Category: Banking & Finance

G Balachandar

Rarely do we see a public sector bank undertaking an out-of-the-box initiative. But Chennai-headquartered Indian Bank appears to have shown the way that public sector banks can go beyond the business of lending and do their bit to support micro and small entrepreneurs.

Indian Bank has always been a frontrunner in MSME (micro, small and medium enterprise) lending, with credit exposure of over ₹68,800 crore and has several schemes for these entities.

A huge impact

But its unique MSME Prerana, an online training and business mentoring programme in local dialects using simple terminologies, has created a huge impact on small entrepreneurs at a time when MSMEs are grappling with various issues such as closure of units, disruption in delivery schedules, payable and receivables.

MSME Prerana has unleashed a new wave of confidence among small entrepreneurs to equip themselves in financial statement analysis, filing of returns, and various skill sets required to handle the business professionally to overcome the crisis.

Lack of information about various financial products, services and schemes deprive MSMEs of benefits offered to them. MSME Prerana, launched by Finance Minister Nirmala Sitharaman in October 2020, seeks to address the information asymmetry that improves credit access and overall quality in the lending space.

“For entrepreneurs, the USP of this ‘Prerana’ initiative has been that it is a simple, jargon-free learning aid available in their local language and at their place of choice, being an online programme. Especially for women and SC/ST entrepreneurs, we have made it completely free with the bank sponsoring them,” says Padmaja Chunduru, Managing Director and CEO, Indian Bank.

The web training programme has been customised as per the requirement of entrepreneurs and various sectors such as textiles, automobile, food processing and leather industries in Tamil Nadu and Uttar Pradesh. It also highlights the special schemes/ initiatives taken by the Central and State governments, RBI and banks.

Two-week programme

With knowledge partner Poornatha & Co, which has done many programmes for small entrepreneurs, Indian Bank has designed the content, involving experts from both sides. This is a two-week programme and entrepreneurs have to spend 1-1.30 hours a day during this period. A series of 10 virtual programmes have been successfully conducted in Tamil Nadu and Uttar Pradesh. With strong positive feedback to the programme, the bank is expanding it to more languages and to more states.

To undergo expansion

MSME Prerana will be rolled out in other States such as Andhra Pradesh, Telangana, Gujarat and Maharashtra this month. “On April 9, we are rolling out in Andhra Pradesh; we have covered more than 600 entrepreneurs through this programme so far,” said PC Dash, Programme Adviser.

Indian Bank has developed a webpage on ‘MSME Prerana’ for establishing an integrated business information solution network that links all relevant State and Central level information sources in one platform.

Srei Equipment Finance Limited (SEFL), on Thursday, said that it has received expression of interest for up to $250 million (approx ₹1,865 crore) capital infusion from international private equity funds, including US-based Arena Investors LP and Singapore’s Makara Capital Partners.

The company’s Strategic Coordination Committee (SCC), chaired by independent director Malay Mukherjee, will coordinate, negotiate and conclude discussions with the PE investors to bring the capital into the business and advise the management.

Ernst & Young (E&Y) will be advising the committee on the proposed fund-raising exercise, the company said in a press statement.

Arena Investors LP is a multi-strategy investment firm with $2.2 billion of committed capital. The firm’s investment mandate is global, and also unconstrained in terms of asset class and industry. It provides creative solutions for those seeking capital in special situations.

Makara Capital Partners is a global financial services company under the regulatory purview of the Monetary Authority of Singapore and specialises in fund management, private equity as well as structuring and financing with a core focus on innovation, infrastructure and energy.

“The SCC is running an independent process for investor identification and has received expression of interest from Arena Investors LP and Makara Capital Partners. This process is being carried out in parallel to the debt realignment plan. The SCC will engage in discussions with the potential investors to raise fresh capital for the business, which will provide cushion against the pandemic induced stress in the Indian financial services space,” the release said.

The SCC will also be the nodal point for a comprehensive cash flow realignment plan with banks and financial institutions and for all external service providers, including investment bankers, lawyers and consultants.

The company, which had been facing cash flows issues in the wake of the Covid-19 pandemic-driven economic stress, had constituted the SCC in March-end to coordinate, negotiate and conclude discussions with potential strategic investors.

Restructuring proposal

Kolkata-headquartered Srei group has a total debt outstanding of nearly ₹27000 crore, which includes ₹18,000 crore outstanding to as many as 15 lenders, including SBI, Axis Bank and UCO Bank, among others.

During the quarter ended December 31, 2020, Srei Infrastructure Finance posted a consolidated net loss of ₹3,810 crore on account of higher and accelerated provisioning as a prudent measure.

While the company has been in discussions with the lenders for a possible restructuring, however, nothing has materialised so far.

Srei has proposed a structure where it could make repayments in a manner which would be aligned to its customers’ cash flows. The company is currently in the midst of consultations with the creditors for an orderly realignment to make the payments synchronised with its collections.

Communication to investors

In a stock market notification on Thursday, the company said that it has appointed Ernst & Young as its primary advisor to work alongside the creditors to come up with a debt realignment plan through a consultative process.

The company is expecting “concrete engagement/progress” during the coming months in the following areas, including debt realignment plans through a consultative process across different creditor classes, under the auspices of the NCLT and equity raising plans to shore up the capital base in Srei Equipment Finance.

“Depending on the recommendation of the transaction advisors and comfort of the creditors, we have the flexibility to optimally choose the corporate structure keeping in mind extant regulatory, tax and legal guidelines,” the company said in a bid to allay investor apprehensions.

This apart, the company would look to stabilise the ongoing operations and employee morale through greater operational flexibility under the guidance of the board and in line with the objectives of the banks, without any coercive steps impacting salaried professionals.

“However, we are now clear that we need to prune the balance sheet, operate primarily in the bank compliant asset market and change the duration of our liabilities to meet the extant and emerging regulations. We have already initiated necessary steps in this regard, including aggressive sell down of assets, reduced disbursements and attempt to re-profile our liabilities. While because of the pandemic and the heightened risk aversion towards NBFCs some of these transformations have not happened at the pace at which we wanted, we are totally committed to come out stronger on the other side in full compliance of the present regulatory guidelines,” it said.

The present asset and liability profile would need time to be corrected to the current dispensation and the company would look forward to the support and guidance from the RBI and its banking partners to ensure effective transition of its business model.

Our Bureau

Government Security (G-Sec) prices rose for the second day on the trot on Thursday as the Reserve Bank of India (RBI) announced guaranteed liquidity support to market participants via a G-Sec acquisition programme (G-SAP).

Price of the benchmark 10-year G-Sec (carrying 5.85 per cent coupon rate) closed at ₹98.68, up 36 paise over the previous close, with its yield thawing about 5 basis points to 6.0313 per cent.

Yield declines 9 bps

In the last two days, the benchmark G-Sec gained about 64 paise in price terms, with its yield declining about 9 basis points. Bond prices and yields are inversely related, moving in opposite directions.

Vinay Pai, Head, Fixed Income, Equirus Capital, said: “By announcing upfront an amount of ₹1-lakh crore under G-SAP, the RBI has comforted traders.

“This additional monetary policy tool, along with other tools, will be appropriately be used to curtail volatility, which is expected during the year due to the large borrowing programme and global uncertainty. This will help in orderly evolution of the yield curve and curb aberrations.”

Under G-SAP, which was announced on Wednesday in the first bi-monthly monetary policy review of FY22, the RBI will commit upfront to a specific amount of open market purchases of government securities, with a view to enabling a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.

In line with the aforementioned announcement, the Reserve Bank of India (RBI), on Thursday, said it will purchase five government securities (G-Secs) maturing between 2023 and 2035, aggregating ₹25,000 crore, under G-SAP on April 15.

VRRR auction

The RBI also said it will be conduct a 14-day Variable Rate Reverse Repo (VRRR) auction, through which surplus liquidity will be absorbed by the central bank, for a notified amount of ₹2-lakh crore on April 9.

Referring to the aforementioned VRRR auction, Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “Yesterday, the RBI said it will conduct VRRR auction of longer maturity – 30 or 60 days. But today, they announced VRRR for 14 days. Market doesn’t want surprises. It wants clarity.”

Madan Sabnavis, Chief Economist, CARE Ratings, observed that when there is liquidity surplus, VRRR will ensure that the market is stable.

To pre-empt liquidity shortages, G-SAP is coming, which will address large demand from government and private sector. In consonance with this, the yield curve will be well behaved, he added.

“On the whole the RBI has sent its feelers that it will ensure stability in the system at all costs. Such a stance will finally help the government which can raise funds at a low cost.

“G-SAP will run with OMO (open market operation) and OT (operation twist). Ideally, high borrowing should go with high cost. But that will not happen. Corporates can take heart as yields are benchmarked with G-Secs and the benefit will percolate,” said Sabnavis.

The microfinance industry, which has been inching towards pre-Covid levels – both in terms of disbursements as well as quality of portfolio – now seems a little wary of the impact of the sudden surge in Covid-19 cases on its collection efficiency.

Any impact on collections may also hurt growth in disbursements, as fresh loans to existing customers will only be sanctioned as and when they foreclose the previous loan.

This apart, disbursements to new customers may also be impacted if field operations are affected due to increase in restrictions in certain regions, including Maharashtra, Tamil Nadu, and Odisha. This would effectively mean that overall credit offtake to the sector might be impacted.

No direct impact

While industry experts do not expect any immediate or direct impact or decline in collections unless there is a nationwide lockdown, they are worried that the restrictions being put in place may impact livelihood activities and, in turn, repayments.

According to Sachin Sachdeva, Vice-President and Sector Head, Financial Sector Ratings, ICRA, the restrictions being put in place in several States/cities to curb Covid-19 infections may affect the improvement in collections, which the microfinance industry has been witnessing for the last few months.

“Increase in restrictions and/or a longer lockdown is a cause of concern for the industry as it would affect the field activity and thereby affect collections. In addition, the disruptions caused in economic activity by such restrictions, will adversely impact the cash flows of the borrowers and, hence, the collection efficiency gains witnessed in past few months may start disappearing,” Sachdeva told BusinessLine.

For the quarter ended December 31, 2020, the portfolio quality was seen moving in the range of around 88-92 per cent for the industry as a whole despite geographical variation, as per the 36th issue of Micrometer.

A majority of the microfinance institutions have reported more than 90 per cent recovery and some of them have met their recovery target as on March 2021, said P Satish, Executive Director of Sa-Dhan, an RBI-recognised self-regulatory organisation for MFIs.

“The only thing we need to see is whether this new lockdown will affect small businesses. The complete lockdown during weekends are likely to impact small businesses and street vendors who are typically MFI customers.

“We only hope this will not last too long. Last time this segment could recoup in a quick way so we are positive,” he said, and added that the industry was watchful but optimistic of improvement in recovery.

Though the collection efficiency for the industry as a whole has been improving on a month-on-month basis, the situation is still very fluid as nobody knows what will happen if cases surge further, said Alok Misra, CEO and Director, MFIN (Microfinance Institutions Network).

If the process of vaccination is accelerated then it would give the industry a “good buffer”.

“Our operations are going on as usual as of now, since MFIs are categorised as essential services. We have not observed any adverse impact on our collection efficiency at all,” said HP Singh, CMD, Satin Creditcare Network Ltd.

Improvement in funding

From the funding side, things have been improving and liquidity is not an issue. “Since things have not gone into complete lockdown, the impact (on disbursements) will be lower, but if there is longer lockdown or increase in restrictions, then there could be an impact,” pointed out Sachdeva.

Disbursements for the industry as a whole during Q3 FY21 were around 96 per cent of the same period last year.

According to Manoj Kumar Nambiar, Managing Director, Arohan Financial Services, customers understand the importance of repayments as it directly impacts their ability to take credit.