Tag: banks

Banks disburse over Rs 2 lakh cr under ECLGS till mid-July, BFSI News, ET BFSI

Banking & Finance

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Nearly 17 months after the launch of the Emergency Credit Line Guarantee Scheme (ECLGS), banks have sanctioned Rs 2.76 lakh crore, with disbursals adding up to Rs 2.14 lakh crore till mid-July.

Similarly, the PM SVANidhi scheme, providing loans of up to Rs 10,000 to street vendors, has seen flows of a little over Rs 2,500 crore to 25 lakh vendors, although the internal target was more ambitious, with banks nudged to give loans.

Although the government has announced an increase in the ECLGS limit from Rs 3 lakh crore to Rs 4.5 lakh crore, officials do not expect a major surge, amid demands that eligibility norms be eased to enable more small businesses to use the window. When the scheme was announced last year, it was meant for micro, small and medium enterprises (MSMEs), but the scope was enlarged later as the demand was not sufficient.

Up to July 2, a little less than 1.1 crore MSME borrowers have been provided guarantee-based support amounting to Rs 1.65 lakh crore, which translates into an average ticket size of Rs 1.5 lakh. Under the originally announced scheme, MSMEs that had loans of up to Rs 50 crore at the end of February 2020 were eligible even with past dues of up to 60 days.

MSME industry groups say that the conditions are such that it is difficult for businesses to get a loan. “The requirements were such that only a certain set of entities with existing loans were eligible. Now banks are reluctant to lend. The government should have dropped the condition of prior credit because we are seeing cash flows being disrupted for a lot of MSME units,” said Animesh Saxena, president of Federation of Indian Micro and Small & Medium Enterprises (FISME).

Recently, the parliamentary standing committee on industry noted that there is a huge gap between sanctions and disbursals as banks feared defaults in the wake of the second wave, and also said that only half the amount has gone to small businesses.



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Introduction and evolution of Neo-banks in India, BFSI News, ET BFSI

Banking & Finance

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The rise of e-commerce led to trusting digital-first options in various segments such as payments, insurance, investments. It was inevitable that this transition would be witnessed by the banking sector as well. Millennial audiences unfamiliar with brick-and-mortar services are open to digital-first banks where the need to visit a branch diminishes.

Globally, India has the 2nd largest base of internet subscribers, smartphones, and social media user base. With ~600mn digitally active customers, India offers a large market for digital banking services. This growth has been enabled by India’s public digital infrastructure and other regulations and policies.

Additionally, the COVID-19 pandemic has also accelerated the transformation of banking. It created an opportunity to innovate, and almost all traditional banks supplemented their brick-and-mortar branches with sophisticated digital versions of their services. Banks expanded their digital footprint and are using their digital channels to offer a range of services.

Taking this a step further, we now have neo-banks, which are fully operational digital-only banks with advanced features. The state of the art technology is what gave rise to neo-banks in the last few years with startups like Jupiter, Fi, and Finin, launching their services in 2019-20. Revolut, which was last valued at $33B, has recently announced its plan to roll out neo-banking services in India.

What is making Neo-banking the winner?

In the US, neo-banks like Chime allowed consumers to transfer money faster than the usual 3-4 days taken by conventional banks. On the other hand, in the UK, in addition to money transfer, neo-banks also provided borderless banking across Europe, which is a borderless economy. However, such problems do not exist in India, and the winning reasons will be different.

India is different. With an experiential layer added on top of traditional banking, neo-banking will help solve access to several financial products that are not readily available to the 600M Indians and the 65M MSMEs. Riding on the success of the India FinTech stack – Digi locker, Aadhar, UPI 2.0, Account aggregator model, neo-banks will be able to improve digital distribution channels and onboarding for customers. Through the account aggregator model, neo-banks will be able to have access to the financial health of consumers, thus being able to offer personalized financial products. It will also allow them to correctly measure the default risk of these consumers, reducing NPAs and improving ROE margins.

The global scenario for neo-banks is quite different from that in India. In India, digital banking licenses are yet to be issued. Hence the current framework does not allow them to launch full-stack banking services. Obtaining a universal banking license will allow neo-banks to operate as a bank, in addition to the tech angle for better customer experience and ability to offer a myriad of products.

Today, some banks including Kotak Mahindra Bank, Yes Bank, and Federal Bank, are willing to partner with neo-banks for offering underlying banking accounts. It is a lucrative proposition for banks since they share RoE without bearing the additional cost to acquire these customers.

Way forward for neo-banks in India?

Since Indian neo-banks are just being launched, it will be interesting to see how they will monetise as the traditional sources of revenue for a bank would be unavailable to them, i.e., taking deposits and lending those deposits. Other revenue streams like MDR fees on card transactions is decreasing with the acceleration of UPI payments (and UPI payments are not revenue-generating). This leaves the neo-banks with cross-selling of financial products (wealth management, insurance, community-led discounts, stock market investments, etc.) and account opening commissions from banks as the primary source of income.

Currently, Neo-banking in India is at a nascent stage where some positive developments have happened in the last few quarters. The business models around neo-banks in India will have to evolve beyond the MDR on card transactions in the next few years. The key to their success will depend on how innovative they will be, in creating new revenue streams and acquire users with high lifetime value. Neo-banks who eventually will acquire a large user base with sustainable revenue streams will stand a chance to get a digital or a universal bank license and they are the ones who will emerge as winners in this space.

The blog has been authored by Kiran Vasireddy, Partner at Kalaari Capital.

DISCLAIMER: The views expressed are solely of the author and ETBFSI.com does not necessarily subscribe to it. ETBFSI.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.



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Banks disburse over Rs 2 lakh crore under ECLGS till mid-July, BFSI News, ET BFSI

Banking & Finance

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NEW DELHI: Nearly 17 months after the launch of the Emergency Credit Line Guarantee Scheme (ECLGS), banks have sanctioned Rs 2.76 lakh crore, with disbursals adding up to Rs 2.14 lakh crore till mid-July. Similarly, the PM SVANidhi scheme, providing loans of up to Rs 10,000 to street vendors, has seen flows of a little over Rs 2,500 crore to 25 lakh vendors, although the internal target was more ambitious, with banks nudged to give loans.

Although the government has announced an increase in the ECLGS limit from Rs 3 lakh crore to Rs 4.5 lakh crore, officials do not expect a major surge, amid demands that eligibility norms be eased to enable more small businesses to use the window. When the scheme was announced last year, it was meant for micro, small and medium enterprises (MSMEs), but the scope was enlarged later as the demand was not sufficient.

Up to July 2, a little less than 1.1 crore MSME borrowers have been provided guarantee-based support amounting to Rs 1.65 lakh crore, which translates into an average ticket size of Rs 1.5 lakh. Under the originally announced scheme, MSMEs that had loans of up to Rs 50 crore at the end of February 2020 were eligible even with past dues of up to 60 days. MSME industry groups say that the conditions are such that it is difficult for businesses to get a loan. “The requirements were such that only a certain set of entities with existing loans were eligible. Now banks are reluctant to lend. The government should have dropped the condition of prior credit because we are seeing cash flows being disrupted for a lot of MSME units,” said Animesh Saxena, president of Federation of Indian Micro and Small & Medium Enterprises (FISME).

Recently, the parliamentary standing committee on industry noted that there is a huge gap between sanctions and disbursals as banks feared defaults in the wake of the second wave.



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Fast growing gold loans turn sour hit by lockdowns, BFSI News, ET BFSI

Banking & Finance

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High yielding advances against gold jewellery, once the hottest loan product for banks, have turned sour this year as collections are affected due to the lockdown in the first quarter. Kerala-based Federal Bank and CSB Bank, besides large private sector lenders such as ICICI Bank, have seen slippages increase from this portfolio.

Although lenders say the pain is transitory, the second quarter is crucial for this portfolio to not become a big source of NPAs.

Banks for which gold loans contribute substantial amount to their profits, were hit in the first quarter. Out of the Rs 640 crore slippages that Federal Bank saw during the quarter, Rs 86 crore was from gold loans or linked to the product as a result, the bank’s gross NPAs rose to 3.50% of advances, up from 2.96% a year.

Similarly, Federal Bank’s smaller peer CSB Bank’s gross NPAs rose to 4.88% in June 2021 from 3.51% a year earlier due to the rise in NPAs from the gold loan business. Out of the Rs 435 crore of new NPAs during the quarter, Rs 361 crore was from gold loans including reversal of interest for the bank where gold loan makes up 38% of its assets.

Gold loans were the pain point even for larger lenders like ICICI which reported fresh slippages of Rs 6773 crore from its retail book out of which Rs 1123 crore were from such loans.

Analysts said the rise in delinquencies reflects the challenges banks faced in loan collections and also the cash flows issues faced by gold loan borrowers most of whom are micro entrepreneurs.

“There is also the impact of the fall in gold prices since last year which has made lending a little more risky. The fall in gold prices means that the strong growth that we saw in this portfolio last fiscal may slow down this year as banks will be more cautious,” said Prakash Agarwal, head financial institutions at India Ratings & Research.

Gold prices have fallen from a peak of Rs 52,827 per 10 grams in August 2020 to Rs 47,640 per grams now, though it is higher than the Rs 44,739 per 10 grams reported in March 2021. The rise in gold prices had also prompted the Reserve Bank of India to increase the loan to value ratio (LTV) to 90% from 75% in August. The LTV has since been restored to 75% from April.

Bankers however said despite the recent hiccups gold loans continue to be a well performing portfolio which can be built over the long term.

“We still believe in this portfolio and will continue to build it. There is no need for any caution. We are confident that as things improve both demand for loans and recovery of will improve. Already we are seeing an increase in recovery and we continue to expect growth in this fiscal year,” said CVR Rajendran, CEO at CSB Bank.

The growth though is going to be slower than the 61% growth the bank recorded in the fiscal ended March 2021. The banking system itself had recorded a 82% growth in fiscal 2021.

Bankers said the high yields and low risk offered by gold loans make it a winning product. CSB Bank for got a 11.50% quarterly yield in March 2021.

“In good times or bad gold loans are always a good product to have. Out NPAs in the segment is 0.20% which is very low with average loan to value (LTV) of about 80%. The loans at LTV of 93% are in single digits; so it is a very small portion,” said Shyam Srinivasan, CEO at Federal Bank.



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PSBs vacating branches open doors for other lenders

Banking & Finance

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The move by five public sector banks to reduce their branch numbers is proving godsend for lenders looking to expand their network.

The branches being vacated by Bank of Baroda (BoB), Punjab National Bank (PNB), Canara Bank, Union Bank of India (UBI) and Indian Bank have opened the doors to ready-made premises for other lenders. For the latter set, network expansion happens faster, at reasonable costs (as owners of these premises are desperate to rent them out) and without the hassle of re-doing interiors.

To cut down on operating expenses, the five PSBs have been merging or rationalising branches after the amalgamation of banks with them.

AS Rajeev, MD & CEO, Bank of Maharashtra, observed, 25-30 per cent of the branches opened by BoM last year were in the premises vacated by the PSBs. “The rent is comparatively less. That is why our rent outgo is not increasing despite the rise in the number of branches,” he said. BoM, which opened 82 branches last year, plans to open about 100 in FY22.

BK Divakara, CFO, CSB Bank, noted that 30-40 branches opened in 2020 and so far this year have been at premises vacated by a PSB. Divakara said the bank opened 101 branches last year and plans to open 200 this year.

CSB Bank actively scouts for ready-to-move premises being vacated by PSBs to avoid overlap of branches. These premises usually come with a strong-room (constructed to central bank specifications), counters and furnishings.

Branch rationalisation

After the amalgamation of Dena Bank and Vijaya Bank with BoB on April 1, 2019, the latter merged or rationalised 1,310 branches.

PNB rationalised about 430 branches after Oriental Bank of Commerce and United Bank of India were merged with it from April 1, 2020.

Canara Bank merged or closed 105 branches after taking over Syndicate Bank on April 1, 2020.

Union Bank of India merged or closed 275 branches after the amalgamation of Andhra Bank and Corporation Bank with it from April 1, 2020.

Indian Bank rationalised 203 branches after absorbing Allahabad Bank from April 1, 2020.

 

 

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PSBs vacating branches open doors for other lenders

Banking & Finance

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The move by five public sector banks to reduce their branch numbers is proving godsend for lenders looking to expand their network.

The branches being vacated by Bank of Baroda (BoB), Punjab National Bank (PNB), Canara Bank, Union Bank of India (UBI) and Indian Bank have opened the doors to ready-made premises for other lenders. For the latter set, network expansion happens faster, at reasonable costs (as owners of these premises are desperate to rent them out) and without the hassle of re-doing interiors.

To cut down on operating expenses, the five PSBs have been merging or rationalising branches after the amalgamation of banks with them.

AS Rajeev, MD & CEO, Bank of Maharashtra, observed, 25-30 per cent of the branches opened by BoM last year were in the premises vacated by the PSBs. “The rent is comparatively less. That is why our rent outgo is not increasing despite the rise in the number of branches,” he said. BoM, which opened 82 branches last year, plans to open about 100 in FY22.

BK Divakara, CFO, CSB Bank, noted that 30-40 branches opened in 2020 and so far this year have been at premises vacated by a PSB. Divakara said the bank opened 101 branches last year and plans to open 200 this year.

CSB Bank actively scouts for ready-to-move premises being vacated by PSBs to avoid overlap of branches. These premises usually come with a strong-room (constructed to central bank specifications), counters and furnishings.

Branch rationalisation

After the amalgamation of Dena Bank and Vijaya Bank with BoB on April 1, 2019, the latter merged or rationalised 1,310 branches.

PNB rationalised about 430 branches after Oriental Bank of Commerce and United Bank of India were merged with it from April 1, 2020.

Canara Bank merged or closed 105 branches after taking over Syndicate Bank on April 1, 2020.

Union Bank of India merged or closed 275 branches after the amalgamation of Andhra Bank and Corporation Bank with it from April 1, 2020.

Indian Bank rationalised 203 branches after absorbing Allahabad Bank from April 1, 2020.

 

 

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Anarock, BFSI News, ET BFSI

Banking & Finance

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NEW DELHI: Banks and other financial institutions have an exposure of $100 billion to real estate sector, of which 67 per cent are safe while the remaining loans are under pressure or severely stressed, according to real estate consultant Anarock.

“At least 67 per cent (or approximately $67 billion) of the total loan advances ($100 billion) to Indian real estate by banks, NBFCs and HFCs is currently completely stress-free,” Anarock Capital, a subsidiary of Anarock, said in a statement on Monday.

Another 15 per cent (about $15 billion) is under some pressure but has scope for resolution with certainty on at least the principal amount.

“$18 billion (or 18 per cent) of the overall lending to Indian real estate is under ‘severe’ stress, implying that there has been high leveraging by the concerned developers who have either limited or extremely poor visibility of debt servicing due to multiple factors,” the statement said.

Anarock Capital said the overall contribution of non-banking financial companies (NBFCs) and housing finance companies (HFCs), including trusteeships, towards the total lending to Indian real estate is at 63 per cent.

Individually, banks have a share of 37 per cent, followed by HFCs at around 34 per cent, and NBFCs 16 per cent.

Around 13 per cent loans have been given under trusteeships.

According to Anarock Capital, banks and HFCs are much better placed with 75 per cent and 66 per cent of their lending book in a comfortable position.

“Not surprisingly, nearly 46 per cent of the total NBFC lending is on the watchlist,” the statement said.

About 75 per cent of the total lending to Grade A developers is safe.

“This presents a comfortable outlook because out of the total loans given to real estate, more than USD 73 billion is given to Grade A builders,” the statement said.



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Exposure of banks, financial institutions to real estate at $100 billion; 67% loans safe, says Anarock

Banking & Finance

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Banks and other financial institutions have an exposure of $100 billion to real estate sector, of which 67 per cent are safe while the remaining loans are under pressure or severely stressed, according to real estate consultant Anarock.

“At least 67 per cent (or approximately $67 billion) of the total loan advances ($100 billion) to Indian real estate by banks, NBFCs and HFCs is currently completely stress-free,” Anarock Capital, a subsidiary of Anarock, said in a statement on Monday.

Another 15 per cent (about $15 billion) is under some pressure but has scope for resolution with certainty on at least the principal amount.

“$18 billion (or 18 per cent) of the overall lending to Indian real estate is under ‘severe’ stress, implying that there has been high leveraging by the concerned developers who have either limited or extremely poor visibility of debt servicing due to multiple factors,” the statement said.

Contribution of NBFCs and HFCs

Anarock Capital said the overall contribution of non-banking financial companies (NBFCs) and housing finance companies (HFCs), including trusteeships, towards the total lending to Indian real estate is at 63 per cent.

Individually, banks have a share of 37 per cent, followed by HFCs at around 34 per cent, and NBFCs 16 per cent. Around 13 per cent loans have been given under trusteeships.

According to Anarock Capital, banks and HFCs are much better placed with 75 per cent and 66 per cent of their lending book in a comfortable position.

“Not surprisingly, nearly 46 per cent of the total NBFC lending is on the watchlist,” the statement said.

About 75 per cent of the total lending to Grade A developers is safe.

“This presents a comfortable outlook because out of the total loans given to real estate, more than $73 billion is given to Grade A builders,” the statement said.

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Banks closing thousands of branches in US, UK as customers go digital, BFSI News, ET BFSI

Banking & Finance

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Retail banks are shutting thousands of branches and reducing staff in the US and the UK as they see most of the branch visitors who went digital during lockdowns may not come bank.

Fears among employees and customers of contracting Covid has also shut down many bank branches in the US.

Marquee banks

Wells Fargo, Citigroup and JPMorgan closed more than 250 branches in the first half of the year, which accounted for 1 to 5 per cent of their networks. The banks plan more reductions.

Wells Fargo, which had the highest branch count in the US at the start of the year, closed 154 branches, or 3 per cent of its domestic network, and reducing headcount by 6 per cent.

Citigroup cut its global branch count by roughly 100, or 4 per cent, with the closures spread across the US, Mexico and Asia. JPMorgan closed about 40 branches, or 1 per cent of its network.

The cuts represent a shift from the years leading up to the pandemic, when large US banks started opening new branches in a bid to grow their deposits after nearly a decade of cutbacks following the last financial crisis.

Other bank closures

New Jersey-based TD Bank had said earlier this year it will close 81 of its 1,223 retail branches in the US by April.

Cleveland-based KeyCorp said it will close at least 70 branches, about 7% of its total network, by mid-year, as more customers switch to digital transactions.

Huntington Bancshares of Ohio will close 198 branches in connection with its planned acquisition of TCF Financial Corp. of Detroit, by the second quarter of this year.

Bank of Hawaii recently announced the closure of 12 branches, while National Bank Holdings of Colorado will shutter seven branches by June 30.

Why are they shutting shop?

Low interest rates have also squeezed banks’ net interest margins, prompting them to cut operational costs elsewhere.

Banks are seeing the percentage of transactions being completed digitally constantly rising and have to think about how many branches they have. The pandemic has speeded up the shift to digital services.

The UK

More than 4,000 bank branches in the UK have closed in the past six years as lenders increase digital services for customers, said S&P Global Market Intelligence, citing data from UK consumer advocacy group Which.

In 2020, 368 bank branches alone shut down in the UK, led by Barclays which closed 105.

Already in 2021, TSB Bank plans to close 155 branches, Santander UK will shutter 111, HSBC Holdings, 82 and Barclays, 63.

Staring at extinction?

A report from Self Financial, a fintech firm, has a dire forecast for US bank branches last year. It predicts branches may become extinct by 2034. Based on trends, including the doubling of the rate of bank closures every three years, Self said the number of bank branches could fall to 40,000 by 2027 and then plunge to as low as 16,000 by 2030, the same level as in 1965. By 2034, Self all branches may be gone, it said.



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Banks closing thousands of branches in US, UK as customers go digital, BFSI News, ET BFSI

Banking & Finance

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Retail banks are shutting thousands of branches and reducing staff in the US and the UK as they see most of the branch visitors who went digital during lockdowns may not come bank.

Fears among employees and customers of contracting Covid has also shut down many bank branches in the US.

Marquee banks

Wells Fargo, Citigroup and JPMorgan closed more than 250 branches in the first half of the year, which accounted for 1 to 5 per cent of their networks. The banks plan more reductions.

Wells Fargo, which had the highest branch count in the US at the start of the year, closed 154 branches, or 3 per cent of its domestic network, and reducing headcount by 6 per cent.

Citigroup cut its global branch count by roughly 100, or 4 per cent, with the closures spread across the US, Mexico and Asia. JPMorgan closed about 40 branches, or 1 per cent of its network.

The cuts represent a shift from the years leading up to the pandemic, when large US banks started opening new branches in a bid to grow their deposits after nearly a decade of cutbacks following the last financial crisis.

Other bank closures

New Jersey-based TD Bank had said earlier this year it will close 81 of its 1,223 retail branches in the US by April.

Cleveland-based KeyCorp said it will close at least 70 branches, about 7% of its total network, by mid-year, as more customers switch to digital transactions.

Huntington Bancshares of Ohio will close 198 branches in connection with its planned acquisition of TCF Financial Corp. of Detroit, by the second quarter of this year.

Bank of Hawaii recently announced the closure of 12 branches, while National Bank Holdings of Colorado will shutter seven branches by June 30.

Why are they shutting shop?

Low interest rates have also squeezed banks’ net interest margins, prompting them to cut operational costs elsewhere.

Banks are seeing the percentage of transactions being completed digitally constantly rising and have to think about how many branches they have. The pandemic has speeded up the shift to digital services.

The UK

More than 4,000 bank branches in the UK have closed in the past six years as lenders increase digital services for customers, said S&P Global Market Intelligence, citing data from UK consumer advocacy group Which.

In 2020, 368 bank branches alone shut down in the UK, led by Barclays which closed 105.

Already in 2021, TSB Bank plans to close 155 branches, Santander UK will shutter 111, HSBC Holdings, 82 and Barclays, 63.

Staring at extinction?

A report from Self Financial, a fintech firm, has a dire forecast for US bank branches last year. It predicts branches may become extinct by 2034. Based on trends, including the doubling of the rate of bank closures every three years, Self said the number of bank branches could fall to 40,000 by 2027 and then plunge to as low as 16,000 by 2030, the same level as in 1965. By 2034, Self all branches may be gone, it said.



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