Category: Banking & Finance

The Reserve Bank of India (RBI) received overwhelming response at the 14-day variable rate reverse repo auction it conducted under the revised Liquidity Management Framework on Friday, with banks tendering bids for 1.50 times the notified amount of ₹2-lakh crore.

This auction is the first one to be conducted after the RBI decided to temporarily suspend the aforementioned framework, which was issued on February 6, 2020, due to thepandemic.

This auction is part of the central bank’s measures to resume normal liquidity management operations.

The RBI received offers for parking liquidity aggregating ₹3,05,816 crore at the auction. It accepted offers aggregating ₹2,00,009 crore, with the cut-off rate and weighted average rate working out to 3.55 per cent and 3.46 per cent, respectively.

The surplus liquidity in the banking system is underscored by the fact that the RBI absorbed liquidity aggregating ₹6,70,642 crore at the one day reverse repo on Thursday at the reverse repo rate of 3.35 per cent.

Anurag Mittal, Senior Fund Manager – Fixed Income, IDFC AMC, said: “While this measure enables banks to bid higher than reverse repo rate, and hence can help moderately nudge up call and tri-party repo (TREPS) levels, from a policy standpoint, it doesn’t mark any new liquidity initiative, but is continuation of other recent normalisation measures like extension of market timings.”

The revival in steel demand is expected to continue this year even as high raw material prices and end users’ concerns on rising steel prices will be key challenges.

Hit by the Covid pandemic, steel production in India was down 10 per cent at 100 million tonne last year, against the 111 mt logged in the same period in the previous year.

If not for the government spending on infrastructure, steel demand would have fallen even sharply as the Covid pandemic has taken a heavy toll on the industry.

Full recovery

Though domestic demand recovered to pre-Covid levels in August with economic activities limping back to normalcy, a full-blown recovery was seen only in November when sales volume surged 11 per cent year-on-year.

Despite the momentum in demand, recovery is expected to continue in the March quarter and overall sales this fiscal will be down by about 12 per cent. From there on, the demand growth will be bolstered by the statistical low-base effect.

Seshagiri Rao, Joint Managing Director, JSW Steel, said the year gone by could easily be termed as the worst for the steel industry in last 70-years due to Covid pandemic that devastated global economic growth.

The business plans prepared in the beginning of the calendar year required significant downward revisions, and sectors such as tourism, hospitality, transport and entertainment will take a longer time to recover, he added. While 2020 was the year of despair, JSW Steel’s expansion plans and inorganic growth through acquisitions are expected to coincide with a rebound in economic activity, said Rao.

Prices to remain firm

Though the user industry has raised serious concerns over the sharp rise in steel prices, it will remain at elevated levels due to the firm trend in global markets.

Steel companies in India pushed up hot-rolled coil prices by ₹13,800 a tonne to ₹51,050 in December through multiple hikes since August – this is an increase of 37 per cent compared to last year.

Despite frequent upward revision, domestic steel prices are still 6-8 per cent below the landed cost of imports, leaving more room for domestic producers to rise prices further.

After sliding to a low of $409 a tonne last April from $499 per tonne in January, China HRC fob (free on board) prices rebounded to $647 a tonne between April and December.

Global prices also touched an 8-year high in December on healthy demand and soaring iron-ore prices.

“We expect steel prices to remain high in the January-March quarter with a sequential price hike of ₹7,000-8,500 a tonne, leading to an increase of 15 per cent year-on-year,” said Crisil Research report.

High iron ore prices

Domestic iron ore (64% Fe) prices month-on-month increased by 28 per cent in December to ₹4,610 a tonne (excluding royalties and other levies).

The price was higher by 95 per cent compared to December last year.

Global iron ore prices increased 75 per cent year-on-year to $159 a tonne in December, and are at the highest levels since March 2013. The constraints in iron ore movement in Odisha and strong revival in demand to pre-Covid levels are expected to fuel price hike of the key raw material in the medium term. The domestic supply shortage is also driven by the delay in ramp-up of production at the iron ore mines in Odisha auctioned in March due to the high, unviable premiums and Covid-led disruptions.

While the State and Central government have taken measures to address short supply, it is unlikely to boost supply in the near term.

Global supply

Though iron ore prices may soften slightly once supply improves, it will remain at elevated levels due to the structural changes in the cost miners pay as premium. The global supply has also been constrained by the supply disruptions in Brazil and South Africa.

The high premium committed by miners at the recent auction in Odisha is expected to create an imbalance between private miners and state-owned companies whose mines are renewed automatically under the MMDR Act.

Union Bank of India intends to raise ₹2,000 crore to ₹3,000 crore of capital to provide additional buffer in view of the non-performing assets (NPAs) that might arise due to the Covid19 pandemic.

“We will go for QIP next month to raise ₹2,000 crore to ₹3,000 crore of capital,” G Rajkiran Rai, Managing Director and Chief Executive Officer, Union Bank of India, told BusinessLine on Friday.

“We expect Covid-driven NPAs to be in the tune of 2 to 3 per cent of our total book. While we are already adequately capitalised as of now, we intend to have an additional cushion,” said Rai.

For Union Bank, Gross NPAs and Net NPAs stood at 14.71 per cent and 4.13 per cent, respectively, as of September 2020. “These numbers are lesser than the June quarter numbers,” the CEO said.

The Covid impact might not be as severe as was expected earlier. “Today, if you look at the restructuring requests, they are lower than expected. The loan restructuring window came to an end last month (except for MSME borrowers), and with economic activity on the mend, collection efficiencies are expected to improve further,” said Rai.

With an expected optimism in overall demand sentiments in the economy, repayments may further improve. “At least by the second half of FY22, the situation is expected to improve to pre-Covid levels,” he added.

When asked if the festival season had given any boost to retail loans, Rai said there was ‘significant’ retail business, driven by home loans and vehicle loans.

Margins

On the Net Interest Margin (NIM) trajectory for his bank, the CEO said: “NIM is expected to be in the range of 2.50 to 2.60 per cent for the FY21, driven by higher interest income on investment book and declining cost of deposits.”

Union Bank’s low-cost deposit base (CASA) was at 34.61 per cent as of September 2020. It expects to see it grow to around 35.5 per cent by March, 2021.

Delinquencies have certainly worsened over the last year, but they are not as bad as initially feared. Most of our lender partners have seen about 20 per cent to 30 per cent increase in delinquency, but it is still not at a worrisome level. The loan restructuring window has just ended and it will take another 45 days for more clarity. Lenders will do a bit more reconciliation and filtering of data. In the last five years, the housing industry has been dominated by end users who tend to be more genuine in payments as it is the most important asset they have. The increased stress in portfolio is because businesses are not in the same shape as they were last year and some people would have lost jobs.

The sector is doing quite well. Property prices are attractive and interest rates are low. It is a good time to lend. Large banks have more appetite to grow secured businesses. Nearly 65 per cent of lending is done by banks in the sector. It is a good time for larger players. Smaller players are seeing some challenge as they have to take care of increased delinquencies and liquidity will be a bit of a challenge. So, they will find it difficult to compete with entities offering loans at 6.8 per cent or so. We also see a much sharper emphasis on promoting affordable housing, especially among public sector banks. We are talking to three PSBs, where their main focus seems to be affordable housing. I see the demand for luxury homes dropping at this stage unless they are from reputed builders or ready-to-move-in projects.

We had our highest ever month in December 2020. During the pandemic, we signed two new lender partners, and in this quarter we expect to sign on another three to four more partners. For this quarter of January to March, we expect the run rate to be nearly 70 per cent higher than last year.

Only people with income stability are buying homes. In certain Tier 2 and 3 towns, we see a lot of interest from government employees. For them, buying a home has become very affordable, interest rates are low and income is assured. There is a fair bit of refinancing also happening, where larger players are buying over loans that are running at higher interest rates in the past.

We have contractual arrangements with all the large lenders, including LIC Housing Finance, HDFC, ICICI Bank, Axis Bank and State Bank of India. We intend to now start focussing on smaller HFCs and expand our client base with them. We believe it is the right time to partner with more PSBs also.

What are your expectations from the Budget?

Many States have reduced stamp duty, which has been a huge catalyst. Even without the Budget, States are recognising the need to get people to buy homes and the trigger it provides. There could be some income tax concessions, but regardless of that end users will continue to buy.

Our Bureau

Private sector lender ICICI Bank has launched a new year campaign with offers available on various brands and e-commerce platforms.

Called iDelights New Year Bonanza, it is a customised bouquet of offers for its customers to celebrate the beginning of 2021, the bank said in a statement on Friday.

“Available from January 1 to February 28, these offers encompass leading brands in luxury, e-commerce, electronics, grocery, food ordering, travel, health and wellness, fitness, gifting, home décor, auto mobiles and e-learning,” it further said, adding that customers will get benefits like additional cashback and discounts, which can be availed using the bank’s debit and credit cards, internet banking and Pockets.

ICICI Prudential Asset Management Company has contributed funds for planting over 50,000 saplings on behalf of its ESG fund investors.

The number of planted saplings is equivalent to the number of investors who have opted to invest in ICICI Prudential ESG Fund during the New Fund Offer period, said the fund house in a statement.

Post plantation, investors are provided with a certificate issued by Grow-Trees, a social enterprise which is the also the official partner of the United Nations Environment Program’s Billion Tree Campaign.

Also read: ICICI Pru MF to launch Business Cycle Fund NFO

Each certificate bears a distinct eTreeCertificate number with a geo-tagged location of the plantation, thereby allowing investors to locate and track the progress of the sapling planted.

The New Fund Offer had received an encouraging response with over 50,000 applications cumulatively worth ₹1,457 crore.

In the first of its kind initiative in the mutual fund industry, ICICI Prudential AMC, in association with ICICI Foundation and Grow-Trees, planted a sapling at Nainital, Uttarakhand.

Also read: ICICI Prudential Quant Fund NFO: New entrant to a small club

Nimesh Shah, Managing Director, ICICI Prudential AMC, said with this initiative the fund house aims to participate in improving India’s green cover and support rural livelihood.

The saplings planted through this initiative are largely indigenous in nature such that the biodiversity is maintained. The effort is aimed at restoring forests, improving wildlife habitats, and supporting rural livelihoods as part of social responsibility, which blends well with the ESG theme, said ICICI Prudential AMC.