Category: Banking & Finance

Government security prices fell on Friday, erasing the previous day’s gains, as the auction of the 2035 security partially devolved on Primary Dealers (PDs) up to 61 per cent of the ₹11,000 crore it wanted to raise.

While the Government managed to mop up ₹27,126 crore through auction of four securities, including the aforementioned security, against the notified amount of ₹26,000 crore, there was nervousness in the secondary G-Sec market when the 6.22 per cent G-Sec, maturing in 2035, devolved on PDs.

Active role

PDs are intermediaries that play an active role in the G-Sec market, both in primary and secondary markets, by participating in the primary auction and market making in G-Secs, among others.

The price of the highly traded 10-year G-Sec, carrying a 5.77 per cent coupon rate, declined about 29 paise to ₹97.9525 over the previous close of ₹98.2450, with the yield going up about four basis points to close at 6.057 per cent (previous close: 6.0154 per cent).

G-Sec price and yield are inversely related and move in opposite directions.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said the yields went up due to the devolvement of the 15-year G-Sec on PDs. While retail inflation has declined from 4.59 per cent in December 2020 to 4.06 per cent in January 2021, there is concern on the core inflation front and yields could come under pressure, Irani added.

10-year G-Sec

Price of the 10-year G-Sec (issued in December 2020), carrying a 5.77 per cent coupon rate, declined 21 paise to ₹98.96 over the previous close of ₹99.17, with the yield going up about three basis points to close at 5.9905 per cent (5.9616 per cent).

Government security (G-Sec) prices rose by up to 35 paise on Thursday, with their yields softening by up to 7 basis points, as the Reserve Bank of India set higher cut-off price at the special auction of two G-Secs.

Kotak Investment Advisors Ltd (KIAL), on Friday, announced that Rajnish Kumar, former Chairman of State Bank of India, would be exclusive advisor for its $1-billion Special Situation Fund.

Kumar retired from SBI in October last year.

KIAL is a wholly-owned subsidiary of Kotak Mahindra Bank and focusses on the alternate assets business of the group.

Indiabulls Housing Finance reported a 40.3 per cent drop in consolidated net profit for the third quarter of the fiscal at ₹329.32 crore. It had reported a net profit of ₹551.7 crore in the corresponding period last fiscal.

“The board, at its meeting, has also authorised to issue Secured Redeemable Non-Convertible Debentures and Unsecured Redeemable Non-Convertible Subordinate Debt in the nature of Debentures (NCDs) of up to ₹5,000 Crore, on private placement basis, in one or more tranches, from time to time,” it said in a regulatory filing on Friday.

For the quarter ended December 31, 2020, Indiabulls Housing Finance registered a 25.4 per cent dip in total revenue from operations to ₹2,513.25 crore versus ₹3,369.16 crore a year ago.

“On balance sheet loan book stands at ₹70,282 crore on account of developer book run off through refinancing. Retail loan book has grown,” the company said in a statement.

Gross non-performing assets remained moderate at 1.75 per cent as on December 31, 2020, as against 1.98 per cent at the end of the second quarter this fiscal.

“Without the Supreme Court’s dispensation, Proforma Gross NPAs would be 2.44 per cent, compared with 2.21 per cent as on September 30, 2020,” the company said, adding that proforma gross NPA provision coverage ratio stands at 40 per cent.

Indiabulls Housing Finance said access to funding has normalised and its funding costs have moderated with cost of funds on book down to 8.5 per cent.

Disbursals have rebounded, with total disbursals in the third quarter of the fiscal at ₹3,458 crore, of which, retail loan disbursals constituted 75 per cent.

“The company is also seeing good traction in loan co-lending, with disbursals reaching a monthly run rate of ₹200 crore in January,” it further said.

On developer loans sourcing, Indiabulls Housing Finance said it is in talks with two large real estate-focussed funds to set up an investment platform.

Mallikarjuna Rao, MD and CEO, Punjab National Bank, on Friday, said that credit growth is expected to start moving on a higher trajectory from the fourth quarter of this fiscal.

The low credit offtake over the last couple of quarters was primarily due to the laxity of demand in the wake of the slowdown induced by the pandemic. It was not due to the risk aversion of banks as is popularly believed, he said.

“During the pandemic there was laxity in demand and despite the tax reforms in October 2019, there was not much of investments coming in, and this goes to show the poor demand. But now with the good creation of supply and demand, we expect lending will see a higher growth particularly from Q4 onwards,” said Rao, while addressing the Financial Market E-Conclave organised by the Bengal Chamber of Commerce and Industry here on Friday.

Public sector banks play a very important role in the revival of economy and in lending to the infrastructure sector.

Banks not risk-averse

Of late, banks, particularly PSBs, have been blamed for being too risk averse and, hence, choke credit to the economy. However, Rao said that based on the past experiences, banks have enhanced their credit underwriting mechanisms so as to ensure credit quality. This would augur well for the overall ecosystem in the long run.

“It is good that banks are taking precaution on quality of credit,” he said.

According to G Rajkiran Rai, Managing Director and Chief Executive Officer, Union Bank of India, corporate borrowers were accustomed to borrowing more easily without focussing on risk management practices, and now they are finding it difficult as more data is required under the enhanced credit monitoring system.

“So, they are feeling that banks have become risk averse but that is not the case,” he clarified.

This would lead to better underwriting capabilities, better risk management, and eventhough some coprorate customers may find it difficult to go through more rigorous processes, it is good for overall ecosystem.

Cash continues to be king in most small cities and towns even as the dependence on hard currency has dipped in metro cities.

“Data show that in urban centrescash consumption has come down as they were hit more by the Covid-19 pandemic and had more lockdowns,” said Rajiv Kaul, Executive Vice-Chairman, Chief Executive Officer, and Whole Time Director at CMS Info Systems.

Numbers tracked by CMS Info Systems, which is an ATM and cash management company, reveal that there is a dip of about 20 per cent in cash usage in metro cities, but there is flat growth or even an increase of 8 per cent to 10 per cent in other cities, said Kaul.

However, from a macro perspective, cash in circulation is up 20 per cent in the last nine to 10 months, said Kaul, adding that this is not abnormal as in times of crisispeople tend to hoard more money.

According to CMS data, currency in circulation in January this year was at ₹27.99-lakh crore, which is about 21.8 per cent higher than the ₹22.97-lakh crore currency in circulation in January last year.

“Digital is growing at about 30 per cent to 40 per cent, but cash is also growing at 14 per cent,” said Kaul, adding that there is a fairly healthy growth outside metros like Delhi and Mumbai.

This could possibly be because of reverse migration where people have moved back to smaller towns as well as some increase in discretionary spends.

Ties up with SBI

State Bank of India has moved its entire network to a Multi-Vendor Software (MVS) solutions implemented by CMS Info Systems. The solution was built for SBI by CMS and is running across its entire 40,000 ATM network and has helped centralise the bank’s ATM channel management.

“MVS solutions gives customised services and the customer will get the same experience across all ATMs. So, it helps in faster transactions,” said Kaul, adding that it can also help convert an ATM from cost centre to revenue centre by offering additional products to the customer.

CMS won the project almost 18 to 20 months ago, and it has now been running successfully for the last four to five months.

This seven-year deal is worth over ₹500 crore for CMS.

Other banks are also in talks on MVS solutions with CMS now, said Kaul.