Category: Banking & Finance

PNB Housing Finance to raise ₹2,000 cr via NCDs in tranches

Banking & Finance

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The Board of Directors of PNB Housing Finance Ltd (PNBHFL), on Tuesday, gave its nod for raising up to ₹2,000 crore via non-convertible debentures (NCDs) through one or more tranches.

The NCDs will be raised through private placement basis and could be both secured as well as unsecured NCDs. The details of the issue, including pricing, will be decided in the coming days.

This decision to go in for fund-raise via NCD route comes on the heels of PNBHFL board deciding not to proceed with the ₹4,000-crore preferential allotment deal with Carlyle Group and other marquee investors.

Meanwhile, PNBHFL has reported a 25 per cent decline in net profit for the second quarter ended September 30 at ₹235 crore (₹313 crore). PNBHFL had recorded a net profit of ₹243.28 crore in the first quarter this fiscal.

Total income for the quarter under review declined 21 per cent to ₹1,586 crore (₹2,022 crore). In the first quarter this fiscal, total income came in at ₹1,693 crore.

For the six months ended September 30, PNBHFL recorded net profit of ₹606 crore, compared to net profit of ₹725 crore in the same period last fiscal.

It may be recalled that the PNBHFL-Carlyle Group deal was shelved by PNBHFL after the deal had hit a roadblock post a proxy advisory firm red flagging the preferential allotment on the pricing front, contending that it was not in the interest of the promoter (PNB) as well as the minority shareholders of PNBHFL.

Market regulator SEBI had soon after this intervened and asked PNBHFL not to go ahead with the planned preferential issue until the valuation of the shares is done by an independent registered valuer.

PNBHFL had then fixed the preferential allotment price at ₹390 per share, lower than the stock price prevailing at that time. The company had preferred an appeal before the securities appellate tribunal (SAT) on the SEBI letter.

A two-member bench of the SAT, on August 9, gave a split verdict and directed that its interim order of June 21 will continue till further orders. SAT also restrained PNB Housing Finance from disclosing the voting results (of shareholders) on the fund raise plan.

Post the SAT’s split verdict, SEBI had filed an appeal at the Supreme Court against this verdict.

The Supreme Court dismissed the SEBI appeal against the SAT’s order in the PNBHFL’s ₹4,000-crore capital raising deal with Carlyle Group and other investors, stating that the appeal has become infructuous due to subsequent developments.

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BoI Q2 profit doubles to ₹1,051 cr on decline in loan-loss provisions

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Bank of India’s standalone net profit almost doubled to ₹1,051 crore in the second quarter against ₹526 crore in the year-ago period on the back of robust growth in other income and steep decline in loan-loss provisions.

During the reporting quarter, there was a reduction of ₹5,771.50 crore in gross non-performing assets (GNPAs), net of slippages.

The Mumbai-headquartered public sector bank’s net interest income declined 14 per cent year-on-year (y-o-y) to ₹3,523 crore (₹4,113 crore in the year-ago quarter).

Other income, including profit/ loss on sale of assets, profit/ loss on revaluation of investments (net), earnings from foreign exchange and derivative transactions, recoveries from accounts previously written off and dividend income, jumped 59 per cent y-o-y to ₹2,136 crore (₹1,346 crore).

GNPA position improved to 12 per cent of gross advances as of September-end 2021 against 13.51 per cent in the preceding quarter. Net NPAs position, too, improved to 2.79 per cent of net advances against 3.35 per cent in the preceding quarter.

Global deposits (domestic plus overseas) edged up by about one per cent y-o-y to ₹6,12,961 crore.

Global advances increased 2.70 per cent y-o-y to ₹4,18,895 crore, mainly on the back of growth in RAM advances (retail, agriculture and micro, small and medium). Corporate advances portfolio saw a de-growth.

Corporate loans

Atanu Kumar Das, MD and CEO, observed that out of the corporate loan sanctions pipeline of ₹35,000 crore, disbursement was less than ₹10,000 crore. However, Das expects corporate loan disbursements to gain traction in the third and the fourth quarters, which will help the bank end FY22 with an overall credit growth of 6-7 per cent.

M Karthikeyan, Executive DIrector, expects GNPAs to reduce by about ₹4,500 crore in the third quarter and about ₹5,000 crore in the fourth quarter.

In the current quarter, out of the recovery of ₹3,218 crore, the bank received ₹1,880 crore on account of resolution of DHFL.

Exposure to SREI Group

Karthikeyan said BoI has direct exposure of ₹1,024 crore to the SREI Group, which is undergoing corporate insolvency resolution process, and ₹970 crore via the pooled route.

The bank has made 50 per cent provision on its direct exposure.

On a consolidated basis, including the results of four domestic subsidiaries, four overseas subsidiaries, one joint venture and six associates, BoI reported a 97 per cent jump in net profit at ₹1,073 crore (₹543 crore).

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Bankers protest against Chaudhuri’s arrest, want FinMin to intervene

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Bankers are up in arms against what they perceive as an unjust punitive action against former SBI Chairman Pratip Chaudhuri who was arrested on Sunday for an alleged loan scam.

While prominent bankers have condemned the arrest as being detrimental to lending and credit flows, the Indian Banks Association (IBA) has asked the Centre to put in place a procedure to safeguard bankers against state-level authorities, including police, in cases of loan defaults.

Former SBI Chief arrested in Jaisalmer hotel loan case

Sunil Mehta, Chief Executive Officer of IBA told BusinessLine that the mechanism to protect bankers should be on the lines of that already in place for central investigative agencies such as the CBI. Mehta said IBA has written to the Secretary, Department of Financial Services (DFS) in the Finance Ministry and the Chief Secretary, Rajasthan Government, seeking their intervention. In its communication to the DFS, the IBA has said the bona fide decisions on loans should not be subject to arrest without a mechanism in place.

‘Examine the evidence’

“How can you arrest a person until you have sufficient evidence against him? It is humiliating to subject a person of Chaudhuri’s stature to go through this. People with sufficient knowledge should examine the documented evidence and find out if there is something mala fide,” Mehta said.

Bankers, including former SBI chiefs Rajnish Kumar and Arundhati Bhattacharya, have also voiced support for Chaudhary and highlighted the bankers’ precarious situation. Uday Kotak, Managing Director and CEO, Kotak Mahindra Bank and Chairman of the IL&FS board, said on Tuesday, “Based on what I have read, we need to have a criminal justice system which protects bona fide actions taken by lenders to recover their money.”

Meanwhile, industry observers pointed out that Chaudhuri retired as SBI Chairman on September 30, 2013. SBI had assigned the asset in March 2014 to Alchemist ARC. Pratip Chaudhuri joined the ARC Board only in October 2014. Some bankers pointed out that the allegation against Chaudhuri is not borne out as he was neither with the SBI nor with Alchemist when the asset was assigned to the ARC.

Alchemist ARC in a statement alleged that defaulters in the Hotel Gaudavan matter are taking the “judicial machinery for a ride”.

With inputs from Surabhi

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Poonawalla Fincorp board okays Magma HDI stake divestment

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The board of directors of Poonawalla Fincorp Ltd (PFL) has approved divestment of the company’s direct and indirect shareholding in Magma HDI General Insurance in order to comply with requirements of the Reserve Bank of India and IRDAI.

Sanoti Properties, held by Adar Poonawalla and Serum Institute of India, has agreed to acquire the direct and indirect stake of the company in Magma HDI.

“This structure is in line with other financial services groups with NBFC and general insurance operations and will allow a framework for continued business relationship between PFL and Magma HDI,” PFL said in a statement on Tuesday.

Also see: Poonawalla Fincorp: Consolidated PBT up 151% YoY

PFL will also divest its 48.89 per cent shareholding in Jaguar Advisory which, consequent to the above divestment in MHDI shares, will own only cash and cash equivalent, to Celica Developers, the joint venture partner in Jaguar Advisory.

Regulatory compliance

IRDAI’s Registration of Insurance Companies Regulations stipulates that a promoter of an insurance company cannot be a subsidiary of another company. Post the acquisition of PFL by Rising Sun Holdings in May 2021, PFL has become a subsidiary of RSH. As a result, IRDAI sought compliance from Magma HDI regarding its shareholding structure.

PFL is a joint venture partner in Magma HDI with Celica Developers, Jaguar Advisory and HDI Global SE.

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Bankers shocked over ‘high-handed’ move, BFSI News, ET BFSI

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Former State Bank of India (SBI) chairman Pratip Chaudhuri was arrested by the Rajasthan police on Monday on complaints from a loan defaulter sending shock waves in the banking industry that was just limping back to normalcy after years of fear of being implicated criminally on trumped up charges.

There was reportedly no notice or formal summons in a decade-old soured-loan case which has shaken the banking sector, stoking concerns the incident could delay decision making in multi-billion-dollar recovery initiatives of several lenders.

Former SBI chairman Rajnish Kumar termed his predecessor’s arrest as extremely unfortunate and a case of high handedness. “Prima facie, it seems to be a case of misrepresentation of facts and singling out of an individual, who held a high position, to seek publicity,” Kumar told ET. “In the process, the dignity of an individual has not been given any consideration. It needs to be looked into whether due process of law has been followed.”

Account Acquired by an NBFC in 2017
Chaudhuri was arrested from his Delhi residence by the Rajasthan police and taken to Jaisalmer on Monday. His subsequent bail application was rejected by the local magistrate. The case refers to the ‘Garh Rajwada’ hotel project in Jaisalmer, financed by SBI in 2007.

  • Chaudhuri was arrested from his Delhi residence by Rajasthan police, taken to Jaisalmer on Monday
  • Local magistrate rejected his bail plea
  • Case refers to a Jaisalmer hotel project, financed by SBI in 2007 Account became an NPA in 2010
  • Chaudhuri retired in 2013 NPA was sold to an ARC in 2014
  • Bank not summoned or asked for its views in case

Since the project was not completed for three years and a key promoter passed away in April 2010, the account slipped into the non-performing asset (NPA) category in June 2010.

As the country’s biggest mass lender didn’t succeed in reviving the project, SBI sold the loans to the Alchemist Asset Reconstruction Co (ARC) in March 2014.

To be sure, it is unclear whether Chadhuri was arrested because of his role as SBI chairman or because he was later chairman of Alchemist ARC, which bought the assets from the bank. Police authorities in Rajasthan couldn’t immediately be reached for their comments.

Ironically, bankers said Chaudhuri retired from the bank six months before the sale of loans, in September 2013.

In a statement, SBI said the sale to Alchemist ARC was done through a laid-down process. Further, the account was taken to the bankruptcy court and was acquired by an NBFC in December 2017.

‘No Legal Basis’

The arrest, without any due notice or summons neither to the bank nor Chaudhuri, has not gone down well with current and former SBI executives. Former SBI deputy managing director Sunil Srivastava took to Twitter to express his displeasure. “Frankly, without notice and without summons, how can police from another state arrest someone in Delhi? Where is the due process of law? Absolutely pathetic. Is the system being gamed again by defaulters despite all efforts by Modi govt; time for overhaul of judicial processes to improve transparency and introduce accountability,” Srivastava wrote on the social media platform.

Interestingly, Alchemist ARC promoter Alok Dhir was not arrested and his mobile phone was switched off when ET tried to reach him. “Whatever it is, it does not have a logical or legal basis,” the chief of a large public sector bank said, on the condition of anonymity. “There have been numerous court orders, including from the Supreme Court, that directors are not liable for the faults or crimes of a company management. Some lower level judicial and police officers who have no clue of how banking works take these high-handed decisions to please higher-ups. This must stop.”

‘SBI not Party to Case’

SBI said despite the case involving its loan account, it was neither summoned nor asked for its side of the story.

“It transpires now that the borrower had initially filed an FIR with the state police against the sale of the asset to the ARC. Aggrieved against the negative closure report filed by police authorities, the borrower had filed a ‘protest petition’ before the CJM court,” SBI said in a statement. “Incidentally, SBI was not made a party to this case. All the directors of that ARC, including Mr Chaudhuri who joined their board in Oct 2014, have been named in the said case. Incidentally, Mr Chaudhuri retired from the bank’s service in Sep 2013.”

The bank said it has now accessed copies of the proceedings that show the court was not briefed correctly on the sequence of events.

Bank Offers Cooperation
“In as much as SBI was not a party to this case, there was no occasion for the views of SBI being heard as part of these proceedings,” the bank said. “SBI would like to reiterate that all due processes were followed while making the said sale to ARC. The bank has already offered its cooperation to the law enforcement and judicial authorities and will provide further information, if any, that may be called for from their side.”

Bankers said lessons have not been learnt despite recent judicial and police overreaches. They were referring to the dramatic June 2018 arrest of the Bank of Maharashtra CEO Ravindra Prabhakar Marathe, and executive director Rajendra Kumar Gupta. The police subsequently filed a closure report due to lack of evidence and Marathe and Gupta were reinstated.

“The point is that the police were not punished. There is no punishment for wrongful cases and judgements that can destroy careers. Law enforcement agencies are not acting with responsibility and this will have economic repercussions,” said the bank CEO cited above.



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Report, BFSI News, ET BFSI

Banking & Finance

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-By Ishwari Chavan

The Indian banking sector is likely to witness a fresh phase of consolidation over the medium term, between FY22 and FY24, primarily driven by large private sector banks, according to a report by Acuite Ratings and Research.

Given the current buoyancy in equity markets, there is now a significant opportunity for large Indian private banks for inorganic growth through acquisition of smaller private banks that continue to face headwinds or even public sector banks where the government is considering a disinvestment, the report said.

The banking sector saw its first phase of consolidation involving public sector banks over the period 2017-20, with an intent to enhance their competitiveness, capital position and operational efficiency. Post this, there are twelve PSBs, including seven large ones and five smaller ones against 27 in 2017.

Market share

While PSBs have been enjoying a dominant market share since nationalisation of banks in 1969, they have witnessed a steady drop in both credit and deposit market share over the last one decade, the report said.

This was further accelerated over the last five years, with the impact of the Asset Quality Review (AQR) and the subsequent spike in NPAs in the banking sector.


Share of Public Vs Private Sector Banks in Outstanding Credit
Source: Acuite Ratings and Research

Over the last five years, the market share of state-owned banks has dropped by around 10% in both deposits and advances due to asset quality, resultant profitability and capital challenges.

This market share has been largely taken over by private banks, who have cemented their market position through easier access to capital, along with technological initiatives.


Share of Public Vs Private Sector Banks in Outstanding Deposits
Source: Acuite Ratings and Research

Domination of large private banks

Given investors’ confidence, large as well as some select mid-sized private banks have been able to raise funds through capital markets.

Despite repercussions from COVID, larger and few mid-sized private banks have been able to raise capital through equity (QIP) snd Tier I/II bonds in FY21 and H1FY22.

Large banks have been reporting double-digit growth rates on an average over the last five years due to a comfortable capital cushion, which can shield them from any asset quality stress.

Despite some improvement in profitability during FY21, small-size private banks continue to have low return on assets, reflecting their vulnerability in a challenging environment. These banks have also been facing difficulties in raising capital.

Furthermore, their ability to bring about a structural improvement in their lending and deposit profile is uncertain due to limitations in their geographical franchise, the report said.


Size Wise ROAA Trend of PVBs
Source: Acuite Ratings and Research



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RBI spells out rules for a bank to exit prompt corrective action framework, BFSI News, ET BFSI

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The Reserve Bank of India has modified the prompt corrective action plans for weaker banks with it laying down criteria for a bank to exit the framework once its financial metrics improve. It has also removed the profitability parameter for invoking the regulatory action.

The revised framework will be effective from January next year. The existing one has been in vogue since April 1, 2017. Under the existing rules, as many as 12 banks were placed under restrictions after they crossed the tolerance threshold. Barring one, all banks have exited the framework over the last two years but no uniform policy was applied for their exit. For example, RBI removed PCA from Bank of India and Bank of Maharashtra in January 2019 after their net non-performing assets ratio fell below the risk threshold of 6%.

But they were not profitable when the restrictions were lifted. In contrast, the erstwhile Oriental Bank of Commerce was profitable but its NPA was higher than 6% at the time PCA was removed from it. With the introduction of the structured exit policy, RBI has tried to address this anomaly. Under the existing framework, RBI invokes PCA if a bank makes net loss for consecutive financial years.

This clause has been removed in the revised guidelines. Once a bank is placed under PCA, taking the bank out of PCA framework and /or withdrawal of restrictions imposed under it will be considered if no breaches in risk thresholds in any of the parameters are observed as per four continuous quarterly financial statements, one of which should be audited annual financial statement, RBI said Tuesday.

However, any exit from the framework would depend on RBI’s supervisory comfort of the RBI and assessment on sustainability of profitability of the bank. The regulator has also tweaked the capital norm and leverage rules. The objective of the PCA framework is to enable supervisory intervention at appropriate time and require the supervised entity to initiate and implement remedial measures in a timely manner, so as to restore its financial health, RBI said.

“The PCA framework is also intended to act as a tool for effective market discipline,” it said. These rules however do not preclude the regulator from taking any other action as it deems fit at any time, in addition to the corrective actions prescribed in the framework, which is applicable to all banks operating in India including foreign banks operating through branches or subsidiaries.

A bank is generally placed under the framework based on the audited annual financial results. However this does not bar RBI from imposing restrictions on any bank during the course of a year in extreme cases.



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RBI governor asks banks not to let down their guard, BFSI News, ET BFSI

Banking & Finance

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RBI governor Shaktikanta Das on Tuesday met with bank chiefs and asked them to remain vigilant to any emerging signs of vulnerabilities and take timely remedial measures to mitigate the risks. Even as Das acknowledged the resilience of the banking sector, the central bank sought to beef up pre-emptive action against weak banks by reworking its prompt corrective action (PCA) norms to enable supervisory intervention at the right time and use of lending restrictions as a tool for market discipline.

The note of caution comes at a time when there is increased optimism in respect of the economy even as pandemic-related stress continues to be felt in some sectors. Bankers have started talking of recovery even as several countries in the world are going through a third phase of lockdowns.

Das on Monday held separate meetings with the MDs and CEOs of public sector banks and some private banks through videoconferencing. He advised banks to take timely remedial measures to mitigate the risks and maintain the stability of not only the institutions themselves but also of the overall financial system. Several other matters, including credit flows, especially to micro and small enterprises, were also discussed during the meetings.

Das sought feedback from bank chiefs on the outlook for stressed assets and measures for mitigation, pricing of risks and the collection efficiencies experienced by banks. He also asked banks about their engagement with fintech entities. This was the first meeting with banks after Das was granted a fresh three-year term by the government last week. The meeting was attended by RBI’s deputy governors M K Jain, M Rajeshwar Rao and T Rabi Sankar.

The new norms for PCA come after most weak banks have exited the lending restrictions imposed by the central bank under its earlier framework for early corrective action. A record number of 11 banks were placed under PCA after banks saw a surge in bad loans following RBI’s asset quality review in 2016.

“The PCA framework does not preclude the RBI from taking any other action as it deems fit at any time, in addition to the corrective actions prescribed in the framework,” RBI said. Bankers said that in the past banks were placed under PCA based on their audited financial results and now the indications are that the RBI might impose the restrictions if it feels that they are required based on its supervision.

On Tuesday, RBI deputy governor Jain said that the central bank was also focusing on governance reforms. He said that banks need to put in place governance standards to be worthy of public trust.

“Being highly leveraged entities and with the interconnectedness, there must be a separation between ownership and management, so that they operate on professional lines,” he said.



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RBI tweaks norms for initiating prompt corrective action against banks

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Chennai-based Indian Overseas Bank was the last to exit the PCA framework in September. The only lender still facing restrictions under the framework is Central Bank of India.

The Reserve Bank of India (RBI) on Tuesday modified its prompt corrective action (PCA) framework to exclude the parameter of return on assets (ROA) from the list of triggers.

Earlier, a bank was liable to be identified for initiation of PCA under risk threshold 1, if it had a negative ROA for two consecutive years, under risk threshold 2 if its ROA was negative for three consecutive years, and under risk threshold 3 if the ROA was negative for four consecutive years.

According to a revised circular on the central bank’s website, capital, asset quality and leverage will be the parameters used for identifying lenders weak enough to enter PCA. The RBI also tweaked the stipulation under the total capital adequacy ratio (CRAR) parameter for risk threshold 3.

Banks which see their CRAR dropping more than 400 basis points (bps) below the minimum regulatory prescription for CRAR, and the applicable capital conservation buffer will now be liable to be brought into PCA under risk threshold 3.

“The PCA Framework would apply to all banks operating in India, including foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators,” the regulator said.

Chennai-based Indian Overseas Bank was the last to exit the PCA framework in September. The only lender still facing restrictions under the framework is Central Bank of India.

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New PCA framework for banks from January

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Stressed banks may be prohibited from expansion of credit portfolio and asked to restrict outsourcing activities, going by the Reserve Bank of India’s revised prompt corrective action (PCA) framework.

A bank prohibited from expansion of credit/investment portfolios under PCA will, however, be allowed to invest in government securities/other high-quality liquid investments.

As per the extant framework, the RBI can ask a bank under PCA to only restrict/reduce credit expansion for borrowers below certain rating grades, reduce exposure to unsecured borrowers, among others. But it does not prohibit expansion of credit/investment portfolios.

The RBI said it would monitor three key areas — capital, asset quality and leverage — in the revised framework and breach of any risk threshold may result in invocation of PCA. Under the extant framework, the RBI also monitors profitability, besides the aforementioned areas.

Exit from PCA

The provisions of the revised PCA framework, which will be effective from January 1, 2022, clearly specify the conditions under which the central bank will allow exit from PCA and withdrawal of restrictions under PCA.

Taking a bank out of PCA framework and/or withdrawal of restrictions imposed will be considered if no breaches in risk thresholds in any of the parameters are observed as per four continuous quarterly financial statements, one of which should be Audited Annual Financial Statement (subject to assessment by RBI).

Further, this will be based on the supervisory comfort of the RBI, including an assessment on sustainability of profitability of the bank.

The revised framework incorporates resolution of a PCA bank by Amalgamation or Reconstruction (under Section 45 of Banking Regulation/BR Act 1949).

This follows amendment to Section 45 of the BR Act, which enables the Reserve Bank to reconstruct or amalgamate a bank, with or without implementing a moratorium, with the approval of the Central government.

Per the extant framework too, a breach of ‘Risk Threshold 3’ of Common Equity Tier I capital by a bank would identify it as a likely candidate for resolution through tools like amalgamation, reconstruction, winding up, etc.

In the case of a default on the part of a bank in meeting the obligations to its depositors, possible resolution processes may be resorted to without reference to the PCA matrix.

The RBI, as part of its mandatory and discretionary actions, may also impose appropriate restrictions on capital expenditure, other than for technological upgradation within Board approved limits, under the revised PCA.

The current provisions relating to imposition of restriction on dividend distribution/ remittance of profits, promoters/owners/parent (in the case of foreign banks) being required to bring in capital, and restriction on branch expansion, domestic and/or overseas, will continue under the revised PCA framework.

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