Category: Banking & Finance

RBI extends validity of Kapol Co-operative Bank

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The Reserve Bank of India (RBI) has extended the validity of its Directions for Mumbai-based Kapol Co-operative Bank by six months up to April 30, 2022.

The central bank had placed the aforementioned Bank under Directions with effect from from the close of business on March 30, 2017 for six months. The validity of the directions was extended from time-to-time, the last being up to October 31, 2021.

Members of Kapol Bank had unanimously voted in favour of a resolution “to consider and approve merger of the Bank with The Cosmos Co-operative Bank Ltd.”at a special general body meeting held on June 9, 2021.

However, it is not clear yet whether any headway has been made on the merger.

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Surge in non-Covid health cover claims, average ticket size: ICICI Lombard CEO

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In a breather to non-life insurance companies, Covid-related health insurance claims have dropped with the ebbing of the second wave of the pandemic.

However, there has been a rise in non-Covid-related health claims and their average ticket size has risen significantly, said Bhargav Dasgupta, Managing Director and CEO, ICICI Lombard General Insurance. If this trend continues, it could impact health insurance premium.

Average ticket size

According to Dasgupta, the insurer has seen a 20 per cent increase in the average ticket size of these claims over two years, from 2019-20 to now, which is about 10 per cent compounded growth.

“As Covid claims have come down, the frequency of non-Covid health claims has gone up. Some of the other infectious diseases have spiked this year such as malaria, chikungunya and dengue. Also, there was some amount of backlog of the elective surgeries that have now caught up in this quarter,” he said in an interview with BusinessLine, adding that the ticket size of claims has gone up for similar ailments.

“We’ll have to see if it’s a temporary increase or permanent in nature. This could perhaps be because of additional RT-PCR tests that hospitals have do or some more procedures that they’re following, but hopefully that will stabilise,” he said, adding that if healthcare costs continue to increase at the level they are going up it could start impacting the premium for customers.

Dasgupta said that the insurer increased pricing on its corporate health portfolio, but is on the wait-and-watch mode on retail health insurance.

“On the retail side, we have to go back to the IRDAI and seek price increase. As of now, we’ve not done that. This is just one quarter data; we want to wait for this fiscal and see the data and then decide. We are not using the Covid spike to ask for a price increase because that would not be fair on customers,” he stressed.

Between April and September 2021, the insurer received 72,059 Covid-related health claims and 2,38,409 claims for non-Covid cases.

Dasgupta, however, continues to be confident about growth prospects, and said there is a structural increase in the demand for health insurance.

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In a first, personal loans beat credit to industry, BFSI News, ET BFSI

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MUMBAI: The share of personal loans in bank credit has for the first time overtaken overall loans to the industry sector during the second quarter of the current financial year. This has happened with loans to industry as of end-September 2021 shrinking by Rs 66,239 crore over March 2021 levels, while loans to individuals grew Rs 73,011 crore during the period.

According to data released by the Reserve Bank of India, bank credit outstanding on the last Friday of September was Rs 109.5 lakh crore. Of this, the share of loans to industry dropped to 26% (Rs 28.3 lakh crore) from 27% a year earlier. Personal loans, which were a quarter of all bank loans in September 2020, increased to 27% (Rs 29.2 lakh crore) by end-September 2021.

The drop in bank credit to the industry segment was largely due to companies in core industries deleveraging. Loans to iron and steel industries dropped by Rs 39,249 crore and loans to chemicals (which includes fertilisers, drugs and petrochemicals) shrunk by Rs 10,146 crore in the six months ended September. The few sectors which saw growth in credit were roads, ports and power. However, even this was not enough to show positive credit growth in the infrastructure segment.

Overall credit outstanding to large industry shrunk by 5% in the first six months of the fiscal. This has pulled down industrial loan growth to 2.3% despite credit to small and medium businesses rising.

In the personal segment, banks added Rs 20,096 crore of home loans to their portfolio in the last six months. They also increased their auto loan and gold loan book by Rs 3,000 crore each. Other personal loans were up by Rs 45,000 crore. Overall loans outstanding in the personal loan segment grew by Rs 73,000 crore in the six months ended September 2021. This has expanded the personal loan portfolio to Rs 29.18 lakh crore.

The data appears to indicate that banks have wrested market share from finance companies in the credit market. Typically, NBFCs borrow from banks and debt markets and lend. Bank credit to NBFCs, which is the largest component in loans to services sector, shrunk by Rs 61,124 crore in the last six months. This has resulted in the share of credit to NBFCs dropping from 9% (Rs 9.4 lakh crore) on end March 2021 to 8% (Rs 8.8 lakh crore) as of end September 2021. This has resulted in outstanding bank credit to the services sector declining by 3% since March 2021.

According to bankers, the decline in bank credit to large companies could be attributed to their deleveraging coupled with shifting to the debt market where cheaper money is available through commercial paper. Some businesses are seeing better cash realisations and do not feel the need to borrow.

In the NBFC segment, the classification of a large borrower as a non-performing asset by banks could have added to the decline in the segment. The home loan portfolio displays more consistency and does not occasionally shrink like other segments because home loans are long term and fresh disbursements have a compounding impact on the size of the portfolio.



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RBI, BFSI News, ET BFSI

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Customers of stressed Punjab & Maharashtra Co-Operative Bank (PMC Bank) will not get up to Rs 5 lakh insurance cover in the first lot as the multi-state co-operative bank is under the resolution process. Deposit Insurance and Credit Guarantee Corporation (DICGC) in the first lot will pay customers of 20 stressed banks except PMC Bank. For the first lot, the mandatory 90 days period concludes on November 30.

It is to be noted that RBI had in June given in-principle approval to a consortium of Centrum Financial Services and fintech startup BharatPe to acquire the stressed PMC Bank.

Clearing decks for the takeover, the RBI earlier this month gave licence for small finance bank to the consortium.

Recently, the DICGC said there may be a need to invoke the provisions of Section 18 A (7) (a) of the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021,

As per the Section 18 A (7) (a) of the Act, if a stressed bank is under the resolution process, the period for disbursement of Rs 5 lakh can be further extended by 90 days.

“The Reserve Bank finds it expedient in the interest of finalising a scheme of amalgamation of the insured bank with other banking institution or a scheme of compromise or arrangement or of reconstruction in respect of such insured bank, and communicates to the Corporation accordingly, the date on which the Corporation shall become liable to pay every depositor of such insured bank may further be extended by a period not exceeding ninety days,” it said.

In September 2019, the RBI had superseded the board of PMC Bank and placed it under various regulatory restrictions after detection of certain financial irregularities, hiding and misreporting of loans given to real estate developer HDIL.

The Reserve Bank of India (RBI) had imposed restrictions on the withdrawal of deposits from these stressed banks. Of the 20 banks, 10 are from Maharashtra, five from Karnataka, and one each from Uttar Pradesh, Kerala, Rajasthan, Madhya Pradesh, and Punjab.

Last year, the government increased the insurance cover on deposits by five times to Rs 5 lakh. The enhanced deposit insurance cover of Rs 5 lakh came into effect from February 4, 2020.

Every bank used to pay 10 paise as an insurance premium per Rs 100 of deposit. It was raised to 12 paise per Rs 100 in 2020. It cannot be more than 15 paise at any point in time per Rs 100 deposit.

It is to be noted that the enhanced deposit insurance cover of Rs 5 lakh is effective from February 4, 2020. The increase was done after a gap of 27 years as it has been static since 1993.



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Banks with 95% cards implement RBI order on recurring payments, BFSI News, ET BFSI

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MUMBAI: A month after the RBI’s fresh rules on mandates for recurring card payments kicked in, banks accounting for over 95% of credit cards in the market are compliant with the new system. Over 20 lakh e-mandates have been registered by cardholders with a host of merchants.

According to payment industry sources, the banks whose credit cards are eligible for new standing payment mandate include SBI, Axis Bank, HDFC Bank, Yes Bank, American Express, Bank of India, Bank of Baroda, ICICI Bank, HSBC, RBL Bank, IndusInd Bank and Kotak Mahindra Bank. Several banks have enabled the mandate for both debit cards as well as credit cards.

Automatic recurring payments also require the merchant to be on-boarded to the new e-mandate framework. The compliant businesses include most of the OTT (over-the-top) streaming platforms, private life & general insurance companies, global IT giants like Google, Facebook, Microsoft and McAfee, as well as some edtech companies.

Interestingly, Indian cardholders who have registered with overseas service providers, having payment gateways abroad, are not subject to the new rules. This is because the RBI has no jurisdiction to impose second-factor authentication in those markets. It is up to the customer to disable international transactions on their cards.

What has facilitated the fast on-boarding of merchants is IT solutions like SI Hub developed by BillDesk and Mandate HQ developed by Razorpay. However, some domestic banks like Canara Bank & Punjab National Bank and Standard Chartered Bank were until last week in the process of making the necessary system changes.

According to the sources, card-based recurring transactions are 2.5% in terms of the number of transactions and 1.5% in terms of the value of the total card payments done in the country. On average, approximately 75% of domestic recurring transactions are of values of up to Rs 5,000. The corresponding figure for cross-border recurring transactions is approximately 85%.



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Private banks’ net profit up 26% as economic revival kicks in, BFSI News, ET BFSI

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The net profit of private banks rose 26 per cent year on year in the July-September 2021 quarter and 21.9 per cent sequentially over March-June 2021 (Q1), as the pandemic ebbed and economic recovery has taken hold.

The 12 private lenders posted a collective net profit of Rs 21,965 crore during the second quarter.

Provisions and contingencies of the lenders that have declared results fell both 22 per cent year on year and 30.2 per cent quarter on quarter to Rs 12,805 crore. The provisions include those for one time restructuring of loans announced by the RBI in May.

Net interest income was up 10.8 per cent y-o-y and 2.5 per cent sequentially. Other income rose 15.7 per cent to Rs 22,638 crore.

Gross non-performing assets grew 1.1% to Rs 1.73 lakh crore y-o-y, but fell 3.5 per cent sequentially from about Rs 1.8 lakh crore in the June quarter.

Net NPAs rose by 27.5 per cent y-o-y to Rs 42,895 crore, but fell sequentially by 7.3 per cent from Rs 46,280 crore in June 2021.

ICICI Bank

ICICI Bank posted a higher-than-expected 29.6% on-year rise in net profit to Rs 5510 crore in July-September, which was highest in the bank’s history. As the bank maintained 17% growth in advances, and further improved on net interest income and margins, asset quality ratios provided additional support to the bottomline by keeping provision costs low.

Axis Bank

Axis Bank reported an over 86% year-on-year rise in net profit to Rs 3130 crore for the September quarter, benefiting from an improvement in asset quality, which led to a fall in provisioning. The bank expects consumer and business confidence to continue to trend upward in Oct-Mar on the back of a rise in vaccination coverage and as the economy opens up, pent-up demand and spends materialise.

Federal Bank

Federal Bank posted a higher than expected net profit of Rs 460 crore in the September quarter, led by a fall in overall provisions as the lender reported improvements in asset quality. The bank’s net profit rose 49.6 per cent on year, and 25.3 per cent on quarter. This was supported by a faster-than-industry credit growth that fuelled a rise in core ratios such as net interest income and net interest margins.

YES Bank

Yes Bank’s net profit jumped 74 per cent year-on-year in the September quarter to Rs 230 crore on the back of a sharp fall in provisioning. Going ahead, a sharp reduction in overdue loans and sustained momentum in loan recoveries and upgrades augurs well for the overall asset quality of the bank.

RBL Bank

RBL Bank posted a 78.6 per cent on-year fall in net profit for the September quarter at Rs 30 crore due to higher provisions amid an increase in bad loans. For April-June, the private sector lender had reported a net loss of Rs 460 crore. Slippages, gross non-performing assets ratios, and provisions had peaked in the reporting quarter, and the lender was on track to see growth, the bank said.



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To ease lending, FinMin moves to boost bankers’ morale, growth

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In a move aimed at lifting the morale of public sector banks, the Finance Ministry has issued broad guidelines on staff accountability for NPA accounts up to ₹50 crore.

Banks have been advised to revise their staff accountability policies based on the new guidelines and get their respective boards to approve the new procedures.

The move, which comes at a time when there is a need to push credit growth in the banking system, is expected to tackle the fear among bankers to take lending decisions, given that the bank NPAs are a politically volatile issue.

 

Track record of officials

Under the new guidelines, PSBs have been tasked to complete the staff accountability exercise within six months from the date of classification of the account as NPA.

Further, depending on the business size of the banks, threshold limits have been advised for scrutiny of the accountability by the Chief Vigilance Officer (CVO). Past track record of the officials in appraisal/sanction/monitoring will also be given due weightage.

Previously, the staff accountability exercise was carried out in respect of all accounts that turn into NPAs. Now banks have been allowed to, with the approval of their board, decide on a threshold of ₹10 lakh or ₹20 lakh depending on their business size for the need to examine the staff accountability aspect.

The latest move could help restart credit growth and encourage bankers to start taking decisions now that there is an assurance that all bonafide business decisions will be protected, said a banking industry official. Credit growth in the banking system has averaged 6-8 per cent in the last few years and has been affected even more due to the pandemic in the last 18 months.

Policy makers need to introspect as to why credit growth is lower than the nominal GDP growth of 8-9 per cent clocked in recent years (before impact of pandemic), say economy watchers.

Restructuring window

Credit growth in the economy and banking system almost came to a grinding halt after the RBI removed the window of restructuring (which allegedly enabled evergreening of loans and hid the true picture of the asset quality) and the quantum of NPAs in the system ballooned to ₹8-9-lakh crore.

Allegations of “phone banking” too brought down the morale and confidence of bankers.

A chunk of the NPAs figured in the accounts up to ₹50 crore and it is here that bankers have, in the last few years, stopped taking decisions, lest they be questioned in the future, sources in the banking industry said. Also, different PSBs are following different procedures for conducting staff accountability exercises.

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IBA welcomes proposed staff accountability norms

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Our Bureau The Finance ministry’s decision to ask Public Sector Banks (PSBs) to complete staff accountability exercise within six months from the date of classification of an account as a non-performing asset (NPA), will boost the morale of employees, according to the Indian Banks’ Association (IBA).

PSBs have been asked to implement the directives with effect from April 1, 2022 for accounts turning NPA on or after this date. Banks have been advised to revise their Staff Accountability Policies based on these broad guidelines and frame the procedures with approval of the respective boards. At present, different Banks are following different procedures for conducting staff accountability exercise. Also, staff accountability exercise is being carried out in respect of all accounts which turn NPA.

‘Strain on resources’

“This approach not only adversely affects staff morale but also puts a huge strain on the bank’s resources. While punitive action need to be taken against the officers having malafide intent/involvement, it is essential to ensure that bonafide mistakes are dealt with compassion,” per the IBA statement. The Association noted that at a time when the country is in need of an economic boost, slow credit delivery to industries due to the fear of implication, is a matter of concern and needs urgent address.

It emphasised that there is a need to protect people taking bonafide business decisions in this competitive environment.

‘Protect bonafide action’

Banks with the approval of their Board may decide on threshold of ₹10 lakh or ₹20 lakh depending on their business size for the need of examining the aspect of staff accountability, IBA said.

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Ujjivan Financial Service okays amalgamation with Ujjivan SFB

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The board of Ujjivan Financial Services has approved the amalgamation of the company with its subsidiary, Ujjivan Small Finance Bank, to meet the minimum public shareholding norms of SEBI.

Ujjivan Finance Services currently holds 83.32 per cent of the total paid-up equity share capital of Ujjivan SFB.

“Accordingly, the scheme, if implemented, will result in increase in shareholding of public shareholders of the Transferee Company from 16.68 per cent to 100 per cent, subject to receipt of requisite approvals,” said Ujjivan Financial Services in a stock exchange filing.

SEBI, RBI approval

The scheme of amalgamation is subject to approval from the Reserve Bank of India, SEBI, NCLT and public shareholders of the company.

Under RBI norms, the promoter’s minimum initial contribution to the paid-up equity capital of SFB should be at least 40 per cent, which shall be locked in for a period of five years from the date of commencement of operations of SFB. Further, if the promoters’ initial shareholding in SFB is in excess of 40 per cent, then it has to be brought down to 40 per cent within five years from the date of commencement of operations of SFB.

In the case of Ujjivan SFB, the five-year period expires on January 31, 2022, and the proposed amalgamation among other business objectives and benefits will enable it to ensure the compliance, added Ujjivan Financial Services.

“The amalgamation is in line with the conditions prescribed in the SFB guidelines and will result in the formation of a larger and stronger entity having greater capacity for conducting its operations more efficiently and competitively; the amalgamation will avoid operational inefficiency in the group by operating one listed entity and create synergies,” said Ujjivan.

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Benchmark yield can breach the 6.4% mark

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The bond market continues to wait for the much needed support from the central bank even as yields nudged the 6.4 percent-mark again this week. The benchmark yield closed the week at 6.39 per cent, up four basis points from the previous week.

One of the two contributing factors to the rising yields — the US treasury yields — did soften this week. The 10-year US treasury yield came down all the way to 1.55 per cent last week from 1.64 per cent the week before. However, crude prices, that have been keeping pressure on the domestic bond yields, continued to remain at the higher levels last week. Brent price crossed $86/barrel before closing the week near the $84/barrel mark.

Higher cut-off

Moreover, the cut-off rate on the variable rate reverse repo auctions continues to remain high. The central bank conducted a seven-day VRRR auction wherein the cut-off came in at 3.99 per cent. Earlier this month, the cut-off on a seven-day VRRR auction had come in at 3.61 per cent. The RBI has also announced a 28-day VRRR auction next week, indicating a higher tenor. Market participants say although the central bank’s stance on liquidity was made clear during the monetary policy and a hike in quantum was expected, an increased tenor does not help under the current market conditions where nothing is helping the yields.

Vijay Sharma, Senior Executive Vice-President at PNB Gilts opines that the RBI’s support to bond market is missing currently. “Recently, there was an announcement for VRRR auction that had a higher tenor of 28 days. All this seems to indicate that the central bank is still not uncomfortable with the current level of yields. The market has lost its momentum and till the point in time that you see a helping hand from the RBI, you may continue to see the yields at these levels. The market did attempt a recovery but lost its mojo quickly. With each and every day that the central bank is delaying its comeback, the chances of 6.4 per cent level on the benchmark yield getting breached are increasing. The only thing that was finding some sort of favour from the market was the floating rate bonds. With the central bank conducting a massive switch auction, even the demand for FRBs have taken a hit,” he said.

Next week, bond markets across the world will be keenly eyeing the US Fed meet where it is expected to announce unwinding of its bond-buying programme.

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