Tag: banks

Banks to see 15% plus credit growth in FY22-25 period: ICICI Securities

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India Inc, after undergoing a phase of deleveraging over the past few years, is now better positioned and confident to embark on the path of re-leveraging, according to ICICI Securities.

Indian financiers, too, have fortified themselves with ample liquidity/ capital buffer to tap the emerging opportunity, said research analysts Kunal Shah, Renish Bhuva and Chintan Shah.

They observed that Year-To-Date (YTD) growth of 2.2 per cent suggests bank credit growth in FY21 will settle upwards of 5 per cent (at least 3-4 per cent accretion is witnessed in February/March historically).

Post that, the analysts expect 9-10 per cent credit growth in FY22. Recovery in economic activity and derivative effect of increased investments and corporate/government spending on consumption will sustain the momentum of 15 per cent plus growth over FY22-25

Gold loans shine

In a report, ICICI Securities said Banks’ gold loan portfolio has seen 67 per cent compounded annual growth rate (CAGR) growth over the past 2 years and is also up 65 per cent YTD and 132 per cent YoY to ₹43,100 crore.

The report attributed this largely to focus of banks towards secured lending products post loan-to-value (LTV) relaxation.

NBFCs

The analysts said service segment credit (led by lending to non-banking finance companies/NBFCs and financial services) is now gathering pace – up 1.6 per cent YTD/8.4 per cent YoY.

Lending to NBFCs and financial services was up 2.6 per cent MoM/10 per cent YoY.

Loans to public financial institutions have jumped 79 per cent YTD/151 per cent YoY, while lending to housing finance companies (HFC) has shrunk 31 per cent YTD (flat YoY).

“This clearly shows banks’ lending preference more towards public institutions than HFCs.

“NBFCs, after having consolidated for almost 2 years now, significantly deleveraging the balance sheet by running down high risk profile assets, are now more confident to pursue growth opportunities in a risk-calibrated manner,” the analysts said.

Consequently, bank lending to NBFCs should stabilise in FY22 rather than decelerate like FY21.

Retail credit

Retail credit is now inching closer towards double-digit mark (6.7 per cent YTD/9.1 per cent YoY) – housing, credit card, vehicle have picked up buoyancy over the past couple of months, per the report.

It assessed that one of the key segments that has retraced faster than anticipated is credit card – outstanding up 5 per cent YoY, now up 7.6 per cent YTD building over almost 14 per cent YTD decline in May 2020.

ICICI Securities noted that despite strong real estate sales and spike in registrations in housing projects, there has not been much traction in housing portfolio till January 2021.3.7

Housing (including priority sector lending) is up 7.7 per cent YoY and 1.7 per cent MoM, while YTD growth stands at 5.9 per cent which is not significant considering the strong traction seen in real estate deals, it added.

Vehicle loans led by improved sales amidst festive demand is up 2.5 per cent MoM, 6.9 per cent YTD and 7.0 per cent YoY.

MSME sector

The report said the MSME (micro, small and medium enterprise) sector was under a prolonged downcycle of credit growth over the past few quarters.

The sector saw momentum July 2020 onwards, post the introduction of the Emergency Credit Line Guarantee Scheme (ECLGS) by the government as an aid to MSMEs, which were in trouble, it added.

Banks, in particular Public Sector Banks, extended full support to MSMEs which resulted in MSME credit book jumping 33 per cent in a period of seven months to ₹1.27 lakh crore from ₹96,000 crore in June 2020. In terms of YoY growth, it is up 19.1 per cent and up 20.5 per cent YTD.

The report said the agriculture sector is leading the credit growth momentum with 9.5 per cent YTD/10 per cent year-on-year (YoY) growth (1.8 per cent month-on-month/ MoM).

Industry credit

Industry credit is still lagging with YTD decline of 4.3 per cent (down 1.3 per cent YoY). However, downward trajectory in industry credit (particularly large industries) has been arrested since past three quarters and there is a marginal MoM uptick since November.

The analysts underscored that the key sectors that are deleveraging continuously include telecom and other infra, construction, metals and petroleum. On the other hand, textiles, chemical, plastics, paper products have gathered credit momentum.

“However, with revival in consumer demand and rise in government spending, we believe industry growth can emerge as a key driver for credit growth in coming years.

“We believe industry growth can emerge as a key driver for credit growth with 6 per cent growth in FY22 and 13-15 per cent growth over FY23-25,” the analysts said.

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Ten reasons why banks are reluctant to lend to big corporate houses, BFSI News, ET BFSI

Banking & Finance

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A few years back, big corporates were the cynosure of the banking sector and were given red carpet treatment while the small borrowers had to fret it out.

However, the ballooning of bad loans by big corporates and the opening up of other lending avenues have turned tables on India Inc.

Credit to industry contracted by 1.3 per cent in January 2021 as compared to 2.5 per cent growth in January 2020 mainly due to contraction in credit to large industries by 2.5 per cent (2.8 per cent growth in January 2020). The outstanding bank credit to large industries declined by Rs 59,610 crore on a year-on-year basis to Rs 22.78 lakh crore as on January 29, 2021, according to the latest RBI data.

So what makes banks shun large corporates?

1. The binding constraint for lending has not been liquidity or interest rates, but risk aversion by bankers, who have been burnt in episodes like DHFL, HDIL, where thousands of crores went kaput.

2. Indian banks are already saddled with one of the world’s worst bad-loan ratios, and are naturally reluctant to add to those risks.

3. Economic activity is still in the doldrums, though it is showing signs of improvement of late, which makes risk assessment difficult.

4. Fresh slippages in the December quarter have risen sequentially, with the top ten lenders by the size of their loan book, adding close to Rs 80,000 crore in slippages during the December quarter.

5. Banks have other avenues to lend. Disbursements under the emergency credit line guarantee scheme was at Rs 1.6 lakh crore, and banks deployed around at Rs 1.4 lakh crore through the targeted long-term repo operation and partial credit guarantee scheme, which served as credit substitutes. These credit is guaranteed by the government and less risky.

6. Fear of prosecution of bank officials if the credit decision goes wrong has also kept banks away from lending huge amounts to corporates.

7. Long gestation periods, the uncertainty of returns and cost overruns that saw fortunes of many top corporate houses dwindle is also keeping banks away.

8. Having burnt their fingers by lending astronomical amounts to large business groups, lenders such as YES Bank intend to stay away from large corporate businesses and rebuild loan book in the mid- and small-corporate segment.

9. Also, there are not enough opportunities as the corporate sector, which account for 49% of the overall bank credit, has put their capital expenditure plans on the back burner.

10. Success of the likes of HDFC Bank in building retail loans has drawn other banks to it. Retail loans are typically secured and risk is evenly spread.



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Fin Min lifts embargo on grant of government business to private banks, BFSI News, ET BFSI

Banking & Finance

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The Ministry of Finance on Wednesday said the embargo on allotment of government business to private banks has been lifted.

FM Nirmala Sitharaman‘s office in a tweet said, “Embargo lifted on grant of government business to private banks. All banks can now participate. Private banks can now be equal partners in development of the Indian economy, furthering government’s social sector initiatives, and enhancing customer convenience.”

The move got a swift response from the stock market with BSE Sensex rising over 1000 points and the NSE Nifty settled near the 15,000 mark.

DFS in a media brief said this move will enable private sector banks (only a few were permitted earlier) to conduct of centre-related banking transactions such as taxes and other revenue payment facilities, pension payments and small savings schemes.

It added, this step is expected to further enhance customer convenience, spur competition and higher efficiency in the standards of customer services.

“With the lifting of the embargo, there is now no bar on RBI for authorization of private sector banks (in addition to public sector banks) for government business, including government agency business. The government has conveyed its decision to RBI,” the brief further said.



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India Ratings revises outlook on overall banking sector to stable for FY22

Banking & Finance

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India Ratings and Research on Monday said it has revised its outlook on the overall banking sector to stable for 2021-22 from negative.

“This is because substantial systemic measures have reduced the system-wide Covid-19 linked stress below the expected levels. Banks have also strengthened their financials by raising capital and building provision buffers,” it said in a statement.

The agency has upgraded its credit growth estimates for the current fiscal to 6.9 per cent from 1.8 per cent and 8.9 per cent in the next fiscal. This is due to the improvement in the economic environment in the second half of the fiscal year and the Centre’s focus on higher spending especially on infrastructure.

India Ratings estimates gross non performing assets at 8.8 per cent in the current fiscal and 10.1 per cent next fiscal and stressed assets at 10.9 per cent.

Provisioning cost has fallen from its earlier estimate of 2.3 per cent for 2020-21 to 2.1 per cent (including Covid-19 linked provisions) and is estimated at 1.5 per cent for next fiscal.

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Court issues notice to ministry, RBI, BFSI News, ET BFSI

Banking & Finance

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Issuing a notice to the ministry of urban affairs and RBI, a Delhi court has remarked that banks give loan without proper verification of the borrower, leading to a situation that has not only increased load of litigation but also malpractices when it comes to recovering it.

Additional district judge Ajay Goel came across five such pending cases that prompted him to suo motu discuss the issue at hand. He called the practices followed by banks and government authorities to be the cause of the prevalent situation.

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Gold loans: A place to be in, for banks

Banking & Finance

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Gold loans stood out in banks’ loan portfolio in the first nine months of the current financial year, both in terms of growth and asset quality.

Banks aggressively expanded their loan against pledge of gold ornaments and jewellery (jewel loans) portfolio in the wake of the Covid-19 pandemic.

Gold loans shine as small businesses, borrowers look for ready cash

During the first nine months of FY2021, banks preferred to lend either against highly liquid collateral such as gold or Government guarantee as they feared the economic downturn would affect customers’ ability to repay loans.

State Bank of India’s (SBI) personal gold loan book jumped four times in six months (up to December-end 2020) to stand at ₹17,492 crore.

Mobile app for gold loan launched in Kochi

Gross non-performing assets (GNPAs) of India’s largest bank was only at 0.04 per cent of its gold loan portfolio, per the bank’s analyst presentation. The bank, however, did not disclose the size of its agriculture gold loan in the presentation.

Bank of Baroda’s (BoB) agriculture gold loan portfolio was up 29 per cent year-on-year (yoy) to ₹21,116 crore as at December-end 2020 (₹16,325 crore as at December-end 2019).

“When we look at the agriculture side, nearly 40 per cent of the growth that we see in agriculture has come from gold loans. Gold loans are 20-21 per cent of our total agriculture book.

“…And we do hope that going ahead, 40-50 per cent of agricultural growth will come from gold loans,” Sanjiv Chadha, MD & CEO, BoB, told analysts last month.

Risk-averse market

The gold loan portfolio of Thrissur (Kerala) headquartered CSB Bank jumped about 60 per cent yoy to ₹5,644 crore as at December-end 2020 (₹3,523 crore).

Gold loans accounted for 40 per cent of the private sector bank’s total advances against 30 per cent in the year-ago quarter.

“We will not slow down the gold loan growth. We will increase the growth of the other products so that as a proportion (of total advances), gold loan will go down. I think, this (gold loan portfolio) is only about ₹6,000 crore. There is a big public sector bank, which has ₹70,000 crore of gold loans, so gold loan is a place to be in today,” C VR Rajendran, MD & CEO, CSB Bank, told analysts last month.

Federal Bank’s gold loan portfolio registered a y-o-y growth of 67 per cent and crossed ₹14,000 crore in the third quarter of FY2021, per its third quarter analyst presentation.

The proportion of gold loans in total advances in the case of Karur Vysya Bank (KVB) increased to 23 per cent as at December-end 2020 as against 17 per cent as at December-end 2019.

As at December-end 2020, KVB’s gold loan portfolio stood at ₹12,069 crore (₹8,580 crore)

Karthik Srinivasan, Group Head — Financial Sector Ratings, ICRA, observed that gold prices have been going up and this has been providing comfort to both lenders and borrowers.

“The market is still risk-averse. And banks, especially public sector banks, have been offering gold loans at relatively finer rates. So, that is an option that many people are availing,” he said.

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Banks’ provisioning in Q3 rises 10% sequentially

Personal Finance

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The rating agency has predicted less likelihood of a sharp deterioration of asset quality at banks.

Provisioning for banks during the December quarter (Q3FY21) is up nearly 10% sequentially, shows data from 18 banks. Eighteen banks have provided Rs 52,403 crore against loans during the December quarter, compared to Rs 47,827 in September 2020. While 11 private sector lenders made provisions of Rs 18,798 crore during the quarter, seven public sector lenders provided almost double of that at Rs 33,605 crore. Despite rise in provisions, the aggregate net profit of 18 lenders stood at Rs 28,604 crore, up 6% sequentially.

The lenders had made extra provisions during the quarter on account of loans that were not classified as non-performing assets (NPAs) due to Supreme Court’s direction. The apex court had earlier directed lenders not to declare any fresh NPAs from August 31, 2020. The lenders, therefore, declared bad loans on a proforma basis by making adequate provisions for the same. Proforma NPAs of 18 lenders has crossed Rs 7 lakh crore during the December quarter.

In a report on asset quality of lenders, Moody’s said that while gross non-performing loan (NPL) ratios remained high at most banks, net NPL ratios were much lower because of the buildup of significant provisions against legacy bad loans. Moody’s said “The gross NPL ratios of 5 banks declined by an average of about 100 basis point (bps) as of the end of 2020 from a year earlier, even including loans that have become delinquent since the end of August 2020 but are not formally classified as NPLs because of a pending case in the Supreme Court.”

The rating agency has predicted less likelihood of a sharp deterioration of asset quality at banks. “We expect the Indian economy to recover in 2021, and this reduces the likelihood of a sharp deterioration of asset quality at the banks,” Moody’s said. However, they will continue to face capital shortages as their profitability remains weak, it further added.

The financial stability report of Reserve Bank of India (RBI) had earlier stated that banks’ GNPAs may rise sharply to 13.5% by September 2021, and escalate to 14.8%under the severe stress scenario.

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Banks in Gujarat to stay shut for 4 days in March, BFSI News, ET BFSI

Banking & Finance

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If you have an account with a public sector bank, then avoid scheduling your banking activities between March 13 and March 16.

Around 55,000 public sector bank employees from 18,000 branches from across Gujarat are planning to participate in the nationwide bank strike on March 15 and 16, according to the MahaGujarat Bank Employees’ Association.

With March 13 being a second Saturday and March 14 being a Sunday, banks are expected to remain shut over the weekend.

The United Forum of Bank Unions, an umbrella body of nine unions, has given a call for the two-day strike against the proposed privatization of two-state owned lenders.

In an UFBU meeting held in Hyderabad on Tuesday, various announcements made in the union budget regarding reform measures like privatization of IDBI Bank and two public sector banks, setting up a bad bank, disinvestment in LIC, privatization of one general insurance company, allowing FDI in insurance sector up to 74%, aggressive disinvestment and sale of public sector undertakings.

On February 19, a day-long dharna will be held by bank employees in all state capitals whereas relay demonstrations will be held from February 20 to March 10 across various towns and districts of Gujarat. According to bankers, the strike will bring transactions worth at least Rs 60,000 crore to a standstill.



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RBI to set up expert committee on urban co-op banks

Banking & Finance

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The Reserve Bank of India (RBI) has decided to set up an expert committee on Urban Co-operative Banks (UCBs) involving all stakeholders in order to provide a medium-term road map to strengthen the sector, enable faster rehabilitation/resolution of UCBs, as well as examine other critical aspects relating to these entities.

This follows the provisions of the Banking Regulation (Amendment) Act, 2020 becoming applicable to Primary (Urban) Co-operative Banks (UCBs) with effect from June 26, 2020.

“The amendments have brought near parity in regulatory and supervisory powers between UCBs and commercial banks in respect of regulatory powers, including those related to governance, audit and resolution.

“Consequently, a comprehensive review of regulatory/supervisory approach towards the sector is required in the light of these amendments,” Governor Shaktikanta Das said.

The constitution of the committee as well as the terms of reference will be notified separately by the RBI.

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NBFCs included in TLTRO ‘on tap’ scheme

Banking & Finance

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The Reserve Bank of India on Friday proposed to provide funds from banks under the TLTRO ‘on tap scheme’ to NBFCs for incremental lending to these sectors.

Reserve Bank of India Governor Shaktikanta Das said NBFCs are well recognised conduits for reaching out last mile credit and act as a force multiplier in expanding credit to various sectors.

“With a view to support revival of activity in specific stressed sectors that have both backward and forward linkages and have multiplier effects on growth, the RBI had announced the TLTRO on Tap Scheme for banks on October 9, 2020,” Das said on Friday.

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