Tag: aum

Should you go for Shriram Transport FDs that offer up to 7.5% interest?

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Shriram Transport Finance Company (STFC) revised the interest rates on its fixed deposits last month. The company now offers 6.5 per cent and 6.75 per cent per annum, respectively on its one-year and two-year deposits. Three-year deposits can fetch you 7.5 per cent interest per annum. Senior citizens get an additional 0.3 per cent over these rates. Besides, the company offers an additional 0.25 per cent on all renewals.

At the current juncture, the STFC FD rates seem better than those offered by most banks and other similar-rated NBFCs. Though the company has never defaulted on its deposits, its current financials indicate some near-to-medium term stress in operations. Hence, investors with a high-risk appetite who seek additional returns, can invest in this FD. Do note, that unlike FDs offered by banks, those by NBFCs are not covered by the DICGC’s ₹5 lakh cover.

Investors can choose from monthly, quarterly, half yearly or annual interest payout options or the cumulative option where interest gets compounded and is paid at the time of maturity.

The minimum deposit amount is ₹5,000 and in multiples of ₹1,000 thereafter.

Investors who opt for the online route can choose from additional tenure deposits such as 15-month and 30-month deposits. The company offers 6.75 per cent and 7.5 per cent, respectively on such tenures, same as that offered on its two and three year deposits, respectively.

How they fare

As interest rates have bottomed out, rates are likely to inch up in the next two or three years. Hence, at the current juncture, it will be wise to lock into deposits with a tenure of one or two years only.

Currently banks (including most small finance banks) offer rates of up to 6.35 per cent per annum for one-year deposits and up to 6.5 per cent for two-year deposits. Suryoday Small Finance Bank however, offers 6.5 per cent on its one-to-two year deposits (both inclusive). While the rates offered by STFC are at par with those of Suryoday on the one-year FD, the former offers superior rates on deposits of other tenures. The rates on STFC’s deposits are also superior to those offered by similar-rated NBFCs.

The company’s FDs are rated FAAA(Stable) by CRISIL and MAA+ (Stable) by ICRA. Other AAA-rated NBFCs offer interest rates in the range of 5.25 to 5.7 per cent on their one-year deposits and up to 6.2 per cent on their two-year deposits.

About STFC

The company has a 42-year old track record of providing finance for commercial vehicles, predominantly in the high-yielding pre-owned HCV segment.

As of June 2021, its assets under management (AUM) totalled ₹ 1.19 lakh crore (up 6.75 per cent y-o-y ). About 90 per cent of the AUM was towards pre-owned vehicle loans and the rest was towards new vehicle loans (6 per cent), business loans (1.6 per cent), working capital loans (1.9 per cent) and other loans (0.1 per cent).

STFC has a strong branch network of 1,821 branch offices and 809 rural centres covering all states.

Given its heavy reliance on fleet and transport operators (HCV and construction equipment comprise about 48 per cent of its AUM and medium and light commercial vehicles constitute another 25.3 per cent), the company saw deterioration in asset quality in the recent quarter on account of lockdowns. In the June 2021 quarter, its gross Stage-3 assets worsened to 8.18 per cent from 7.06 per cent in the March 2021 quarter.

Even gross Stage-2 assets, which may slip to Stage-3 in the coming quarters, spiked to 14.53 per cent of the AUM compared to 11.9 per cent in the March quarter.

However, the company has a decent provision coverage ratio of 44 per cent and about 10 per cent for Stage 3 and Stage- 2 assets, respectively. Its is due to the spike in provisioning (up 35 per cent y-o-y) that the company saw a 47 per cent (y-o-y) drop in its net profit to ₹170 crore in the June 2021 quarter.

Besides, its proven past track record, strong capital and liquidity position offer additional comfort.

The company’s Capital to Risk Weighted Assets Ratio (CRAR) stood at 23.27 per cent in the June 2021 quarter and it has a positive asset liability mismatch in all buckets—ranging from one month to 5 years.

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MSME lending: U GRO Capital aims ₹20,000 crore AUM by 2025

Banking & Finance

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U GRO Capital, a digital first NBFC focused on MSME lending, aims to achieve assets under management (AUM) of ₹20,000 crore by 2025, its Chairman and Managing Director, Shachindra Nath, said.

This NBFC, already listed in the BSE, was added to the National Stock Exchange on Wednesday.

“The second wave of Covid-19 did impact us. However, we will still more than double our AUM this fiscal going by our current rate. Our aspiration is to take about 1 per cent market share of outstanding MSME credits in India by opening around 270 branches in the next few years,” Nath told BusinessLine.

The company had achieved an AUM of ₹1,561 crore as of July end this year, against ₹1,375 crore as of June 30, 2021 and ₹847 crore as of June 30 last year. U GRO Capital currently has 34 branches, and it aims to hit 100 by the end of FY’2021-22.

Cumulative disbursement has crossed ₹3,000 crore and monthly disbursal crossed ₹250 crore in July 2021.

Also see: Public sector banks report sharp slippages in MSME loans in Q1

U GRO Capital was instituted in the year 2017 by Shachindra Nath, with the buyout of Chokhani Securities Limited. This was followed by its recapitalisation and rebranding with a tech enabled business lending model. This company has raised about ₹920 crore of capital from a diversified set of institutional investors like private equity funds and family offices.

Partnership with SBI

Nath added that U GRO Capital will soon go live with its co-lending partnership with State Bank of India. “We are already live with our co-lending partnership with Bank of Baroda. We will soon go live with SBI and may also enter into a co-lending agreement with one more public sector bank this fiscal,” he said.

For the first quarter ended June 30, U GRO Capital recorded a profit after tax of ₹1.75 crore on a total income of ₹51.3 crore. The company had recorded a PAT of ₹1.55 crore on a total income of ₹48.7 crore in the previous quarter (Jan-March 2021). On a year-on-year basis, the company recorded a net profit of ₹3.73 crore on a total income of ₹30.78 crore in same quarter last fiscal.

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Yes Bank to float asset reconstruction company, invites bids from investors, BFSI News, ET BFSI

Banking & Finance

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Yes Bank has proposed to set up an asset reconstruction company (ARC) and invited interest from prospective investors to be a part of the company as the lead investor. The prospective investor should have a strong financial capability and should have substantial experience in the distressed asset space, Ernst & Young (EY) said in an expression of interest (EOI) floated on behalf of Yes Bank.

“The prospective investor would be the lead partner/sponsor of the ARC, with the bank as the other significant partner/sponsor, for conducting the business of asset reconstruction,” as per the EOI.

EY is the process advisor to Yes Bank for floating the ARC.

The bank said the interested investor(s) or their sponsors should have a minimum asset under management (AUM) and fund deployed, globally, of at least USD 5 billion (over Rs 37,186 crore) in the immediately preceding completed financial year.

The interested investors can submit their EOIs by 5 pm on August 31, 2021, by sending an email to projectmodak@in.ey.com.

Foreign institutional investors, foreign portfolio investors, private equity, venture capital funds, FIIs, NBFCs, asset management companies, banks and ARCs can take part to be a lead sponsor of Yes Bank’s proposed asset reconstruction company.



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YES Bank scouts for investors to set up ARC

Banking & Finance

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Private sector lender YES Bank is moving ahead with plans to set up its own asset reconstruction company (ARC). It has floated an expression of interest (EoI) for potential investors to partner with it in the venture.

“The prospective investor will be the lead partner or sponsor of the ARC, with the bank as the other significant partner/sponsor, for conducting the business of asset reconstruction…,” YES Bank said in a newspaper advertisement.

According to the advertisement, the prospective investor or their sponsors should have minimum assets under management of $5 billion in the immediately preceding completed financial year.

It should also have demonstrated ability to commit funds for investment or deployment in Indian companies or Indian assets of about $0.5 billion.

Also Read: YES Bank, Indiabulls Housing Finance sign co-lending agreement

The potential investor should also have demonstrated global experience of dealing in stressed asset space and established track record of turn around and resolution of distressed assets and non performing loans in the part.

The proposed investor should also meet the “fit and proper” criteria of the Reserve Bank of India.

It has given time till August 31 to potential investors to submit EoIs.

Ernst and Young is the process advisor to YES Bank.

In a previous interview to BusinessLine, Prashant Kumar, Managing Director and CEO, YES Bank had said that the lender had applied to the RBI for setting up an ARC with a controlling stake.

“The RBI is not comfortable with giving a controlling stake to a bank as it would be a moral hazard. Since they have set up a committee to look at the ARC framework, we will wait for the report and then approach the RBI based on the proposal,” he had said in the interview in May this year.

For the quarter ended June 30, 2021, YES Bank reported a 355 per cent jump in its net profit to ₹206.84 crore. Gross NPAs were at 15.6 per cent of gross advances as on June 30, 2021 from 17.3 per cent a year ago.

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PFRDA throws FDI door wide open for Pension Funds

Banking & Finance

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The legal decks have now been cleared for foreign companies to hold — directly or indirectly — up to 74 per cent stake in pension funds with the pension regulator PFRDA notifying the new revised limit. Foreign investment limit in pension funds was earlier capped at 49 per cent.

The Pension Fund Regulatory and Development Authority (PFRDA) has for this purpose amended the Pension Fund regulations. This latest move comes on the heels of the pension regulator opening from June 30 an “on tap” window for grant of licences for pension fund managers. Such a window allows applicants to seek licence at any time, thereby quickening the entire process on setting up business.

In India, pension funds would have to necessarily operate as corporate entities.

With the latest move, the FDI limit in pension funds are aligned with that of insurance sector. In March this year, Parliament had given its approval for raising FDI limit in insurance sector to 74 per cent from 49 per cent. Finance Minister Nirmala Sitharaman had, in her Budget speech this year, announced an increase in FDI limit in insurance sector to 74 per cent from 49 per cent earlier.

It maybe recalled that the PFRDA Act links the FDI ceiling for the pension sector to the ceiling level prescribed for the insurance sector.

Prior to the latest PFRDA move, the regulations stipulated in the eligibility criteria mentioned that an applicant, for being a sponsor of a pension fund, cannot hold more than 49 per cent stake in the pension fund.

The FDI limit hike in pension funds comes at a time when India’s pension assets under management (AUM) are growing at a frenetic pace and touched ₹6.2-lakh crore, as of July 10 this year.

PFRDA Chairman Supratim Bandyopadhyay had in May this year said that PFRDA was now looking at an AUM target of ₹7.5-lakh crore by the end of March 2022.

In the last two years, PFRDA has been taking several steps to enhance the number of players in the pension sector. It had revamped the fee structure for pension fund managers and revised the capital requirement criteria for sponsors so that both of them are strong enough to ride the current growth wave in the pension sector.

A sponsor — individually or jointly — should now have atleast ₹25 crore in paid-up capital on the date of making application as a sponsor and positive tangible net worth of atleast ₹50 crore on the last date of each of the preceding five financial years.

There are now eight Pension Fund managers for the National Pension System in the country — SBI Pension Fund, LIC Pension Fund, UTI Retirement Solutions, HDFC Pension Management, ICICI Prudential Pension Fund, Kotak Mahindra Pension Fund Aditya Birla Sun Life Pension Management and Axis asset management (the most recent entrant and whose pension fund is yet to be operationalised).

PFRDA expects India’s pension sector assets to grow to ₹30 lakh crore by 2030 and this could be a good reason why more foreign pension fund management players could look “more seriously” at entering India in next few years, say pension industry observers. Also the fact that foreign companies can now have controlling interest in the pension funds in India will encourage them to enter this market, they added.

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Icra survey, BFSI News, ET BFSI

Personal Finance

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Around 42 per cent of non-banking financial companies (NBFCs) expect a growth of more than 15 per cent in their asset under management (AUM) in fiscal 2021-22, says an Icra Ratings survey. The findings are based on a survey of 65 non-banks, constituting around 60 per cent of the industry AUM.

The agency conducted the survey to understand the impact of the second wave of COVID-19 on these entities and their expectations going forward.

It said NBFCs growth expectations have moderated vis-a-vis the expectations six months earlier. This follows the possible impact of Covid 2.0 on business in Q1 FY2022.

“While 42 per cent of the issuers (NBFCs by number) are expecting a more than 15 per cent growth in AUM in FY2022, the proportion based on AUM weights is much lower at 8 per cent, indicating that larger players in the segment expect a relatively moderate growth in FY2022,” the agency’s Vice President (Financial Sector Ratings) Manushree Saggar said.

With most of the lenders (74 per cent in AUM terms) indicating an up to 10 per cent AUM growth, the agency expects the growth for the overall industry to be about 7-9 per cent for FY2022.

Within the non-bank finance sector, segments like MFIs, SME-focussed NBFCs and affordable housing finance would continue to record much higher growth than the overall industry averages, supported by good demand and lower base, she said.

The survey said with gradual easing of lockdowns and moderation in fresh cases of Covid and with increased vaccination coverage, the lenders are optimistic on growth pick-up in balance part of FY2022 and expect it to be higher than the growth seen in FY2021.

However, the non-bank finance companies are expecting the asset quality related pain to persist in the current fiscal as well, it showed.

“Overall, 87 per cent of issuers (by AUM) expect reported gross stage 3/ NPAs to be either same or higher than March 2021 levels, which in turn will keep the credit costs elevated,” it said.

Over 90 per cent of lenders (by AUM) expects the credit costs to remain stable or increase further over FY2021 levels.

On the restructuring front, while lenders are expecting marginally higher numbers as compared to the last fiscal, the overall numbers are expected to be low, the agency said.

Saggar said with no blanket moratorium and reflecting the stress on the cash flows of the underlying borrowers, mid-sized lenders (AUM between Rs 5,000-Rs 20,000 crore) are expecting a higher share of restructuring under Restructuring 2.0.

“Overall, the restructured book of non-bank finance entities is expected to double to 3.1-3.3 per cent in March 2022 from 1.6 per cent in March 2021,” Saggar added.

The agency said a significantly higher number of issuers (56 per cent) are expecting to raise capital in FY2022 as compared to the earlier survey, wherein only 28 per cent of the issuers were expected capital raise in FY2022.

It expects the pre-tax profitability for non-bank finance companies in FY2022 would remain similar to the last fiscal which was around 30 per cent lower than the pre-Covid levels.



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AU Small Finance Bank surges 9% after Q1 update, BFSI News, ET BFSI

Banking & Finance

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New Delhi: Shares of AU Small Finance Bank soared 9 per cent in early trade on Tuesday following the June 2021 quarter update by the lender.

The numbers gave a relief to the investors who were expecting a worse impact of the Second Covid Wave on the small finance lenders. The restrictions on mobility and business during the second wave were less stringent than those during the nationwide lockdown.

The gross advances showed a growth of 31 per cent on year-on-year basis (YoY) to Rs 34,688 crore in the quarter ended on June 30, 2021 from Rs 26,534 crore in the June 2020 quarter. The loans in the March 2021 quarter were Rs 35,356 crore.

Shares of AU Small Finance Bank soared 9 per cent to Rs 1,126 on Tuesday at the time of writing this report. BSE Sensex was trading at 52,960.83, up by 83.83 points or 0.15 per cent higher at the same time.

Disbursements in Q1FY22 were at Rs1,896 crore (including Rs 302 crore of ECLGS disbursements) compared to disbursement of Rs 1,181 crore (including Rs 23 crore of ECLGS disbursements) in Q1FY21.

Total Deposits in the bank were Rs 37,014 crore, as of June 30, 2021, 38 per cent higher than the deposits at Rs 26,734 crore on June 30, previous year. The deposits inched up 3 per cent on quarter-on-quarter basis (QoQ).

The small finance bank has delivered over 32 per cent in the year 2021 so far. The counter has soared over 90 per cent in the last one year.

The CASA Ratio stood at 26 per cent in the June 2021 quarter, compared to Rs 14 per cent in the quarter a year ago. Average cost of funds decreased to 6.3 per cent to 7.2 per cent during the period under review.

The global brokerage firm Morgan Stanley is bullish on AU Small Finance Bank. It has maintained an ‘overweight’ stance on the lender with a target price of Rs 1,150. “The AUM growth for the lender is stable on a YoY basis and down 3 per cent QoQ.” it added.



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CoinShares, BFSI News, ET BFSI

Personal Finance

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NEW YORK – Ether investment products and funds posted record outflows in the last week of June, bearing the brunt of negative sentiment on cryptocurrencies, according to data on Monday from digital asset manager CoinShares.

Institutional investors took out $50 million from investment products and funds on ether, the token used for the Ethereum blockchain. Ether suffered outflows for a fourth consecutive week, data showed.

For the month of June, ether has lost roughly 22% of its value against the dollar. On Monday, however, ether was up 5.4% at $2,091.96.

Bitcoin products and funds, meanwhile, suffered a seventh straight week of outflows, totaling $1.3 million. For the year, bitcoin outflows hit about $490 million.

The world’s largest cryptocurrency was down 8.4% against the dollar so far in June. Since an all-time high of just under $65,000 hit in mid-April, bitcoin has plunged nearly 46%.

“We expect bitcoin consolidation to continue for the next few weeks until a decisive move takes place,” said Pankaj Balani, chief executive officer at crypto derivatives exchange Delta Exchange.

“If the global macro environment deteriorates on account of the decreasing pace of global liquidity, it’s expected that bitcoin may break the crucial level of $30,000 and challenge the highs of the previous cycle at $20,00. Until then, bitcoin is likely to be in this range and can set up a classic bull trap above $42,000.”

Overall, crypto investment products saw a fourth consecutive week of outflows, totaling $44 million. Since mid-May, as negative sentiment spread, net weekly outflows have hit $313 million, or 0.8% of total assets under management.

Sentiment on cryptocurrencies has been crushed amid a crackdown on the sector by China, which banned bitcoin mining activities.

In addition, British and Japanese regulators have independently issued warnings against Binance, one of the world’s largest cryptocurrency exchanges. Britain’s financial regulator over the weekend said Binance cannot conduct any regulated activity and issued a warning to consumers about the platform.

Japan also issued a similar warning to Binance stating that it has been providing crypto exchange services to Japanese customers without registration.

Crypto assets under management also declined in the latest week to about $38 billion. At the end of April, that AUM was at $65 billion.



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Indostar Capital to reduce corporate loan book to less than 10% of AUM

Banking & Finance

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Indostar Capital Finance Ltd is planning to reduce its corporate loan book to less than 10 per cent of Assets Under Management (AUM) by March 2022 from 22 per cent as at March-end 2021.

As part of its plan to build a 100 per cent retail company, the non-banking finance company (NBFC) increased the share of retail finance (commercial vehicle/CV finance, SME finance and housing finance) in AUM to 78 per cent as at March-end 2021 against 71 per cent as at March-end 2020.

Total AUM came down about 13 per cent year-on-year (yoy) to stand at ₹8,398 crore as at March-end 2021 from ₹9,690 crore as at March-end 2020, as per the NBFC’s investor presentation.

Also read: IndoStar Capital Finance plans to focus exclusively on retail lending

Of the disbursement of ₹863.50 crore in Q4FY21 (up 18 per cent yoy), 98 per cent was to the retail segment and only 2 per cent was to the corporate segment, it added.

In its outlook for FY22, Indostar Capital,whose promoter and promoter group include BCP V Multiple Holdings Pte Ltd (52.06 per cent stake) and Indostar Capital (38.47 per cent), said it has substantial growth capital to pursue calibrated growth. It will focus on high yield used CV & affordable housing.

“Brought Brookfield (BCP V Multiple Holdings Pte. Ltd) as partner with ₹1,225 crore primary capital (in May 2020) and strengthened capital adequacy and liquidity. Robust equity, comfortable liquidity…form the foundation for future growth ahead,” the presentation said.

Meanwhile, the standalone net loss of Indostar Capital Finance narrowed to ₹312 crore in the fourth quarter of FY21 against ₹420 crore in the year ago period.

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ARCs bank on retail loans in pandemic shift and bad bank competition, BFSI News, ET BFSI

Banking & Finance

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As the bad bank is set to take away the big chunk of their business, asset reconstruction companies (ARCs) are thinking smaller to grow big.

ARCs have been banking on retail loans to drive business in the pandemic-hit FY21 and see the share of retail loans reaching 50% of the pie.

The ARCs are also hit by the RBI-mandated loan restructuring and moratoriums, which had led to a drop in bad loans among corporates,

The Rs 1.5-lakh-crore asset reconstruction market comprises over a dozen players. The upcoming national bad bank will add to the competition in the market and lead to distortion due to government guarantees.

The pandemic-hit FY21 saw tepid overall growth for ARCs, but retail loan portfolio grew faster adding at least 25 per cent more to the assets under management (AUM).

Retail growth

Lenders like HDFC Bank, Indusind Bank, IDBI Bank, Federal Bank and non-banks like Bajaj Finance among others have been aggressively selling their stressed retail books — auto, home and personal loans as well credit cards dues to ARCs like Edelweiss, Phoenix ARC run by Kotak Mahindra Bank, JM Financial and Reliance ARC among others since the past few years.

While Reliance ARC snaps up only retail loans, Phoenix ARC has 20 per cent of its Rs 8,500-crore total book/AUM as retail loans.

Edelweiss ARC, which has AUM of Rs 40,8000 crore, and has made a recovery of Rs 5,400 crore in FY21 from 179 accounts. The company expects about around 50 per cent of overall ARC assets coming in from retail loans in the next two years from the 10% now. On industry level, the share of retail in ARCs is around 20%.

Why retail loans?

In the past two years retail loans are rising, while corporate NPAs are coming down due to the moratorium and restructuring allowed by the Reserve Bank, which has led to a rise in interest in retail loans.

Retail loans give higher margins and better recovery rates despite the high costs.

ARCs which focus on retail portfolio may be better placed to cushion the impact of the national bad bank on their business, as the proposed national ARC will primarily be dealing with large chunky loans of Rs 500 crore and above and that too mostly from public sector banks which have the highest bad loans piles. So to secure their business, it makes better sense for ARCs to focus on retail loans as it offers better margins and faster resolution too, he adds.

However, the retail book may not grow too big for too long as once the pandemic situation normalises and large corporate books may come up for sale.

The national bad bank will leave the field uneven for private players like us due to the proposal of government guarantee.



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