Tag: bank of india

Banks want debt recast scheme back as Covid wave intensifies, BFSI News, ET BFSI

Banking & Finance

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Banks have sought an extension of one-time debt recast scheme as the curbs after fresh Covid wave are likely to increase defaults and affect asset quality.

The bank chiefs have petitioned RBI to extend the scheme introduced last year in a meeting with the governor earlier this week, according to reports.

No relief measures

Banks, which got protection and support by a swift moratorium on loans when the pandemic first struck, have no such cover this time.

As the second wave intensifies, most of the relief measures and schemes announced by the government and Reserve Bank of India have expired. On top of it, the central bank is non-committal on moratoriums.

In today’s conditions, there is no need for a moratoriumRBI governor Shaktikanta Das

Also, a spike in overdue loans after the lifting of the moratorium has been worrying analysts.

“The level of loans in overdue categories has increased after the moratorium has been lifted and the impact on asset quality will be spread over FY2021 and FY2022 as various interventions and relief measures have prevented a large one-time hit on profitability and capital of banks,” ratings agency Icra said in a report.

What Fitch says

Banks want debt recast scheme back as Covid wave intensifies

India’s second wave of Covid infections poses increased risks for India’s fragile economic recovery and its banks, says Fitch Ratings. It already expects a moderately worse environment for the Indian banking sector in 2021, but headwinds would intensify should rising infections and follow-up measures to contain the virus further affect business and economic activity.

Fitch forecasts India’s real GDP growth at 12.8% for the financial year ending March 2022 (FY22). This incorporates expectations of a slowdown in 2Q21 due to the flareup in new coronavirus cases but the rising pace of infections poses renewed risks to the forecast. Over 80% of the new infections are in six prominent states, which combined account for roughly 45% of total banking sector loans. Any further disruption in economic activity in these states would pose a setback for fragile business sentiment, even though a stringent pan-India lockdown like the one in 2020 is unlikely.

Challenging environment

The operating environment for banks will most likely remain challenging against this backdrop. This second wave could dent the sluggish recovery in consumer and corporate confidence, and further suppress banks’ prospects for new business (9MFY21 credit growth: +4.5% as per Fitch’s estimate), it said. There are also asset quality concerns since banks’ financial results are yet to fully factor in the first wave’s impact and the stringent 2020 lockdown due to the forbearances in place. We consider the micro, small and medium enterprises (MSME) and retail loans to be most at risk, the rating agency said.

Retail loans have been performing better than our expectations but might see increased stress if renewed restrictions impinge further on individual incomes and savings. MSMEs, however, benefited from state-guaranteed refinancing schemes that prevented stressed exposures from souring.

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Banks are without a raft in Covid storm, BFSI News, ET BFSI

Banking & Finance

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Banks, which got protection and support by a swift moratorium on loans when the pandemic first struck, have no such cover this time.

As the second wave intensifies, most of the relief measures and schemes announced by the government and Reserve Bank of India have expired. On top of it, the central bank is non-committal on moratoriums.

“In today’s conditions, there is no need for a moratorium”RBI governor Shaktikanta Das

Also, a spike in overdue loans after the lifting of the moratorium has been worrying analysts.“The level of loans in overdue categories has increased after the moratorium has been lifted and the impact on asset quality will be spread over FY2021 and FY2022 as various interventions and relief measures have prevented a large one-time hit on profitability and capital of banks,” ratings agency Icra said in a report.

No standstill

Banks enjoyed a standstill on classifying loans as non-performing last fiscal and also accounted for interest accrued despite not receiving payments during the quarter. Both these leeways will no longer be available after the final SC order in March.

As a result, bank NPAs are likely to spike and they may have to reverse some interest earned on loan accounts above Rs 2 crore as the SC order has directed banks to charge simple and not compound interest on loans between March and August 2020.

It is estimated that banks could face a hit of between Rs 7,000 crore to Rs 10,000 crore due to the reversal of interest as it is unclear whether the government will reimburse this waiver – as it earlier did for small-ticket advances.

Analysts will watch out whether banks will provide for the write-back on compounded interest as directed by the ape court or adjust it through their Covid 19 provisions already accounted for.

Fourth quarter

The banking sector had got back to some sense of normalcy in the fourth quarter as collection efficiency came close to or at pre-Covid levels and loan growth recovered.

However, a resurgence in Covid cases, leading to localised lockdowns in various states will force banks to look out for risk mitigation.

There is a likelihood of delayed recovery in credit offtake after the Covid spike. Analysts expect the banking sector loan growth to recover to 6% to 7% in the fiscal ending March 2021 mainly due to a growth in retail loans in the second half of the year. Large lenders with a wider network are expected to clock in a higher year on year increase with a double-digit increase in credit growth.

While banks may not have any impact on margins as they have not cut deposit or MCLR based rate, higher liquidity on the balance sheet could decline. Treasury income may also drop on sequential basis as 10-year Gsec has risen by about 28 basis points during the quarter.

The silver lining

The only respite for banks is their gross non-performing assets may not jump as estimated by RBI’s fiscal stability report.

Icra sees the NPA ratio at 9.5-9.7% as of March-end, lower than RBI’s estimate of 12.5% for the same period.
The RBI’s Financial Stability Report (FSR) of December 2020 has stated that banks’ gross non-performing assets (GNPAs) may rise sharply to 13.5 per cent by September 2021, and escalate to 14.8 per cent, nearly double the 7.5 per cent in the same period of 2019-20, under the severe stress scenario.

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Can’t reveal info of customers, recall RTI order, banks tell SC, BFSI News, ET BFSI

Banking & Finance

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NEW DELHI: Nearly six years after the Supreme Court ruled that RBI had to reveal information about functioning of banks under the RTI Act, major banks, including SBI and HDFC, on Friday urged the court to recall its order as they cannot reveal confidential information of account holders who may sue them for putting such details in public domain.

The SC had in 2015 directed that RBI can’t refuse to reveal information under the transparency law on financial health of banks under the pretext of ‘fiduciary relations’ with financial institutions and had held that the regulator was supposed to “uphold public interest and not the interest of banks”. Another round of litigation was initiated after RBI didn’t comply with the SC order and the court issued contempt notice. The proceedings were wound up in 2019 with RBI being given the last opportunity to comply to disclose its Annual Financial Inspection report of banks.

With RBI asking the banks to provide information to be disclosed under the RTI Act, third round of litigations has started with all major banks filing fresh applications and petitions seeking quashing or recall of earlier direction. Banks such as SBI, PNB, HDFC, Bank of India, Bank of Baroda made a pitch for re-examining the issue. Solicitor General Tushar Mehta with advocates Harish Salve and Mukul Rohatgi contended before a bench of Justices L Nageswara Rao and Vineet Saran the banking industry could be affected and the SC order might be misused for corporate rivalry. They said only RBI was heard by the SC and the banks were not parties in the litigation.



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Pay scale for bank CGMs made almost equal to EDs, executives say its against natural justice, BFSI News, ET BFSI

Banking & Finance

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Pay hikes, especially steep ones, should make executives smile, but not so in the case of public sector banks. A recent government note allowing banks to raise pay scales for chief general managers by as much as 62% has not gone down well with a section of bank executives.

This makes their remuneration almost at par with that of executive directors. The new pay scale structure, several top bank executives say, is against principles of natural justice.

The new pay scale for bank CGMs has been fixed at Rs 166350-183950 from Rs 103,000-113900 and this would be effective retrospectively from the date when they assumed charge in their respective banks, the Department of Financial Services said in a letter to chief executives of nationalised banks. This is in line with CGM pay scale in State Bank of India, the DFS note said.

ET has reviewed the DFS letter, dated April 1, 2021.

Pay scale for executive directors has been Rs 176800-224000, which was last revised in December 2016.

Bank managing directors and EDs draw salary following the 7th national pay commission recommendation while CGMs’ salary hike followed the latest bipartite wage settlement like other bank employees.

However, as CGM positions in banks are created with board approval, the revision in their pay scale, allowances and other terms and conditions require government’s approval.

“At present the issue has created a lot of heat among top bank executives. Some more clarity is needed on the matter,” an executive director with a mid-sized bank said. “If the issue is not addressed, there may not be any incentive for people to apply for ED positions,” the person said. Several other senior executives with public sector banks corroborated his views.

“The anguish among bank executives is not surprising. Responsibility of an ED is much larger than a CGM and therefore, they should draw a much higher salary than CGMs,” a former bank chief executive said.

Banks were given the flexibility to create CGM level with separate pay structure in August 2019. Following this, Bank of Baroda, Canara Bank, Punjab National Bank and Union Bank of India created the position in March 2020. Bank of India created the position in October last year.

Some of the banks such as erstwhile United Bank of India had created CGM post earlier but there was no pay scale benefit attached to that.



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S Ramann appointed as chairman & managing director of SIDBI, BFSI News, ET BFSI

Banking & Finance

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New Delhi: The government has appointed S Ramann as Chairman and Managing Director of Small Industries Development Bank of India (SIDBI). The appointment is for a period of three years from the date of his assuming the charge or until further orders, a government statement said.

In December, Banks Board Bureau, the headhunter for state-owned banks and financial institutions, had recommended his name for the post.

Ramann, a 1991-batch Indian Audit & Accounts Service officer, is currently the CEO of National E-Governance Services Ltd, India’s first Information Utility.

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HDFC Bank shows loan growth in Q4, but faces impact of non-issuance of credit cards, BFSI News, ET BFSI

Banking & Finance

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HDFC Bank, which has been hit by the Reserve Bank of India curbs on credit card issuances, saw a tepid growth in advances in the quarter ended March 2020 with total loans growing 14% on a year-on-year basis, lower than analysts’ expectations of a 16% growth.

HDFC Bank shows loan growth in Q4, but faces impact of non-issuance of credit cards

The slowdown in loan growth was mainly due to a lacklustre rise of 7.5% in retail loans over last year. Experts attributed the drop to conscious moderation in vehicle finance and commercial vehicle lending plus a prolonged suspension in new card business acquisition.

However, the wholesale loans which though slowed sequentially grew at 21% year-on-year owing to the bank’s focus on capturing market share in better-rated corporates.

After the pandemic, the bank has changed its strategy to offset lower retail lending growth in the rest nine months of the last fiscal year through higher corporate loan growth, which grew at an average of 30% year-on-year.

The curbs

The Reserve Bank of India in December 2020 had asked HDFC Bank to temporarily stop all digital launches and sourcing new credit card customers. This after the bank suffered its third big outage in the span of just two years.

The RBI has advised to stop all launches of the Digital Business generating activities planned under its program – Digital 2.0 (to be launched) and other proposed business generating IT applications and (sourcing of new credit card customersHDFC bank said in an exchange filing

“The above measures shall be considered for lifting upon satisfactory compliance with the major critical observations as identified by the RBI.”

Other banks

IndusInd Bank too reported loan growth slowing significantly with a 3% growth over March last year. Though deposits grew at a healthy pace of 27% though on a low base. Yes Bank too reported tepid loan growth numbers with a 0.8% rise in advances over last year. It more than doubled its retail disbursements over March quarter last year when it had faced a moratorium from the Reserve Bank of India. Its deposits grew at 54.7% bulk of which came from current and savings accounts. Private lender Federal Bank also reported a 9% growth in its advances over the same period last year while deposits grew 13%.The year ahead

Banks are likely to report lacklustre loan growth numbers in the quarters ahead. The system loan growth at 6.5% for the fortnight ended March 12, remaining weak due to low credit demand. Deposit growth at over 12% continues to outpace credit. Almost Rs 5.4 lakh crore of excess liquidity parked in the reverse repo window March shows the risk aversion in the banking system.

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Bajaj Finance acquires more customers after HDFC Bank’s halt on credit card, BFSI News, ET BFSI

Banking & Finance

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Bajaj Finance, the behemoth in consumer lending, posted a slight drop in new consumer loans at 5.5 million in January March quarter against 6 million a year ago. However, the company acquired 2.3 million new customers in Q4 FY21 as compared to 1.9 million in the fourth quarter of fiscal 2020.

As it kept the customer accretion rate healthy Bajaj Finance seems to have benefited from the setback to HDFC Bank, which was penalised by the Reserve Bank of India over digital lapses and has been unable to issue new credit cards.

According to analysts, the asset under management growth of Bajaj Finance exceeded expectations at 4% year on year and 6% sequentially as it acquired more customers.

Bajaj Finance’s Q4 performance

Bajaj Finance’s deposits rose 21% on year to Rs 25,800 crore as on March 31. The consolidated deposit book was at Rs 23,777 crore as on December 31. Assets increased by Rs 9,500 crore in the March quarter, taking the financier’s total assets under management to Rs 1.53 lakh crore as on March 31. The company’s customer franchise rose 14.1% on year to 48.6 million as on March 31.

The company is well capitalised and its liquidity position remains strong, as its consolidated liquidity surplus was Rs 16000 crore as on March 31. Bajaj Finance had a consolidated liquidity surplus of Rs 14347 crore as on December 31, representing 11.6% of its total borrowing. The capital adequacy ratio was 28.4% as of March 31, which is an improvement over 28.18% as on December 31, according to the provisional figures for the January March quarter.

Analysts expect the company to show healthy traction in consumer B2B (business to business) loans and commercial loans. They also see a gradual uptick in mortgage loans and consumer B2C (business to consumer).

Covid impact on Bajaj Finance.

However, with the surge in Covid cases, asset quality remains a worry as they may increase provisioning and credit costs for Bajaj Finance in upcoming quarters. In the third quarter, the company provided Rs 1,352 crore for loan losses and provisions, which was significantly higher than Rs 831 crore it provided in the same quarter last year. During the third quarter, the company has done a one-time write-off of principal outstanding amount of Rs 1,970 crore and interest outstanding of Rs 365 crore on account of Covid-19 related stress.

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Benchmark indices starts the new financial year on a positive note; financials outperform, BFSI News, ET BFSI

Personal Finance

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Market opened with a gap up at 14798.40 following the global peers but could not maintain the higher levels and took the support near the levels of 14700. However, Benchmark indices ended with a percent gain on the first day of the new financial year supported by the metal and financials.

At close, the Sensex was up 520.68 points or 1.05% at 50,029.83, and the Nifty was up 176.70 points or 1.20% at 14,867.40. Except FMCG, all other sectoral indices ended in the green with Nifty metal index rose 5% and PSU bank index added 2.6%.

The Nifty Bank Index ended higher at 33,858 adding a good 1.66%. Amongst the top gainers were- RBL Bank at Rs 216 adding 4.17% followed by Federal Bank at Rs 78 (4.02%), Bandhan Bank at Rs 350 (3.54), AU Small Finance at Rs 1,267 (3.26%), Kotak Mahindra Bank at Rs 1,804 (2.94%), Axis Bank at Rs 713 (2.23%) and ICICI at Rs 594 (2.11%).

Nifty Financial Services ended higher at 15,909 adding over 1.23%. Amongst the biggest gainers were- Indiabulls Hsg at Rs 204 adding 4.15% followed by Bajaj Finance at Rs 5,272 (2.37%), Bajaj Finserv at Rs 9,781 (1.25%), Muthoot Finance at Rs 1,214 (0.70%), Chola Invest. at Rs 562 (0.66%) and Power Finance at Rs 114 (0.57%).

Stock in Talk
Indian Overseas Bank: Indian Overseas Bank in its BSE filing said it has received a capital infusion of Rs 4,100 crore from the government towards the contribution of Central Government in the preferential allotment of equity shares of the bank during the Financial Year 2020-21, as government’s investment

Bank of India: The bank in a BSE filling informed that Government of India has infused capital of Rs 3,000 crore in Bank of India for the purpose of preferential allotment of equity shares after obtention of shareholder’s approval in the extraordinary general meeting and other related regulatory approvals

Other key takeaways

GST collection in March 2021 at record high of Rs 1.23 lakh crore
GST Revenue collection for March’ 21 sets a new record. A new record of Rs 1,23,902 crore in form of Goods and Service Tax (GST) revenue was collected in the month of March 2021, the Ministry of Finance said on April 1.

“The gross GST revenue collected in the month of March 2021 is at a record of Rs 1,23,902 crore of which CGST is Rs 22,973 crore, SGST is Rs 29,329 crore, IGST is Rs 62,842 crore (including Rs 31,097 crore collected on import of goods) and cess is Rs 8,757 crore (including Rs 935 crore collected on import of goods),” an official release stated

Nifty futures lot size cut to 50 from 75,effective from July contracts
All monthly expiry contracts starting from the July expiry contract will have a lot size of 50. July contracts will start trading from April 30, 2021. However, according to a SEBI circular, the April, May, and June contracts will continue to have a lot size of 75. The circular also stated that the lot size of all existing Nifty long term options contracts (having expiry greater than 3 months) shall be revised from 75 to 50 after the expiry of June 2021 contracts.

Govt to infuse Rs 14,500 crore in 4 PSU banks through recapitalisation bonds
The Finance Ministry on Wednesday notified that the government will infuse Rs 14,500 crore through recapitalisation bonds in four public sector banks. The notification issued by the finance ministry said that the government would infuse capital by issuing non-interest-bearing bonds to banks.

Currency market shut today
Indian currency market will remain shut on April 1 on account of annual bank closing. On March 31, Indian rupee ended near the day’s high at 73.11 per dollar versus Tuesday’s close of 73.38.



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Government not inclined to bear loan moratorium costs, BFSI News, ET BFSI

Banking & Finance

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The government is not inclined to bear the burden arising of the recent Supreme Court judgement on a blanket waiver of compound interest or interest on interest on all loan accounts which opted for moratorium during March-August 2020.

“They (banks) are well-poised to handle this and we don’t see any space for government relief,” said a senior government official.

The government has already compensated banks for the interest on interest they had lost on loans outstanding below Rs 2 crore. Analysts estimate the additional cost to reimburse banks for all loans at Rs 7,000-10,000 crore.

“There is no directive from the court ordering the government to bear this cost,” the government official said on the condition of anonymity.

Since there is no deadline to refund the compound interest they have charged, banks can stagger the payment depending on individual account period and other conditions. A final call would be taken shortly, he said.

In its ruling last week, the Supreme Court refused to extend the moratorium beyond August 31, 2020 but directed lenders to waive interest on interest for all borrowers.

According to ICRA estimates, the compounded interest for six months of moratorium across all lenders was around Rs 13,500-14,000 crore, and the relief already extended over loans up to Rs 2 crore had cost the exchequer about Rs 6,500 crore.

A Macquaire research report has put the additional amount at around Rs 10,000 crore.

On account of the stress due to the Covid-19 pandemic, the Reserve Bank of India had announced the loan moratorium scheme to grant temporary relief to borrowers for payment of instalments due between March and August 2020.

The apex court in its judgement observed that the government and the central bank would decide on economic policy based on expert opinion. It further said a waiver of complete interest was not possible as it would affect depositors. The court ruled out an extension of the period of loan moratorium and any specific sector-wise relief.

According to Crisil Ratings, standstill on recognition of non-performing assets (NPAs) had tied the hand of lenders and consequently impacted the credit discipline of borrowers.

“Withdrawal of the same will enable lenders to enforce various legal measures and support their recovery efforts,” it said in a note.



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Bank of India raises Rs.602 crores via AT-1 Bonds, BFSI News, ET BFSI

Banking & Finance

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Public lender, Bank of India (BOI) has raised Rs.602 crores via Basel III compliant Additional Tier 1 (AT-1) bonds on March 26, 2021 on private placement basis.

Bank of India in a regulatory filing on March 24, 2021(Wednesday) said the bank is issuing Basel III compliant tier 1 bonds for the base issue size of ₹ 250 crore and green shoe option of ₹ 500 crore. The total amount aggregates to ₹ 750 crore.

The bidding for the Basel III compliant additional tier I bonds started today and will end on March 30 (settlement date). The minimum lot size of the bond issue will be of ₹1 crore and in multiples of ₹1 crore thereafter, said the public sector lender.

Stock of Bank of India closed 0.29% up at ₹69.45 on the BSE.

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