Tag: banking news

Banks’ credit growth gradual in August, industry weakest link, says ICICI Sec, BFSI News, ET BFSI

Banking & Finance

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The overall credit growth of banks in August has been gradual from July, with signs of improvement only in pockets, ICICI Securities said in a report.

Industry credit continues to be the weakest link, dragging overall credit growth.

The industry, which comprises 29.2% of total non-food credit, was down 0.2% on month. Under-utilisation of existing sanction limits, modest demand outlook and run-down of exposure in few sectors were among the key factors, the brokerage said.

However, the brokerage expects industry credit to revive in the near future, given economic recovery from the COVID-19 crisis.

“We believe India Inc is now better positioned and confident to anvil on the path of re-leveraging. Indian financiers, too, have saddled themselves with ample liquidity to tap the emerging opportunity. Recovery in economic activity and the derivative effect of increased investments and corporate, government spending on consumption will sustain the momentum of more than 15% growth over FY22-FY25,” ICICI Securities said.

Also read: Banks’ credit outlook ‘stable’ for FY22, says Crisil Ratings

Credit extended for home loans has stayed put since March, up 0.8% year-to-date, while vehicle loans moderated to a 1% month-on-month accretion and is likely to pick up during the festive season.

Other personal loans also saw a strong momentum, up 18% on year.

With gradual easing of COVID-19 restrictions, credit card portfolio sales have risen 3.9% on month and 10.3% on year, witnessing the quickest recovery as business activity levels revived, the brokerage said.

Credit to non-food sectors was up a mere 0.5% on month and 6.7% on year, with agri and retail being the main drivers.

Retail credit is sustaining double-digit growth, but has not been robust, despite relaxation of COVID curbs, the brokerage said. The growth in retail credit was primarily due to the traction in vehicle and personal loans, and credit card sales.

Roads, airports, railways, iron and steel, cement, telecom and sugar are among the key sectors that are continuously deleveraging, the brokerage said.

“We believe industry growth will have to emerge as a key driver to boost credit growth in coming years. While it may happen with some lag, revival in consumer demand and rise in government spending can be potential triggers,” the brokerage said.

Credit to micro, small and medium enterprises was up 4% on month and 63% on year, the brokerage noted.

Lending to housing finance companies was up 21% on month, while loans to public public financial institutions was down 1% on year. After running down high risk assets, NBFCs are now pursuing growth opportunities in a risk-calibrated manner, the brokerage said, adding that now bank lending to NBFCs should stabilise.



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Kotak Mahindra Bank gets nod to collect direct, indirect taxes, BFSI News, ET BFSI

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Mumbai, Kotak Mahindra Bank Ltd (KMBL) has received approval from the government for collection of direct and indirect taxes, such as income tax, Goods and Services Tax (GST) etc, through its banking network.

With this, the bank becomes the first scheduled private sector bank to receive approval after the announcement by Finance Minister Nirmala Sitharaman allowing all banks to participate in government-related business.

After technical integration, KMBL customers will be able to pay their direct and indirect taxes straight from KMBL’s mobile banking or net banking platforms as well as through KMBL’s branch banking network, resulting in immense ease and convenience for customers, the bank said in a statement.

Kotak Mahindra Bank’s Joint Managing Director, Dipak Gupta said: “We are delighted to receive the necessary approvals permitting Kotak to collect direct and indirect taxes on behalf of the government, making tax payments more simple, convenient and efficient for our customers. We look forward to a long-standing relationship with the government, providing a wide range of services, backed by our strong technology platform, digital capabilities and customer-first approach.”

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HDFC, Axis Bank and Yes Bank lead as corporates return to offices from WFH, BFSI News, ET BFSI

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Financial organisations, including banks, fintech firms and NBFCs, are leading the return to offices from a long bout of work from home due to the pandemic.

HDFC, Axis Bank and Yes Bank are among the top corporates getting ready to reopen their offices as Covid wave ebbs amid the rise in vaccinations.

While some of the corporates have started operations at pre-Covid levels, others are seeking to get more employees to office.

What banks are doing

In line with the directives issued by governments, HDFC has 100% manpower at offices, while expectant mothers, female employees with children below 1 year of age, employees above 65 years of age, employees with co-morbidities and employees coming from any containment zones as defined by the authorities continue to work from home.

Kotak Mahindra Bank expects that 90% of the employees, who are fully vaccinated, will be back to office by November/December.

In branches and other customer-facing roles, it is close to reaching 100% levels.

At Yes Bank, around 40% of employees at our corporate office and other large offices work in hybrid models. The bank has a ‘Work from Anywhere policy’ in place to enable identified employees to work from alternative locations, in addition to working from their designated workplace.

Global scenario

A recent poll of leading U.S. and European banks found that while there would be a sharp decline in employees working five days a week in the office, the largest group still wants to work there four days. This data turns the consensus on its head, since bank managers are planning for more remote working than employees are demanding.

This view emerged this summer from an Infosys poll of 520 managers and employees at top U.S. and European banks. Seventy-one percent said they worked five days a week from the office pre-pandemic. Now, just 27% say they want that same schedule post-pandemic, although few want to be fully remote.

The largest group of bank employees (36%) say they want to work only one day remotely and the rest in the office. But fewer than half of managers (15%) anticipate that employees will seek this schedule. Also, managers consistently overestimated the number of workers who want to be in the office from one to three days a week.

As early as last September, JPMorgan CEO Jamie Dimon required traders to come back into the office, saying that remote working has slowed decision-making, hampered apprenticeships and reduced spontaneous learning and creativity. Goldman Sachs CEO David Solomon called remote working an aberration that was “not a new normal.”



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RBI revamps loan transfer and securtisation rules, BFSI News, ET BFSI

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The Reserve Bank has issued Master Direction on loan transfer, requiring banks and other lending institutions to have a comprehensive board-approved policy for such transactions.

Loan transfers are resorted to by lending institutions for various reasons, ranging from liquidity management, rebalancing their exposures or strategic sales. Also, a robust secondary market in loans will help in creating additional avenues for raising liquidity, the RBI said.

The provisions of the direction are applicable to banks, all non-banking finance companies (NBFCs), including housing finance companies (HFCs), NABARD, NHB, EXIM Bank, and SIDBI.

Minimum holding period

The Master Direction has also prescribed a minimum holding period for different categories of loans after which they shall become eligible for transfer.

“The lenders must put in place a comprehensive Board approved policy for transfer and acquisition of loan exposures under these guidelines.

“These guidelines must…lay down the minimum quantitative and qualitative standards relating to due diligence, valuation, requisite IT systems for capture, storage and management of data, risk management, periodic Board level oversight, etc,” said the Master Direction.

Draft guidelines on Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021, were released for public comments in June last year.

The final direction has been prepared to take into account inter alia the comments received. The direction, the RBI said came into effect immediately.

As per the direction, “a loan transfer should result in immediate separation of the transferor from the risks and rewards associated with loans to the extent that the economic interest has been transferred”.

In case of any retained economic interest in the exposure by the transferor, the loan transfer agreement should specify the distribution of the principal and interest income from the transferred loan between the transferor and the transferee(s), it added.

‘Transferor’ means the entity which transfers the economic interest in a loan exposure, while ‘transferee’ refers to the entity to which the economic interest in a loan exposure is transferred.

It further said a transferor “cannot re-acquire” a loan exposure, either fully or partially, that had been transferred by the entity previously, except as a part of a resolution plan.

Further, “the transferee(s) should have the unfettered right to transfer or otherwise dispose of the loans free of any restraining condition to the extent of economic interest transferred to them”.

Loans not in default

The master direction also provides a procedure for the transfer of loans that are not in default.

Meanwhile, the RBI also issued Master Direction on the securitisation of standard assets to facilitate their repackaging into tradable securities with different risk profiles.

Observing that complicated and opaque securitisation structures could be undesirable from the point of view of financial stability, the RBI said, “Prudentially structured securitisation transactions can be an important facilitator in a well-functioning financial market in that it improves risk distribution and liquidity of lenders in originating fresh loan exposures”.

In its ‘Master Direction – Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021’, the central bank has specified the Minimum Retention Requirement (MRR) for different classes of assets.

For underlying loans with an original maturity of 24 months or less, the MRR shall be 5 per cent of the book value of the loans being securitised. It will be 10 per cent for loans with an original maturity of more than 24 months.

In the case of residential mortgage-backed securities, the MRR for the originator shall be 5 per cent of the book value of the loans being securitised, irrespective of the original maturity.



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Bank officers union extends support to Bharath Bandh by farmers, BFSI News, ET BFSI

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Bank unions today have extended support to the Bharath Bandh called by farmers, demanding a roll back of the three farm laws.

The All India Bank Officers’ Confederation said that its affiliates and state units will also support the farmer protests.

The union questioned the government’s plan of doubling farmers’ income by 2022, citing the NSS Land and Livestock holdings of Households and Situation Assessment of Agricultural Households, 2018-19 report released earlier this month.

The report highlighted that the average outstanding loan per agricultural household has increased to Rs 74,121 in 2018 from Rs 47,000 in 2013. The growing indebtedness of agricultural households reflects deep farm distress, the union said.

The bandh will be held from 6am to 4pm, during which all government and private offices, educational and other institutions, shops, industries, commercial establishments, public events and functions will be closed across the country.

According to reports, some banks in the country will remain shut today – banks in Maharashtra and some banks in Bihar.

The Samyukt Kisan Morcha, the umbrella body of over 40 farm unions leading the protests, called for the Bharat Bandh today, the day their protests complete 10 months.



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Bankers back to college to learn data analytics, BFSI News, ET BFSI

Banking & Finance

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– By Nidhi Chugh and Ishwari Chavan

The COVID-19 pandemic has pushed lenders to digitise their banking services, which has resulted in a rise in demand for employees to have a data science skill set.

Currently, 2.5 billion users across the world use banking services digitally, and 53% of the global population will opt for digital banking by 2026, a study by UK-based research firm Juniper Research had said.

Data driven banking – bankers are reskilling themselves

When Dinesh Khara took over as the chairman of State Bank of India a year ago, he said, his focus will be on analytics.

The demand for data science and data analytics professionals is possibly going to double, more than 2,00,000 as mentioned officially, mostly because of the emergence of neobanks, said Robin Bhowmik, chief business officer of Manipal Global Academy of BFSI, in an interaction with ETBFSI.

Manipal Global, started in 2008, offers various programmes to reskill banking employees, or train budding ones.

On an average, Manipal Global has trained one out of five bankers in the country, with over 2,50,000 bankers opting for various courses, Bhowmik said.

A total 15,000-20,000 bankers are trained every year by the academy.

This month, the academy launched its school of data science, where they will teach data engineering, data handling, impact analysis, python courses, in partnership with Axis Bank.

“The whole area of impact analysis within a banking setup is very fundamental to any data science field. We are also training them in a lot of simulations using tools like Python for example, which is one of the more popular open source tools, essentially used in this area,” Bhowmik said.

Apart from partnership with Axis Bank, Bhowmik said that he is in talks with another bank to further expand the course’s reach. The name of the bank was not mentioned during the interview.

Manipal Global also offers short term courses, remote courses, and other full-time courses, such as courses on FinTech.

Bankers back to college to learn data analytics
Surging demand for data science courses – what’s on the table

Prior to the official launch of the data science school, Bhowmik said that the course has already gathered interest from 500 candidates, and there is an application backlog of around 6,000 students.

“The intention is to have a batch of about 35 to 40 every alternate month. So Axis bank alone, I think wants about 120 people through this channel by March,” Bhowmik said.

After completion of the course, the candidate will be evaluated and hired by Axis Bank.

“The bank’s digital strategy is heavily focused towards adopting various data and analytics programs. Hyper personalisation is one such program – data science will be one of the key enablers, starting to identify different customer persona, anticipate their needs and recommend accordingly,” Balaji N, president and head of the Business Intelligence Unit at Axis Bank, said via email responses to ETBFSI.

How will candidates use these skills

After the course, the employee will be able to deploy business intelligence as a function, use data analytics in KYC processes, help in data hygiene – building databases for customer behaviour and customer segmentation.

“Other than simplification of customer journeys on our platform, we are also focusing on building future-ready capabilities, such as integrating alternate unconventional data for risk-moderated business expansion and greater usage of cloud for data engineering and data science workload,” Balaji said.

India’s “youth bulge” is expected to benefit sectors across the board, and even more so for BFSI with the rising importance of data in digital payments.

India’s “youth bulge” is expected to benefit sectors across the board, and even more so for BFSI with the rising importance of data in digital payments.



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RBI allows banks to sell fraud NPAs to ARCs, BFSI News, ET BFSI

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In a move that will help banks unload a major chunk of their non-performing assets (NPAs) to the bad bank, RBI has allowed the sale of loan accounts classified as fraud to asset reconstruction companies (ARCs). Earlier, banks were barred from selling NPAs classified as fraud, which had left them saddled with a resolution of several large accounts.

Banks are targeting to sell Rs 2 lakh crore worth of NPAs to the bad bank or the National Asset Reconstruction Company (NARCL) for recovery. However, they have hit a roadblock in respect of accounts that have been classified as fraud, as they were not allowed to sell them. RBI has now allowed banks to sell fraud accounts, provided the transferee is not connected to the borrower.

RBI has also said that responsibilities of the transferor with respect to continuous reporting, monitoring, filing of complaints with law enforcement agencies and proceedings related to such complaints shall also be transferred to the ARC. “The transfer of such loan exposures to an ARC, however, does not absolve the transferor from fixing the staff accountability as required under the extant instructions on frauds,” RBI said.

“Due to forensic audit in all big NPAs, in last three years, advances amounting Rs 3.83 lakh crore were declared as fraud accounts. This chunk of NPAs will be available for sale to ARCs,” Hari Hara Mishra, director, UV ARC, said.



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Chairman, BFSI News, ET BFSI

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Bombay Mercantile Bank recovered bad loans worth over Rs 6 crore in 2020-21 and expects better realisation going forward, a senior official has said. Recovery of NPAs (non-performing assets) has been a major thrust area for the bank. The bank has taken specific steps for reduction of NPAs by formulating policy for recovery of NPA through personal follow-ups and other legal measures, Zeeshan Mehdi, Chairman, Bombay Mercantile Co-operative Bank, said in his address at the annual general meeting (AGM).

“These efforts have resulted in the bank posting a recovery of Rs 6.10 crore, in NPA accounts. Due to the pendency of cases in various courts whose functioning was hampered because of the pandemic, resulting in delays in final verdicts, the recoveries in many NPA accounts could not be achieved as targeted,” he added.

Mehdi said the bank expects a healthy recovery of NPAs during the ensuing year.

The bank’s gross bad loans stood at 6.61 per cent and the net NPAs were 5.11 per cent during FY21.

The NPA is slightly higher due to the pandemic, however, it is still within the permissible limit of the regulators, he added.

The CRAR (capital to risk-weighted assets ratio) stood at 17.26 per cent against 16.88 per cent in the preceding fiscal.

BMC Bank registered a net profit of Rs 3.78 crore in FY21. Mehdi said the bank posted a second consecutive year of profit, however, the target was much higher.

The total business of the bank during 2020-21 stood at Rs 3,467.55 crore, of which deposits were Rs 2,363.38 crore and advances Rs 1,104.17 crore.

“During the year, the bank has been allotted its own IFSC code by the RBI, with all branches using exclusive IFSC codes. The bank is now a direct member of IFTAS and has been given permission to use INFINET connectivity to provide a variety of services to our customers and our treasury department,” the chairman said.

These services are RTGS, NEFT, SGL account with RBI, NDS-OM, NDS-Call, SWAP, LAF and MSF. Earlier, the bank did not have such facilities, he added.

The implementation of these digital initiatives would result in the enhancement of the customer experience, he said.

“The bank is moving ahead digitally at a fast pace…we are launching Mobile-App to our valued customers to meet the emerging business challenges and be at par with the best in the industry,” Mehdi added. PTI KPM BAL BAL



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Bank loans do not reflect credit risk adequately as RBI chases growth, BFSI News, ET BFSI

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The period of extended surplus liquidity is already witnessing fierce pricing wars across banks, some of which may not reflect credit risk adequately.

“However there is the risk of an Asset Liability mismatch if the liquidity is withdrawn quickly. As of now, the inflation numbers may not warrant such a decision from RBI, but if core inflation persists in the current range of 6% or above, that might act as a hindrance to continued liquidity abundance,” according to the State Bank of India’s economic research report Ecowrap.

The industry is replacing its long-term debts by very low-priced CP/working capital demand loan (ECDL) and this will obviously act as an enabler once the investment cycle revives

Margin pressure

Banks are now facing significant margin pressures despite surfeit of liquidity in the banking system, it said.

A back of envelope estimate suggests that the core funding cost of the banking system that includes cost of deposits, negative carry on Statutory Liquidity Ration (SLR) and Cash Reserve Ratio (CRR) and Return on Assets is currently at 6 per cent, while the reverse repo rate is at 3.35 per cent. Additionally, if the cost of provisions is added to the core funding cost, the total cost comes to around 12 per cent, the report said.

Credit risk

The report cited the example of 15 years loans, which are being priced at even lower than 6 per cent, linking with repo / treasury bill rates. It said that 10-year Government Security (G-Sec) is currently trading at 6.2 per cent and by the current pricing trends this could even gravitate towards 6 per cent again.

This anomaly not only negates the concept of tenor premium but may create a material risk with regard to sustainability of such rates in long term, on which borrowers and banks are basing their financial calculations, it said, adding that the only good thing is that such pricing war is mostly restricted to AAA borrowers.

According to the report, three year term loans are being quoted at close to 4 per cent repo rate and seven year term loans for borrowers below AAA are also quoting a risk premium of 15-20 basis points over the 10 year rates. Working Capital Loans (WCL) are currently being quoted at a notch above reverse repo rate at 3.35 per cent.

The report said that the concept of normally permitted lending limit (NPLL) for specified borrowers, meant to nudge them to move towards corporate bonds market, may lose its importance.

CP market

Ghosh observed that the commercial paper (CP) market is also witnessing significant churn with banks now almost absent.

Non-Banking participants like mutual funds who do not have access to RBI Reverse Repo window are creating pricing pressure in CP market as they are sometimes quoting below RBI reverse repo rate.

The CP market reflects the huge pricing gap between better and lower rated borrowers, it said.



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Depositors of scandal-hit PMC Bank, 20 others to get up to Rs 5 lakh within 90 days, BFSI News, ET BFSI

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The Deposit Insurance and Credit Guarantee Corp will pay depositors of 21 insured banks, which includes scandal-hit PMC Bank, the amount equivalent to the deposits, up to a maximum of Rs 5 lakh, within 90 days.

Necessary instructions have been issued to the banks to submit the claims within 45 days after obtaining the approval from depositors to claim deposit insurance. The verification and settlement of the claims should be done by November 29, 2021, DICGC said in a a release.

These banks shall submit a claim list by October 15 and update the position as on November 29, with principal and interest, in a final updated list, which will enable DICGC to discharge its insurance liability in full as per norms.

Unpaid or the difference in amount of deposits up to Rs 5 lakh, as per final updated list, will be paid within 30 days of receipt, that is by December 29.

The Parliament in August passed the Deposit Insurance and Credit Guarantee Corporation (Amendment) Bill, 2021, ensuring account holders get up to Rs 5 lakh within 90 days of the RBI imposing a moratorium on the banks.

In 2019, the Reserve Bank of India imposed restrictions on PMC bank after observing financial irregularities, including under-reporting of bad loans. From the findings of the probe, it was discovered that Rs 250 crore worth of fake deposits were shown in the system, and that the bank had manipulated its net time and deposits using HDIL and DHFL cheques.

Here’s the list of the 21 banks:

> Adoor Co-Operative Urban Bank, Kerala
> Bidar Mahila Urban Co-Op Bank, Karnataka
> City Co-Op Bank, Maharashtra
> Hindu Co-Op Bank, Punjab
> Kapol Co-Op Bank, Maharashtra
> Maratha Sahakari Bank, Maharashtra
> Millath Co-Op Bank, Karnataka
> Needs of Life Co-Op Bank, Maharashtra
> Padmashree Dr. Vithal Rao Vikhe Patil, Maharashtra
> People’s Co-Op Bank, Kanpur, Uttar Pradesh
> Punjab & Maharashtra Co-Op Bank (PMC Bank), Maharashtra
> Rupee Co-Operative Bank, Maharashtra
> Shri Anand Coop Bank, Pune, Maharashtra
> Sikar Urban Co-Op Bank, Rajasthan
> Sri Gururaghvendra Sahakara Bank Niyamitha, Karnataka
> The Mudhol Co-Operative Bank, Karnataka
> Mantha Urban Cooperative Bank, Maharashtra
> Sarjeraodada Naik Shirala Sahakari Bank, Maharashtra
> Independence Cooperative Bank, Nashik, Maharashttra
> Deccan Urban Co-Operative Bank, Vijaypur, Karnataka
> Garha Co-Operative Bank, Guna, Madhya Pradesh

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