Tag: banking

Govt appoints Lalit K Chandel on Bank of Maharashtra board, BFSI News, ET BFSI

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The government has appointed Lalit Kumar Chandel, Economic Adviser, Department of Financial Services, on the board of Bank of Maharashtra. He is appointed as Government of India nominee director on the board with effect from August 18, Bank of Maharashtra said in a statement on Thursday.

Chandel replaced Hrisheekesh Arvind Modak.

Chandel has served at various levels in different departments of Government of India, including banking, insurance, capital markets, external assistance, rural development, power, irrigation and health, it said.

He has held key positions of Director (Insurance), Department of Financial Services, Ministry of Finance; Executive Director, CVO and Financial Adviser, Insurance Regulatory and Development Authority of India, and Whole Time Director Finance, Telangana State Power Generation Corporation. PTI DP



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Indian banks brace for bad loans with stronger balance sheets, says new S&P report, BFSI News, ET BFSI

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Indian banks’ prior efforts to strengthen their balance sheets will help them mitigate the impact of asset quality as bad loans ticked higher in the April-to-June quarter following a deadlier wave of the COVID-19 pandemic, according to a new report by S&P Global Market Intelligence research.

“Banks have been taking steps to fortify their balance sheets over the last year or so to face the asset quality impact. These have been through enhancing capital base, increasing provisioning cover and having adequate amounts of liquidity,” said Krishnan Sitaraman, senior director at CRISIL, a unit of S&P Global Inc.

The June quarter saw gross NPAs rising, mainly in retail and small and medium-sized enterprise portfolios for banks.

“That is because these segments have been impacted more by the pandemic and the lockdown measures. The pandemic’s second wave has had a much larger health impact and geographical spread as compared to the first,” Sitaraman said.

State Bank of India, the country’s largest lender by assets, reported total nonperforming loans of Rs 1.36 lakh crore for the fiscal first quarter that ended on June 30, up from Rs 1.28 lakh crore in the previous three months and Rs 1.31 lakh crore in the same period of 2020.

ICICI Bank, the second-biggest private-sector lender, said its gross nonperforming assets rose by Rs 7231 crore in the first quarter, mainly from its retail and business portfolio. State-run Bank of Baroda reported fresh slippages of Rs 5129 crore in the first quarter, versus Rs 2740 crores in the prior-year period.

During the fiscal first quarter, Indian banks saw higher-than-expected slippages of more than 200% year over year that largely arose from retail and SMEs, according to an Aug. 16 research note from Jefferies.

Slippages were higher than expected as new COVID-19 restrictions affected collections, Jefferies analysts said, adding that some banks have started to recover in July and normalcy may return in the fiscal second or third quarter.

India’s economy took a severe hit during the second wave of the coronavirus, with the number of daily cases peaking above 400,000 in May. Cases have tailed off in recent weeks as the government stepped up vaccinations.

Still, the high number of COVID-19 cases and deaths are expected to have had a bigger impact on the economy in terms of jobs lost and businesses shut. Also, most forbearance measures announced last year, including a Supreme Court order stopping banks from classifying delinquent loans as nonperforming assets had been lifted after the economy recovered from the initial wave of infections.

Banks are now seeing the full extent of borrower stress with a one-time debt restructuring facility and the Supreme Court’s standstill on NPA recognition no longer available.

“In the absence of regulatory measures such as moratorium, the gross NPA formation due to the recent wave of COVID-19 is being upfronted in the first half of the current fiscal [year] for the system, including us,” said Sandeep Bakhshi, CEO of ICICI Bank, during a July 24 earnings call. Bakhshi expects the bank’s gross NPA additions to be lower in the second quarter and “decline more meaningfully in the second half of fiscal 2022,” based on expectations of economic activity.

Stress tests by the Reserve Bank of India indicated that the bad loans of all banks may rise to 9.80% by March 2022 from 7.50% in the same month of this year under a baseline scenario. However, the bad loans ratio could rise to as high as 11.22% by March 2022 under a “severe stress” scenario for key macroeconomic indicators, the central bank said in its biannual Financial Stability Report released July 1.

“Many banks have set aside higher provisioning buffers and raised capital in the last one year or so. This should help them absorb the rising stress in their retail book,” said Nikita Anand, an analyst at S&P Global Ratings.

“On the other hand, banks with lower provisioning buffers and weaker capitalization could see a sharp impact on their profits and capital levels,” Anand said. “This could be more acute for banks with significant underlying exposure to small business owners or unsecured retail products where loss given default could be higher.”



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NABFID brought under Dept of Financial Services purview

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President Ram Nath Kovind approved placing the National Bank for Financing Infrastructure and Development (NABFID) under the purview of the Department of Financial Services (DFS) in the Finance Ministry for administration purposes.

In a notification issued by the Cabinet Secretariat, “Administration of the National Bank for Financing Infrastructure and Development Act, 2021 and related matters,” has been allocated under Business Rules of the Government to Department of Financial Services. It has been made effective immediately.

New development financial institution

The National Bank for Financing Infrastructure and Development Act was enacted by Parliament in March. With this, a new development financial institution will come into existence. It will have both developmental and financial objectives. Among other things, this would include developing a deep and liquid bond market of international standards for long-term infrastructure financing in India, including through widening of the issuer and investor base.

It will also facilitate the development of markets for interest rate derivatives, credit derivatives, currency derivatives and other such innovative financial instruments as may be necessary for infrastructure financing. The financing objectives would involve establishing a credible framework that attracts equity investments from domestic and global institutional investors as well as debt investments, including green finance, from investors, aligned to their risk appetite and asset-liability profile, in order to cater the financing needs of Indian infrastructure sector.

According to the Act, debt securities, including bonds and debentures, issued by the Institution should be considered as eligible for purposes such as approved investments, securities, etc., as per limits and conditions to be prescribed by Indian financial regulators for their regulated entities. The Institution will also be empowered to lend to, or invest in, infrastructure projects located in India, or partly in India and partly outside India, prioritising systemic risk mitigation, credit enhancement, subordinate debt, debt maturities suited to project life spans and to raise long-term finance for the same.

The act also prescribed that the Institution may be involved in project structuring, monitoring and monetisation of completed projects by itself or through its subsidiaries, etc., promoting innovation in financial products and services including by issuing long-term bonds with explicit or implicit sovereign guarantee, underwriting and dealer services. Overall, “the Institution shall provide a supporting, technology enabled ecosystem across the life cycle of infrastructure projects as a provider, enabler and catalyst for sustainable infrastructure financing in India with the backing of the Government. The Institution shall support the bond market with the aim of fostering complementarity of market raised debt with lending for infrastructure projects,” the Act said.

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HDFC Bank ready with strategy on credit cards after RBI revokes ban

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Private sector lender HDFC Bank on Wednesday said it is ready with strategies to ‘come back with a bang’ in the credit card space.

“As stated earlier, all the preparations and strategies that we have put in place to ‘come back with a bang’ on credit cards will be rolled out in the coming time. We are happy that we will be able to serve our customers again with the same dedication and humility,” it said in a statement.

Noting that the restrictions on all new launches of the digital business generating activities planned under Digital 2.0 will continue till further review by the regulator, the bank said it will continue to engage with the regulator and ensure compliance on all parameters.

Also read:Reserve Bank allows HDFC Bank to sell new credit cards

The statement comes after the Reserve Bank of India (RBI) relaxed curbs on the private sector lender on sourcing new credit cards. “…the RBI vide its letter dated August 17, 2021 has relaxed the restriction placed on sourcing of new credit cards. The Board of Directors of the Bank has taken note of the said RBI letter,” HDFC Bank said in a stock exchange filing.

The RBI had in December last year directed HDFC Bank to temporarily halt sourcing of new credit card customers as well as launches of digital business generating activities planned under its proposed programme‐Digital 2.0.

HDFC Bank is the largest credit card issuer with 1.48 crore outstanding cards as of June 2021. The temporary halt on sourcing of cards had to some extent, impacted its business and also enabled competitors such as ICICI Bank and SBI to increase their market share.

Analysts said the RBI decision before the beginning of festive season is a positive development. “…lifting of RBI restrictions before the beginning of festive season is a positive development as HDFC Bank has usually been aggressive during festive season and offers various discounts on consumer products,” Motilal Oswal said in a research note.

Also read: New credit cards: RBI partially lifts curbs on HDFC Bank

It pointed out that HDFC Bank had nearly lost about 6 lakh cards since the date of embargo. On the other hand, ICICI Bank, SBI Cards and Axis Bank almost added 13 lakh, 7.5 lakh and 3 lakh cards respectively over the similar period.

“Other players such as ICICI Bank and SBI Cards have sharply ramped up their incremental market share at about 49 per cent and 28 per cent during this period,” it said.

During recent quarters HDFC Bank has reported moderation in fee income/NII, due to the RBI restriction on credit cards sourcing as this segment contributes about 25 per cent to 33 per cent of the total fee income for the bank. HDFC Bank scrip was up 1.83 per cent in morning trade at BSE.

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After a lull, NBFCs banking on better times

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Non banking finance companies (NBFC), which had witnessed a drop in disbursements and collections in Q1 (April-June) FY22, expect business to bounce back to the pre-pandemic levels by the end of this fiscal.

While collections have already started improving, disbursements are also expected to gain momentum in the run-up to the festival season, good monsoon and pent-up demand for credit across various sectors.

According to Mahesh Thakkar, Director General of Finance Industry Development Council (FIDC), Q1 of the current fiscal was not very good, but Q2 (July-September) is seeing an improvement. By Q3 (October-December) the industry should bounce back to around 95 per cent of the pre-pandemic levels.

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

“Sales are picking up in the auto sector, demand is coming in from MSMEs… the monsoon has been good, and demand is there ahead of the festival season. People have learnt to live with the pandemic and are looking forward to go out. This will give a push to consumption. Spending will improve,” Thakkar told BusinessLine.

Growth in disbursements

Some of the NBFCs expect business to be back to pre-pandemic levels by Q2 of this fiscal.

Shriram City Union Finance (SCUF), for instance, expects disbursements to return to pre-pandemic levels by the second quarter of this fiscal, backed by a steady pick-up in demand across two-wheeler loans, loan against gold, personal loans, and MSME finance.

The NBFC is looking to aggressively push two-wheeler loans, which have witnessed very little delinquency, as well as gold loans. While it also plans to push personal loans and SME loans, however, it would continue to remain cautious and prefer to lend to existing customers, said YS Chakravarti, MD and CEO.

“We normally do disbursements worth ₹6,500-6,600 crore during a quarter. We have disbursed close to ₹2,000 crore in July alone, and we hope to register close to ₹6,000 crore during the second quarter of this fiscal,” he said.

According to Oommen K Mammen, CFO, Muthoot Finance, while disbursements were low in May, by the end of June it started picking up. The company is targeting a 15 per cent growth in assets under management (AUM) this fiscal.

Also read: Microfinance industry bounces back to pre-Covid levels

“In Q2 we are expecting a better business compared to Q1. The restrictions (across various States) are being relaxed, and people have started getting back (to business),” he said, indicating that it will push up the demand for credit. The AUM of the sector grew by a modest 4 per cent in FY21 vis-a-vis six per cent in FY20 (16 per cent in FY19). The housing finance companies (HFCs) grew by about 6 per cent during the last fiscal; within the other NBFC space, retail credit (consisting of vehicle, business loans, personal credit, microfinance) grew by four per cent, while the wholesale credit declined on a year-on-year basis, said a recent report by ICRA.

Overall, the sectoral AUM is expected to grow at 7-9 per cent in FY22, bolstered by the growth in NBFC retail credit and HFCs, which is expected to be about 8-10 per cent, while NBFC wholesale credit growth would remain muted, the report said.

Collections improve

The ICRA report further suggests that the risks for the NBFC sector remain elevated in the near term, and the revival is likely to happen in the next fiscal.

The second wave of Covid9 had a varied impact on the business and operations of NBFCs (private NBFCs, including HFCs). While large HFCs saw relatively limited impact on their collection efficiency (CE), other NBFCs, having exposure to several segments such as vehicle finance, business loans and microfinance, witnessed their CEs decline by about 20-25 per cent in May 2021 vis-a-vis the average Q4 (January-March) FY21 when the lockdown imposed by various States was more stringent and widespread. The CE improved marginally (up by three-to-five per cent) in June 2021 vis-a-vis May 2021 levels, with States steadily relaxing restrictions.

“The impact on CE was lower during Q1 FY22 compared to what was witnessed in Q1 FY21, and initial feedback indicates a further improvement in CE in July 2021. Sustenance of the same in the subsequent months and no further impediments in the revival trends would be crucial from an asset quality perspective. We note that the headline asset quality numbers for June 2021 would be significantly elevated vis-a-vis March 2021, but the same is expected to subside over a couple of quarters if the CEs continue to trend upwards in the subsequent months,” said AM Karthik, Vice President, Financial Sector Ratings, ICRA Ltd.

The restructured book for the NBFCs (excluding HFCs) is expected to move up to 4.1-4.3 per cent by March 2022, while the same for the HFCs is estimated to go up to 2-2.2 per cent. The overall sectoral restructured book is expected to double to 3.1-3.3 per cent by March 2022 vis a vis 1.6 per cent in March 2021.

“Notwithstanding the near-term pressures, the net increase (adjusting for write-offs) in the 90 plus days past due (90+dpd) in the current fiscal is expected to be about 50-100 basis points. ICRA draws comfort from the provisions maintained by the entities, which continue to remain about 100 bps higher than the pre-Covid levels,” Karthik added.

Comfortable liquidity

Liquidity cover at a number of NBFCs has improved from a year ago, putting them in a better position to service debt in the near-term, and cushioning the impact of lower collections because of the second wave, said a CRISIL Ratings study.

Also read: Small businesses hit as banks freeze current a/cs

That is a change from last year when asset-quality and liquidity fears multiplied after a moratorium on repayments and stringent lockdowns affected collections.

Fund-raising through special RBI and government schemes, improving collections in the second half of fiscal 2021, and limited disbursements are some of the factors that supported liquidity.

In the first half of last fiscal, nearly 45 per cent of the funds raised via bonds were through schemes announced following the first wave of the pandemic, such as the targeted long-term repo operations and partial credit guarantee. Even NBFCs that did not have strong parentage managed to raise close to 60 per cent of their incremental bond funding through these routes.

This apart, in the fourth quarter, debt market borrowings also began to rebound. Bond and commercial paper issuances in March 2021 saw the highest on-month rise since January 2020. Even bank funding improved to nearly seven per cent during January-March 2021. With collections picking up and disbursements subdued, liquidity was bolstered.

“Most CRISIL rated NBFCs have built significant on-balance-sheet liquidity. This will allow them to manage the impact of the second wave of the pandemic better than the first. Nevertheless, business challenges linked to the pandemic will continue through most of this fiscal. In this milieu, we expect many NBFCs to continue maintaining strong liquidity cover for debt repayments and operating expenses. That would also help them assuage potential investor/ lender concerns in the near term,” said Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, in the study.

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PMJDY turns 7; brings 43 crore under formal banking system

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As India celebrates its 75th Independence Day, nearly 43 crore poor beneficiaries in the country now have a basic bank account, thanks to Centre’s flagship financial inclusion scheme, Pradhan Mantri Jan Dhan Yojana (PMJDY).

The scheme, announced by Prime Minister Narendra Modi in August 2014, has dispelled initial apprehensions on its efficacy and proved to be a steady vehicle for financial inclusion.

Also read: Over 5.82 crore Jan Dhan accounts inoperative: Finance Ministry

As per latest government data, PMJDY now has 42.89 crore beneficiaries (basic bank account holders) with ₹1,43,834 crore total balance. More than half of the beneficiaries are women (23.76 crore) while 28.57 crore are from rural and semi urban areas.

‘Unparalled achievement’

When asked on the impact of the scheme so far, D Janakiram, Director, Institute for Development and Research in Banking Technology (IDRBT), an arm of RBI, said, “PMJDY has done extremely well so far… The massive financial inclusion achieved by the scheme is unparalleled.”

A senior official of State Bank of India said the average balance in the accounts which is hovering around ₹3,000-3,500 across banks is ‘an indication’ that the scheme has now become a channel for savings for the low income families.

“The total deposit balance of ₹1.43-lakh crore is actually a huge amount. Our studies have shown that a good number of these accounts are being regularly used,” Prasanna Tantri, Exectuive Director, Center For Analytical Finance, Indian School of Business (ISB) said.

The Global Findex data base of the World Bank has also shown ‘substantial’ increase in financial inclusion in the country after 2014. As per the index, 80 per cent of people above 15 years of age in the lower-middle income group have a bank account now compared to 53 per cent in 2014.

The next step

While the contribution of PMJDY has well been recognised, there is also a need to scale up to the next level, say experts.

Also read: Why PMJDY must be scaled up to next level

“Going forward, we should move from financial inclusion to financial empowerment by providing credit. The PMJDY should become PM Jan Dhan Vridhi with universal access to bank credit to the most underprivileged sections of our society,” the IDRBT chief said.

It would also need a model of credit history, which will require reduction in cash transactions and moving to digital transactions and building credit models using artificial intelligence/machine learning techniques, he added.

“We should think of building India’s next generation digital financial infrastructure focusing on these needs and to reduce per transaction cost as well as the maintenance cost of these accounts,” Janakiram said.

According to Tantri, there is a need to build up a data base to capture the income, transaction history of the Jan Dhan account holders on the basis of which credit delivery models can be worked out. “As of now, we have only aggregate data. Banks and Fintechs can do further data analysis to create a new data base,” he added.

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Ujjivan SFB plans to apply for reverse merger by early November

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Ujjivan Small Finance Bank is likely to apply to the Reserve Bank of India for reverse merger with Ujjivan Financial Services by November this year.

“The RBI has clarified to the Association of Small Finance Banks that we can apply three months prior to completing five years of business,” said Nitin Chugh, Managing Director and CEO, Ujjivan SFB, adding that this would mean the bank can apply by early November.

It is hopeful that the process may be completed within a 12 month period.

“Instead of applying in February of next year, we will get to apply in November this year. So, we will easily be able to save three months,” Chugh further said.

In a stock exchange filing in July, Ujjivan SFB had said it would be initiating necessary steps for the amalgamation of Ujjivan Financial Services with the bank in accordance with applicable laws and guidelines.

Meanwhile, with a recovery in credit demand and improvement in collection efficiencies, Chugh said the bank is cautiously optimistic.

“We are seeing a strong demand in housing, affordable housing dedicated to micro small enterprises. in microfinance, personal loans,” he said.

The bank is retaining its credit growth target of 20 per cent to 25 per cent this fiscal but Chugh said it may be closer to 20 per cent, given the impact of the second wave of the pandemic.

The lender is also witnessing repayment by customers from July onwards and expects NPA recoveries to improve.

“Collection efficiencies improved to 93 per cent in July compared to 78 per cent in June,” he said, adding that the second quarter of the fiscal is looking quite optimistic on business as well as collection.

The bank had reported a standalone net loss of Rs 233.48 crore in the quarter ended June 30, 2021 with gross non performing assets rising to 9.79 per cent of gross advances.

The lender is also planning to scale up its gold loan business this fiscal and expand it to 25 branches this quarter. In the current fiscal, it plans to take the gold loan offering to 100 branches.

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Unbundling of banking services is a reality, says MK Jain, RBI Deputy Governor

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Unbundling of banking services is a reality, changing how banks operate and testing their adaptive capacity, according to MK Jain, Deputy Governor, Reserve Bank of India.

Jain cautioned that they might be marginalised very soon unless traditional firms adapt to new ways of doing business.

“Even as banks’ reliance on technology has grown by leaps and bounds, technology is also revolutionising the competitive landscape in the financial system.

“Entry of BigTech firms and innovative Fintech players into the traditional domain of banks has already revolutionised the way financial transactions are carried out,” the Deputy Governor said in a speech at India International Centre, New Delhi.

Jain observed that even while individual entities adapt to the new competitive landscape, it is imperative to ensure that heterogeneity is preserved at the system level.

“A homogenous financial system will be less resilient and prone to systemic crisis if the underlying economic conditions change.

“Hence, it is important that the financial system consists of entities which follow different business models even while adapting to the newer ways of doing business,” he said.

Lemon problem

The Deputy Governor underscored that reducing the incidence of ‘lemon problem’, whereby the lender cannot distinguish between the borrowers of good quality and bad quality (the lemons), is an important feature of building resilience in the financial system and improving the credit flow.

The lemon problem results in making the loan at an interest rate that reflects the average quality of the good and bad borrowers.

“The result is that high-quality borrowers will be paying a higher interest rate than they should because low-quality borrowers pay a lower interest rate than they should.

“One result of this lemons problem is that some high-quality borrowers may drop out of the market, with what would have been profitable investment projects not being undertaken,” Jain said.

The ‘lemons problem’ also impedes banks’ ability to anticipate risk build-up in lenders portfolios.

The Deputy Governor noted that borrowers are probably the first to see early signs of difficulties in their respective segments. When they do not pass on the information to their lenders, fearing that the lender may refuse new loans or tighten the conditions of existing loans, lenders’ ability to identify risks early is severely hampered.

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Sanjiv Bajaj, Bajaj Finserv, BFSI News, ET BFSI

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It is a question of how we as the private sector keep working with the government, keep pushing them to do more and they do the same with us. That is how this country will grow, said Sanjiv Bajaj, Chairman & MD, Bajaj Finserv on ET Now. Edited excerpts:

What are the pain points for Bajaj Finserv?
It is actually a combination of things, but at the heart of it is a continued nervousness on the pandemic. To be fair, the second wave got us all by surprise. It was a devastating wave both for lives and livelihoods. What it also does is through all the lockdowns that we saw, with more localised lockdowns compared to the first wave, it starts disrupting the supply chain again. And each time you restart it, it takes that much longer.

If you look at small businesses, through the first wave many of them shutdown. They somehow managed to put some savings to get started, they have to again shutdown in the second wave. So, that is where there is this nervousness about the third wave and that is why I think government and private sector are pushing people to get vaccinated. We are helping them do that. We are still propagating all the safety-related measures that we need to take so that we have a milder third wave, if at all it comes.

As a result of that, lives get protected and we stay open for business. For example, I am seeing on the consumer side, demand in July already started picking up early August; first 10 days of August. It is looking good. If this trend continues in the next few months, we could do very well for many sectors to be very close to pre-COVID levels. But if we get hit by a third wave again, the whole thing goes down and that is where part of the nervousness comes.

Would you say therefore the financials, the banks, the NBFCs are more nervous?
Again, this differs from case to case. Last year, in the first wave itself, a number of private banks, NBFCs went and raise outside capital and they flushed out possible NPAs early on. You could see that in their P&Ls and they are rearing to go now. You are starting to see some of them do that.

On the other hand, there were those that were slow at raising capital and then it became too late to raise capital. They have not yet flushed their NPAs out and as a result of that they will be slower to pick up. So, it is going to be a bit of a mixed bag. Overall, given that the pace of growth is also not suddenly going to accelerate to a level where capital is not available, I do not think capital will be an issue in supporting demand and growth.

How did you read the statement from the Prime Minister saying that India is one of the most competitive when it comes to tax? Are you reading that as a sign that it is going to stay as status quo next year as well?
I definitely hope it does and this goes towards a much larger foundation that the Prime Minister and the government is talking about which is just improving ease of doing business. So, it is not just taxation when he talked about how in the Companies Act the number of laws is going to be criminalised, he talked about the repeal on the Retrospective Tax Amendment. He talked about opening up a whole bunch of strategic sectors which were earlier only for the public sector, whether it was defence.

What he is trying to say is that we are creating all the elements to take India into that next big exponential growth jump and I hope that you as the private sector will leverage that opportunity and have confidence in that growth. A lot of the proof is in the pudding. I think it is equally important to say the LIC IPO should happen on time.

The privatisation on the public sector, couple of the banks, the insurance companies should happen. This will then create the traditional confidence. It is not a question of saying that I have done three things or you do three things, it is a question of how we as a private sector keep working with the government, keep pushing them to do more and they do the same with us. That is how this country will grow.

One big difference that was there between wave one and wave two was inflation. How do you see that hitting the economy at this juncture?
If you look at not just India, but at all the world governments, central banks have to make choices. Those choices are made in a volatile environment because of the pandemic. So, when you look at inflation today, other than that from something like oil, the rest of it could very well be because of supply chain disturbances that have happened. As we are hearing, central banks from all over the world say that those could be transient.

A much more important focus is on growth with every country saying we need to grow ourselves out of it and you have to make some choices. If you grow with investments going into the right areas, then that becomes productive growth. Two, that should bring inflation down. Three, if the pandemic comes in good control going forward and supply chains go back to their more efficient ways, then the transient impact also should go away. That is what we can hope for.

So, it is not as big an issue as we thought a couple of months ago?
I do not think it is a big issue at all. If you read what some of the well-known economists even talk about, it is almost an expected outcome of the current monetary policy. It should not be surprising that in a situation of a accommodative monetary policy with disturbances in the economy due to the pandemic, this is almost an expected outcome. Why should we be worried about it as long as we are keeping our eye on it, as long as we are seeing growth coming back.



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Shriram City expects to return to pre-Covid levels by Q2

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Shriram City Union Finance (SCUF) expects to return to the pre-Covid level of disbursements by the second quarter of this fiscal, backed by a steady pick up in demand across two-wheeler loans, loan against gold, personal loans and MSME finance.

According to YS Chakravarti, MD and CEO, Shriram City Union Finance, the company is looking to “aggressively push” two-wheeler as well as gold loans. While it also plans to push personal loans and SME loans, it will continue to remain cautious and prefer to lend to its existing customers.

“We normally do disbursements worth ₹6,500-6,600 crore during a quarter. We disbursed close to ₹2,000 crore in July alone, and we hope to register close to ₹6,000 crore during the second quarter of this fiscal,” Chakravarti told BusinessLine.

Also read: Shriram City, STFC raise ₹2,000 crore through retail fixed deposits in July

The NBFC had registered disbursements to the tune of ₹4,560 crore in Q1 FY22. While on a year-on-year basis it was higher by around 244 per cent, sequentially it was down by around 31 per cent when compared to ₹6,570 crore in Q4 FY21, due to lockdowns and limited business activities. However, things have been improving since June-July this year and the trend is expected to continue moving forward.

Sector-wise growth

As on June 30, 2021, Assets under Management (AUM) was ₹29,599 crore. The share of small enterprises finance came down to nearly 49 per cent of the AUM as on Q1 FY22 against 58 per cent in the same period last year.

The share of two-wheeler loans increased to 23 per cent (21 per cent); loan against gold was up at 15 per cent (10 per cent) and personal loans increased to eight per cent (six per cent) in the same period.

“NBFCs catering to MSME on the manufacturing side have been affected. Strategically, we work with the trading community; call it providence or the heritage (of the company), a majority (nearly 80 per cent) of our exposure has been to the trading communities and SMEs engaged in essential services, limiting the fallout due to Covid.

“But we are still cautious about this segment. Nearly 70-75 per cent of our lending is to the existing customers,” he said.

Also read: Shriram Housing Finance Q1 net profit up 82%

However, the company expects the share of SMEs to increase to 50-55 per cent of total business in the next two to three years, given the “immense scope for lending” and shortage of available funding options for the sector.

Nearly 80-90 per cent of the company’s two-wheeler loan book is in Tier II and rural markets, where the customers are either self employed or own small business. Nearly 98 per cent of the funding is for commuter vehicles and not high value bikes so the delinquency is low, he said.

GNPA

The company’s gross non-performing asset (GNPA) increased sequentially to 6.91 per cent in Q1 FY22 from 6.37 per cent in Q4 FY21; however, on a year-on-year basis, it improved from 7.28 per cent in Q1 FY21.

With collections improving on a month-on-month basis, the GNPA should pull back to March levels. “The NBFC’s collection efficiency in May was around 86 per cent; it went up to 93 per cent in June and in July it was almost 100 per cent,” he said.

Also read: Shriram City Union Finance Q1 net up 8% at ₹208 crore

SCUF’s restructured book stood at ₹39 crore as on June 30, 2021. It is likely to restructure accounts worth ₹40 core to ₹50 crore by September this year.

The company, which has a strong presence in South and West India, is looking to strengthen its footprint in UP and Bihar. Plans are afoot to grow its network and presence in the eastern States of Odisha and West Bengal post December this year.

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