Category: Banking & Finance

I-banks rake in decade-high $611mn on IPO, M&A wave, BFSI News, ET BFSI

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MUMBAI: The IPO frenzy and M&A wave are minting money for Deal Street.

Fees earned by big investment banks and boutique advisory firms in India rose to $611 million (over Rs 4,500 crore) in the first nine months of 2021, making it the highest in a decade. Equity issuances raked in $237 million (about Rs 1,770 crore) as IPO fund-raising activity spiked, followed by $196 million (Rs 1,465 crore) fetched by M&A and $177 million (over Rs 1,300 crore) by debt deals.

With two months left for the year to be completed, Ibanks anticipate record revenue on the back of bullish deal making momentum. In 2010, advisory fees were about $900 million and, in 2007, it had topped $1 billion. This calendar year till September 24, Bank of America earned the most ($55 million), vaulting three places from number four in 2020 to top the charts, according to data from Dealogic – a global tracker of investment banking business. Rival US banks JP Morgan and Citi retained their second and third positions, grossing $50 million and $35 million in revenues.

I-banks receive the bulk of the advisory fees on completion of an M&A or IPO transaction. Significantly, their earning charts are closely tracked as they determine bonus payouts for dealmakers. Switzerland’s Credit Suisse with $33 million revenue climbed one spot to number four in the latest rankings, while local bank Axis rocketed to the fifth position from 13th last year with $32 million. “2021 has been the busiest year for us in the last several years,” said Bank of America MD (investment banking) Asit Bhatia. “The IPO pipeline is the strongest it has ever been. 2021 will end as a record year in terms of equity capital market (ECM) fund-raise,” he said.

India Inc raised over $9.5 billion in the first nine months of this year through 72 IPOs. And with more companies intending to list on the stock exchanges in the coming months, 2021 will create anew record for IPO fundraise. Fees from ECM – which include IPOs, follow-on offerings and block deals – surpassed that of M&A for the first time in four years for Ibanks, according to Dealogic.

Kotak Mahindra Bank and Avendus, in which private equity fund KKR owns a majority stake, broke into the top 10 list of dealmakers by fees earned in 2021 till September 24. Kotak Mahindra netted $31 million in revenue, while Avendus, riding on transactions like Prosus buying BillDesk for $4.7 billion in what was the largest M&A in India’s fintech space, earned $28 million. Avendus, which is mainly into M&A advisory, is looking to get into capital market advisory to cash in on the IPO deal activity as several tech-enabled companies, including unicorns, make public-listing moves, said one of its top executives.

Firms are also looking to add freshers and seasoned investment bankers, said ICICI Securities head (investment banking and institutional equities) Ajay Saraf.



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‘RBI should’ve acted on YES Bank 5 months earlier’, BFSI News, ET BFSI

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MUMBAI: Former State Bank of India chairman Rajnish Kumar has said in his book that the Reserve Bank of India should have sacked the Yes Bank board five months earlier in November 2019 as the bank was already losing deposits and defaulting on reserve requirements.

In his book, ‘The Custodian of Trust’, the former SBI chairman has provided some behind-the-scenes glimpses of what went into resolving something that appeared as a Lehman Brothers moment for India. It was during his tenure that the financial sector was hit by the triple failure of IL&FS, DHFL and Yes Bank.

Giving a hint of the workings of Yes Bank, Kumar reveals how the private lender stepped in to help GVK attain financial closure for its Navi Mumbai project. The Rana Kapoor-promoted bank had charged a high upfront fee even when SBI — which was several times bigger and facing pressure from various authorities — was reluctant given the group’s stressed situation. He has also questioned the delay in deciding on the reappointment of Kapoor, which left the RBI with no choice but to offer a three-month extension up to January for Kapoor.

Pointing out that Yes Bank’s plan to raise capital was not well thought out and the board had not applied its mind to a revival plan, Kumar said, “The action that the RBI took as late as March 2020 could probably have been taken as early as November 2019. But everyone is wiser in retrospect.”

Kumar has also dwelt extensively on the Jet Airways collapse. According to him, the SBI board was wary of backing Kumar on a resolution plan for the airline without a letter of comfort from the finance or aviation ministries. The airline’s fate was finally sealed after Etihad rejected the resolution plan.

According to Kumar, the negotiations with Etihad had turned ugly with both Jet promoter Naresh Goyal and SBI coming around to the view that Etihad was only interested in the Jet Privilege programme where it held stake and wanted to open this to other airlines. When this was mentioned to Etihad CEO Tony Douglas in a meeting by SBI MD Arijit Basu, the Etihad chief moved menacingly towards Basu and was stopped by Kumar’s intervention.

Kumar, whose tenure coincided with the great bad loan clean-up in Indian banks, also exposes some bitterness in banks taking the fall for a collective failure among stakeholders. “Attributing non-performing loans entirely to crony capitalism or zombie lending only highlights the lack of an in-depth analysis of the situation, in turn causing resentment among bankers,” he said.

The book, which is published by Penguin, is dedicated to the late Arun Jaitley who Kumar says guided him in crucial decisions. It was Jaitley who supported SBI’s decision to bite the bullet and provide for bad loans with a wry statement in Hindi: “Aur kya kar sakte hain, Rajnishji? (What else can be done?)”

Another interesting fact is that the reclusive former governor Urjit Patel, who was earlier on the SBI board, met Kumar only once during his tenure and closed the doors for all communication with banks.



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Britain’s Lloyds Bank to close another 48 branches, BFSI News, ET BFSI

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Lloyds Banking Group will close a further 48 branches across England and Wales, the British lender said on Wednesday, as it seeks to further cut costs by trimming its physical network.

The closures are the latest in a string of such moves by the bank, which in June announced the closure of 44 different branches.

Banks have stepped up branch closures after many paused restructuring for much of last year to focus on responding to the COVID-19 pandemic.

“The announcement by Lloyds Banking Group of closing a further 48 bank branches is a complete betrayal of the communities and staff who have long supported this highly profitable business,” said Sharon Graham, general secretary of employment union Unite.

Lloyds said it is responding to customers using branches less frequently, and that it is piloting a scheme whereby ‘community bankers’ visit customers in their areas.

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National Asset Reconstruction Company: First set of NPA transfer to bad bank likely by January

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Last month, the Cabinet approved a proposal to offer sovereign guarantee on the security receipts (SRs) issued by the NARCL, which is estimated to cost the exchequer Rs 30,600 crore over five years. In the first phase, fully-provisioned toxic assets will be transferred.

The National Asset Reconstruction Company (NARCL), or the so-called bad bank, is expected to witness the transfer of the first batch of toxic assets worth about Rs 90,000 crore by January 2022, banking sources told FE.

Earlier this month, the NARCL got a licence from the central bank to start operations. “It’s (NARCL) in the process of forming its board. Large stressed assets have already been identified, so their transfer is unlikely to be delayed beyond late December or early January,” a top banker familiar with the development told FE. The asset transfer will be a decisive step towards the resolution of large stressed assets worth Rs 2 lakh crore in the banking system.

Last month, the Cabinet approved a proposal to offer sovereign guarantee on the security receipts (SRs) issued by the NARCL, which is estimated to cost the exchequer Rs 30,600 crore over five years. In the first phase, fully-provisioned toxic assets will be transferred.

The Indian Banks’ Association (IBA), which is spearheading the initiative to set up the bad bank, has put in place a preliminary board for the NARCL. Padmakumar M Nair, a chief general manager in the stressed assets resolution group of State Bank of India, has been appointed the managing director of NARCL. IBA chief executive Sunil Mehta, SBI deputy managing director SS Nair and Canara Bank chief general manager Ajit Krishnan Nair have also been inducted to the NARCL board so far. More directors are expected to be appointed soon.

The plan to set up NARCL comes at an opportune time. Gross NPA ratio of banks may surge to 9.8% by March 2022, under a baseline scenario, from 7.48% in March 2021, driven partly by the Covid crisis, according to the Reserve Bank of India’s Financial Stability report in July.

Although the Centre is giving guarantee on the SRs, it has not contributed to the equity of the Rs 6,000-crore NARCL. In fact, public-sector banks (PSBs) will hold 51% in it and private players will own the rest. Similarly, the PSBs and public financial institutions will have a 49% stake in the India Debt Resolution Company (IDRCL), which is being set up as an asset management company to work out the non-performing assets (NPAs) under the overarching NARCL structure, and the rest will be held by private lenders.

The NARCL will acquire the assets at net book value by offering 15% of it upfront (in cash), and the rest (85%) in SRs. Once the bad loan is resolved, realisation for the relevant bank would be in sync with its SR interest in that asset.

Typically, the NARCL will acquire assets by making an offer to the lead bank. Once its offer is accepted, the IDRCL will then manage the bad loans, add value to them and finally sell them off.

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RBI rule on recurring payments: Small businesses, start-ups feeling the heat

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Small businesses and start-ups running on a subscription model are losing out on users and timely payments due to the Reserve Bank of India’s new rule on recurring payments.

For instance, the non-profit digital rights advocacy group, Internet Freedom Foundation (IFF), which runs on a monthly donorship model, lost nearly 70 per cent of its existing membership base of close to 423.

Apar Gupta, Advocate and Executive Director, IFF, told BusinessLine: “It took us three years to build our member base. Most of our donors signed up using their debit and credit cards, which has been the primary mode of recurring online payments in India. After the RBI mandate came into being post-September 30, they weren’t able to sign up or make those payments.

“Essentially the bottleneck is on the banks’ end, which have not implemented the RBI guidelines and directives till now. This is making it impossible for existing members to sign up and make their recurring monthly payments afresh as the date for payment approaches. Donation authorisations have lapsed,” he explained.

An inverse problem

The Bengaluru-based expense management SaaS start-up, Fyle, is facing an inverse problem. “We are using at least 60-plus international services and products to run our business. All of these vendors were subscribed through our Kotak Corporate credit card. But this month we weren’t able to make payments to many of them because the bank claimed that the merchants we are trying to pay are not RBI recurring payment rules-compliant. The entire world runs on recurring payments for SaaS products, how will they know about the RBI’s specific rules? Now, we have been getting notices of possible account suspensions,” said Sivaramakrishnan Narayanan, Co-founder and CTO, Fyle.

New rules

Under the new rules, banks are required to inform customers in advance about recurring payments due, and transactions would be carried following a nod from the customer. So, the transaction will not be automatic, but will be done after authentication from the customer. Sijo Kuruvilla George, Executive Director, Alliance of Digital India Foundation (ADIF), said: “RBI’s new payment rule has resulted in major disruptions for businesses – an avoidable one that has put Indian start-ups at a disadvantage. For an entrepreneur, continuity in business is absolutely critical. The manner in which the policy was implemented has wreaked havoc and has put Indian companies in a precarious position.”

Mumbai-based digital publication and research start-up, FoneArena.com, was suddenly left to manually make payments using credit card at 50-plus internet-based services that it had been using for over a decade.

These services include various software, web servers and tools that the company has been using to run its business.

Varun Krishnan, Founder and Editor-in-Chief, FoneArena.com, told BusinessLine: “We are a small team of 10 employees. Going through renewing each website manually every month is difficult. I might need to hire another employee just to make these monthly payments. For certain services like AWS, I haven’t had to log in in over a year as the payments would directly get deducted from my credit card. Now, suddenly I got a mail from them saying my account would get suspended if I don’t renew. I had to go to the website and pay.”

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EPFO adds 14.81 lakh members in August

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The provisional payroll data of EPFO continued to show a growing trend consecutively for the last five months and added around 14.81 lakh net subscribers in August. The net subscriber addition has increased by 12.61 per cent as compared to July’s figures.

Out of the total 14.81 lakh net subscribers, around 9.19 lakh workers are new members of the EPFO. Around 5.62 lakh workers exited but rejoined the EPFO by changing jobs. Workers in the age-group of 22-25 years registered highest number of net enrolments with 4.03 lakh additions during August, the Union Labour Ministry claimed in a release.

“This is followed by age-group of 18-21 with around 3.25 lakh net enrolments. This indicates that many first-time job seekers are joining organised sector workforce in large numbers and have contributed around 49.18 per cent of total net subscriber additions in August,” the release added.

Establishments covered in Maharashtra, Haryana, Gujarat, Tamil Nadu and Karnataka added approximately 8.95 lakh subscribers during the month, which is around 60.45 per cent of total net payroll addition across all age groups.

The net addition of female workers has increased roughly by 10.18 per cent largely due to lower female member exits during August. Expert services’ category (consisting of manpower agencies, private security agencies and small contractors etc.) constitutes 39.91 per cent of total subscriber addition, the Ministry said.

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Rupee ends 47 paise higher against the dollar on Wednesday

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The rupee ended 47 paise stronger on Wednesday due to dollar inflows in the backdrop of foreign portfolio investors eyeing investments in public offerings by Indian companies and due to the weakening of the greenback.

The Indian unit closed at 74.88 per dollar against the previous close of 75.35.

In intraday trade, the rupee saw a high of 74.83 to the dollar and a low of 75.1350.

Dollar index falls

IFA Global, in a report, observed that the rupee rose against the dollar because the dollar index remained weak and risk sentiment improved with a rise in equities globally.

“The dollar weakened because rising inflation amid a surge in energy prices in global economies is expected to push central bankers for a quick monetary policy tightening that may outpace the US Fed’s. Brent crude oil prices eased a bit and fell below the $85-per-barrel mark, which provided further relief to the domestic currency,” the report said.

However, a sharp rise in the yield on the 10-year benchmark US Treasury note limited any sharp gains in the rupee.

Anindya Banerjee, DVP, Kotak Securities, noted that the rupee appreciated on the back of a sharp rally in Chinese currency and fall in the US Dollar index.

“With oil prices holding steady at around 85 dollars a barrel, rupee has become a major underperformer in the Asian basket. There is scope for the currency to gain further ground, especially if the US Dollar index remains weak and global equity markets maintain the risk on-trend,” Banerjee said.

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Insurers settle claims worth ₹20,859 cr

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Insurers have so far settled claims worth ₹20,859 crore related to Covid-19. According to the latest data available with the industry, the settlement ratio stood at 88 per cent as on October 13, for ₹20,859.4 crore. Of the total claims of 25,96,072, 22,84,429 have been settled by insurers.

Insurers, however, are now seeing a dip in demand for Covid-specific policies. “We find that the demand for health cover is now shifting towards non-communicable diseases (NCDs) and critical illnesses,” Sanjay Datta, Head – Underwriting & Claims, ICICI Lombard General Insurance Company, told BusinessLine.

Third wave

Till recently, there was good demand for standard Covid-specific insurance policies, Corona Kavach and Corona Rakshak, to be offered by all insurers as mandated by the insurance regulator. In the wake of concerns over possible third wave of the pandemic, the insurance regulator has extended the validity of the Covid-specific policies till March 31, 2022, from the previously notified deadline of September 2021.

However, the steady dip in new Covid cases and a notion that a third wave is unlikely are spurring people to think of buying cover for NCDs, critical illnesses and co-morbidities instead of Covid-related insurance.

“The demand levels for health insurance for non-Covid ailments has now reached pre-Covid levels and, in some cases, it has even exceeded previous levels,” said Datta. The pandemic and the turmoil it caused had actually increased awareness about the need for health cover as a main tool of social security, he added.

According to Sapna Desai, Head Marketing and Online sales, ManipalCigna Health Insurance, many people today are buying health insurance policies that provide value-based high sum insured to tackle the problem of medical inflation.

“The focus is on policies that give them no-compromise comprehensive cover at the best healthcare facilities, both in India and abroad, at a very affordable premium,” she added.

Going forward, the industry expects to see a fast-growing trend of innovatively designed feature-rich products, with lots of in-built benefits and optional packages that can be customised to secure not only the current healthcare needs but also the ones that may arise at different stages of one’s lifetime, she added.

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RBI imposed a monetary penalty of ₹1 crore on Paytm Payments

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The RBI has imposed a monetary penalty of ₹1 crore on Paytm Payments Bank (PPBL) and ₹27.78 lakh on Western Union Financial Services Inc (WUFSI).

RBI said the monetary penalty on PPBL has been imposed for an offence under the Payment and Settlement Systems Act, 2007 (PSS Act).

Non-compliance

The penalty on WUFSI, a money transfer service – cross-border in-bound service (customer-to-customer only) operator – has been imposed for non-compliance with certain provisions of RBI’s directions contained in its Master Direction on Money Transfer Service Scheme (MTSS Directions), according to a central bank statement.

Referring to an examination of PPBL’s application for issue of final Certificate of Authorisation (CoA), the RBI said it was observed that PPBL had submitted information which did not reflect the factual position.

The central bank observed that: “As this was an offence of the nature referred to in Section 26 (2) of the PSS Act, a notice was issued to PPBL.

“After reviewing the written responses and oral submissions made during the personal hearing, the RBI determined that the aforementioned charge was substantiated and warranted the imposition of a monetary penalty.”

In the case of WUFSI, RBI noted that it had reported instances of breach of the ceiling of 30 remittances per beneficiary during the calendar years 2019 and 2020, and filed an application for compounding of the violation.

The central bank determined that the aforementioned non-compliance warranted the imposition of a monetary penalty after analysing the compounding application, and oral submissions made during the personal hearing.

The RBI said its action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by PPBL and WUFSI with their customers.

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BNP Paribas keen to become ‘go to’ bank for India Inc’s overseas buys

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BNP Paribas,which operates in over 70 countries, sees itself emerging as the “go to” investment bank for Indian corporates looking to expand their global footprint through the mergers & acquisitions (M&A) route, Aymar de Liedekerke Beaufort, Head of Territory, India, has said.

“We do see several Indian corporates emerging as champions (at the global stage). We want to work with the top 100 Indian corporates and believe many of these will have specific acquisitions to do in Europe and this is where they may need a bank like us,” Beaufort told BusinessLine in an interview.

Beaufort, who is also the chief of Corporate and Institutional Banking in India, highlighted that Indian corporates have begun to acquire companies abroad for specific needs such as technology and BNP Paribas with its huge global network and one client approach can add value to those corporates looking for specific growth opportunities.

“It’s always good for a CFO to be able to talk to a banker in Delhi, Mumbai and Chennai and deal with the same bank in Argentina, Korea and Vietnam. We as biggest Euroland investment bank bring network benefits for our clients and for us it is one client approach wherever you go in any part of the world,” he said.

There are good chances where BNP Paribas will know both the buyer ( in India) and seller (in Europe) and this is the trend that is likely to play out in coming days, Beaufort added.

He highlighted that Indian corporates in the IT and pharma sectors are already active on overseas acquisitions in recent days.

“We are positioning ourselves as top leader for banking needs of Indian corporates. We bring an angle that others cannot bring by being the best and biggest market cap in Europe,” he said.

New economy

Beaufort said that BNP Paribas India also wants to move from old economy to new economy and get closer to the champions of the new economy. “That is our vision of next ten years. We want to be closer with those companies that are potentially not part of the top hundred today but will become top hundred in next five years. We need to be agile to look at Indian digital businesses and capture them as they grow”, he said.

Asked if he sees investment bank or corporate banking (BNP Paribas is not into retail banking in India) as growth driver for BNP Paribas India in coming days, he said, “Going forward, I do see both growing, but very difficult to say if both will grow at the same speed. I believe our Investment Banking pie will grow quicker. I do expect more commoditisation of corporate banking as it gets digitised.”

Also, BNP Paribas —just as it wants to be seen as the window to Europe for Indian corporates — is keen that its European corporate clients see it as the window for their journey outside of Europe.

Beaufort, who has been with BNP Paribas for more than 30 years, also oversees as part of his responsibilities the bank’s back-office operations and retail brokerage arm Sharekhan.

Investment destination

He also said that India is even more attractive today as an investment destination than before. This is because other destinations may become more challenging and prospects for India is getting better and better.

“India is in competition with the rest of the world. India has lot to offer by sheer size. Just as corporates focus on client centricity, India should focus on investors to convey that they are welcome and their coming in is seen as positive. Nobody will have wrong perception that India is looking to push their local champions. It’s normal and every country does it, but you have to do it in a fair and transparent way so that foreigners don’t feel they have no space for them,” he said.

Asked if BNP Paribas will look to enter retail banking in India, he replied in the negative. “We don’t expect to be competing on solutions where local banks will be much better than us,” he added.

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