Category: Banking & Finance

The assets under management (AUM) of non-banks would revive in FY22 to about 7-9 per cent vis-à-vis a flattish performance in the current fiscal, according to credit rating agency ICRA.

The aforementioned projection specifically pertains to non-banking finance companies (NBFCs), excluding infrastructure NBFCs and Housing Finance Companies (HFCs).

The agency said non-banks would require additional funding lines of about ₹1.9-lakh crore to ₹2.2-lakh crore, apart from the refinance of the existing lines, to achieve the above-mentioned growth in FY22

NBFCs [excluding infra NBFCs] and Housing Finance Companies segment’s AUM had registered a growth at a CAGR (compounded annual growth rate) of 16 per cent over the period between March 2016 and March 2020.

More HFCs expect a higher growth (greater than 10 per cent) rate vis-à-vis NBFCs, and smaller and mid-sized entities (less than ₹20,000-crore AUM) expect higher growth rate vis-à-vis their larger peers, as per a survey conducted by ICRA across non-banks, involving about 60 entities, which together account for over 50 per cent of the sectoral AUM and about 23 investors.

Investors, however, have a relatively muted growth outlook vis-à-vis the issuers.

A M Karthik, Vice-President, Sector-Head Financial Sector Ratings, ICRA, observed that growth in FY22 is envisaged to be driven by the improvement in demand from all the key target segments vis-à-vis current fiscal, which was impacted by the Covid-19 lockdown.

“Some of the key segments which would bolster growth include gold loans, home loans, personal credit, rural finance and microfinance.

“Growth in the vehicle finance [commercial vehicle, passenger vehicle etc], business loans, including loan against property and other commercial lending segments, which are closely linked to the economic activities, are expected to take longer to register a reasonable revival,” said Karthik.

As per the survey, non-bank exposures to the commercial real estate and other large corporate/ wholesales exposures are expected to register a decline even in FY22 after the decline of about 15 per cent in FY20 and about 10 per cent expected contraction in FY21.

The survey said AUM growth would be contingent upon the access to adequate funding lines – incremental bank loans to non-banks, considering their high sectoral exposure to the segment, remains to be seen and would in-turn depend on overall bank credit growth.

While mutual funds registered some improvement in their exposures to non-banks over the recent past, sustainability of the same however is critical, it added.

ICRA opined that expected improvement in securitisation volumes in FY22 after a sharp contraction of FY21 and access to funding from other sources – retail or overseas lenders/investors – would be key for sustainable growth for the sector.

As per the survey, most issuers (about 70 per cent) expect to maintain or further augment their on-balance sheet (b/s) liquidity profile, while most investors (about 60 per cent) expect them to reduce their on-b/s liquidity.

“This is critical, as a divergence in this along with growth expectation could pose challenges for incremental funding to the sector and has the potential to affect growth revival in FY22 and a sustained improvement in the subsequent years,” cautioned the agency.

NPAs to increase

ICRA expects the slippages from the restructured book [estimated at 4-6 per cent of the AUM] to keep non-bank non-performing assets (NPAs)/ Gross Stage (GS) 3 assets at elevated levels even in FY22 after an increase of up to 200 basis points (bps) in FY21. One basis point is equal to one-hundredth of a percentage point.

The agency observed that collection efficiency, notwithstanding the improvement since April 2020, remains about 5-15 per cent lower than the pre-covid-19 levels, thereby exerting pressure on their current asset quality. While part of the stress could get restructured, slippages would increase in H2FY2021.

As per the survey, about 90 per cent of the investors expect NPAs to increase by about 100-200 bps by March 2021 vis-a-vis 40 per cent of the issuers. Further, another 40 per cent of the issuers expect the NPAs to remain stable vis a vis March 2020 levels.

In a boost to Piramal Capital and Housing Finance Ltd’s bid for Dewan Housing and Finance Corporation Ltd (DHFL), the financial services company’s administrator has scored its bid 9 points higher than that of Oaktree Capital, based on various evaluation parameters

Final decision

Although the final decision will depend on the ongoing voting by the Committee of Creditors, sources close to the development said Piramal’s overall score, based on these parameters, is understood to be 94, while Oaktree’s bid has scored 85 points.

In terms of the quantitative parameters, Piramal has a score of 79 points, while Oaktree has a score of 70 points.

Piramal is understood to be ahead in at least two of the parameters, including upfront cash recovery to creditors and fresh capital infusion. Oaktree has a marginally higher score in the criteria of net present value of cash recovery to creditors, which has the highest weightage in the scoring.

Both Oaktree and Piramal have submitted bids for DHFL, which are slightly higher than ₹38,000 crore, and both contend that their resolution plans offer the highest recovery to the CoC.

The final decision will now depend on the creditors who are voting on all four of the resolution plans for DHFL, including those by Oaktree and Piramal, as well as by Adani and SC Lowy.

Adani Group’s bid is understood to have a total score of 79 and a quantitative score of 64. “The evaluation scores are just a guiding factor, but the lenders can vote for any of the resolution plans they deem fit,” noted the source.

Voting on the DHFL resolution plans have already started, and it is expected that the winning bid will be decided January 14. A new owner for DHFL is likely to be announced towards the end of this month.

But while lenders are expecting the proceeds of DHFL resolution to boost their fourth quarter results due to the upfront cash recovery, the resolution could be in for possible litigation. DHFL is the first finance company referred to the NCLT for insolvency proceedings. The resolution has already been delayed due to multiple issues.

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The Reserve Bank of India (RBI), on Wednesday, said the College of Supervisors (CoS) is being fully operationalised for effective oversight of the regulated entities by augmenting and ensuring a consistent quality of supervisory resources pool.

This move comes in the backdrop of a string of scams involving the IL&FS Group, Punjab National Bank, Dewan Housing Finance Corporation, and Punjab and Maharashtra Co-operative Bank hitting the financial system in the last 2 to 3 years.

The CoS, which was functioning in a limited way in virtual mode since May 2020, will have a full-time Director, supported by an Academic Advisory Council (AAC), comprising six members, the central bank said in a statement.

NS Viswanathan, former Deputy Governor, RBI, will be the Chairperson of AAC. The members of the council include: Arijit Basu, former Managing Director, State Bank of India; Paresh Sukthankar, former Deputy Managing Director, HDFC Bank; S Raghunath, Pofessor, IIM-Bangalore; Tathagata Bandyopadhyay, Professor, IIM- Ahmedabad; and Subrata Sarkar, Professor, Indira Gandhi Institute of Development Research.

Rabi Narayan Mishra, former Executive Director, RBI, has been appointed as the Director of CoS.

The AAC will identify areas where skill building/up-skilling are required, plan and develop curricula of all programmes, benchmark the programmes with international standards/best practices, develop appropriate teaching methods, among others, the central bank said.

As part of the measures to further strengthen supervision over regulated entities, the RBI had set up a CoS to augment and reinforce supervisory skills among its regulatory and supervisory staff, both at entry level and on a continuous basis.

This was done to facilitate the development of unified and focussed supervision by providing training and other developmental inputs to the concerned staff.

DBS Group Research does not see any material change to the inflation target when it comes up for review by the government in March 2021. The current CPI inflation target – 2 to 6 per cent range – centred around the mid point 4 per cent has been in effect since April 2016.

On the back of a near 19 per cent drop in vegetable prices on a month-on-month basis, Consumer Price Index (CPI) inflation is expected to slow to 5 per cent in December 2020, against 6.9 per cent recorded in the same month in the previous fiscal. However, the 2021 average inflation will stay above the 4 per cent target, said Radhika Rao, Economist, DBS Group Research, in a new report titled ‘India: Counting on Vaccine, Eye on Inflation’.

The report highlighted that the room for outright rate cuts by the RBI is limited, but the central bank will settle into a long pause, with a bias to anchor rates through strong dovish guidance.

A balancing act

The Reserve Bank of India (RBI) faces a balancing act this year, seeking to maintain a strong accommodative policy bias, notwithstanding incipient pressures. At the same time, it will seek to pare part of the pandemic-driven emergency response at an incremental pace.

CPI inflation remained elevated for a good part of 2020, with the wedge between CPI and WPI reinforcing the outsized role of supply-side disruptions .

In the near term, seasonal downdraft in food, base effects and remnant impact of sluggish demand may pull inflation sharply lower in December 2020 and early 2021, the report noted.

Taking a six-month view, while food eases, non-food might prove to be sticky, on account of rigidity in domestic fuel taxation, marginal hikes in manufacturing costs after months of shutdown, commodity price rises, telecom price adjustments, and return in demand impulses ( in certain core categories), the report added.

The recent rally in commodities lends to fresh cost-push impact, especially industrial metals (generic steel hot-rolled coil futures are up over 80 per cent since late September 2020) and oil (Brent up 30 per cent in Q4), and this warrants attention as it could put pressure on corporate margins and impinge on consumer purchasing power.

Vaccination programme

The report also highlighted that the lift to economic activity hinges on efficacy, deployment and timeliness of the vaccination programme. The Centre’s vaccine-related spending is likely to be mainly reflected in the FY22 Budget. By November 2020, the Ministry of Health and Family welfare had disbursed 74 per cent of the full-year expenditure of ₹ 67,100 crore against 66 per cent in the same time last year.

Bandhan Bank has registered a 23 per cent growth in advances at around ₹80,255 crore for the quarter ended December 31, 2020, compared to ₹65,456 crore in the same period last year.

In a notification to the stock exchanges on Wednesday, the bank shared initial disclosure numbers pertaining to loans and deposit growth in Q3 of FY21.

On a sequential basis, advances grew by about five per cent from ₹76,615 crore during the quarter ended September 30, 2020.

Total deposits grew by 30 per cent to ₹71,188 crore during the quarter under review, compared to 54,908 crore. Sequentially, it grew by around 8 per cent from ₹66,128 crore during the quarter ended September 2020.

CASA (current account and savings bank account) deposits grew by around 62 per cent on a year-on-year basis to ₹30,504 crore. Sequentially, it grew by around 21 per cent from ₹25,279 crore during Q2 FY21.

CASA ratio improved to 43 per cent during the quarter under review against 34 per cent same period last year.

The share of retail to total deposits also grew substantially to 81 per cent from 77 per cent in the September 2020 quarter.

“The numbers mentioned above as on December 31, 2020, are provisional unaudited numbers and is subject to review/examine by the audit committee and board of directors, and also subject to review by the statutory auditors of the bank,” Bandhan Bank said in the notification.