Category: Banking & Finance

Government security (G-Sec) prices rallied on Monday, the first trading day of the new financial year, on expectations that the monetary policy committee (MPC) will leave the repo rate unchanged at 4 per cent amid uncertainty on economic recovery in the wake of recent spike in Covid-19 cases.

Price of the 10-year benchmark G-Sec (carrying a coupon rate of 5.85 per cent) was up 38 paise to close at ₹98.0225 over the previous close (₹97.64), with its yield declining about five basis points to 6.1231 per cent (6.1768 per cent).

Price of the 5-year G-Sec (carrying a coupon rate of 5.15 per cent) jumped about 49 paise to close at ₹98.295 over the previous close (₹97.81), with its yield declining about four basis points to 5.5747 per cent (5.6971 per cent).

Bond yields and prices are inversely related. They move in opposite directions.

Price of the 10-year benchmark G-Sec fell ₹2.24 since December-end 2020 to end the fourth quarter at ₹97.64. Yield on this G-Sec surged about 31 basis points to close at 6.1768 per cent in the fourth quarter.

M Govinda Rao, Chief Economic Adviser, Brickwork Ratings, said: “Given the rise in the spread of Coronavirus and the imposition of fresh restrictions to contain the virus spread in major parts of the country, the RBI is likely to continue with its accommodative monetary policy stance in the upcoming MPC meeting.”

Considering the inflationary risks, he expects the MPC to adopt a cautious approach and hold the repo rate at 4 per cent in its upcoming meeting.

Kavita Chacko, Senior Economist, CARE Ratings, observed that domestic bond yields would continue to be pressured, given that sizeable issuances of government securities are planned for the coming months (₹7.24-lakh crore, which is 60 per cent of the targeted borrowing for FY22, is to be raised during April-September 2021) amid a resurgence in inflation and the continued sell-off in global bonds.

At the same time, the RBI is likely to announce measures to anchor bond yields at its upcoming policy meet, she added.

The Reserve Bank of India (RBI), on Monday, withdrew the All Inclusive Directions it issued to Kolhapur-based Youth Development Cooperative Bank Ltd.

The RBI, in a statement, said: “On being satisfied that in the public interest it is necessary to do so, in exercise of the powers vested in it under…the Banking Regulation Act, 1949, hereby withdraws with effect from April 5All Inclusive Directions issued to Youth Development Cooperative Bank Limited, Kolhapur, Maharashtra.”

The central bank had placed the Kolhapur-based Urban Co-operative Bank under Directions from the close of business on January 05, 2019, for a period of six months. The validity of the directions was extended from time-to-time, the last being up to April 05, 2021.

A handful of private sector lenders announced robust growth in advances, but deposits continued to outpace as on March 31, 2021.

The filings, ahead of the fourth quarter results of the banks, come for the period when Covid cases were still under control and the unlocking of the economy had l

ed to improved prospects of economic recovery.

HDFC Bank

In a regulatory filing on Monday, HDFC Bank said its advances rose to ₹11.32-lakh crore as of March 31, 2021, compared to ₹9.93-lakh crore in the same period a year ago. On a quarter-on-quarter basis, advances grew by 4.6 per cent over ₹10.82-lakh crore as of December 31, 2020.

“As per regulatory (Basel 2) segment classification, domestic retail loans as of March 31, 2021, grew by around 7.5 per cent over March 31, 2020, and around 5 per cent over December 31, 2020; domestic wholesale loans as of March 31, 2021, grew by around 21 per cent over March 31, 2020, and around 4.5 per cent over December 31, 2020,” it said in a regulatory filing.

Its deposits grew to about ₹13.35-lakh crore as of March 31, 2021, versus ₹11.47 lakh crore a year ago. It amounted to a grow of about five per cent on a quarterly basis compared to ₹12.71-lakh crore as of December 31, 2020.

IndusInd Bank

IndusInd Bank reported a three per cent increase in net advances and 27 per cent rise in deposits as on March 31, 2021, compared to a year ago. Its net advances increased to ₹2.13-lakh crore as on March 31, 2021, versus ₹2.06-lakh crore a year ago. Deposits increased to ₹2.56-lakh crore as on March 31, 2021, compared to ₹2.02-lakh crore a year ago.

Private sector lender YES Bankalso showed a cautious growth in advances but a sharp rise in deposits.

It reported a 0.8 per cent increase in loans and advances rose to 1.72-lakh crore as on March 31, 2021, from ₹1.71-lakh crore a year ago.

The bank said gross retail disbursements in the fourth quarter of 2020-21 increased by 154.3 per cent to ₹7,828 crore from ₹3,078 crore a year ago.

Deposits surged 54.7 per cent to ₹1.62-lakh crore as on March 31, 2021, from ₹1.05-lakh crore in the same period a year ago.

Federal Bank reported a nine per cent increase in gross advances and 13 per cent growth in total deposits as on March 31, 2021, on an annual basis.

The bank’s total deposits rose to ₹1.72-lakh crore as on March 31, 2021, while gross advances grew to ₹1.34-lakh crore in the same period.

A report by ICICI Securities noted that as unlocking of the economy has unfolded, the banking industry has seen a gradual pick-up in loan growth from a credit growth of about 5.6 per cent in October 2020 to about 6.5 per cent in February 2021.

The Finance Industry Development Council (FIDC) has written to the Maharashtra government seeking partial functioning of RBI-registered non-banking financial companies during the current preventive measures being taken to check the rapid spread of Covid-19 in the State.

“It is necessary that essential staff may be required to be physically present in the branch offices and they cannot Work from Home for the collections, depositing cash in banks,” said FIDC in a representation to Sitaram Kunte, Chief Secretary, Government of Maharashtra.

Noting that the State government has exempted banks from the closure of offices in the Break the Chain order, FIDC said that operations of NBFCs are also similar to those of banks.

“Similarly, insurance companies, stock markets and its operators, mutual funds are treated at par with banks,” said FIDC, adding that NBFCs are the only part of the financial sector that has been left out.

“If at least 30 per cent of our staff are permitted to be operative on rotation basis, we can cater to the rising financial requirements of a larger segment of lower and middle income customers during this challenging time,” the FIDC further said.

Noting that a similar exemption was provided to NBFCs during the lockdown last year, FIDC said: “We make an appeal to exempt RBI-registered NBFCs under Clause 5 (a) of the said order date on April 4 and issue necessary advisory that the essential operations of NBFCs in Maharashtra are continued on par with banking operation and to facilitate the essential staff to provide the essential services to our stakeholders.”

Credit rating agency ICRA expects Banks’ Gross Non-Performing Assets (excluding write-offs) to rise to 9.6-9.7 per cent by March 31, 2021 and 9.9-10.2 per cent by March 31, 2022 from 8.6 per cent as on March 31, 2020 as the impact of various Covid-19 pandemic related relief measures wanes off.

As the impact of various relief measures such as moratorium on loan repayment, standstill on asset classification and liquidity extended to borrowers under Guaranteed emergency credit line (GECL) wanes off, the asset quality pressures are likely to resurface, the agency said.

In a note, ICRA observed that despite the impact of Covid-19 pandemic on debt servicing ability of borrowers, the gross fresh slippages for banks stood much lower at ₹1.8 lakh crore (2.7 per cent of advances on annualised basis) during 9M (nine months) FY2021 as compared to ₹3.6 lakh crore (4.1 per cent) during FY2020. This has been driven by various relief measures.

The agency assessed that despite a decline in the reported non-performing assets (NPAs) by banks as on December 31, 2020 as compared to March 31, 2020, the sizeable increase in their overdue loan book remains a monitorable as second Covid wave could impact the economic recovery.

The agency noted that even including pro forma Gross NPAs of ₹1.3 lakh crore (1.1 per cent of gross advances) and Net NPAs of ₹1 lakh crore (1 per cent of net advances), the GNPA and NNPA of the banks stood at 8.3 per cent and 2.7 per cent as on December 31, 2020 as compared to 8.6 per cent and 3 per cent, respectively, as on March 31, 2020.

However, this decline was driven by loan write-offs of ₹1.1 lakh crore (1 per cent of advances) during 9MFY2021, ICRA said.

Further, based on the restructuring guidance given by various banks, the overall volume of restructured advances is estimated at 1.3-1.5 per cent of the advances, much lower than ICRA’s initial estimates.

Anil Gupta, Sector Head – Financial Sector Ratings, ICRA Ratings said: “While the headline asset quality and restructuring numbers are encouraging, these don’t reflect the underlying stress on asset quality of banks.”

He underscored that the level of loans in overdue categories has increased after lifting of moratorium and the impact on asset quality will be spread over FY2021 and FY2022 as various interventions and relief measures have prevented a large one-time hit on profitability and capital of banks.

Notwithstanding the rise in headline GNPA numbers, ICRA said the NNPA position of the banks is expected to be relatively lower because of significant provisions made by banks on their legacy NPAs.

Even on pro forma basis, Banks’ NNPAs were lower as on December 31, 2020 as compared to March 31, 2020.

While NNPAs are expected to rise marginally to 3.0-3.1 per cent by March 31, 2021 (2.7 per cent as on December 31, 2020 and 3 per cent as on March 31, 2020), ICRA expects these to decline to 2.3-2.5 per cent by March 31, 2022.

Amidst the second wave of Covid-19 cases in the country, insurance companies say they are poised to deal with rising claims but general insurers are worried about the impact on their balance sheets. For the life insurance sector, the pandemic has posed less of a challenge as the number of deaths has been much lower than the active case load.

“The first quarter of this fiscal will be challenging for all non-life insurers as health claims are on the rise again. While Covid-19 claims are surging, people are also getting elective surgeries done,” said the head of a general insurance company, adding that if cases continue at this level then it would also begin to dent the balance sheets.

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“As of now, it’s wait and watch mode. Covid-19 cases are rising and there will be more clarity on medical claims by the month end,” noted another general insurer, adding that the need for hospitalisation and number of critical cases have been lower till now, even though cases have been rising.

By March 15, general insurers had received over ₹14,000 crore of claims according to industry data.

Life insurance

In contrast, life insurers say the impact of the pandemic, in terms of claims, has been limited till now.

“Covid-19 claims are not too many. Some impact has been there but we will like to watch it for some time. Claims may go up but it will be temporary,” said G Murlidhar, Managing Director, Kotak Mahindra Life Insurance.

As of now, Kotak Life Insurance has paid a total of about 900 Covid-19-related claims amounting to about ₹90 crore, he said.

An executive with another life insurer said that even last year, the number of Covid-19-related claims had been low, especially in the initial months after the lockdown.

“There will be some impact of Covid-19 on business and mortality but it will be limited and overcome. Even in the last wave, the impact had been limited and business had continued,” the insurer noted.

According to a recent report by Motilal Oswal, higher Covid-19 claims were reported across insurers.

SBI Life Insurance saw about 5,000 Covid-19-related claims and paid about ₹340 crore, the report said.

“A similar rise in death claims was seen in other isurers as well, with ICICI Prudential Life Insurance settling claims of about ₹340 crore,” it said. HDFC Life Insurance settled Covid-19-related claims with 1,271 individuals and 542 Group-related settlements. Death claims for Max Life Insurance were the highest at 10,525, compared to 7,313 in the third quarter of 2019-20, it noted.

India recorded over one lakh daily Covid-19 cases, crossing even the peak recorded in the first wave of the pandemic in September last year.