levels of around 130 bps. The premium of SBI TD rates over G-Sec yields has narrowed from its peak level.

Lending rates on fresh loans were flat m-o-m for banks overall, but declined nearly 30 bps m-o-m for private banks and increased 30 bps m-o-m for PSU banks. These rates have been volatile in recent months. The gap between fresh lending rates of private and PSU banks has declined to around 120 bps, which is in line with the average over the past 12 months. The gap between outstanding and fresh lending rates has been in the range of 110-140 bps since the onset of Covid. Steep decline in bond market rates till July 2020 had led to a narrowing of the spread between bank funding and bond rates, but bond yields seem to be trending upwards now. The lenders have been slow in passing the lower cost of funds. In recent months, the spreads are beginning to peak out and decline marginally suggesting that expansion of NIM on corporate books is a low probability event.

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How Nabard fast-tracked approval time to just 5 days during the pandemic

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As the Covid-19 pandemic starved State governments, cooperative banks and other agencies that depend on it for funds, the National Bank for Agriculture and Rural Development (Nabard) has re-engineered its functioning to hasten the process of sanctioning project proposals. This has helped the State governments and other agencies to roll out the projects faster during the pandemic.

“From the time a full-fledged project proposal reaches us, it should not take not more than five days at the head office to get the approval. This has helped the States to fast track the project rollouts,” GR Chintala, Chairman of Nabard, told BusinessLine.

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The bank has brought in IT applications to increase the pace of approvals. “Earlier, there used to be no fixed timelines (to approve the project proposals). Now, it should be under five days,” he said. The bank, which reported a growth rate of 24 per cent in the pandemic hit 2020-21 to reach a business of ₹6.50-lakh crore, has set a target of ₹7.5-lakh crore.

Push for better health infra

“What we noticed is a huge uptick in the demand from the State governments for developing and creating medical education and health infrastructure,” he said.

The pandemic, he said, has highlighted the need for better healthcare infrastructure to tackle the challenge much better. Besides the regular demand for RIDF funds in the areas of connectivity, irrigation and agriculture, the Nabard has seen a new demand for funds from the States for setting up hospitals and medical colleges.

“For the first time, all of the ₹30,000 crore earmarked for the fund had been exhausted during the pandemic year. Seeing the huge appetite for funds under this head, we have requested the Union government to increase the size of the fund. We got the nod to increase it to ₹40,000 crore for this year,” he said.

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As against a target of ₹40,000 crore, the Nabard has already completed sanctions worth ₹25,000 crore so far. “We are confident that we will achieve the target and seek for more funds for disbursal in the next financial year,” he said.

The bank also witnessed a spike in demand for funds under the NIDA (Nabard Infrastructure Development Assistance). “Last year, we sanctioned about ₹22,000 crore under NIDA. Many State governments tapped this fund to set up medical colleges and infrastructure,” he said.

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PMC Bank depositors to weigh legal options if scheme of amalgamation not modified

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Depositors of the scam-tainted Punjab and Maharashtra Co-operative (PMC) Bank will weigh legal options if the scheme of amalgamation of their bank with Unity Small Finance Bank (Unity SFB) does not incorporate a favourable deposit withdrawal schedule and interest payment on their deposits.

The ‘draft scheme of amalgamation’, prepared by the Reserve Bank of India (RBI), has proposed a long-drawn out deposit withdrawal schedule extending over a 10-year period for PMC Bank depositors (with over ₹5 lakh balance).

No further interest will be payable on the interest-bearing deposits of transferor (PMC) bank for a period of five years from the appointed date (the date when PMC Bank will stand transferred to, and vest in Unity SFB/ transferee bank).

Interest at the rate of 2.75 per cent per annum will be paid on the retail deposits of PMC Bank which remain outstanding after the aforementioned five year period.

Depositors with balances up to ₹5 lakh will be paid by Unity SFB from the support it will receive from the Deposit Insurance and Credit Guarantee Corporation (DICGC) as part of the amalgamation process.

Chander Purswani, President, PMC Depositors Forum, observed that depositors may be left with no option but to move the Court if the final scheme of amalgamation does not incorporate clauses relating to reduction in time period (to, say, five years) for withdrawal of money and payment of interest (at least savings bank deposit rate) on their deposits with Unity SFB.

Highlighting the plight of some of the senior citizens among PMC Bank depositors, he said they have been reduced to hand-to-mouth existence during the last two years or so despite having money in the bank to lead a comfortable life.

RBI capped deposit-withdrawal from PMC Bank to ₹1 lakh per depositor for the entire period that it is under Directions. What this means is that depositors had to make do with just about ₹3,846 a month for the last 26 months. The bank was placed under Directions in September 2019.

Purswani opined that RBI should allow individual depositors to withdraw 20-25 per cent of the balance in their deposits each year.

Scheme not in depositors interest: Association

Meanwhile, the PMC Bank Depositors Association, in a letter to the RBI, said the scheme of amalgamation, in the current form, is not in the interest of the depositors and is akin to shooting them not in the foot but point blank through the head.

The Association emphasised that depositors should get immediate access to their money at least to the extent of liquid assets with PMC Bank.

The balance money could be released within a reasonable period of 6 to 9 months extending to a maximum of 24 months in a regular phase-wise payout as all the money is currently available with PMC Bank.

Referring to PMC Bank’s current balance sheet, the assets available and the support from DICGC for the amalgamation process, the Association underscored that this makes it possible to pay all the retail depositors in full without even touching a rupee brought in by the new Unity SFB dispensation.

PMC Bank depositors insist they be treated on par with the new depositors of Unity SFB – receive prevailing rate of interest from day 1 – and get access to all their money immediately.

If the aforementioned conditions are satisfied, the Association said PMC depositors will ensure that Unity SFB flourishes.

As at March-end 2021, PMC Bank had deposits aggregating ₹10,535 crore. Of this, about 70 per cent are retail deposits and the rest are institutional deposits, including other urban co-operative banks (216) and co-operative societies (1,750). Reserves and surplus position was negative at ₹3,542 crore.

The bank had investments and advances aggregating ₹2,350 crore and ₹4,123 crore, respectively. The overdue interest recoverable (non-performing assets) stood at ₹5,502 crore.

PMC Bank got into trouble in 2019 as its high exposure to real estate company HDIL turned non-performing. The central bank has red-flagged the fraud/ financial irregularities in the bank and manipulation of its books of accounts.

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Explainer: Neo-banks Vs traditional banking

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What are Neo-banks?

Neo-banks are online-only financial technology (fintech) companies that operate solely digitally or via mobile apps. Simply put, neo-banks are digital banks without any physical branches.

How are they different from the traditional banks?

Neo-banks are disrupting the traditional banking system by leveraging technology and artificial intelligence (AI) to offer a range of personalised services to customers. On the other hand, traditional banks follow an omni-channel approach i.e. having both physical (through branches and ATMs) and digital banking presence to offer a multitude of products and services.

Right from customer acquisition to traditional banking services such as remittances, money transfers, utility payments and personal finance, neo-banks offer a wide range of offerings to customers across retail and small-to-medium enterprise (SME) categories. Typically, neo-banks apply a design thinking approach to a particular banking area and tailor their products and services in a manner that makes banking simpler and convenient to the end consumers.

How are they evolving?

The term ‘Neo-bank’ started gaining prominence globally in 2017 as they emerged as a new challenger to the traditional banks in terms of customer engagement, connectivity and reach, and most importantly, the user experience. That is why neobanks are also called ‘challenger banks’. The market potential for neo-banks is driven by the rising penetration of the internet and smartphones across the globe.

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According to a report by KBV Research, the global neo-banking market size is expected to reach $333.4 billion by 2026, rising at a compounded annual growth rate (CAGR) of 47.1 per cent. Although neo-banks are relatively new concept in India, the concept has been gaining traction over the last few years. There are around a dozen neo-banks in India including Razorpay X, EpiFi, Open, NiYo, Jupiter among others. In recent times, some of these firms raised funding from marquee global investors, who are betting on India’s hugely underbanked market potential.

Can they replace traditional banks?

Not entirely. Neo-banks offer only a small range of products and services as compared to a whole gamut of services that traditional banks offer. Besides, since neo-banks are highly digital focused, they may not be able to cater to the banking needs of non-tech savvy consumers or people from the rural parts of the country, who believe in face-to-face interaction with their financial custodians. As of 2020, India had a smartphone penetration rate of just about 54 per cent.

What are the challenges that they face?

Numerous. First and foremost is building trust. Unlike traditional banks, neo-banks don’t have a physical presence, so customers cannot literally ‘bank upon’ them in case of any issues/challenges. Secondly, neo-banks are yet to be recognised by the Reserve Bank of India (RBI).

Also watch: Five ways digital lending apps can become safer for you

So, they have to engage with regulated banks and financial institutions to offer financial products and services. Due to the absence of enabling regulations, neo-banks cannot accept deposits or offer lending products on their own books. That is why some fintechs have a non-banking financial company (NBFC) as their parent to engage in lending activities while most others partner with banks and financial institutions.

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SBI signs master agreement with Adani Capital for co-lending to farmers

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State Bank of India (SBI) has signed a master agreement with Adani Capital for co-lending to farmers for purchase of tractor and farm implements, to increase efficiency in farm operations and productivity of crops.

Adani Capital is the non-banking finance company (NBFC) arm of Adani Group.

SBI, in a statement, said with this partnership, it would be able to target farmer customers in the interior hinterland of the country looking for adoption of farm mechanisation to enhance productivity of crops.

Co-lending opportunities

India’s largest bank underscofed that it is actively looking at co-lending opportunities with multiple NBFCs for financing farm mechanisation, warehouse receipt finance, Farmer Producer Organisations (FPOs) etc., for enhancing credit flow to double the farmers’ income.

Dinesh Khara, Chairman, SBI said “This partnership shall help SBI to expand customer base as well as connect with the underserved farming segment of the country and further contribute towards the growth of India’s farm economy.

“We will continue to work with more NBFCs in order to reach out to maximum customers in far flung areas and provide last mile banking services.”

Gaurav Gupta, MD & CEO, Adani Capital said, “Through this partnership our aim is to contribute to farm mechanisation and play a role in improving productivity and income of the farm segment.”

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Canara Bank raises Rs 1,500 crore via Basel-III compliant bond, BFSI News, ET BFSI

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New Delhi, State-owned Canara Bank on Thursday said it has raised Rs 1,500 crore by issuing Basel-III compliant bonds. “Our bank came out with issuance of Rs 1,500 crore of additional tier I bonds on 30th November 2021.

“The bank received total bid amount of Rs 4,699 crore, out of which full issuance of Rs 1,500 crore was accepted at 8.05 per cent,” Canara Bank said in a regulatory filing.

To comply with Basel-III capital regulations, banks globally need to improve and strengthen their capital planning processes.

These norms are being implemented to mitigate concerns on potential stresses on asset quality and consequential impact on performance and profitability of banks.

Shares of Canara Bank closed at Rs 207.10 apiece on BSE, up 0.15 per cent from the previous close.

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