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Gold loan business shines as economic stress grows amid pandemic, BFSI News, ET BFSI

August 17, 2021 root Personal Finance

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If you have noticed retail shops and restaurants closing down in your locality and brightly lit jeweller’s shop opening in its place off late, there is a business booming in the middle of the pandemic.

While it is not about people flocking to buy gold, but pawning and selling gold in the time of widespread economic distress brought about by Covid.

It’s not just the local jewellers that are expanding, but the organised ones are on growth mode too.

What gives?

RBI data showed that at the end of FY21, the total value of gold loans outstanding was nearly Rs 60,500 crore — up 82% on the year.

Loan demand has picked up from the beginning of July as Covid-19 cases are declining and economic activities are on the upswing with many states easing restrictions. Gold loan non-banking finance companies (NBFCs) said customer walk-ins have increased during the month.

The average ticket size of loans that customers are opting for is Rs 55,000-60,000, which are rising for many lenders, showing growing signs of distress.

Gold loan NBFCs are seeing more competition in the gold loan business in the current financial year as the special allowance given by the Reserve Bank of India to banks to take an LTV (loan-to-value) exposure against gold loan was valid till March 31, 2021. Banks had witnessed a significant growth in gold loan business due to this special allowance. On the contrary, gold loan NBFCs are allowed an LTV exposure of 75%.

Gold auctions

Mannapuram Finance auctioned Rs 404 crore in the fourth quarter, which shot up to Rs 1,500 crore in the June quarter. The auctions happen when borrowers are unable to redeem their gold and the lenders auction it to recover their loans. Mannapuram had auctioned just Rs 8 crore worth of the yellow metal in the first three quarters of FY21.

Manappuram Finance sees business picking up in the second quarter of the fiscal with the gradual unlocking of the economy. It sees a slight decline in the portfolio in the first quarter before the pick-up.

The expansion

Muthoot FinCorp has expanded its physical network by more than 100 new branches, mainly in the north, east and west regions of India, most of which were in rural and semi-urban areas. The NBFC had opened 70 branches in FY20.

Muthoot’s gold asset under management (AUM) grew at a compound annual growth rate of 12% between FY15 and FY20. In FY21, the portfolio grew 27%.

Pune-based Bajaj Finance has increased its gold loan branches from 480 to 700 in the last financial year and plans to add 100 plus branches this fiscal.

Its loan book grew 52% last year to Rs 2,300 crore while it saw an increase in ticket sizes from Rs 75,000 to Rs 85,000 last year.

Bengaluru-based Rupeek Fintech Private Ltd’s disbursals grew 2.5 times during the calendar year 2020. It has added its presence in 17 more cities, from 10 at the end of 2019.

Shriram City Union Finance is also looking to ramp up its gold financing business this financial year, changing its strategy of focusing on other loan portfolios.

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Will RBI take away the punch bowl from IPO financing party?, BFSI News, ET BFSI

August 6, 2021 root Banking & Finance

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Ever thought why the initial public offerings of many companies receive bids that are over 100 times the offer. Apart from the investor appetite and retail frenzy the biggest factor in work is margin financing of IPOs by banks and NBFCs.

July saw several records being broken in the IPO market as a whopping Rs 8.86 lakh crore were bid for IPOs of Rs 18,400 crore on offer. About 98% of the money came from margin financing. Zomato, with an IPO size of Rs 9,375 crore, got bids for Rs 3.58-lakh crore, a subscription of nearly 39 times.

How does it work?

Unlike for retail investors, there is no limit on HNIs and institutions bids in an IPO. HNIs have to put only Rs 1 crore of their own for a bid worth Rs 100 crore while the NBFC funds the remaining 99 per cent. With the lenders charging 10-15%, the cost is just Rs 20 lakh towards interest for Rs 100 crore bid for 3-5 days. With all IPOs listing above the issue price, the leveraged investor can exit on the opening day. With a spectacular listing like the Zomato that gave 63% returns, more players are attracted to the market. The risk of the IPO collapsing in the initial days is virtually absent due to the heavy bidding and grey market premium.

With 15 per cent of an IPO reserved for HNIs and 50 per cent for institutions, their allotment is often enough to cover their interest cost as their bids are extremely high. Self-funding and other sources of borrowing would further increase the size of the IPO financing market.

The fund raise

Bajaj Finance had raised Rs 27,200 crore since June 10, while Infna Finance, Aditya Birla Finance and Tata Capital have collected Rs 13,225 crore, Rs 11,380

crore and Rs 9,625 crore, respectively. Two JM Financial firms have together raised Rs 16,300 crore, while IIFL Facilities Services and IIFL Finance have garnered about Rs 11,600 crore, according to reports. Most non-bank lenders raised funds by issuing commercial papers in the primary market. These papers have tenures of seven to 10 days and yield to maturity between 3.7% and 5.8%.

The risk

Financiers insist the risk is limited since there is a margin for the lender in terms of shares. Normally, higher the funding cost, lower the chances of making money on the IPO after all costs are factored in. Investors need to pay interest on the entire amount borrowed and not on the amount actually allotted. That is why higher oversubscription works against borrowers as they have to have more interest on idle funds.

RBI proposal

The euphoria due to excess funding is leading to artificial demand and distorting IPO prices in the short term. While the funded investors exit on listing, serious investors get low allotments.

In January this year, the Reserve Bank of India had proposed to cap IPO financing by NBFCs to up to Rs 1 crore per person, a move which may lead to a sharp drop in bidding by high net worth individuals (HNIs) and a drastic reduction in subscriptions of offers.

Banks have a Rs 10-lakh limit on IPO financing and there is no such cap for NBFCs. “IPO financing by NBFCs has come under close scrutiny, more for their abuse of the system,” the RBI said in a discussion paper. “Taking into account the unique business model of NBFCs, it is proposed to fix a ceiling of Rs 1 crore per individual for any NBFC,” the RBI said. Market players said that RBI’s proposed rule would surely bring a break to highly subscribed IPOs.

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Bajaj Finance net rises 4%, bad loans jump, BFSI News, ET BFSI

July 21, 2021 root Personal Finance

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The company’s assets under management grew 12 per cent to Rs 1.19 lakh crore as of June 30.

Mumbai: Bajaj Finance on Tuesday reported a consolidated net profit of Rs 1,002 crore for the quarter ended June 2021, a 4.2% increase over Rs 962 crore in the year-ago period.

The company said that the board of directors in their meeting also approved the appointment of Pramit Jhaveri, who headed Citibank India for nearly a decade, as an independent director on its board.

While the company’s assets under management (AUM) increased by 15% to Rs 1.6 lakh crore as of June 30, bad loans or gross non-performing assets (NPAs) rose faster to 2.96% of gross advances, from 1.4% a year ago. Shares of the company closed 1.2% lower at Rs 5,937.

“Since Q1 has been a large miss on expectations and provisioning buffer has declined, incremental bounce, collections and roll-back trends would be key monitorables. The management’s credit cost and growth guidance for the rest of the year is primarily anchored on these metrics staying healthy,” said Rajiv Mehta, analyst at Yes Securities.

“The deterioration in asset quality is not surprising given it was a Covid quarter without any regulatory moratorium and that the management had alluded to higher forward flows across overdue buckets due to collection constraints,” said Mehta.

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Bajaj Finance net rises 4% to ₹1,002 crore in Q1

July 20, 2021 root Banking & Finance

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Bajaj Finance reported a four per cent increase in its consolidated net profit for the first quarter of the fiscal at ₹1,002 crore from ₹962 crore a year ago.

For the quarter ended June 30, 2021, its net interest income grew eight per cent to ₹4,489 crore against ₹4,152 crore in the first quarter of last fiscal.

“Interest income reversal for the quarter was ₹451 crore in the first quarter of the fiscal compared to ₹306 crore a year ago,” Bajaj Finance said in a statement on Tuesday.

Loan losses and provisions for the quarter was ₹1,750 crore against ₹1,686 crore a year ago.

“During the quarter, the company has done accelerated write-offs of about ₹113 crore of principal outstanding on account of Covid-19 related stress. The company holds a management overlay and macro provision of ₹483 crore as of June 30, 2021,” Bajaj Finance said.

Gross non-performing assets and net NPA as of June 30, 2021 stood at 2.96 per cent and 1.46 per cent respectively, as against 1.4 per cent and 0.5 per cent as of June 30, 2020.

It booked new loans amounting to ₹46.3 lakh in the first quarter of this fiscal as against ₹17.5 lakh a year ago.

The company acquired 18.8 lakh new customers in the first quarter this fiscal compared to 5.3 lakh in the first quarter of last fiscal.

The board of directors of Bajaj Finance also approved the appointment of Pramit Jhaveri, as an additional and independent director for a five-year period effective August 1, 2021, subject to approval of shareholders.

Jhaveri is Advisor, Premji Invest and Senior Advisor, PJT Partners. He was previously Chief Executive Officer of Citibank Indiafrom 2010 to 2019.

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