Category: Banking & Finance

Piyush Gupta, CEO, DBS, BFSI News, ET BFSI

Banking & Finance

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Digital currencies and tokenisation of assets are a reality and may be a dominant factor in the future, but that doesn’t necessarily mean that Bitcoin could replace fiat currency as a medium of exchange, said Piyush Gupta, CEO of DBS. “We launched the first bank-sponsored digital exchange in December, which lets you tokenise assets and securities,” said Gupta, ET’s Global Indian of the Year.

“So by our action we are creating capabilities for crypto, digital currencies and tokenisation for the future. But Bitcoin as a replacement for money is still challenging. Money is a medium of exchange, a unit of account and store of value.’’ The world is divided on the future of cryptocurrencies with regulators like the Reserve Bank of India (RBI) opposing them as a medium of exchange, while billionaire entrepreneurs like Elon Musk are backing them.

While cryptocurrencies have become a craze, the volatility of Bitcoin has made administrations nervous.

“Bitcoin is not a good medium of exchange because even though Elon Musk says he will take it for Tesla, it is very hard to do transactions because you can only do nine transactions per second while Visa and Mastercard can do hundreds of thousands,” said Gupta.

Gupta of DBS, which became the first international bank to acquire a domestic, troubled lender in recent memory, said that Lakshmi Vilas Bank fits into our strategy. He visualised the growth path a few years ago through the subsidiarisation of DBS in India to gain equal footing with domestic banks. “We were mentally prepared and had done some homework around a range of possibilities and that allowed us to respond very quickly,” he said. DBS India took over Lakshmi Vilas Bank last year



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Raghuram Rajan’s formula has led to over 50% recovery for ARCs, BFSI News, ET BFSI

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The recovery rate of asset reconstruction companies (ARCs) has been over 50% in the last five years since Raghuram Rajan brought in the ’15:85 structure’ for acquiring non-performing assets from banks.

“From FY16 onwards, recovery has been more than 50% in ARCs, which is much much better than even an IBC. In IBC resolution everyone talks of resolved cases, but 75% cases of IBC are going into liquidation, recovering less than 10 % of loans” says Siby Antony, chairman, ARC Association of India.

In FY2015 Raghuram Rajan brought in the 15:85 structure, under which the cash component ARCs would have to pay to a bank was raised to 15% while the rest was security receipts, from the earlier 5:95 split.

The 5:95 split

“The 5:95 (5% cash and rest SR) split was a very skewed structure in favour of ARCs. It was a blind game ARCs could play,” says Antony.

Under 5:95 structure, ARCs could earn a positive net return just on the basis of management fees, without any value addition by securitisation or asset reconstruction.

The increase of cash proportion to 15% pushed the ARCs to raise their returns through securitisation and asset reconstruction.

The 15:85 structure

“15:85 is an excellent structure. Unless the ARC recovers 130% of the acquisition value, it will not make its return. Even at 100%, ARC will make loss because the management fee of 1-2% doesn’t make any ARR for ARC. Recovery should be over 130% so that 100% of security rights will be redeemed,” Antony said.

Provisioning killed the goose

However, in September 2016, the Reserve Bank of India introduced new regulatory guidelines regarding provisioning. From April 2018 banks have to sell at 90% cash and 10% SRs. If a bank holds more than 10% SR, it had to continue provisioning for the loan which is not even on their books.

“So there was no incentive for them to transfer to ARCs. Now no banks transfer on 15:85 and all deals are on cash,” says Antony.

Cash deals

At such high levels of cash, the market becomes unviable for all but a few. Some ARCs such as Edelweiss, JM Financial that have raised money from Alternative Investment Funds (AIFs) do transactions on a cash basis, but other ARCs have deployed whatever capital they had, and now have none.

The holdings of such AIFs which have the capital to invest in newly-issued security receipts have risen sharply. These funds hunt for viable assets. Vulture funds and AIFs look for 25% plus returns while the ARCs look at 18-20%



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Imran Amin Siddiqui assumes charge as Indian Bank ED

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Imran Amin Siddiqui has assumed charge as executive director of Indian Bank with effect from March 10. Prior to being elevated as an executive director, he was GM, resources and government relationship department of Indian Bank. He started his banking career with erstwhile Allahabad Bank as a SSI field officer in 1987.

In his career spanning over 33 years, he has worked in Delhi, Mumbai, Kolkata and Chennai in various capacities.
In the capacity as field general manager, he headed the entire West Bengal and all the north east states, said release by Indian Bank.

He has also headed different verticals like credit department, credit monitoring department and resources & government relationship department, etc., at the corporate office/head offices.

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Spread between 10-year SDL, G-Sec narrows to four-week low

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The spread between 10-year State Development Loan (SDL) and Government Security (G-Sec) of corresponding maturity narrowed to a four-week low of 93 basis points (bps) on March 9, 2021, from 95 bps last week, while remaining elevated, according to ICRA.

The weighted average cut-off of the 10-year SDLs eased to 7.14 per cent on March 9, 2021, from 7.18 per cent last week.

“This is somewhat sharper than the decline in the yield of the 10-year benchmark (5.85 per cent G-Sec 2030) to 6.21 per cent on March 9, 2021, from 6.24 per cent last Tuesday, leading to the spread between them narrowing to a four-week low 93 bps from 95 bps, respectively,” the credit rating agency said in a report.

One basis point is equal to one-hundredth of a percentage point. Spread here means the difference between the coupon rate at which 10-year SDLs were issued and the secondary market yield on the 10-year benchmark G-Sec.

State governments raise loans from the market which are called SDLs. They are dated securities issued through normal auction, similar to the auctions conducted for G-Secs/dated securities issued by the Central government

With the issuance of 10-year Gujarat SDL at 7.08 per cent and 10-year Sikkim SDL at 7.18 per cent, the inter-state spread in the 10-year SDLs increased to 10 bps from 8 bps last week, per the report.

Cash raised

Fourteen State governments raised ₹22,200 crore through State Development Loans (SDLs) on March 9, 2021, 28.3 per cent lower than the amount initially indicated for this week and a mild 1.0 per cent lower than the year-ago level, the agency said.

Nevertheless, in FY21 (till March 9, 2021), the cumulative SDL issuance stands at ₹7,36,800 crore, around 30 per cent higher than the year-ago level.

With three auctions left in March 2021, ICRA expects total gross SDL issuance to exceed ₹8-lakh crore in FY21.

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Google Pay app to give more controls to users

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Our Bureau

Google said on Thursday that starting next week Google Pay’s app settings will provide users with more controls to decide how their activity is used to personalise features within the app.

“All users will be asked to choose whether they would like to turn the control on or off as soon as they upgrade to the next version of the Google Pay app,” the company said in a blogpost.

“…your financial and transaction information on Google Pay has always been governed by your consent. Your personal information is never sold to anyone, and your transaction history is not shared with any other Google product for targeting ads,” it said.

Turning on ‘Personalisation within Google Pay’ will provide a more tailored experience within Google Pay, the company said. For example, users will receive more relevant offers and rewards based on their activities within Google Pay, including the transaction history.

“Even with this setting turned off, Google Pay will continue to work just as well – only without personalisation. Users who update Google Pay on Android and iOS can access these controls to modify their personalisation experience on Google Pay, based on their preference,” the blogpost said.

It further added that users will also be able to manage their individual transactions and activity within Google Pay by visiting account.google.com. “Here, you can view and delete individual transactions and activity records that you don’t want used to personalise your Google Pay experience,” it added.

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ICICI Lombard GI’s InstaSpect crosses 10 lakh motor insurance claim approvals

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ICICI Lombard General Insurance Do-It-Yourself feature called InstaSpect for vehicle damage assessment has reached the milestone of over 10 lakh motor insurance claim approvals since its launch.

“In the digitally enabled new normal, InstaSpect has gained significant traction with more people using it to get their claims settled from the comfort and safety of their homes,” the private sector general insurer said in a statement on Thursday, adding that as agents and surveyors found it difficult to travel due to social distancing, InstaSpect was the easiest way to settle motor insurance claims seamlessly and instantly.

Launched in 2018, the feature eliminates the need for vehicle damage assessment through a physical survey and instead enables live streaming, allowing virtual assessment, and bringing down the claim approval time to just a few hours.

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Northern Arc raises $10 mn in ECB from Calvert Impact Capital

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Northern Arc Capital, a non-banking finance company (NBFC) that provides access to debt capital for under-banked individuals and businesses, announced that it has raised $10 million in debt through external commercial borrowing (ECB) from US-based impact investor Calvert Impact Capital.

The funding is Calvert Impact Capital’s largest debt investment in India so far.

In a press release, Northern Arc said that it will deploy the funds towards on-lending to financial institutions as well as lending directly to retail customers and to mid-market corporates.

“Underbanked customers, including low-income households and small businesses, to whom credit has dried up over the last few months due to the pandemic, will be key beneficiaries of the proceeds,” the NBFC added.

“The partnership with Calvert Impact Capital is long-term and multi-dimensional, helping both organisations achieve common goals across impact and growth,” Bama Balakrishnan, COO of Northern Arc said in the release, adding, “The facility’s longer duration will expand Northern Arc’s ability to fund MSMEs and households.”

Calvert Impact Capital’s portfolio serves sectors, geographies, and populations that are often overlooked or underserved by the traditional capital markets.

“As an investor, we benefit from leveraging the market and credit expertise of the Northern Arc team as we put capital to work for impact in India,” Daniel Ford, Investment Officer of Calvert Impact Capital was quoted in the release as saying.

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Ares SSG funds complete acquisition of Altico Capital

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Ares SSG on Thursday announced that some of its funds have completed the acquisition of all underlying assets of Altico Capital India Limited.

“The acquisition marks the first resolution of a defaulting NBFC outside India’s Insolvency and Bankruptcy Code and represents Ares SSG’s single largest investment in India to date,” said the Asia Pacific alternative asset manager.

Funds managed by Ares SSG along with Assets Care and Reconstruction Enterprise have acquired all outstanding loans and investments from Altico for about ₹2,800 crore, which is in line with its original resolution plan submitted in February 2020.

“Ares SSG’s plan has ensured a full resolution while also maximising the value of the underlying assets for creditors, despite the adverse impact of the pandemic on several of Altico’s portfolio companies,” the statement said.

Debt ridden Altico had been facing a liquidity crisis since late 2019. It had defaulted on about ₹20 crore to Mashreq Bank in September 2019.

Also read: Mutual fund exposure to NBFC debt grows marginally in Q3

Lenders led by State Bank of India had then formed a committee and initiated the resolution plan. In all, about 27 lenders have exposure to Altico Capital.

In the statement, Ares SSG said Altico’s entire team will continue to assist in servicing the existing portfolio.

“This investment also highlights our confidence in the prospects for India and the steps being taken to spur growth that has over the past year been held back by the global pandemic,” said Shyam Maheshwari, Partner, Ares SSG.

Manish Jain, CEO, SSG Advisors, an advisor to Ares SSG, said, “Ares SSG’s plan for Altico allows its creditors to realise immediate value for the assets.”

Set up in 2004, Altico Capital is an NBFC, which focuses on senior secured lending to mid-income residential projects and Commercial Real Estate sector across Tier-1 cities. It also provides structured finance solutions to the infrastructure and other adjacent sectors.

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RBI pulls IDBI Bank out of the PCA framework, bank to resume normal lending, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) on Wednesday said IDBI Bank has been taken out of the prompt corrective action (PCA) framework after it found the state-run lender was not in breach of its rules on regulatory capital, bad loans and leverage ratio.

The Life Insurance Corporation of India (LIC)-owned lender has given the regulator a written commitment that it shall comply with the norms of minimum regulatory capital, bad assets and leverage ratio on an ongoing basis. Coming out of the PCA framework would allow the bank to resume it’s normal lending operations including corporate loans.

IDBI Bank was placed under the so-called PCA framework in 2017 over its high bad loans and negative return on assets, at a time when Indian lenders battled record levels of soured assets, prompting the RBI to tighten thresholds.

The RBI said that the performance of IDBI Bank was reviewed by the board for financial supervision (BFS) in its meeting held on February 18. After taking everything into consideration, it was decided that the bank be taken out of the PCA framework.

“It was noted that as per published results for the quarter ending December 31, 2020, the bank is not in breach of the PCA parameters on regulatory capital, Net NPA and Leverage ratio. The bank has apprised the RBI of the structural and systemic improvements that it has put in place which would help the bank in continuing to meet these commitments,” the central bank said.

IDBI Bank posted a net profit of Rs 378 crore in the third quarter (Q3) ended December 2020-21 (Q3FY21), aided by a rise in net interest income. This is the fourth consecutive quarter of profit for the lender. It had booked a net loss of Rs 5,763 crore in Q3 of 2019-20.

IDBI Bank had met three out of four key criteria needed to exit the prompt corrective action framework. IDBI Bank’s gross bad loan ratio, which was among the highest, has also eased in recent quarters, standing at 23.52% as of end-December.

  • Technically classified as a private bank after its takeover by LIC, IDBI Bank continues to struggle with recoveries from stressed corporate NPAs. However, with aggressive positioning, Net NPA ratio has improved to 1.94% against 5.25%.
  • Provision Coverage Ratio, a key financial parameter, improved to 97.08% in the third quarter from 92.41% in the previous fiscal
  • Its leverage ratio has also surpassed the 4% threshold and currently stands at 5.71%.

Its capital to risk-weighted assets ratio (CRAR), including counter cyclical buffer (CCB) stood at 14.77%, against the regulatory minimum of 11.5%. It’s return on assets (RoA) for Q3 stood at 0.51%. Retail loans accounted for 60% of the total loan book, with the rest being corporate loans. IDBI Bank’s total deposits rose 2.85% y-o-y to Rs 2.24 lakh crore at the end of December 2020. The share of current accounts savings accounts (CASA) in total deposits was 48.97% as on December 31, 2020.

However, shares of IDBI Bank have lost more than 50% of their value since RBI brought it under the framework in 2017. They have surged sharply since the federal budget in February on expectations New Delhi intends to sell its stake in the bank to help India’s depleted coffers.



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Svasti Microfinance raises ₹31 crore from internal investors

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Svasti Microfinance Private Limited has raised a total of ₹31 crore from its existing investors Adar Poonawalla, Nordic Microfinance Initiative (NMI) and Rajiv Dadlani Group.

It will also be raising around ₹150 crore of equity in FY 2022 to fund growth plans.

The Mumbai-based company has raised a total of ₹130 crore capital to date. Existing investors also include Sajid Fazalbhoy, Kayenne Ventures (Singapore) and Arihant Patni Family.

Svasti was co-founded by Arunkumar Padmanabhan and Narayanan Subramaniam in 2010.

Today, Svasti services around 1.87 lakh customers across 63 branches spread over four States, aggregating a loan portfolio of around ₹400 crore, the company said in a statement. Its post-pandemic collection efficiency has reached 94 per cent and it expects both collections and disbursements to reach pre-pandemic levels by the end of this financial year.

Proprietary platform

Svasti has built a proprietary fintech platform for its business, SvasTech, using cutting edge technology embedded with artificial intelligence and machine learning.

“The constant trust of existing investors in Svasti will support the plan to double our branches and grow our portfolio to ₹800 crore by March 2022” said Svasti’s co-founder, Narayanan.

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