Tag: banking

Top bankers may only get bonus after new RBI rule, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India‘s directive to treat grant of employee stock options as an expense is having an unintended impact.

Banks are doing away with ESOPs and adding deferred bonus payments to the senior managerial staff as the new rules could add significant costs to banks, eroding their quarterly earnings.

The shares are required to be valued at a fair value that may add to the costs. Though it is a non-cash cost, it still results in a higher expense in the P&L for the bank, impacting its profits and earnings.

The RBI directive

The RBI said last week the fair value of the share-linked incentives paid to chief executive officers, whole-time directors and other key functionaries by the private banks should be recognised as an expense during the relevant accounting period.

Issuing a clarification in this regard, the RBI said, “the fair value (of share-linked incentives) …should be recognised as expense beginning with the accounting period for which approval has been granted”.

In terms of the extant guidelines, share-linked instruments are required to be fairly valued on the date of grant using the Black-Scholes model.

The Black-Scholes model, also known as the Black-Scholes-Merton model, is a mathematical model for pricing an options contract. In particular, the model estimates the variation over time of financial instruments.

Treatment as expense

The RBI issued the clarification saying “it has been observed” that banks do not recognise grants of the share-linked compensation as an expense in their books of account concurrently.

The RBI also asked all banks, including local area banks, small finance banks and foreign banks to comply with its directions for all share-linked instruments granted after the accounting period ending March 31, 2021.

The central bank had issued guidelines on the compensation of whole-time directors/ chief executive officers/ material risk takers and control function staff in November 2019 in which it had said that share-linked instruments will be included as a component of variable pay.



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India Ratings maintains stable outlook on banking sector in FY22, BFSI News, ET BFSI

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Domestic rating agency India Ratings on Tuesday maintained a stable outlook on the banking sector for 2021-22 while it expects an increase in stressed assets in retail and MSME segments by end-March. It estimates gross non-performing assets (GNPA) of the banking sector to be at 8.6 per cent and stressed assets at 10.3 per cent for fiscal 2021-22.

“We have maintained a stable outlook on the overall banking sector for the rest of FY22, supported by the continuing systemic support that has helped manage the system-wide COVID-19 linked stress,” the rating agency said in its mid-year banks outlook released on Tuesday.

Banks will continue to strengthen their financials by raising capital and adding to provision buffers which have already seen a sharp increase in the last three to four years, it said.

The agency said its stable outlook on large private banks indicates their continued market share gains both in assets and liabilities, while competing intensely with public sector banks (PSBs). Most have strengthened their capital buffers and proactively managed their portfolio.

Outlook on PSBs takes into account continued government support through large capital infusions (Rs 2.8 lakh crore over FY18-FY21 and further Rs 0.2 lakh crore provisioned for FY22), it said.

The agency has a negative outlook on five banks (about 6.5 per cent of system deposits), driven primarily by weak capital buffers and continued pressure on franchise.

It estimates that the asset quality impact in the retail segment has been higher for private banks with a median rise of over 100 per cent in gross NPAs over Q1 FY21 to Q1 FY22 (about 45 per cent for PSBs).

“Banks have also undertaken restructuring in retail assets (including home loans), which could have postponed an immediate increase in slippages. Overall stressed assets (GNPA + restructured) in the segment is expected to increase to 5.8 per cent by end-FY22,” the report said.

It said the MSME sector has been under pressure with demonetisation, introduction of GST and RERA, slowing down of large corporates and now COVID-19.

However, the government has supported the segment by offering liquidity under the Emergency Credit Line Guarantee Scheme (ECLGS) and restructuring, it said adding that it expects that beginning Q3 FY22, a portion of such advances would start exiting moratoriums a part of which could slip.

GNPAs of MSMEs is expected to increase to 13.1 per cent by end-FY22 from 9.9 per cent in FY21. Stressed assets similarly would increase to 15.6 per cent from 11.7 per cent.

For corporate segment, the agency estimates GNPAs to increase to 10.2 per cent and stressed asset to increase to 11.3 per cent.

The rating agency has kept its FY22 credit growth estimates unchanged at 8.9 per cent for FY22, supported by a pick-up in economic activity post Q1 FY22, higher government spending especially on infrastructure and a revival in demand for retail loans.

Last week, the agency had changed the outlook to improving from stable for retail non-banking finance companies (NBFCs) and housing finance companies (HFCs) for the second half of FY22.

It said non-banks have adequate system liquidity (because of regulatory measures), sufficient capital buffers, stable margins due to low funding cost and on-balance sheet provisioning buffers.

These factors provide ‘enough cushion to navigate the challenges that may emanate from a subdued operating environment leading to an increase in asset quality challenges due to the second covid wave impacting disbursements and collections for non-banks’, it had said.



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Equitas Small Finance Bank eyes 25% growth in advances this fiscal

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Equitas Small Finance Bank (Equitas SFB) is hopeful of clocking at least 25 per cent growth in its loan book from this fiscal, a top official said.

This is likely to happen provided there is no further disturbance in the coming days such as any third Covid wave, PN Vasudevan, Managing Director & CEO, Equitas SFB, told BusinessLine.

Equitas SFB’s advances growth target of 25 per cent is higher than the 17 per cent clocked during 2020-21, but lower than the pre-pandemic growth level of 35 per cent, he noted.

He highlighted there was no situation of any low-base effect playing out given that the Equitas SFB advances growth was 17 per cent last fiscal.

“I am assuming that if life returns to being reasonably normal, we should clock 25 per cent growth even this fiscal. Going forward we should be able to deliver annual credit growth of 25 per cent on a consistent basis,” Vasudevan said.

In the last five years since its formation, Equitas SFB balance sheet has grown from ₹9,000 crore to ₹25,000 crore. Advances have tripled to ₹18,000 crore from ₹6,000 crore. The number of branches doubled from 400 to about 850. “While the branches have doubled, the volumes have tripled,” Vasudevan said.

Equitas SFB, which has completed five years of existence, expects its non-performing assets to come down from 4.5 per cent last year (pandemic times) to normal level of 2.5-2.7 per cent over next 2-3 quarters. “We have never had an issue on the asset quality front in 14 years ( five years as a bank and about nine years as NBFC). We expect our NPA level to come back to absolutely normal level in next 2-3 quarters,” he said.

On capital raising to support growth, Vasudevan said that Equitas SFB is not projecting any capital requirement for next 2-3 years and is quite comfortable on this front.

On the proposed merger of its parent Equitas Holding with Equitas SFB, Vasudevan said that an application has been made to the RBI for the merger. “This proper merger of the holding company with SFB won’t have any impact on the operations of the bank as the holding company is a non-operating company,” he added.

Digital banking

Going forward, Equitas SFB intends to leverage digital to expand the customer base and would not go in for any large scale physical branch expansion. “This does not mean we will not set up new physical branches in the next few years. It will be a modest increase,” he noted.

He highlighted that the bank had opened 5.5 lakh new savings accounts in the first quarter this fiscal as against 4.8 lakh in the entire previous fiscal and this has been largely aided by the digital channel of the bank. In 2019-20, Equitas SFB had opened 1.6 lakh new savings bank accounts.

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Retail loans surpass industry loans for first time as corporates avoid banks, BFSI News, ET BFSI

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Retail loans continue to grow at a faster pace as loan demand from large corporates trips.

The outstanding retail loans are higher at Rs 28.6 lakh crore against Rs 28.2 lakh crore for industry that includes MSMEs and large corporates at the end of July. The outstanding loans to the services sector stand at Rs 26 lakh crore.

The growth rate of the retail/personal loans segment stood at 11.2% in July 2021, higher by 220 bps when compared with July 2020.

In absolute terms, credit outstanding has increased from Rs 25.7 lakh crore in July 2020 to Rs 28.6 lakh crore in July 2021.

The growth in retail loans has been driven by personal unsecured, vehicle loans and gold loan lending by some banks. The growth rate came in higher by 120 bps as compared with March 2021.

However, the retail/personal loans segment contracted on a sequential basis, but at a slower rate. The incremental credit growth to sub-segments contracted except for consumer durables and credit cards segment. The retail/personal loans segment has continued to be the second-largest amongst the four major segments with a share of around 26%.

Retail bifurcation

Within the retail segment, the housing loan with the highest share of 51.3%, slowed to 8.9% as compared with a growth of 11.1% in the same period of the last year. The housing loan segment was impacted due to the second wave of the pandemic, as there is no reasonable pickup seen in the housing segment. Credit card outstanding (share of 4.0%) registered a growth of 9.8% y-o-y as compared with a growth of 8.6% in July 2020, as discretionary spending was significantly impacted in the previous year due to the Covid outbreak.

Incrementally, retail/personal loans segment registered marginal growth. Within retail/personal segment, consumer durables, housing loans and loans against gold witnessed an increase, while the other segments reported a decline.

Industry loans

The industry segment witnessed a growth of 1% on YoY basis in July 2021, after witnessing a de-growth in previous month.

Large industries account for 80.5% share (83.8% share in July 2020) in the total outstanding credit to industries and this segment reported a drop of 2.9% in July 2021 versus a growth of 1.4% in July 2020.

The growth movement is weak as corporates continue to de-leverage and select large corporates access to bond markets. MSME industries grew by 21.3% in July 2021 (which partially offset the fall in large segments) as compared with a drop of 1.8% in July 2020. The growth in lending to industry and services was almost entirely led by the MSME segment, which was driven by disbursements under ECLGS scheme wherein Rs 2.14 lakh crore were disbursed up till date.

Of total 19 industries, six industries witnessed a drop in credit outstanding. Petroleum, coal products and nuclear fuels (share of 2.5%) registered the highest growth of 22.7% within industries (growth of 8% in July 2020). Rubber, Plastic, and their Products segment growth stood at 16.4% as compared with a growth of 7.4% in July 2020.

The infrastructure segment, which has the highest share of 38.3% in the total bank credit outstanding to industries, registered a growth of 2.4% in July 2021 as compared with a growth of 2.2% a year ago. Within the infrastructure segment, the airport segment registered a robust growth of 58.4% followed by the road segment at 29.7% in July 2021. While ports and telecommunication segments registered a de-growth of 21.9% and 13.5% respectively in July 2021 as compared with a growth of 17.3% and 19.6% respectively in July 2020.



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Jana SFB to provide digital payment infrastructure for Karnataka Government’s NSNK programme, BFSI News, ET BFSI

Banking & Finance

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Jana Small Finance Bank will provide the digital payment infrastructure and become the payment gateway services provider to the ‘Namma Shaale Nanna Koduge’ scheme, a state government initiative.

The Namma Shaale Nanna Koduge or My School, My contribution programme aims to provide accessibility to donors who wish to donate money to any government school in Karnataka. Chief Minister Basavaraj Bommai formally launched this program at Vidhana Soudha on September 5, Teacher’s Day.

The programme aims to develop a sense of ownership among the public, alumni and stakeholders, and strengthen the public education system. As per the process, the donation will be credited to the account of Karnataka Text Book Society – Department of Public Instruction, which will then get transferred to the respective school account , the bank said in a release.

Donors can use Jana Bank’s complete payment ecosystem of RTGS, NEFT, UPI, IMPS, Debit card, among others, to make their donations. Additionally, Jana Bank serves five lakh customers in Karnataka, which will help enable donors to reach out to the government schools. The bank has developed a round-the-clock complaint addressing mechanism through a support desk that will take care of any technical and operational queries of donors.



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India’s banking sector survives covid scare but needs to address these challenges now

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The Indian banking sector is resilient, sufficiently capitalized and well-regulated segment.

By Brajesh Kumar Tiwari

In the last parliament session, the Union Cabinet cleared changes (Deposit Insurance & Credit Guarantee Corporation Bill 2021) to the deposit insurance laws to provide funds up to Rs 5 lakh to an account holder within 90 days in the event of a bank coming under the moratorium imposed by the RBI. The government has also permitted raising the deposit insurance premium by 20 per cent immediately, and maximum by 50 per cent. 

The Indian banking sector is resilient, sufficiently capitalized and well-regulated segment. Over the last 7 years the NDA government has been infusing capital into the public sector banks using recapitalization bonds. However, following COVID and the expectations from the Union Budget 2021-22, liquidity has become a huge issue. Since the last few years, several European banks have confirmed certain disposal operations of impaired loans. This has largely contributed to a significant reduction of the NPL ratio. However, the birth of a huge secondary market for bad debts and the unification of standardized large-ticket assets in order to construct a ‘single-name’ portfolio has given way to newer problems. In fact, the banking sector is silently reeling under the challenges thrown towards it, which are:

Maintaining Capital Adequacy:  The capital a bank sets aside for its rainy day or to undertake lending activities acts more like the bank’s risk threshold.  However, in the post-COVID world banks are facing fresh ambush of NPAs on unsecured loans. Earlier RBI has offered moratorium on loans and has also announced the two-year restructuring on loans to safeguard weak borrowers, but this situation hints at the NPAs increasing from 7.5 per cent in September last year to 13.5 per cent by September this year, putting a lot of stress on banks. Unless the government pumps in money externally, banks will be in severe loss creating massive capital adequacy problems. Bad loans and in failing with maintaining the minimum RBI prescribed Capital Adequacy Ratio, banks will have to face severe challenges in due course. Moreover, the Basel IV standards that limit the reduction in capital is due to be formalized in January 2023. Earlier, following the global financial crisis of 2007-08 the international implementation of Basel III was formalized and that has already raised the capital adequacy quotient for banks in order to mitigate risks. Now, Basel IV, according to global banks will raise the bar of capital further, which is definitely a sign of worry for India, given its present state. 

Maintaining Asset Quality: Bad loans are a big problem for the Indian banking sector, especially the PSBs. As per an IMF report 36.9% of the total debt in India is at risk and banks have capacity to absorb only 7.9% loss. Add the COVID crisis to this and the banks are struggling to recover loans from small businesses, which have been severely affected by COVID. The pandemic has put a halt in business all across, so loan recovery is a big question mark, which definitely hurts the banking sector as they struggle to maintain the quality of their assets.   

Maintaining Growth: The overall economic growth of the country is shunted at the moment and an outward push can only help every contributing sector of the economy –corporates, retail, and rural prominently. The growth impetus is financial at the moment and the sooner the sectors recover, the healthier it will be for the banking sector. As of now, the banking sector has no way of fulfilling its growth aspirations and is barely struggling to stay on ground. 

Keeping these top 3 challenges in mind, here are a few suggestions for the banking sector in India, which will help them revive their status.

Things to work out in short term

  • Restructuring: RBI’s restructuring guidelines on loans for individuals and businesses not only work as a relief for the borrowers, but it also gives a scope to banks to maintain their status quo. Banks should use this relief period to improve their asset quality while continuing being a pillar of support to the MSMEs. This restructuring is RBI advised and the framework keeping in mind the benefit of the banks and customers have been specially devised and has come in to effect since April 1, 2021. Since the regulatory guidelines for the loan restructuring are RBI directed so the implications of customers delaying payments will not come harshly on the banks. This gives the financial institutions a chance to reorient themselves. 
  • Lower interest rates on loans: The COVID crisis has pushed the economy to go off track and financial shortages is an evident problem all across. Constant cash flow is a problem with both the service sector and as well as individuals. Indian banking sector should use this premise to their credit and begin offering lower interest rate loans to individuals and MSMEs. This will encourage lending, which will stimulate overall economic growth and give banks a chance to improve on their CAR. Reform has already started in the home loan finance space, interest rates for home loans in India at present have fallen to historic lows. What was around 8.40% during September 2019 is now at 6.49-6.95% range.
  • Improved diligence: While it is necessary to pump in more money in to the system to help sustain businesses and to boost the economy, it is also equally a necessity to keep bad loans at bay. Bad loans lead to higher NPAs over time, so due diligence has to be observed when offering funds. This will help keep frauds and unscrupulous people at distance and the banks will then be able to extend money to rightful and needy businesses or individuals. Proper scrutiny and stringent application measures will help avoid wrongdoings. Moreover, banks should be cautious when giving loans to Indian companies who have heavily borrowed abroad. This is because according to RBI, this will put banks under unnecessary exposure to dollar and will further add to their existing pool of problems. 

Things to work out in long term

    • Technology upgradation: Digitalization is the buzz word for businesses and banking, especially PSBs should adapt to the concept of digital to make banking operating seamless. Technology will make or break the way people look at services in the coming time, so banks should ride the bus before it leaves the stop. From adding top-notch technology to upgrade services to upgrading existing set-up, a lot of opportunities lies in technology and harnessing the same will help bringing in a big change in approaches. 
    • Technology reach: Tech inclusion and tech literacy campaigns should be undertaken to ensure that paperless banking or basic tech services are so easy to use that it is available/accessible and usable to all. This is not undoable. If people can order products on Amazon, use Facebook, why not banking services. Of course, with appropriate security measures in place. 

 

  • Focus on MSMEs: Banks, including PSUs are primarily keeping their attention on retail advances or corporates today. The banking sector mostly chooses to ignore the MSME advances. This trend is not healthy for the economy and will not help banks grow in the days to follow. MSMEs are the backbone of Indian economy and creates employment for 70 million people. This sector has a 16% contribution to the Indian GDP, which as per reports is to become 25% by 2022. Certainly, the prosperity and growth of this sector will help leverage the economy and give it a prosperous enrichment. 

 

  • Customer-centric Innovation: Innovation is key to customer loyalty in today’s day and age and in order to win customer loyalty in long term, banks should focus more on innovation. Keeping pace with the changing environment and other industry practices the banking sector should invest in innovation that will help them serve their customers with ease. The more agile the services and banking practices, the easier it will be for the customer to bank with the partner. 

The pandemic has been an eye opener for everyone in some way or other. However, counting in the positives of the pandemic there is a chance to relook at the economy. This is the right time to repair and reorient as we prepare for a better tomorrow. 

(Brajesh Kumar Tiwari is the Author of “Changing Scenario of Indian Banking Industry” Book; Associate Professor Atal Bihari Vajpayee School of Management & Entrepreneurship (ABV-SME); Member (Innovation Council, JNU); Jawaharlal Nehru University (JNU). Views expressed are the author’s own.)

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Cashfree launches Banking-as-a-service offering ‘Accounts’

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Bengaluru-based Cashfree, a digital payments and banking technology company on Monday launched its Banking-as-a-service offering ‘Accounts’ to help neo-banks and fintech platforms integrate banking services into their product.

Accounts will allow businesses to offer features such as account opening, linking, deposits, check balance and interest earning to their customers, partners and vendors, the company said in an official release. It will help enable 100 per cent paperless bank account creation.

Also read: Cashfree raises funds from SBI

Currently supporting the creation and management of current accounts, Cashfree intends to add support for savings accounts, virtual accounts and other payments instruments soon.

“The product is currently running pilots with fintech start-ups, and will also enable other technology platforms to generate and customize payment instruments using Cashfree APIs,” it said.

Akash Sinha, CEO and Co-Founder, Cashfree said, “India is witnessing a dramatic rise in the number of digital-first start-ups and enterprises. While the ecosystem is evolving rapidly to adapt to the change, start-ups and tech-first businesses often struggle with access to banking services.”

“Cashfree aims to build a bouquet of Fintech APIs to help empower businesses and individuals. Our first product under it, ‘Accounts’, will not only allow businesses to open banking accounts for their customers to collect payments and make payouts easily, but also bring their customers under the fold of digital payments,” said Sinha.

The announcement comes close on the heels to the launch of the Account Aggregator ecosystem last week.

Cashfree works closely with all leading banks to build the core payments and banking infrastructure that powers the company’s products, and is also integrated with major platforms such as Shopify, Wix, Paypal, Amazon Pay, Paytm and Google Pay, it said.

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Orange Retail Finance eyes to disburse loans worth ₹1,000 crore

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Orange Retail Finance, a rural-focussed non-banking finance company, aims to disburse loans of about ₹1,000 crore over the next two years amid signs of economic recovery and pent-up demand for credit in the rural economy.

“Over the last eight years, we have disbursed loans worth ₹900 crore. Our current AUM is at ₹400 crore. In the next two years, we are planning to disburse about ₹1,000 crore in two-wheeler loans and loan against property (LAP),” said Ebenezer Daniel G, Founder, MD & CEO, Orange Retail Finance India Private Limited.

Affordable financial solutions

Started in 2013, the Chennai-based NBFC is focused on providing affordable mobility and livelihood finance solutions to semi-urban and rural India. Currently, the company has over 100 branches across the five southern States covering over 10,000 villages with a base of 1.45 lakh customers.

“Two-wheeler loans are our core product. Every year, rural two-wheeler growth is around 10-15 per cent while urban market growth is almost saturated,” Daniel said, adding, “There is growth in the rural segment because two-wheeler is a livelihood asset, and we can survive by creating an impact in this market.”

Currently, 80 percent of Orange Retail Finance’s loan portfolio comprises two-wheeler loans followed by swift cash loans (10 per cent) and LAP (5-10 per cent). In the next two years, the company plans to increase the share of LAP and swift cash loans to 25 per cent and 20 percent of the loan book, respectively.

Mobile app

The company recently launched ‘Orange Finmobi’, a mobile app where a customer can manage the end-to-end process of two-wheeler purchase including loan application, vehicle selection, RTO registration, EMI mandate and home delivery of vehicle.

“During the first Covid wave when the lockdown was in place for six months, over 22,000 of our cash mode customers migrated to digital payments using QR codes,” Daniel said. “Digitalisation is one of the key reasons for our survival. Now, we want to scale up in a big way using the digital infrastructure.”

The company also sees a big growth opportunity in electric two-wheeler financing.

“We have signed up with Hero Electric as a preferred financier and in the final stage of signing an MoU with Ola as a preferred financier for south India. We are also having discussions with TVS, Bajaj and Ather for a tie up,” Daniel said.

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Bank of Maharashtra expects total business to cross Rs 3 lakh crore soon, BFSI News, ET BFSI

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State-owned Bank of Maharashtra (BoM) is well poised to cross Rs 3 lakh crore in total business soon on the back of the improved economic sentiment, a top official has said. The bank has been a performer in various key parameters, including deposit mobilisation, credit growth, recovery, risk management etc, BoM managing director and CEO A S Rajeev told PTI.

Despite challenging times, he said, the bank has consistently expanded its balance sheet and reduced non-performing assets (NPAs).

Going forward, he said, the bank is well poised to cross the business mix of Rs 3 lakh crore soon as economic activity gathered pace with moderation in COVID-19 cases.

The total business (deposits and advances) of BoM increased by 14.17 per cent to Rs 2.85 lakh crore at the end of June 2021.

To further mobilise low-cost deposits, Rajeev said the bank has opened a dedicated branch to manage government business.

This specialised branch, inaugurated by Minister of State for Finance Bhagwat K Karad on Thursday, will provide better service to the government departments and Central Public Sector Enterprises (CPSEs).

Along with MD and CEO, other senior officials of the bank — including general manager Chitra Datar and Deputy General Manager Nayana Sahasrabuddhe — were also present at the inauguration of the new branch.

He said expansion in the government business would provide access to low-cost deposits and a reduction in the cost of funds, leading to a lower rate for the borrowers.

Rajeev also said that the bank has launched special offers for the retail segment, including housing and auto.

The bank has already started a loan outreach programme, and all the field functionaries have been sensitised, he said, adding this should give a good dividend.



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Bank of Maharashtra expects total business to cross ₹3 lakh crore soon

Banking & Finance

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State-owned Bank of Maharashtra (BoM) is well poised to cross ₹3 lakh crore in total business soon on the back of improved economic sentiment, a top official said.

The bank has been a performer in various key parameters, including deposit mobilisation, credit growth, recovery and risk management, BoM Managing Director and CEO, AS Rajeev, told PTI.

Despite challenging times, he said, the bank has consistently expanded its balance sheet and reduced non-performing assets (NPAs).

Going forward, the bank is well poised to cross the business mix of ₹3 lakh crore as economic activity gathers pace with moderation in Covid-19 cases, he added.

The total business (deposits and advances) of BoM increased by 14.17 per cent to ₹2.85 lakh crore at the end of June 2021.

Dedicated government branch

To further mobilise low-cost deposits, Rajeev said the bank opened a dedicated branch to manage government business.

This specialised branch, inaugurated by Minister of State for Finance, Bhagwat K Karad, on Thursday, will provide better service to government departments and central public sector enterprises.

Other senior officials of the bank – including general manager Chitra Datar and Deputy General Manager Nayana Sahasrabuddhe – were also present at the inauguration of the new branch.

Also see: It’s defining times for Urban Cooperative Banks

Expansion in the government business would provide access to low-cost deposits and a reduction in the cost of funds, leading to a lower rate for the borrowers, Rajeev said.

The bank has launched special offers for the retail segment, including housing and auto, he added.

The bank has already started a loan outreach programme, and all field functionaries have been sensitised, he said, adding that this should give a good dividend.

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