Category: Banking & Finance

Our Bureau

The Reserve Bank of India (RBI) has decided to exempt scheduled commercial banks’ (SCBs) exposure to foreign sovereigns or their central banks from the large exposure framework (LEF).

Under LEF, a bank’s exposure to all its counterparties and groups of connected counterparties, excluding certain exposures, are considered for exposure limits.

RBI said exposures to foreign sovereigns or their central banks that are subject to a 0 per cent risk weight; and denominated in the domestic currency of that sovereign and met out of resources of the same currency of all SCBs to foreign sovereigns or their central banks are exempt from LEF.

The aforementioned SCBs excludes Small Finance Banks, Payments Banks, Local Area Banks and Regional Rural Banks.

Government security (G-Sec) yields thawed a shade on Wednesday on hopes that the Reserve Bank of India (RBI) will not shy away from conducting open market operations (OMO) to keep the yields from rising.

The central bank, on Wednesday, announced that it will conduct a special OMO, entailing simultaneous purchase and sale of G-Secs aggregating ₹15,000 crore eachon March 4.

Yield on the benchmark 10-year G-Sec (5.85 per cent GS 2030) nudged down about 2 basis points (to 6.1473 per cent), with its price increasing by 18 paise (₹97.83) over the previous close. Yield and price of bonds are inversely related, moving in opposite directions.

Since January-end 2021, yield on the aforementioned G-Sec has jumped about 24 basis points and its price declined by about ₹1.75.

Due to the fall in G-Sec prices, banks are staring at mark-to-market (MTM) losses in the fourth quarter. If the losses persist till the end of the quarter, they will have to make provision towards investment depreciation. This could have adverse implications on their profitability.

“This financial year, that is 2021 from April till now, we have done a total open market operation (OMO) of more than ₹3-lakh crore.

“Considering the borrowing requirement of next year, there is no reason why the RBI should do less OMO in the next year, that is 2021-2022, than what we did in the current year,” the RBI Governor Shaktikanta Das told a news channel.

Das reiterated that orderly evolution of the yield curve is a public good, and it entails a responsibility both for the central bank and for market players.

Under the special OMO (also known as Operation Twist), the RBI will purchase four G-Secs (maturing in 2024, 2027, 2031 and 2035), and simultaneously sell two G-Secs (maturing in November 2021 and 2022) aggregating ₹15,000 crore each on March 4.

The central bank is trying to soften the yields on G-Sec at the longer end via Operation Twist. This will ensure that the cost of borrowing for the government as well as India Inc is reasonable. G-sec yield curve serves as a benchmark for the pricing of corporate debt instruments

The Delhi High Court, on Thursday, will take up the application for hearing the petition filed by Religare Finvest Ltd to make DBS Bank India a respondent in its pending case against Lakshmi Vilas Bank.

The matter is listed for hearing on Thursday before Justice JR Midha.

On December 1, the Bench headed by Justice Rajiv Shakdher, in an order, had given DBS Bank India five weeks to respond. It has listed the matter for hearing on February 25.

The move comes after the merger of LVB with DBS Bank India with effect from November 27.

Meanwhile, according to sources, the Economic Offences Wing, in a supplementary chargesheet, has also included Lakshmi Vilas Bank, which is now DBS Bank India.

Bajaj Allianz Life Insurance, on Wednesday, launched a new annuity pension plan called Bajaj Allianz Life Guaranteed Pension Goal, which offers nine annuity options to choose from.

“It is the only life insurance plan that offers a regular premium deferred annuity option that enables policyholders to guarantee their pension amount at the time of retirement by paying regularly over a period of time,” the life insurer said in a statement, adding that it also offers an option for policyholders’ spouse to continue receiving the guaranteed income during his or her lifetime.

Further, a legacy can be left for the nominees by ensuring the Return of Purchase Price (RoP).

“While there are several saving instruments that will help build a retirement corpus, annuity plans are one of the most effective tools to ensure individuals receive an income in a sustained manner through their retired life,” said Tarun Chugh, Managing Director and CEO, Bajaj Allianz Life.

In a big booster dose for private sector banks, the government has lifted an existing embargo (nearly two-year-old) on the grant of government businesses to such banks. This would mean that private sector banks get to handle government-related banking transactions such as taxes and other revenue payment facilities, pension payments, and small savings schemes.

Private sector banks will also now get to enjoy the creamy business of playing on the float provided by government transactions and balances running into lakhs of crores, say banking industry observers.

“Embargo lifted on grant of government business to private banks. All banks can now participate. Private banks can now be equal partners in development of the Indian economy, furthering govt’s social-sector initiatives and enhancing customer convenience,” tweeted the office of Finance Minister Nirmala Sitharaman on Wednesday.

Customer convenience

This step is expected to further enhance customer convenience, spur competition and higher efficiency in the standards of customer services, an official release said. Private sector banks, which are at the forefront of imbibing and implementing the latest technology and innovation in banking, will now be equal partners in the development of the Indian economy and in furthering the social-sector initiatives of the government, it added.“With the lifting of the embargo, there is now no bar on the RBI for authorisation of private sector banks (in addition to public sector banks) for government business, including government agency business. The government has conveyed its decision to the RBI,” the release said.

However, critics see this move as yet another step of the government to pamper big corporates. They contended that private sector banks are only going to take the creamy layer of government business that will support their functioning as a commercial banks. Private banks are unlikely to take up social banking or distribution of all government schemes in a big way.

“The government’s announcement to allow government business to private banks is like feeding milk to a poisonous snake. This is absolutely not a fair decision. This is unfair. Public sector banks need government business to cross subsidise priority sector lending. Private banks are only doing commercial banking and will therefore take only creamy business, which is more advantageous to them,” CH Venkatachalam, General Secretary, All India Bank Employees Association, told BusinessLine .

The supply of corporate bonds in the domestic market can double to about ₹65-70-lakh crore (outstanding) by March 2025, with the financial sector contributing about 50 per cent of the incremental supply, followed by innovation (about 25 per cent) and infrastructure (about 20 per cent), according to Crisil.

Of the aforementioned supply, non-banking finance companies/ housing finance companies will mobilise ₹14-15-lakh crore, followed by innovations (which has potential to mobilise additional ₹7-10-lakh crore via issuances from the infrastructure sector), infrastructure (₹5.5-7.5-lakh crore), corporates (₹2.5-3.0-lakh crore), and banks (₹1.5-2.5-lakh crore).

The potential supply of corporate bonds (outstanding) can increase from 16 per cent of GDP in FY20 to 22-24 per cent of GDP by FY25, according to a presentation by the credit rating agency.

However, demand is expected to be at ₹60-65-lakh crore, despite regulatory push. This means foreign capital will be necessary to bridge the ₹5-lakh crore gap.

The agency assessed that retirement funds will contribute to about 25 per cent of the incremental demand, followed by insurance, mutual funds and regulatory push contributing about 20 per cent each.

Infra build-out via bonds

Referring to the National Infrastructure Pipeline envisaging ₹111-lakh crore of investments between fiscals 2020 and 2025 for India’s infrastructure build-out, Crisil observed that raising such humongous amounts – an onerous ask even in normal times – has become even more difficult because of the fiscal stress caused by the Covid-19 pandemic.

Given this, Indian capital market will have a big role to play in financing the great build-out through bonds, it added.

For the bond market to fill the supply-demand gap, Crsisil said supply-side innovations, such as pooling of assets, a well-capitalised Credit Guarantee Enhancement Corporation, and widespread adoption of the INFRA Expected Loss (EL) rating scale will be pivotal.

On the demand side, the agency felt that credit default swaps, retail participation, index linked funds, and mechanisms to improve liquidity will be enablers.

Besides these, attracting foreign capital is crucial to bridging the emerging supply-demand gap, especially given the crowding-out by gilts stemming from the huge borrowing programme of the government.

Ashu Suyash, MD and CEO, Crisil, said: “Pooled assets bring scale, diversification benefits and flexibility to structure the cash flows. This can attract foreign capital and improve the confidence of bond market investors.”

She observed that take-out financing facilitated by pooling of assets can help banks and other infrastructure financiers free up a portion of the over ₹20-lakh crore credit outstanding in the sector for fresh lending to new projects.

Suyash said InvITs, co-obligor structures, covered bonds and securitisation are facilitative mechanisms for pooling assets.

Shobha Roy

NBFC-MFI Janakalyan Financial Services, which has been witnessing an improvement in collection efficiency and disbursals since July-August last year, is looking to grow its loan book by around 50 per cent in 2021-22.

According to Alok Biswas, MD and CEO of Janakalyan, the collection efficiency, which currently stands at around 90 per cent, is likely to improve to 92 per cent by March this year and further improve to 98-99 per cent by June 2021.

“ The lockdown initially impacted collections and disbursals, but we have been witnessing some growth in disbursements since July-August 2020 onwards. We had also received funding support from our lenders. However, post the episode of Sambandh Finserve in Odisha in October, we had to face some problems in raising funds,” Biswas told BusinessLine.

The Odisha-based microlender Sambandh Finserve was recently at the centre of a controversy after some of its key officials alerted the company’s board members about a purported fraud by the executive management. The company was also said to have defaulted payment to lenders.

This incident had impacted other smaller MFIs and their ability to raise funds due to lack of confidence among lenders. The company’s total loan outstanding, which stood at ₹239 crore as on March 2020, came down to around ₹198 crore as on January 2021. This was because of the drop in disbursements in the wake of the pandemic, and also the Sambandh incident shaking the confidence of investors and lenders.

Fund-raise plans

The Kolkata-based Janakalyan, however, managed to receive support from Sun Tech City Private Ltd through equity infusion. The company has picked up 12 per cent stake in the NBFC-MFI.

The company is also looking to raise close to ₹50 crore by Q1 of next fiscal to support our growth.

“It is a moment of great pride for Janakalyan, specially at this critical juncture when debt capital is not flowing much in mid-size MFIs since the pandemic. Having received this sort of fresh capital infusion validates the business model of MFI, which will boost and re-foster investors’ confidence in the sector,” he said.

Janakalyan was supported by SIDBI Venture Capital Limited with equity support in 2019, and this is the second round of investment other than the promoters.

The much-needed equity capital raised would be used to expand the company’s operations in new geographies.

Janakalyan, which currently has a presence in West Bengal, Bihar and Jharkhand, is looking to expand operations in lower Assam, Tripura and Chattisgarh in the next one to two years.

Our Bureau

Fino Payments Bank is now a scheduled commercial bank and will explore new growth opportunities.

“The Reserve Bank of India has announced through a notification issued dated February 22that Fino Payments Bank has been included in the Second Schedule to the Reserve Bank of India Act, 1934,” it said in a statement on Wednesday.

The scheduled commercial bank status allows Fino Payments Bank to enhance its banking position in the treasury and participation in LAF (Liquidity Facility) window, as per the RBI. It also helps the bank strengthen its business proposition on liabilities generation, it further said.

“It provides strategic impetus for Fino Payments Bank to enhance its scope on balance sheet management and explore additional avenues for business. We are keen to capitalise on the growth opportunities that exist within the regulatory guidelines and build on the momentum of consistent profitability achieved last fiscal,” said Rishi Gupta, Managing Director and CEO, Fino Payments Bank.

As a scheduled commercial bank, Fino Payments Bank will be better positioned to explore and manage government businesses, it said, adding that mandates to pensions, provident funds, and various welfare schemes under the direct benefit transfer (DBT) will help enhance its foot print in the financial inclusion space.