PMC Bank gets 4 EoIs; RBI extends limits till March

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Meanwhile, the regulator has also extended the restrictions placed on PMC by three months till March 31, 2021, until the proposals are studied.

The crisis ridden Punjab and Maharashtra Co-operative (PMC) Bank has received expressions of interest (EoIs) from four suitors, Reserve Bank of India (RBI) said on Friday. The proposals are being examined for viability, feasibility and also to check whether these are in the interest of depositors.

Meanwhile, the regulator has also extended the restrictions placed on PMC by three months till March 31, 2021, until the proposals are studied.

“Accordingly, it is hereby notified for the information of the public that the validity of the aforesaid directive dated September 23, 2019, as modified from time to time, has been extended for a further period from December 23, 2020 to March 31, 2021, subject to review,” RBI said.

On December 4, RBI governor Shaktikanta Das had said the response from potential investors for reconstruction of PMC Bank looked positive. The bank and its management were fully engaged with the investors who had purchased the information memorandum, Das observed.

Last month, the administrator of fraud-hit PMC Bank had invited EoI from potential investors for investment or equity participation in the bank for its reconstruction. The last date for submission of EoI by potential investors was December 15. As per the details of the proposal, the eligible investors could be financial institutions, including banks and non-banking financial companies (NBFCs). The proposal also allowed investment from individuals or group of individuals/companies, societies, trusts or any other such entities having adequate net worth.

In September, 2019, the RBI had superseded the board of PMC bank and placed it under regulatory restrictions after detection of certain financial irregularities. Initially, the RBI had allowed depositors to withdraw Rs 1,000, which was later raised to Rs 1 lakh per account to mitigate their difficulties. In June this year, the RBI had extended the regulatory restrictions on the cooperative bank by another six months till December 22, 2020.

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PMC Bank restrictions extended by 3 more months; RBI says bank needs more time for reconstruction

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Meanwhile, the regulator has also extended the restrictions placed on PMC by three months till March 31, 2021, until the proposals are studied.

The Reserve bank of India has further extended restrictions of Punjab and Maharashtra Cooperative Bank (PMC Bank) by another three months. RBI said that it is considered necessary to extend the directions, keeping in view the best interest of all stakeholders. The restrictions will now be imposed till 31 March 2021, instead of  23 December 2020. The RBI further said that all other terms and conditions of the Directives under reference shall remain unchanged. PMC bank was placed under restrictions with effect from 23 September 2019, and the directions were last extended on 19 June 2020, up to 22 December 2020.

The PMC Bank had invited Expression of Interest (EoI) from eligible investors for investment or equity participation for its reconstruction, for which the last date for submission of EoI was 15 December 2020. The RBI further said that in response to the EoI, four proposals have been received. These proposals will be examined by the bank, on the basis of their viability and feasibility, taking into account the best interest of the depositors. The central bank underlined that the bank would need some more time to undertake this process.

Last year, the RBI detected certain financial irregularities, and hiding and misreporting of loans given to real estate developer HDIL. It’s exposure to HDIL was over Rs 6,500 crore or 73 per cent of its total loan book size of Rs 8,880 crore as of 19 September 2019. Initially, the RBI had allowed depositors to withdraw Rs 1,000 which was later raised to Rs 1 lakh per account to alleviate their difficulties.

Meanwhile, during the last fiscal year 2019-20, the PMC Bank had registered a net loss of Rs 6,835 crore and had a negative net worth of Rs 5,850.61 crore. The proposal to invite investors for the bank stated financial institutions, including banks and NBFCs; and individuals or group of individuals or companies, societies, trusts, or any other such entities having adequate net worth, eligible for investment.

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‘Our NPAs may rise to 3-5% in FY22 before normalising’

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We are not getting too many requests. We are working with customers in our regular collection cycle. We do not have any restructured portfolio in our balance sheet.

While collections from microfinance and self-employed customers of Fincare Small Finance Bank (SFB) are moving towards normalisation, the bank could see bad loans spiking to 3-5% in FY22 before they ease back to the normal 1% levels, MD & CEO Rajeev Yadav told Shritama Bose. Excerpts:

This was a difficult year for most businesses. How did your business and operations pan out this year?
There are two parts to this. We have to look at it in terms of pre- and post-March. Post-March, we look at growth as one parameter, while the others are portfolio quality, customers and digitisation. In a normal situation, a bank like ours would have had about 40-50% growth in a financial year. NPAs have been about 1% for the last three years and RoEs could be in the range of 20-25%. This year has been hard on everybody, including all customers and employees. Right now, we are in stage two, having moved from survival to normalisation. Starting January or March, we will be in a phase where we’ll benefit from a changed world.

We have not grown significantly in the first six months, but we expect the bank to grow 10-15% in this half of the year. So, the overall growth should be about 15% when we close our March numbers. In terms of portfolio quality, we are now in the mid-nineties in terms of collection efficiencies.

The segmentation and selection of our customers — most of them are in rural or semi-urban areas — have helped collections. Now, we are in the last phase of delinquency management of customers who have not paid us for one to three months. That should last for another three months. Collections are now going towards normalisation.

Looking at your borrowers segment-wise, who are the ones that are financially better off now than in the initial days of Covid and who are the ones with still some way to go?

At a very simplistic level, we have two segments of customers — rural customers who take microfinance loans, and semi-urban customers who take mortgage loans, including LAP, affordable housing and gold. Gold has been a very well-performing segment in the current scenario and we’ll leave that aside.

Microfinance customers in agri and allied services were very early to start normalising because agriculture as a sector grew in Q1 and Q2 for natural reasons. The second segment of customers is constituted of people who run kirana stores, small-time manufacturer and services providers.

That segment has normalised by about 90%. Collection efficiencies are also reflecting that in some of our portfolios. So, small and micro self-employed customers in semi-urban areas are around 90% normalised; microfinance customers in rural areas are about 95-97% normalised.

Are you getting a lot of restructuring requests?
We are not getting too many requests. We are working with customers in our regular collection cycle. We do not have any restructured portfolio in our balance sheet.

What is your asset quality outlook for 2021?
Because of a small segment of our customers who will not be able to pay, there could be NPA accretion. So, our NPA ratio, which has been around 1%, could go up to 3-5% of the portfolio. That will happen in FY22 because there are delinquencies which could become NPAs by February-March onwards. We can expect 2-3% of credit loss from that on the portfolio that we have. The NPA levels of all banks will go up in the short term before they normalise.

Any plans for fund-raising next year?
We keep raising funds through rights issues. We will be doing those exercises over the next six to nine months and then depending on guidelines, we will be chalking out a path for listing of the bank. We have to list the bank by September 2021. We will be working towards that. The amount will depend on how much we raise through rights issues before we get there.

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Financing commercial coal mining: Banks to look into multiple factors

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banks, corporate governance, rbi policy, demonetisation, gstThe government is in hurry to give the corporate houses an edge over the existing players.

Financing the auctioned coal blocks could be critical because bank finances would be available only after the blocks start operations, SBI Caps executive vice-president Mukul Modi said.

Mine viability, associated cash flows and terms of payment in a supply contract would also be looked for financing coal mining projects, he added.

Banks would look into factors like demand, prices and transport arrangements on which depended cash flows. Customers to whom supplies would be made and the contracts entered into would also matter as also the historical behaviour of the spot markets and down the line the prospects of the coal exchange, Modi said.

In a lease period of 30 years, it will take an average five years for the 19 blocks, which were taken with premium ranging between 9.5% and 66.5%, to become operational.

The expenses required to be incurred in developing the mines will be high as only land acquisition would cost at least Rs 1 crore a hectare. Thereafter, delay in approvals and subsequent penalties for delay in operation would be detrimental to returns on investment down the line, making operations commercially unviable, RP Ritolia, adviser, Swayambhu Natural Resources, said, adding that only 19 out of 36 blocks could be auctioned since most players couldn’t see the viability factor into it.

With 50% of the auctioned blocks being captive and Coal India producing 1 billion tonne by 2024, the demand-supply situation could pose a hurdle to commercial miners for marketing, Ritolia added.

Since 2015, CIL has been producing more than demand and pushing coal to existing consumers has come up as a challenge, SN Tiwary, CIL’s director (marketing) said.

Besides these factors, land acquisition is already a hurdle. Discrepancies in data, lack of standard relief and rehabilitation policy and unidentified land for mandatory afforestation are coming in the way of faster mine development, Himanshu Singh, director, coal – group commercial, Vedanta, said.

Deemed approval for various clearances required, specially for the environment and forest clearance, could be a solution to make mines quickly operational with states alloting land from their land bank for compulsory afforestation. The Centre should come with a standard R&R policy, Singh added.

Mjunction MD and CEO Vinay Verma said 65% of the block winners are not mining players.

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Axis Bank planning greater push into rural retail lending

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The project is part of the bank’s philosophy of a combination of assets and liabilities coming together with technology to ensure that it becomes a significant player in these markets.

Axis Bank is working to deepen its presence across the country’s rural regions with what it calls its ‘deep geo strategy’. This will involve the identification of key branches and dovetailing those to help the bank’s growth, said a senior executive.

Sumit Bali, president and head, retail lending and payments, Axis Bank, said that as part of the deep geo strategy, the lender has identified some of the rural and semi-urban markets where it will have an asset-led strategy to scale up its banking assets and liabilities.

“As part of this initiative we identified about a third of our branches — 1,577 branches — where we’ve launched this asset-led strategy. “It has taken very good shape. Disbursements are up about 26% year-on-year, and growth continues to be pretty strong,” Bali said during an online press conference.

The project is part of the bank’s philosophy of a combination of assets and liabilities coming together with technology to ensure that it becomes a significant player in these markets.

“This is an identified strategy that we want to be a significant player in the rural part of the country and we’ve also made a strategic investment in the CSC (common service centres), which will help us set up a strong distribution footprint across the country,” Bali said.

Axis Bank has already identified close to 5,000 village-level entrepreneurs as distribution points across the country.
It is using these branches to distribute its asset products, such as farmer funding, gold loans, small business banking, home loans and two-wheeler loans. Eighty eight percent of the loans originated under the project are secured loans.

“We are very excited with this initiative going forward and we see strong growth month-on-month and this will, therefore, also help us become a significant strategic player in the overall rural side of the country.
“It will also generate for us priority-sector and agri assets, going forward,” Bali said.

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Debt relief only through restructuring, not interest waiver: IBA

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One of the unintended consequences of limiting the promoter’s stake has been an increase in foreign investors’ holding in the domestic private banks of India.According to IBA, the National Disaster Relief Act and other such laws define “disaster-affected” as directly affected by disaster and not subsequently affected or a situation where someone’s conditions were worsened by the disaster.

Indian Banks’ Association (IBA) on Wednesday told the Supreme Court that any resolution of debts can be through restructuring only and private banks can deal with it in line with their respective norms. However, it ruled out any writing off interests on loans given by the PSU banks, stating they are listed companies having shareholders.

Senior advocate Harish Salve, appearing for the IBA, told a Bench led by Justice Ashok Bhushan that any relief which banks would give might be based on the guidelines issued by the RBI and the government from time to time.

While requesting the court to close the case, the senior counsel said the government had to balance equities of those adversely affected and could not focus on a few sectors alone.

While opposing the grant of any more sector-specific loan repayment reliefs other than those that have already been declared, IBA stated that any relief granted to anyone under disaster relief laws in India was meant for those directly affected by it and the same principle should be applied while granting any relief from repaying loans as well. “Disaster relief measures are for only the “Tier-I” or those bearing immediate impact of the disaster,” it said.

Salve also argued that various sectors like real estate were already ailing and “doing horribly for a long time” and stating that they were Covid-affected was not correct. These sectors claiming relief under disaster relief laws beat the purpose of these laws itself, he said, adding that the courts usually take up the cause for those whose voices cannot be heard. Real estate sector, however, does not qualify as “voiceless”.

“This court has an application from CREDAI. Have they placed any materials on which one can identify how wobbly was their house before the pandemic. Nothing,” Salve said.

According to IBA, the National Disaster Relief Act and other such laws define “disaster-affected” as directly affected by disaster and not subsequently affected or a situation where someone’s conditions were worsened by the disaster.

Senior advocate Mukul Rohatgi, appearing for SBI, told the SC that “small depositors are faceless in these proceedings. It is not a case of borrowers versus bank. They are the backbone of this financial system. There was waiver and only deferment of installment. Banks have to give interest to these depositors. How can we leave them?”

The apex court will continue to hear the case on Thursday.

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Axis Bank says reports on Srei exposure ‘grossly inaccurate’

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In its clarification, Axis Bank said it has complied with its underwriting practices and approval processes for any exposure taken in relation to Srei Equipment Finance and Srei Infrastructure Finance (collectively “Srei entities”).

Private sector lender Axis Bank on Tuesday said the report, issued by an Australia-based news platform, which alleged that the bank has provided loans to Srei entities without any due diligence and verification of end use of the loan amount is “grossly inaccurate and baseless”.

“…the report is grossly inaccurate and baseless in so far as Axis Bank Limited’s outstanding to Srei entities or underwriting practices and processes are concerned. We are evaluating all remedies available to us against the author/publisher of the captioned report,” the bank said in a stock exchange filing, clarifying a press statement, issued by the Scams Breaking on its website breaking@scamsbreaking.com.

The news platform has alleged that, “As per the records maintained by MCA21 (a ministry of corporate affairs website) the Axis Bank etc. have provided loans to Srei Infrastructure and Finance to the tune of Rs 44,000 crore without any due diligence and verification of end use of the loan amount. This loan amount has been disbursed with sham receivables including related party transactions.”

In its clarification, Axis Bank said it has complied with its underwriting practices and approval processes for any exposure taken in relation to Srei Equipment Finance and Srei Infrastructure Finance (collectively “Srei entities”). The bank said its outstanding exposure to Srei group (including Srei entities) as on December 14 stood at Rs 800 crore as against Rs 44,000 crore alleged by Scams Breaking.

On the allegations, Srei said, “It has come to our notice that certain individual/group of individuals acting in collusion have hatched a pre-planned conspiracy whereby they have been circulating false, fictitious and imaginary content, by twisting facts and figures, through images, videos and article on the internet in a concerted manner through their website and on various other social media platforms with a view to cause wrongful loss in terms of reputation and business in the eyes of investors, creditors and public at large.”

“We have filed a police complaint, alerted authorities in cyber cell department and are pursuing legal recourse against the individuals/group engaged in this criminal conspiracy of intentionally distorting facts for pecuniary gains,” it added.

Notably, the Reserve Bank of India (RBI) has appointed an auditor to conduct a special audit of Srei Infrastructure Finance and its subsidiary Srei Equipment Finance(SEFL). In a stock exchange last month, Srei Infrastructure Finance, had said, “We would like to inform you that a special audit of the company and its subsidiary, Srei Equipment Finance Limited is being undertaken by an auditor appointed by Reserve Bank of India (RBI) in exercise of its powers under Section 45 MA(3) of the RBI Act, 1934.”

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Pre-Budget meeting: NBFCs seek easier credit flow, TLTRO benefits

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As the risk profile of NBFCs is changing at a fast pace, there was a need for a regulatory framework for dividend declaration.

Financial sector and capital market players on Tuesday appealed to finance minister Nirmala Sitharaman to allow non-banking financial companies (NBFCs) to issue “on-tap” secured bonds and also requested greater liquidity flow to small NBFCs be ensured. At the pre-Budget consultation meeting, the Finance Industry Development Council (FIDC), a body of shadow banks, said NBFCs should be included in the list of eligible sectors under the central bank’s on-tap TLTRO (targetted long-term repo operation) scheme. Top executives of LIC, Axis Bank, Citi Bank (India), UTI Asset Management, Muthoot Group were among those who participated in the meeting.

Earlier in the day, the Financial Stability and Development Council (FSDC), headed by Sitharaman, decided to “keep a continuous vigil” on the financial conditions that could “expose financial vulnerabilities in the medium and long-term”. The Council’s meeting was also attended by heads of regulators, including RBI, Sebi, Irdai, IBBI and PFRDA, as well as top finance ministry officials.

At the same time, the Council acknowledged that government and the financial sector regulators have ensured faster economic recovery in India as reflected in the reduced contraction of real GDP in the second quarter (7.5% vs 23.9% in Q1).

The Reserve Bank of India (RBI) had in October announced an on-tap window for banks to borrow up to `1 lakh crore and invest in corporate bonds and other debt instruments of companies in certain sectors. While the central bank has conducted targeted long-term repo operations (TLTROs) in the past, but this time banks were allowed to use the money not just for debt investments, but also for corporate loans.

Raman Aggarwal, co-chairman of FIDC, said the Partial Credit Guarantee Scheme 2.0 should also include bank lending to NBFCs by way of term loans, as small players do not issue bonds or non-convertible debetures. “The arrangement of treating bank lending to NBFCs for on-lending to priority sector to be treated as PSL (priority sector lending) for banks, should be made permanent and the limit needs to be increased to at least 10% of total priority sector lending by banks,” Aggarwal said.

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Co-lending in SME sector helps banks check risk: SBI

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With that kind of savings, the growth trajectory we have chalked out for ourselves may not be easy to accomplish,” Khara said.

The co-lending model is helping banks assess and mitigate risks associated with lending to small and medium enterprises (SMEs), State Bank of India (SBI) chairman Dinesh Kumar Khara said on Tuesday. SMEs need funding at present as they will lead the recovery post-Covid, he added, speaking at an event organised by the Confederation of Indian Industry (CII). Khara also observed that money from the domestic market and household savings was not sufficient to fund India’s infrastructure growth and the only way forward was to open up the capital markets further to foreign capital.

“The financing of SMEs in today’s context is more of a clarion call. If at all employment has to be generated in this economy, the mainstay of the post-Covid recovery is going to be SME. For that, as the largest lender, we are certainly concerned about how to ensure that the process of recovery begins and it’s on the right track,” Khara said. One way of doing this is the co-lending model, which helps banks get insights into customer behaviour with the help of analytics.

At the same time, weaker firms must bring in more equity in order to access bank funding. “Of course, those who are lower down the curve will have to strengthen themselves financially, more equity has to be brought in,” Khara said, adding, “Going forward, all markets, whether it is NBFCs (non-banking financial companies), banking or microfinance, are very cognisant of the risk and how to manage it.”

Khara said for India to kick-start sizeable infrastructure investments, the capital markets must be opened up to allow and encourage the inflow of more foreign capital. Many steps have been taken in the recent past to shore up the interest levels of foreign capital in the Indian economy. “May be the data and financial reporting, which is one of the critical components for shoring up the confidence of international investors, has improved significantly. But, I think this is only the beginning,” the chairman said. He added that India must do more to accelerate the pace of improvements in areas like reporting and corporate governance. Money with insurance and pension funds must also flow into infrastructure financing, he said.

Even if a development finance institution (DFI) is set up, there will be no room for it to access funds from the government or its agencies. It, too, would have to rely on international flows. “All this while, the domestic market and household savings were the major source of savings for the economy. With that kind of savings, the growth trajectory we have chalked out for ourselves may not be easy to accomplish,” Khara said.

The debt capital markets have a limited contribution to growth as the pool of participants there is very small. As a result, the yield curve that India has is not a representative one, said Khara. “Until and unless we have broad participation coming in both in terms of issuance and buyers, a more sustainable yield curve becomes a challenge,” he said. There was some activity soon after the Covid-19 outbreak, amid efforts by the government and the RBI to provide liquidity to all kinds of instruments. The number of issuers rose marginally as a result of those measures. Many corporates, who had never issued debt papers, did so when they saw that there was liquidity available for such papers.

“Probably with the commitment which people get from the market, we’ll get to see better traction. We as a financial institution would be very happy to see a yield curve developing and also broad-based participation because we see that the opportunity is huge,” Khara said.

He emphasised that SBI is in no position to freeze funding to some sectors of the economy on the sole grounds that they are ecologically unsustainable. Rather, the aim is to be carbon-neutral in a “transitioning economy”, Khara said. “So if at all we are financing like that (for water-guzzling rice cultivation in Punjab), we’ll also have to finance many green projects, which we are doing. Going forward, when we have alternate means available, we can go beyond neutrality and be in a position to reduce carbon emissions,” he said.

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