Tag: banks

NARCL to further Govt’s agenda of disinvestment of IDBI Bank, privatisation of PSBs

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The National Asset Reconstruction Company Ltd (NARCL), currently being put together by banks and other lenders, may structurally alter the balance-sheets of banks in such a way that it will further the Government’s agenda of divesting its stake in IDBI Bank and privatising two public sector banks (PSBs).

Once chunky stressed assets are out of the books, the valuation of these banks will improve, making them more saleable, opine market experts.

This can help the government realise more value from the proposed sale of its 45.48 per cent stake in IDBI Bank to a strategic buyer as well as privatisation of two PSBs.

Ramnath Krishnan, President-Ratings & Chief Rating Officer, ICRA, observed that NARCL might structurally help with disinvestment in state-owned banks should the Government consider this in the future. “It might structurally alter the balance-sheets of certain banks, which could make them more saleable should disinvestment be an opportunity seriously considered by the Government,” Krishnan said.

Referring to IDBI Bank’s healthy provision coverage ratio (PCR), Mangesh Kulkarni, Research Analyst, Almondz Global Securities, assessed that with most of its legacy assets being provided for 100 per cent, it can straight away transfer them to NARCL. So, the path to divestment of Government’s stake in IDBI Bank and privatisation of two PSBs will be streamlined once NARCL starts operations, he added.

IBA sets the ball rolling

The Indian Banks’ Association (IBA) has set the ball rolling on NARCL with the appointment of State Bank of India’s Padmakumar M Nair as its new Chief. Nair is currently Chief General Manager with SBI’s Stressed Assets Resolution Group.

NARCL is being set up following Finance Minister Nirmala Sitharaman’s FY2022 Budget announcement that the high level of provisioning by public sector banks on their stressed assets calls for measures to clean up the bank books.

Stressed assets with principal outstanding of ₹500 crore and above, aggregating about ₹1.50- lakh crore, are expected to be transferred to NARCL.

At a recent press meet, Rakesh Sharma, MD & CEO, IDBI Bank, said large public sector and private sector banks will be investing in NARCL, with each bank taking less than 10 per cent stake. IDBI Bank will also consider investing in the company.

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Private banks cut unsecured loans, stay safe in Covid storm, BFSI News, ET BFSI

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Wondering why pesky calls offering personal loans have reduced during the last few months?

After the pandemic started, most private sector banks have scaled down their unsecured loan business and relied on home and government-guaranteed loans.

Lenders are going slow once again on micro nance loans, credit cards and personal loans, as they see these unsecured loans to have become riskier amid the second wave of the pandemic.

The prudence has helped them in reducing the risk of defaults during the second wave.

The banks now cater to small business loans that are guarantee by the government under the Emergency Credit Line Guarantee Scheme. They have also focused on home loans that are secured by a mortgage. SBI last year hit Rs 5 lakh crore home loans target and set a stiff target for the segment.

Portfolio shrinks

Kotak Mahindra has reduced its unsecured portfolio to 5.8% of the total assets in FY21 from 7.5% earlier.

While ICICI bank grew its home loans by 21% year on year, its loan book grew in single digits. The bank also brought down its loan against shares and other securities by 8% and shrunk its two-wheeler loans by 4%.

Axis Bank has cut its share of unsecured loans to small businesses to 11% in FY21 from 15% in FY20.The bank has made 100% provisions for restructured unsecured loans.

IndusInd Bank too remains cautious on unsecured lending and limit the segment to 5% of total loans and go slow on three-wheeler loans.

Cautious stance

Personal loans in the banking industry grew at a slower pace of 10.2 per cent in the last fiscal year ended March 31, compared with more than 15 per cent the preceding year. Consumer durable loans were the worst hit and contracted by more than 21 per cent between March 2020 and 2021 against 47.6 per cent growth in the prior year.

Credit card outstanding totalled Rs 1.16 lakh crore at the end of March, a 7.8 per cent increase in a year against more than 22.5 per cent growth in fiscal 2020.

The growth in home and government-guaranteed loans has helped lenders expand the balance sheet even as they shied away from unsecured loans. By making 100% provisions for unsecured loans, private banks would not have to take a major hit in the first quarter despite the second wave of the pandemic buffeting the economy.



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RBI to Banks: Lend to healthcare space within 30 days of availing funds

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The Reserve Bank of India (RBI) on Friday said Banks should lend to stakeholders in the Covid-related healthcare infrastructure and services within 30 days from the date of availing funds from it under the ₹50,000 crore“On-Tap Term Liquidity Facility to Ease Access to Emergency Health Services scheme”.

As per the scheme, there is no tenor restriction regarding lending by Banks. However, they will have to ensure that the amount borrowed from RBI should be backed by lending to the specified segments until the scheme’s maturity.

 

The scheme, which opens an on-tap liquidity window of ₹50,000 crore for Banks with tenors of up to three years at the repo rate till March 31, 2022, has been launched to boost immediate liquidity, ramping up Covid-related healthcare infrastructure and services in the country.

The scheme will remain operational from May 07, 2021, till March 31, 2022.

Scope of lending

Banks can provide fresh lending support to a wide range of entities under the scheme, including vaccine manufacturers; importers/ suppliers of vaccine and priority medical devices; hospitals/ dispensaries; pathology labs and diagnostic centres; manufacturers and suppliers of oxygen and ventilators; importers of vaccines and Covid-related drugs; Covid-related logistics firms and also patients for treatment.

RBI will aggregate requests from Banks and release funds every Monday (on the subsequent working day if Monday is a holiday) by initiating a 3-year repo contract with the requesting bank.

If a bank places multiple requests during the week, all such requests will be aggregated, and a single repo contract will be created on the date of operation.

The eligible collateral and margin requirements for availing funds under the scheme will remain the same as applicable for Liquidity Adjustment Facility operations.

Additional incentives

The central bank said Banks could park their surplus liquidity up to the size of the Covid loan book they build in a special 14-day reverse repo window to be conducted on each reporting Friday.

RBI will offer 40 basis points higher interest than the current reverse report rate on such liquidity.

The first such special reverse repo operation will be held on May 21, 2021. These 14-day reverse repo operations would continue till March 31, 2022 and will be reviewed thereafter.

Banks are being incentivised for quick delivery of credit under the scheme through the extension of priority sector lending (PSL) classification to such lending up to March 31, 2022.

RBI said Banks desirous of deploying their own resources without availing funds under the scheme for lending to the specified segments mentioned above would also be eligible for the additional incentives.

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Covid surge sparks demand for Insolvency and Bankruptcy Code suspension yet again, BFSI News, ET BFSI

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With the Reserve Bank of India unveiling a rescue package that stops short of offering loan moratoriums, lenders now want suspension of the Insolvency and Bankruptcy Code, which was reanimated on March 24 after being suspended for a year.

Banks are planning to petition the government to keep the IBC process under suspension to help companies restructure their finance to face the renewed vigour of the pandemic, according to a report.

Also, the court proceedings are hampered due to the pandemic with courts hearing only urgent matters.

Experts are seeking an extension of IBC to 3-6 months and taking a call after that depending on the situation.

Industry body Assocham has also urged the government to reimpose a moratorium on taking debt-ridden firms to the NCLT under the IBC till December this year following the severe second wave of coronavirus. In a representation to the Finance Ministry, the chamber said that given the increasing pressure on businesses, it would be imperative to extend the NCLT (National Company Law Tribunal) moratorium to ensure that the pandemic “does not wreak havoc” on the economy.

Virtual hearings

With Maharashtra in partial lockdown to curb Covid-19 infections, experts have said that some high-stake bankruptcy cases in Mumbai could be affected by virtual hearings.

The disposal rate in virtual trials is quite low and could add to the pendency of cases if the state’s restrictions persist for a longerduration. While there has been no official notification, all case hearings in the state have shifted to the virtual platform.

There were more than 20,000 cases pending with the National Company Law Tribunal as of December 2020 and a bulk of them are with the Mumbai NCLT.

With the IBC suspension having been lifted, the number of applications is bound to increase rapidly. Online hearings could add to the existing pressure on the tribunals, which may lead to a further slowdown of resolutions through the IBC process.

The government recently issued an ordinance to provide a pre-packaged scheme – an efficient alternative insolvency resolution framework – for micro, small and medium enterprises (MSMEs). This is set to quicken the resolution process and reduce litigation.

The status of IBC cases

Out of the total 3,774 cases or corporate insolvency resolution processes (CIRPs) filed since the Insolvency and Bankruptcy Code (IBC) came into existence in 2016, 1,604 cases, or 43 percent have closed, by way of resolution, liquidation or other means. The rest 57 percent are ongoing with many overshooting the 330-day maximum time limit.

Of the 1,604 closed cases, only 14 percent have found a resolution, whereas 57 percent have ended in the liquidation of the companies.

Interestingly, the 72% cases of CIRPs ending in liquidation were already defunct and under the Board for Industrial and Financial Reconstruction.

About 312 cases have been closed on appeal or review or settled, 157 have been withdrawn; 914 ordered for liquidation and 221, saw approval of resolution plans.

The recovery rate for resolved cases under IBC is 44% with Rs 1.84 lakh crore recovered so far of the Rs 4.13 lakh crore admitted claims.

In case of the 12 large defaulters identified by RBI, the creditors recovered Rs 1.36 lakh crore from eight cases that have been resolved so far, with recoveries ranging from as low as 17 percent of claims in the case of Alok Industries, to almost 100 percent for Jaypee Infratech.



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Nine ways banks will benefit from the RBI’s Covid rescue package, BFSI News, ET BFSI

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The Reserve Bank of India governor Shaktikanta Das has announced a slew of measures for the economy to fight Covid. These will help banks face pandemic distress better.

RBI has announced debt recast schemes to small businesses and MSMEs which had not participated in the resolution last year. This will enable banks to offer help to the sound borrowers who are facing trouble during the second Covid wave.

The new recast scheme offers more flexibility to banks as for a borrower whose debt was recast under the resolution framework last year, that moratorium period can be increased or the residual tenure can be stretched for up to two years.

Banks are also allowed to reassess the working capital limits for small units and MSMEs whose debt has been recast earlier, giving room to lenders to help borrowers.

RBI India has not announced a moratorium on loan and interest payments during the ongoing wave, giving much relief to banks. Moratoriums affect credit discipline, and with banks likely to take a hit on the ‘interest on interest’ burden for over Rs 2 crore loans offered during the last moratorium, they may be less inclined to fresh moratoriums.

Through the Rs 10,000 crore special three-year long-term repo operations, or SLTRO, Small Finance Banks can support small business units, micro as also other unorganised-sector ones, as it allows fresh credit of up to Rs 10 lakh per borrower. SFBs can also categorise fresh loans to smaller microfinance institutions that have assets of up to Rs 500 crore as priority sector loans.

The RBI has also extended the period for the relief given earlier this year, allowing banks relief from CRR on exposures of up to Rs 25 lakh to micro, small and medium enterprises.

The central bank has allowed lenders to use 100% of their floating and counter-cyclical provisions to make specific provisions for non-performing assets (NPAs). This will help them gear up for loan losses that may arise due to severe hit to several economic segments.

With banks reluctant to lend despite Rs 6 lakh crore surplus liquidity in the system, the RBI has incentivised banks by offering extra 60 basis points for surpluses parked in the reverse repo against the loans extended by banks. These loans will be classified as priority sector lending also and the banks need not take direct exposure but can pass on through another intermediary such as NBFC.

The RBI has relieved pressure on prices of bonds held by banks as it has announced another round of the GSAP-1 for Rs 35,000 crore. The central bank will buy back bonds from the market, leading to a rise in their demand and prices. This has led to a rally in bond prices with the benchmark yield slipping below 6%.



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Banks demand deadline extension for Covid packages

Banking & Finance

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Our Bureau

Banks have petitioned the Reserve Bank of India (RBI) that the 180-day timeline for implementing resolution plans for borrower accounts under the August 6, 2020 circular on “Resolution Framework for Covid-19-related Stress” should be extended as few of them are facing headwinds due to second pandemic wave.

As per the circular, resolution of exposures (other than personal loans) must be implemented within 180 days from the date of invocation (not later than December 31, 2020). So, the resolution plan has to be implemented by June-end 2021. But in view of the adverse impact of Covid-19, banks want leeway of 90 more days in implementing the resolution plan.

Loan moratorium

Banks also want RBI to consider a three month loan moratorium for retail and micro, small and medium enterprise (MSME) borrowers so that they can weather the Covid challenge without worrying about servicing loans.

Banks have also requested the Government to extend the emergency credit line guarantee scheme (ECLGS) for Business Enterprises/ MSMEs beyond the June 30, 2021 deadline. This scheme is aimed at helping Business Enterprises/ MSMEs meet their working capital needs. A banker observed that RBI is examining lenders’ pleas and is likely take a call by May-end.

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Covid-19: Bankers favour a flexible loan revamp plan to help small borrowers

Banking & Finance

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With economic uncertainty looming amidst surging coronavirus cases and lockdowns put in place by several States, many banks are understood to favour a flexible loan restructuring package, especially to help small borrowers and entrepreneurs.

“Banks don’t want customers to feel like delinquents or get NPA tags just because of the pandemic and economic situation. A flexible restructuring programme for banks to help out customers at this point in the crisis would be helpful,” said a source familiar with the development.

The proposal of a flexible loan restructuring scheme is understood to have also been discussed at recent meetings of the Reserve Bank of India with bankers.

While the first 15 days of April saw normal collections for most banks and non-banking financial companies, there are worries going ahead.

“No one is sure how the month of May will pan out,” said the source.

Amitabh Chaudhry, Managing Director and CEO, Axis Bank had said at the fourth-quarter results that he expects collections to be impacted in coming weeks due to the local lockdowns though they have been strong in the initial weeks of the fiscal year.

Yes Bank MD and CEO Prashant Kumar also said that till April 15, collection efficiency for the lender was at 96 per cent, but there would be some impact after that though data is not available.

The Finance Industry Development Council recently requested the RBI for restructuring stressed retail and individual borrowers of NBFCs whether or not they had sought it earlier.

Needed an umbrella policy

“We need an umbrella policy offering options for restructuring including permission to undertake simple process for business restructuring, inducting new investor, restoring finance or any assistance to rebuild operations of SMEs, MSMEs, start-ups, retail borrowers ignoring their previous defaults, if any. The second and third wave could be more lethal and we need more human policy then regulatory flexibility,” said Nitin Potdar, Partner, J Sagar Associates.

While industry and bankers are hoping that the government and RBI will announce a fresh set of relief measures, some lenders believe that a fresh round of loan restructuring may not be the best way forward.

“It is still early days and more data may be needed on collection trends. We should not use restructuring to postpone the problem,” said a banker, who did not wish to be named.

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RBI to strengthen risk-based supervision of banks, NBFCs, BFSI News, ET BFSI

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The Reserve Bank has decided to review and strengthen the Risk Based Supervision (RBS) of the banking sector with a view to enable financial sector players to address the emerging challenges.

The RBI uses the RBS model, including both qualitative and quantitative elements, to supervise banks, urban cooperatives banks, non-banking financial companies and all India financial institutions.

“It is now intended to review the supervisory processes and mechanism in order to make the extant RBS model more robust and capable of addressing emerging challenges, while removing inconsistencies, if any,” the RBI said while inviting bids from technical experts/consultants to carry forward the process for banks.

In case of UCBs and NBFCs, the Expression of Interest (EOI) for ‘Consultant for Review of Supervisory Models’ said the supervisory functions pertaining to commercial banks, UCBs and NBFCs are now integrated, with the objective of harmonising the supervisory approach based on the activities/size of the supervised entities (SEs).

“It is intended to review the existing supervisory rating models under CAMELS approach for improved risk capture in forward looking manner and for harmonising the supervisory approach across all SEs,” it said.

Annual financial inspection of UCBs and NBFCs is largely based on CAMELS model (Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Systems & Control).

The RBI undertakes supervision of SEs with the objective of assessing their financial soundness, solvency, asset quality, governance framework, liquidity, and operational viability, so as to protect depositors’ interests and financial stability.

The Reserve Bank conducts supervision of the banks through offsite monitoring of the banks and an annual inspection of the banks, where applicable.

In case of Urban Cooperative Banks (UCBs) and NBFCs, it conducts the supervision through a mix offsite monitoring and on-site inspection, where applicable.

A technical advisory group consisting of senior officers of the RBI would examine the documents submitted by the applicants in connection with EOI.

EOI said the consultant would be required to work in close co-ordination with officers of RBI’s Department of Supervision in Mumbai.



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Banks provide for ‘interest on interest’ in Q4 after no signal from govt, BFSI News, ET BFSI

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After waiting for the government to burden the compound interest on loan waivers, top banks have provided for payment in the fourth-quarter results.

HDFC Bank has provided Rs 500 crore for interest on interest while ICICI Bank said it has kept Rs 175 crore aside for it, according to the Q4 results announced by these banks. Axis Bank has provided Rs 160 crore while Mahindra Finance has made a provision of Rs 32 crore.

Interest on interest waiver

Waiving compound interest on loans above Rs 2 crore could cost nearly Rs 4,000 crore to public sector banks, Rs 2,500 crore to private banks and another Rs 1,000 crore to non-bank lenders.

While ICICI Securities had put the total compound interest burden on loans above Rs 2 crore at Rs 11,700 crore, other analysts have put it between Rs 7,000 crore and Rs 10,000 crore. As per rating firm ICRA, compound interest for six months of moratorium across all lenders is estimated at Rs 13,500-14,000 crore.

The Indian Bank Association has recently finalised a methodology for the calculation of the interest on interest component.

Under the norms, borrower accounts which were standard as on February 29, 2020, including SMA­0, SMA­1 and SMA­2 will be eligible for the refund. All loans, working capital, trade products, outstanding during the moratorium period shall be considered for the compound interest waiver.

The government stand

The government has already reimbursed banks for forgoing compound interest, or interest on interest, on loans up to Rs 2 crore outstanding during March-August last year, when borrowers had the option to seek a moratorium on repayments.

Lenders have been charging compound interest on larger amounts, but the Supreme Court order means they must now refund it to borrowers. Banks were hoping that the government will take on the burden by enhancing the scope of the ex-gratia scheme to cover the additional refund after the apex court order.

The Supreme Court order

The Supreme Court in its order last month had directed the government and the RBI to waive penal interest charges on all loans, while rejecting the demand of borrowers to extend the repayment moratorium beyond August 31 and for a complete interest waiver. The loan moratorium scheme was aimed at giving temporary relief to borrowers.

In November last, the government decided to waive interest-on-interest for borrowers below loan exposure of Rs 2 crore. It paid nearly Rs 6,000 crore to lenders to compensate them for the income loss.



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Kotak Mahindra Group announces new chiefs for insurance business

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Kotak Mahindra Group on Friday announced two key appointments for their insurance businesses.

Mahesh Balasubramanian will be the Managing Director of Kotak Mahindra Life Insurance and Suresh Agarwal will be the Managing Director and CEO of Kotak General Insurance. These appointments will be effective May 1, 2021.

“These moves come as G Murlidhar completes a 10-year term as the Managing Director of Kotak Life and superannuates on Friday (April 30, 2021),” Kotak Mahindra Group said in a statement.

Balasubramanian is the MD and CEO of Kotak GI, and has been heading the company since 2014 while Agarwal led Kotak Life’s distribution network and has played a vital role in establishing a vast pan-India network for the company.

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