Indian banks face rise in bad loans to 8-9% of lending -CRISIL, BFSI News, ET BFSI

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MUMBAI – Indian banks are likely to see a rise in gross non-performing assets (NPA) to 8-9% of total lending at the end of this fiscal year from 7.5% last year, rating agency CRISIL said in a report on Tuesday.

The rises will be led by retail clients and the micro, small and medium (MSME) segments, said Krishnan Sitaraman, senior director and deputy chief ratings officer, noting they represent 40% of total bank credit.

“Stressed assets in these segments are seen rising to 4-5% and 17-18%, respectively, by this fiscal year-end (March 2022). The numbers would have trended even higher but for write-offs, primarily in the unsecured segment,” Sitaraman said.

Last year the Reserve Bank of India (RBI) allowed banks to offer a six-month moratorium to all small borrowers.

It later permitted lenders to offer a one-time loan-restructuring facility to help avert mounting bad loans and to allow borrowers more time to repay their debt.

Despite these measures, stressed assets in the retail segment will rise, with home loans which is the largest segment being the least impacted and unsecured loans being the worst, CRISIL said.

The corporate segment is expected to be more resilient as a large part of the stress in the corporate portfolio was already recognised during an asset quality review initiated by the RBI in 2015, CRISIL said.

The agency said the performance of the restructured portfolio will need close monitoring but slippages from the restructured book are expected to be lower this time around.

“Recent trends indicate that a reasonable proportion of borrowers, primarily on the retail side, have started making additional payments as their cash flows improve, said Subha Sri Narayanan, director at CRISIL Ratings.

“MSMEs, however, may take longer to stabilise and we remain watchful.”

Reserve Bank of India (RBI)



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Axis Bank launches gears up for festive season, launches ‘Dil Se Open Celebrations’, BFSI News, ET BFSI

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Axis Bank has launched ‘Dil Se Open Celebrations’ to offer deals and discounts on shopping, restaurants and various other retail loan products.

Axis Bank customers can avail discounts on several brands across e-commerce, lifestyle, electronics and fashion platforms by purchasing through the Bank’s debit and credit cards.

The Bank will also offer loan products to its customers for the festive season. It is offering waivers of 12 EMIs on select home loan products and providing on-road finance with no processing fees for two-wheelers customers.

For business owners, the Bank will be offering benefits on term loans, equipment loan and commercial vehicle finance.

Sr No Loans Offers
1 Personal Loan
  • Interest rate starting at 10.25% p.a.*
  • Flat processing fees of Rs. 4999/*- + GST
2 Education Loans
  • Interest rates starting at 8.99% p.a.* for universities in India & Abroad
  • Unsecured loan up to Rs. 40 lakhs, for 15 years
  • 100% funding of cost of education
3 Gold Loans
  • Interest rate starting @9%p.a.*
  • 0.25% processing fees*
  • Funds in 60 minutes
4 Overdraft Against Fixed Deposit
  • Overdraft of up to 85% of Fixed Deposit amount
5 24×7 Personal Loans
  • Pay EMI as low as Rs 2,249 per lakh*
  • Flexible tenure of up to 60 months
  • Instant paperless disbursal**
  • Multiple e-income assessment options
  • Loans up to 10 lacs
  • Digital KYC verification
6 Working Capital and Term Loan
  • Flat 50% off on processing fees
  • Avail loan up to ₹5 crore, loan to value of upto 100% of collateral

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Gross NPAs of banks to rise 8-9 per cent this fiscal: Crisil

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Gross non-performing assets (GNPAs) of banks will rise to 8-9 per cent this fiscal, well below the peak of 11.2 per cent seen at the end of fiscal 2018, with the Covid-19 relief measures such as the restructuring dispensation, and the Emergency Credit Line Guarantee Scheme (ECLGS) helping limit the rise, according to CRISIL Ratings.

GNPAs as at March-end 2021 had declined to 7.5 per cent against 8.2 per cent as at March-end 2020.

With about 2 per cent of bank credit expected under restructuring by the end of this fiscal, stressed assets ― comprising gross NPAs and loan book under restructuring ― should touch 10-11 per cent (against March-end 2021 estimate of about 9 per cent), the credit rating agency said.

Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, said: “The retail and MSME segments, which together form about 40 per cent of bank credit, are expected to see higher accretion of NPAs and stressed assets this time around.

“Stressed assets in these segments are seen rising to 4-5 per cent and 17-18 per cent, respectively, by this fiscal-end. The numbers would have trended even higher but for write-offs, primarily in the unsecured segment.”

Retail segment singed by pandemic

The agency underscored that the retail segment, which had a relatively stable run over the past decade, has been singed by the pandemic, with salaried and self-employed borrowers alike facing significant income challenges and higher medical expenses, especially in the second wave.

Thus, in a first-of-its-kind move, the Reserve Bank of India (RBI) introduced loan restructuring for retail borrowers to help them tide over the situation. This followed a six-month moratorium permitted by lenders last fiscal.

Despite these measures, CRISIL Ratings believes stressed assets in the retail segment will rise to 4-5 per cent by the end of this fiscal from about 3 per cent last fiscal.

The agency assessed that while home loans, the largest segment, will be the least impacted, unsecured loans are expected to bear the brunt of the pandemic.

MSME segment: Asset quality to deteriorate

CRISIL Ratings cautioned that the MSME segment, despite benefiting from ECLGS and the recent limit enhancement and tenure extension, is likely to see asset quality deteriorate and will require restructuring to manage cash-flow challenges.

In fact, restructuring is expected to be the highest for this segment, at 4-5 per cent of the loan book, leading to a jump in stressed assets to 17-18 per cent by this fiscal end from about 14 per cent last fiscal, per the agency’s estimates.

Corporate segment: Resilient

CRISIL Ratings observed that the corporate segment, though, is expected to be far more resilient.

“A large part of the stress in the corporate portfolio had already been recognised during the asset quality review initiated five years ago.

“That, coupled with the secular deleveraging trend, has strengthened the balance sheets of corporates, and enabled them to tide over the pandemic relatively unscathed compared with retail and MSME borrowers,” the agency said.

This is evident from restructuring of only about 1 per cent in the segment. Consequently, corporate stressed assets are expected to remain range-bound at 9-10 per cent this fiscal.

Rural segment: Strong recovery

CRISIL Ratings noted that the rural segment, which was hit harder during the second wave of the pandemic, has also seen a strong recovery.

Therefore, stressed assets in the agriculture segment are expected to remain relatively stable at about 10-11 per cent.

Restructured portfolio: Needs close monitoring

Subhasri Narayanan, Director, CRISIL Ratings, observed that while the performance of the restructured portfolio will definitely need close monitoring, the slippages from the restructured book are expected to be lower this time.

Restructuring under various schemes in the past focussed on larger exposures and primarily involved extension of maturity without any material haircuts, resulting in high subsequent slippages, she said, and added that this time, the entry barriers for restructuring are more stringent.

Also, recent trends indicate that a reasonable proportion of borrowers, primarily on the retail side, have started making additional payments as their cash flows improve, despite having availed of restructuring, Narayanan said. MSMEs, however, may take longer to stabilise and we remain watchful.

CRISIL Ratings’ estimates are predicated on a base-case scenario of 9.5 per cent GDP growth this fiscal and continued improvement in corporate credit quality.

“A virulent third wave and significant deceleration in demand growth could pose significant downside risks to these estimates,” the agency said.

On the other hand, operationalisation of the National Asset Reconstruction Company Ltd by the end of this fiscal and the expected first-round sale of Rs 90,000 crore NPAs could lead to lower reported gross NPAs.

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Banks to be closed on Eid-Milad, Gajalaxmi Puja in Odisha, BFSI News, ET BFSI

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Bhubaneswar (Odisha) [India], October 19 (ANI): Odisha government on Monday announced that Banks and other banking institutions in the states would remain closed on Tuesday and Wednesday.

“Banks and other Banking institutions in Odisha will remain closed on October 19 (Tuesday) and October 20, 2021 (Wednesday) on the occasion of ‘Eid-Milad‘ and ‘Gajalaxmi Puja‘ respectively,” said Revenue & Disaster Management Department, Odisha government in a notification.

Eid-Milad or Eid Milad-un-Nabi is an annual celebration to commemorate the birth anniversary of Prophet Muhammad and is observed in the month of Rabi-ul-Awwal, the third month of the Islamic lunar calendar, which commences with the sighting of the moon. The occasion also marks the death anniversary of the Prophet. (ANI)

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As India’s bad bank knocks, ARCs seek relaxations from RBI, BFSI News, ET BFSI

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With the bad bank on the anvil, asset reconstruction companies have sought relaxation of the pricing structure for the purchase of bad loans, funding from banks, and clarity on participating in insolvency cases as a resolution applicant. These are among the suggestions made by ARCs to the committee formed by the Reserve Bank of India in April.

Usually, sales take place either on a full-cash basis or under the 15:85 structure, where 15% is paid as upfront cash and the remaining in the form of security receipts.

ARCs have sought a reduction in the minimum investment requirement to 2.5% from 15% in cases where cash is fully paid upfront.

The cash proportion of 15% has pushed the ARCs to raise their returns through securitisation and asset reconstruction.

Unless the ARC recovers 130% of the acquisition value, it will not make its return. Even at 100%, an ARC will make a loss because the management fee of 1-2% doesn’t make any ARR for ARC. Recovery should be over 130% so that 100% of security rights will be redeemed.

Also read: What are NARCL and IDRCL? How do they work and what is the plan?

Also, in September 2016, the Reserve Bank of India introduced new regulatory guidelines regarding provisioning. From April 2018 banks have to sell at 90% cash and 10% SRs. If a bank holds more than 10% SR, it had to continue provisioning for the loan which is not even on their books. So there is no incentive for them to transfer to ARCs. Now no banks transfer on 15:85 and all deals are in cash.

Bank funding

Asset reconstruction companies have asked RBI to allow bank funding for them on the lines of provided to non-banking finance companies. They have also sought doing away with dual-provisioning norms, a move which will benefit banks the most.

ARCs have suggested that bank provisioning needs to be solely based on the rating agency-determined net asset value of the security receipts.

From April 2018, banks have had to make provisions for stressed assets that are sold, assuming they remain on the books. This is applicable in cases where security receipts make up for more than 10% in the sale of non-performing assets.

Banks also have to make mark-to-market provisions in cases where the rating of security receipts is downgraded. Security receipts are valued on net asset values, linked to recovery ratings, which is an assessment of probable recovery from an underlying non-performing asset by rating agencies.

With banks not having to go for dual provisioning, they sell NPAs on a 15:85 structure, making more NPAs available for ARCs.

Currently, outstanding security receipts are estimated to be around Rs 1.1 lakh crore.

The RBI committee

In April this year, the RBI has formed a six-member panel under the chairmanship of Sudarshan Sen, former RBI executive director, to examine the role of asset reconstruction companies (ARCs) in stressed debt resolution, including under the Insolvency & Bankruptcy Code (IBC), 2016 and review their business model.

The committee is reviewing the legal and regulatory framework of ARCs and recommend measures to improve their efficacy. It will submit its report within three months from the date of its first meeting. As of January, the number of ARCs registered with the RBI stood at 28.



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RBI imposes penalty of Rs 1.95 crore on Standard Chartered Bank, BFSI News, ET BFSI

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The Reserve Bank of India has imposed a penalty of Rs 1.95 crore on Standard Chartered Bank – India, for non-compliance with the directions on customer protection, cyber security, credit card operations, among others, the central bank said in a circular.

Customer Protection – Limiting Liability of Customers in Unauthorised Electronic Banking Transactions, Cyber Security Framework in Banks, Credit Card Operations of banks and Creation of a Central Repository of Large Common Exposures – Across Banks – were the norms the bank failed to comply with, according to the RBI.

A Statutory Inspection for Supervisory Evaluation of the bank had been conducted with reference to its financial position as on March 31, 2020, and the examination of the risk assessment report, inspection report and all related correspondence pertaining to the same revealed the non-compliance with the above-mentioned directions to the extent of failure to credit the amount involved in the unauthorised electronic transactions, not reporting cyber security incident within the prescribed time period, authorising direct sales agents to conduct KYC verification, and failure to ensure integrity and quality of data submitted.

Based on this, the RBI had issued an notice to the bank advising it to show cause as to why penalty should not be imposed on it.

After receiving the bank’s replies to the notice, the RBI came to the conclusion that it would charge a fee for the non-compliance.



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US banks report big profit jumps amid improving economy, BFSI News, ET BFSI

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A trio of large US banks reported signficantly higher profits Thursday, boosted by a strengthening US economy that has diminished the need to set aside funds for loan defaults.

Bank of America‘s results were lifted by the release of $1.1 billion in reserves, while Citi’s got a $1.2 billion boost. Wells Fargo‘s quarter was helped by a $1.7 billion reduction in provisions.

“We reported strong results as the economy continued to improve and our businesses regained the organic customer growth momentum we saw before the pandemic,” said Bank of America Chief Executive Bryan Moynihan.

Large banks set aside billions of dollars early in 2020 amid fears that lockdowns to address Covid-19 would lead to a global depression.

But the results are the latest indication that consumers remain in relatively healthy shape, thanks in part to robust fiscal support programs from Washington and accommodative monetary policy that has boosted the housing and equity markets.

Wells Fargo Chief Executive Charlie Scharf pointed to the “low” number of charge-offs, a sum that creditors believe will not be paid.

Many economists believe the United States could be well positioned for growth, but warn that worsening inflation could weigh on activity and compel the Federal Reserve to lift interest rates more quickly than expected.

On Wednesday, JPMorgan Chase Chief Executive Jamie Dimon said investors should not put “too much focus” on inflation and supply chain problems, pointing to a strong IMF forecast for continued growth in 2021 and 2022.

“You can have good growth and some inflation,” Dimon said. “That’s okay.”

Citi Chief Financial Officer Mark Mason took a similar position Thursday, calling solid growth “the good news” in the economy.

“There are a number of those moving pieces that are out there,” Mason said in response to a question about supply chain problems. “Over time they start to normalize… and we’re optimistic that they will.”

Citi reported profits of $4.6 billion, up 48 percent from the year-ago level on a one percent drop in revenues to $17.2 billion.

Bank of America scored a 58 percent jump in profits to $7.7 billion on a 12 percent rise in revenues to $22.8 billion.

Wells Fargo reported profits of $5.1 billion, up 59 percent on a 2.5 percent drop in revenues to $18.8 billion.

Shares of Citi gained 0.2 percent to $70.37 while Bank of America rose 2.5 percent to $44.24 in morning trading. Wells Fargo dipped 0.2 percent to $45.96.

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RBI governor, BFSI News, ET BFSI

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Amid rising concerns over mispricing of credit risk by banks due to abundant liquidity, the Reserve Bank of India today said it was for the banks to do their own risk assessment and price their loans accordingly.

‘Banks should do own risk assessment and based on it should price their loans, action lines in the domain on banks,” said RBI governor Shaktikanta Das.

“I don’t think SBI has flagged this issue as a complaint, SBI has flagged it as a concern, which is for the banks to take note of, whatever be the liquidity situation,” he said.

Mispricing of loans

A few weeks ago, SBI, the country’s largest lender, has said that mispricing of risks is a cause of concern given the fact that there is ample liquidity in the system.

Since deposits are flowing into the system and credit offtake is yet to take place, bankers may be tempted to make investments in alternative avenues like T-Bills, SBI chairman Dinesh Kr Khara said.

“The depth of this alternative investment market is shallow. There is a chance of mispricing of risks. But I feel there will be no compromise on underwriting standards as the banking system has learned the hard way due to huge NPAs,” he said.

Striking a balance

The SBI chairman said there is a need to strike a balance and unless there is improvement in growth, it will be big challenge.

Regarding offtake of credit, the banker said some industrial sectors are showing improvement but it is not universal across sectors.

“I hope the Production Linked Incentive scheme will help a lot in offtake of liquidity, particularly in the MSME sector. Now some private sector investments are likely to take place besides PSUs. The road sector is looking promising,” he stated.

Khara said given the present macroeconomic conditions it is unlikely that the central bank will alter interest rates in the coming Monetary Policy Committee meeting.



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BoB pares home loan rate by 25 bps

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Bank of Baroda (BoB) has announced a 25 basis points reduction in its home loan interest rates, with the minimum rate now starting at 6.50 per cent against 6.75 per cent earlier.

This special rate, which is effective from October 7, 2021, till December 31, 2021, is available for customers applying for fresh loans and those seeking loan transfer or refinancing their existing loans.

The public sector bank, in a statement, said it has reduced the home loan interest rate with the onset of festive season and to make home buying more affordable for customers.

“Nil processing fee on home loan was already on offer and has been extended till December-end 2021,” the Bank said.

HT Solanki, GM- Mortgages & Other Retail Assets, BoB, said with this reduced rate of interest, BoB’s home loans are now available at competitive rates across categories for a limited period.

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Srei lenders face Rs 5,000 cr provisioning for Srei loans, eroding DHFL recovery, BFSI News, ET BFSI

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Lenders which were preparing to add the big DHFL recovery of over Rs 35,000 crore to their profits, may have to temper their celebrations. They will have to make provisioning for loans of Srei group firms, on which RBI has put an administrator.

Bankers will have to make an immediate provision of over Rs 5,000 crore, according to the rules.

According to the Reserve Bank of India’s (RBI’s) norms, Srei exposure will be treated as substandard asset, which is the first stage of non-performing asset (NPA). Banks will now have to set aside around 15 per cent provision for secured loans while it would be higher for unsecured credit.

Srei loans were stressed for many quarters, but lenders could not classify them as NPAs due to restrictions by the tribunals. However, they have made provisions for the Srei loans under general and Covid provisions.

Based on the results of a forensic audit, banks may have to even make 100 per cent provisions if the accounts are treated as fraud.

Promoters move court

Meanwhile, Srei Group promoters have moved the Bombay High Court challenging Reserve Bank of India’s decision to supersede the board of two group companies, in preparation for sending them to bankruptcy courts.

Srei group promoters are seeking stay on any insolvency proceedings at group companies Srei Infrastructure Finance Ltd and Srei Equipment Finance Ltd, whose board the regulator sacked and appointed an administrator.

The promoters are also seeking stay on the appointment of the administrator. On October 4, the banking regulator superseded the board of directors of Kolkata-based Srei Infrastructure Finance and Srei Equipment Finance and said that it will initiate insolvency proceedings with the National Company Law Tribunal (NCLT). The RBI move makes Srei the second non-bank lender to be referred to the bankruptcy courts after DHFL.

The RBI cited governance concerns and defaults by the company and appointed Rajneesh Sharma, former chief general manager, Bank of Baroda as an administrator of the company.

In June 2021, Srei companies reported to the exchanges that the RBI inspection had flagged loans worth Rs 8,576 crore as related party loans. These accounted for nearly 30% of the group’s consolidated debt.

The loans

Srei Infrastructure, and its subsidiary Srei Equipment Finance, together owe lenders and debenture holders a total of Rs 30,000 crore. Kolkata-based UCO Bank is the lead lender, with more than Rs 2,000 crore of exposure. State Bank of India (SBI)’s exposure to the group is also more than Rs 2,000 crore.

The bank loans have turned non-performing assets after the end of the September quarter.

The company had earlier announced that Arena Investors, Makara Capital and others had evinced interest to invest in the company to the tune of Rs 2,200 crore. The company had formed a strategic coordination committee to coordinate, negotiate and conclude discussions with the investors.



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