Tag: banks

Gold price fall not much of a worry for NBFCs: Crisil

Banking & Finance

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The correction in gold prices in recent months is unlikely to have a significant impact on the asset quality of NBFCs lending against gold, said Crisil Ratings on Monday.

“Apart from periodically collecting interest over the past few fiscals, they have ensured that disbursement loan-to-value (LTV) is maintained below 75 per cent,” it said in a statement.

On a 30-day rolling basis, gold price has corrected about 10 per cent over the past six months, while on an absolute basis it has fallen twice that rate.

For NBFCs, the average portfolio LTV as on December 31, 2020, was about 63-67 per cent, while average LTV on incremental disbursements in the October-December 2020 quarter was nearly 70 per cent, said Crisil.

Why gold is set to continue its rally

“The LTV discipline is also evident in interest receivables remaining at just two per cent to four per cent of the loan book over the past few years,” it further said.

For banks, however, incremental-disbursement LTV was higher at 78-82 per cent because they were more aggressive than NBFCs in lending against gold during last fiscal, said Crisil, adding that much of the growth in their book came during the third quarter of last fiscal, when gold prices were soaring.

“Given that gold prices have dropped 18-20 per cent from their August peaks on an absolute basis, without periodic interest collections, the books of banks may be susceptible to asset-quality issues to some extent. However, with the LTV dispensation period ending in March 2021, incremental lending would have more LTV cushion,” said Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings.

Since June 2020, loans against gold surged. In the 11 months through February 2021, loans against gold grew about 70 per cent for banks to over ₹56,000 crore. The growth was aided by the LTV relaxation to 90 per cent (only for banks) announced in August last year.

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Banks in these cities will be closed for four days starting tomorrow, BFSI News, ET BFSI

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According to the Reserve Bank of India (RBI) holiday calendar, banks will be closed in most parts of the country from tomorrow (13 April) to 16 April due to various festivals. These holidays are declared under Negotiable Instruments Act. Banking holidays depend on festivals observed in particular states and can vary from one state to another.

On 13 April, Banks in Belapur, Bengaluru, Chennai, Hyderabad, Imphal, Jammu, Mumbai, Nagpur, Panaji, and Srinagar will remain closed on account of Gudhi Padwa/Telugu New Year’s Day/Ugadi Festival/Sajibu Nongmapanba (Cheiraoba)/1st Navratra/Baisakhi.

On 14 April, Banks in Agartala, Ahmedabad, Belapur, Bengaluru, Bhubaneswar, Chandigarh, Chennai, Dehradun, Gangtok, Guwahati, Hyderabad, Imphal, Jaipur, Jammu, Kanpur, Kochi, Kolkata, Lucknow, Mumbai, Nagpur, New Delhi, Panaji, Patna, Ranchi, Srinagar, Thiruvananthapuram will remain closed on account of Dr Babasaheb Ambedkar Jayanti/Tamil New Year’s Day/Vishu/Biju Festival/Cheiraoba/Bohag Bihu.

On 15 April, Banks in Agartala, Guwahati, Kolkata, Ranchi, and Shimla will remain closed on account of Himachal Day/Bengali New Year’s Day/Bohag Bihu/Sarhul.

On 16 April, Banks in Guwahati will remain closed on account of Bohag Bihu.. Apart from these banks will remain closed on 21 April and 24 April on account of Ram Navmi and Second Saturday.



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Banks are without a raft in Covid storm, BFSI News, ET BFSI

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Banks, which got protection and support by a swift moratorium on loans when the pandemic first struck, have no such cover this time.

As the second wave intensifies, most of the relief measures and schemes announced by the government and Reserve Bank of India have expired. On top of it, the central bank is non-committal on moratoriums.

“In today’s conditions, there is no need for a moratorium”RBI governor Shaktikanta Das

Also, a spike in overdue loans after the lifting of the moratorium has been worrying analysts.“The level of loans in overdue categories has increased after the moratorium has been lifted and the impact on asset quality will be spread over FY2021 and FY2022 as various interventions and relief measures have prevented a large one-time hit on profitability and capital of banks,” ratings agency Icra said in a report.

No standstill

Banks enjoyed a standstill on classifying loans as non-performing last fiscal and also accounted for interest accrued despite not receiving payments during the quarter. Both these leeways will no longer be available after the final SC order in March.

As a result, bank NPAs are likely to spike and they may have to reverse some interest earned on loan accounts above Rs 2 crore as the SC order has directed banks to charge simple and not compound interest on loans between March and August 2020.

It is estimated that banks could face a hit of between Rs 7,000 crore to Rs 10,000 crore due to the reversal of interest as it is unclear whether the government will reimburse this waiver – as it earlier did for small-ticket advances.

Analysts will watch out whether banks will provide for the write-back on compounded interest as directed by the ape court or adjust it through their Covid 19 provisions already accounted for.

Fourth quarter

The banking sector had got back to some sense of normalcy in the fourth quarter as collection efficiency came close to or at pre-Covid levels and loan growth recovered.

However, a resurgence in Covid cases, leading to localised lockdowns in various states will force banks to look out for risk mitigation.

There is a likelihood of delayed recovery in credit offtake after the Covid spike. Analysts expect the banking sector loan growth to recover to 6% to 7% in the fiscal ending March 2021 mainly due to a growth in retail loans in the second half of the year. Large lenders with a wider network are expected to clock in a higher year on year increase with a double-digit increase in credit growth.

While banks may not have any impact on margins as they have not cut deposit or MCLR based rate, higher liquidity on the balance sheet could decline. Treasury income may also drop on sequential basis as 10-year Gsec has risen by about 28 basis points during the quarter.

The silver lining

The only respite for banks is their gross non-performing assets may not jump as estimated by RBI’s fiscal stability report.

Icra sees the NPA ratio at 9.5-9.7% as of March-end, lower than RBI’s estimate of 12.5% for the same period.
The RBI’s Financial Stability Report (FSR) of December 2020 has stated that banks’ gross non-performing assets (GNPAs) may rise sharply to 13.5 per cent by September 2021, and escalate to 14.8 per cent, nearly double the 7.5 per cent in the same period of 2019-20, under the severe stress scenario.

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Analysts expect high slippages in banks’ Q4 results after SC verdict

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Reported slippages would be elevated, KIE said, but banks were not expected to report a worrying ratio, given the improvement seen in economic recovery in recent quarters.

As banks report their first set of quarterly earnings after the Supreme Court vacated an interim stay on the recognition of fresh bad loans, slippages could be elevated in Q4FY21, analysts said. Lenders could also reverse some amount of interest income, which could get reflected in their net interest income (NII) numbers. Kotak Institutional Equities (KIE) expects NII growth to be 18% year on year (YoY) for banks. “On the net interest income line, we see a higher level of one-off income recognition (due to NPL recovery) and income de-recognition (slippages recognised in this quarter on a cumulative basis for lenders who have not done it previously),” the brokerage said, adding that treasury income would be lower, too.

Reported slippages would be elevated, KIE said, but banks were not expected to report a worrying ratio, given the improvement seen in economic recovery in recent quarters. “We expect overall NPL (non-performing loan) ratios to remain significantly lower than RBI projections, considering that we have seen significant recovery of bad loans from a few companies (steel and infrastructure),” KIE said. Reported write-offs could be high as well.

Loan losses in the banking sector, as measured by the gross non-performing asset (GNPA) ratio could nearly double to 13.5% by September in a baseline scenario, and to as high as 14.8% in a severe-stress scenario resulting from the pandemic, the RBI had said in its last financial stability report (FSR). Volatile trends could emerge on provisions as lenders are likely to dip into Covid provisions made earlier or make higher provisions this quarter as well.

Analysts at Motilal Oswal Financial Services said while overall trends in asset quality had fared better than expectations, the recent surge in Covid-19 cases and the fear of a lockdown in key districts necessitate being watchful on asset quality. “While many banks have already provided for this likely increase and carry additional provision buffers, which should limit the impact on profitability, we expect them to continue to strengthen their balance sheets and credit cost to remain elevated,” they said in a report.

While analysts have mixed views on the pace of loan growth, most of them expect it to be driven by retail credit. Corporate credit growth remains muted in a scenario of overall deleveraging and lower risk appetite on the part of lenders.

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Year-end pressure hits fund transfers via IMPS, UPI in millions, BFSI News, ET BFSI

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Several customers could not transfer funds instantly in the first two days of the new financial year as the core banking systems at some banks failed to process IMPS (Immediate Payment Service) or UPI (Unified Payment Interface) transactions.

Bank systems were clogged due to year-end system maintenance. Transactions were delayed for more than 24 hours, which otherwise would have been possible in a few seconds. Customers of top banks with large retail interfaces are said to have suffered the most.

This triggered a flood of complaints on Twitter even as National Payments Corporation of India (NPCI), an umbrella organisation of retail payments and settlements, issued a clarification. The latest outage was restricted to a few large banks and highlights the risks of 24×7 payments systems with more transactions moving online. An estimated 4.5 lakh transactions have been affected, say market experts.

“For both IMPS and UPI to function well, availability of the banks’ Core Banking Systems is mandatory,” said Dillip Asbe, MD and CEO at NPCI. “However, they were not functioning in full strength due to the financial year-end processing, which is carried out on April 1 every year. We acknowledged that on social media.”

On April 1, IMPS and UPI are estimated to have reported about 9.7 and 76 million transactions. The very next day, those numbers inched up to 10.8 million and 90 million. In those two days, volumes were broadly 5-15 percent lower than then an average usual day.

The financial year end closing had led to some UPI and IMPS transaction failures at a few banks,” NPCI tweeted on April 2 post noon. “We have observed that most of these bank systems are back to normal since last evening. Customers may avail uninterrupted IMPS and UPI services.”

Bankers said that the failure rate for transactions was much higher than normal on April 1 as the down time for core banking systems for some banks extended as they updated for the new financial year.

“It impacted some banks for a long period. If the core banking for bank ‘A’ does not respond it means transactions to and from that bank do not go through,” said a senior bank executive.

It seems there were more than one bank which was impacted but it was not a widespread systemic issue,” said the person.

To be sure, the estimated failure of transactions at 4.5 lakh were less than 4.5% of the average 10 to 12 million daily transactions managed by the NPCI. However, it is much higher than the less than 0.50% failure rates the system faces in normal courses.

“But don’t forget UPI and IMPS are 24×7 systems; so these issues can occur sometimes,” said another senior bank executive.



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Banks sanctions Rs 25,586 cr to 1.14 lakh Stand-Up India accounts in 5 years, BFSI News, ET BFSI

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The Finance Ministry on Sunday said banks have sanctioned Rs 25,586 crore to about 1,14,322 beneficiaries under the Stand Up India Scheme in the last five years for promoting entrepreneurship among women and SC & STs. The objective of Stand-Up India is to promote entrepreneurship amongst women, Scheduled Castes (SC) & Scheduled Tribes (ST) categories, to help them in starting a greenfield enterprise in trading, manufacturing and services sector, by both ready and trainee borrowers, the Finance Ministry said in a statement.

Under the scheme, bank loans between Rs 10 lakh and Rs 1 crore are provided to at least one Scheduled Caste/ Scheduled Tribe borrower and at least one woman borrower per bank branch of Scheduled Commercial Banks.

Started in April 5, 2016, the scheme has benefited 93,094 women entrepreneurs with outstanding loan of Rs 21,200 crore as of March 23.

This scheme, which has been extended up to 2025, covers SC/ST and/or women entrepreneurs, above 18 years of age, it said.

In case of non-individual enterprises, 51 per cent of the shareholding and controlling stake should be held by either SC/ST and/or Women Entrepreneur and borrowers should not be in default to any bank/financial institution, it said.



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Bitcoin volatility decline paves way for banks, JPMorgan says, BFSI News, ET BFSI

Banking & Finance

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By Vildana Hajric

The recent pullback in Bitcoin’s volatility is setting the stage for a trend that could encourage institutions to dive in, according to JPMorgan Chase & Co.

“These tentative signs of Bitcoin volatility normalization are encouraging,” strategists including Nikolaos Panigirtzoglou wrote in report emailed Thursday. “In our opinion, a potential normalization of Bitcoin volatility from here would likely help to reinvigorate the institutional interest going forward.”

Three-month realized volatility for the cryptocurrency has fallen to 86% after rising above 90% in February, they wrote. The six-month measure appears to be stabilizing at around 73%. As volatility subsides, a greater number of institutions could warm to the crypto space, the strategists said.

The coin’s volatility has kept institutions away, something that’s been a key consideration for risk management — the higher the volatility of an asset, the higher the risk capital consumed by it, according to the strategists. None of the biggest U.S. banks right now provide direct access to Bitcoin and its counterparts.

Still, traditional Wall Street firms have been taking a greater interest in the coin, especially after it doubled this year on the heels of a 300% jump in 2020.

Goldman Sachs Group Inc. said this week it’s close to offering investment vehicles for Bitcoin and other digital assets to private wealth clients. Morgan Stanley plans to give rich clients access to three funds that will enable ownership of crypto and Bank of New York Mellon Corp. is developing a platform for traditional and digital assets.

Some of the attention on Bitcoin over the past two quarters has come at the expense of gold, JPMorgan’s strategists said, citing $7 billion of inflows into Bitcoin funds and $20 billion of outflows from exchange-traded funds tracking the precious metal.

Bitcoin volatility decline paves way for banks, JPMorgan says
Meanwhile, an additional boost to future adoption by institutions could arise from recent changes in Bitcoin’s correlation structure relative to other, traditional assets, according to JPMorgan strategists. These correlations have shifted lower in recent months, “making Bitcoin a more attractive option for multi-asset portfolios for diversification point of view and less vulnerable to any further appreciation in the dollar,” they wrote.



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After recapitalisation, IOB, Central Bank move closer to privatisation, BFSI News, ET BFSI

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The government has infused Rs 14,500 crore, mainly into banks that are under the RBI’s prompt corrective action framework to improve their financial health.

Two of these banks, Indian Overseas Bank and Central Bank of India are among the four banks shortlisted by the government for privatisation.

Indian Overseas Bank, Central Bank of India and UCO Bank are currently under Reserve Bank of India’s prompt corrective action (PCA) framework that puts several restrictions on them, including on lending, management compensation and directors’ fees.

Capital infusion

Of the total infusion, Rs 11,500 crore has gone to these three banks under PCA while the remaining Rs 3,000 crore has been infused into Bank of India. According to a government notification, Rs 4,800 crore has been provided to Central Bank of India, Rs 4,100 crore to Indian Overseas Bank and Kolkata-based UCO Bank has got Rs 2,600 crore.Government Notification

The capital infusion will help these banks to come out of the Reserve Bank of India’s prompt corrective action framework.

Bringing the banks out of PCA could boost their valuations in the event of privatisation.

Central Bank of India has 33,000 staff, while Indian Overseas Bank employs 26,000.

The PCA status

All three banks under PCA Indian Overseas Bank, UCO Bank and Central Bank have reported net non-performing assets (NPAs) below levels that trigger PCA. However, on the proforma net NPA front, Central Bank falls short as its NNPA is 6.58% against the 6% required to be out of PCA.

Even after PCA exit, these banks may still be under RBI watch.

Most of the large state-owned lenders — including State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, Union Bank of India, and Indian Bank — have already raised money from various market sources, including share sale on a private placement basis.

Rs 3.5 lakh crore bet

The government in the last five years, apart from merging some smaller banks with bigger ones, has spent Rs 3.5 lakh crore in the last five years on recapitalising public sector banks.

This has been financed partly by taxpayer money and partly recapitalisation bonds, including the discounted zero-coupon bonds sold to PSBs that are to be recapitalized.

Zero-coupon bonds

The government is unlikely to take zero-coupon bond route to further recapitalise public sector banks after the Reserve Bank expressed some concerns in this regard, sources said. The government, they said, would resort back to recapitalisation bonds bearing a coupon rate for capital infusion in these banks.

To save the interest burden and ease the fiscal pressure, the government last year decided to issue zero-coupon bonds for meeting the capital needs of the banks.

The first test case of the new mechanism was a capital infusion of Rs 5,500 crore into Punjab and Sind Bank by issuing zero-coupon bonds of six different maturities last year. These special securities with tenure of 10-15 years are non-interest bearing and valued at par.

However, the RBI raised some concerns with regard to the calculation of an effective capital infusion made in any bank through this instrument issued at par.

Since such bonds usually are non-interest bearing but issued at a deep discount to the face value, it is difficult to ascertain net present value.



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Make new arrangements for recurring credit, debit card transactions as new norms kick in from April 1

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Starting April 1, customers will have to make alternative arrangements for recurring transactions for utilities and bill payments such as registering the biller on internet or mobile banking.

This is because most banks and payment companies have been unable to meet RBI norms to process e-mandate on cards for recurring transactions.

However, UPI and Rupay AutoPay facilities are unlikely to be disrupted. Sources said that most banks are live on it but it is unclear as to how many merchants are live on it.

Most large banks and payment players have already been informing customers that they would have to make alternative arrangements for auto debit through debit and credit cards.

Apart from payments for utilities like phone and electricity bills, even recurring payments to service providers such as Amazon Prime and Netflix will have to be made directly.

According to bankers, while they have made arrangements to comply with RBI norms, many merchants are yet to adhere to them.

“We are currently building a solution in adherence to the regulatory requirements. Therefore, effective April 1, 2021 any standing instruction for recurring transactions on your Card account will not be approved by American Express,” American Express said in a communication to customers, adding that to avoid any disruption in delivery of goods and services, starting April 1, 2021 customers should make payments directly to the service providers for bills as and when they become due.

Visa declined to comment on the issue when approached by BusinessLine.

“..as per regulatory guidelines, recurring merchant transactions based on Standing Instructions on your ICICI Bank Cards will be disabled effective April 1, 2021. To continue making payments against your regular utility bills, kindly register your biller through iMobile Pay or Internet Banking. For other standing instruction transactions, you may re-register or initiate transactions at regular intervals,” ICICI Bank said in a similar message to customers.

Recently, the Internet And Mobile Association of India (IAMAI) had also warned that millions of e-mandates set up by customers could fail from April 1, 2021.

The RBI had issued two circulars (August 2019 and December 2021) to banks, ‘non-bank prepaid payment instrument issuers’, and ‘authorised card payment networks’ for processing of e-mandates. The deadline to comply with it is March 31, 2021.

Under the new norms, banks will be required to inform customers in advance about recurring payment due and it would be carried following nod from the customer. For recurring payments above ₹5,000, banks are required to send a one-time password to the customer as per the new guidelines.

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Automatic recurring payment to comply with RBI direction from April 1, BFSI News, ET BFSI

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Come April there will be no automatic recurring payment for various services including recharge and utility bill as RBI has made Additional Factor of Authentication (AFA) mandatory after March 31.

However, banks and payment gateways are seeking additional time to comply with the RBI directive on automatic recurring payment.

On December 4, RBI had directed all banks including RRBs, NBFCs, and payment gateways that the processing of recurring transactions (domestic or cross-border) using cards or Prepaid Payment Instruments (PPIs) or Unified Payments Interface (UPI) under arrangements/practices not compliant with AFA would not be continued beyond March 31, 2021.

As part of risk mitigation measure, RBI announced this step to bolster safety and security of card transactions.

Non-readiness of some of the players could impact recurring payment such as of utility bills, recharge of phone, DTH and OTT, among others, post March 31.

Recently, RBI enhanced the limit for contactless card transactions and e-mandates for recurring transactions through cards (and UPI) from Rs 2,000 to Rs 5,000 from January 1, 2021 with a view to further the adoption of digital payments in a safe and secure manner.

Under the new norms, banks will be required to inform customers in advance about recurring payment due and transaction would be carried following nod from the customer. So the transaction would not be automatic but would be done after authentication from the customer.

For recurring payments above Rs 5,000, banks are required to send one-time password to customer as per the new guidelines.

“All the ecosystem players, be it banks and payment gateways, are guilty of not taking RBI directive seriously from 2019 and not being able to come on a single platform, which we should have done at least a couple of months back, so that there could have been a smooth transition to the new way of doing recurring transactions,” Payments Council Of India (PCI) Chairman Vishwas Patel said.

So, the Reserve Bank of India (RBI) requested to consider giving at least one month extension so that players meet RBI directives, Patel, who is executive director of Infibeam Avenues, said.

“Everybody has understood the seriousness of it because it is Rs 2,000 crore a month business, as per PCI estimates. We hope that the cycle is not broken and the end consumers and merchants are not inconvenienced,” he added.

A senior executive at an e-commerce company said the industry is not prepared to implement the e-mandate framework issued by RBI.

Starting April 1, customer e-mandate transactions will be declined by banks, if further extension is not granted by RBI, the official said, adding, this will cause major disruption to recurring transactions and will erode customer trust in digital payments.



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