Tag: banks

Banks, NBFCs report jump in advances in September quarter, BFSI News, ET BFSI

Banking & Finance

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In a sign that bank credit growth may be on an uptrend, most bank and non-bank lenders reported a jump in disbursal of advances in the quarter ended September.

HDFC Bank saw its advances book grow by around 15.4% year on year at the end of the September quarter, proforma numbers released by the private sector lender showed. Its total loans aggregated to Rs 11.98 lakh crore at the end of September, up 4.4% sequentially. It’s total loans were at Rs 10.38 lakh crore at the end of September 2020.

As per the bank’s internal business classification, retail loans during the September quarter grew by around 13% year on year and 5.5% over June quarter. Commercial and rural banking loans grew by around 27.5% y-o-y while other wholesale loans grew by around 6%.

HDFC Bank has “resumed its retail growth journey” as the economy recovered from the second wave of Covid-19, said Gautam Chhuggani, director – financial at investment management firm Bernstein Research.

“We expect loan mix normalisation to be the norm in the coming quarters, with a focus on improving margins and ongoing tech transformation,” he said and noted that the bank has already reported a healthy bounce-back on new credit card issuances after the Reserve Bank of India in August lifted a ban imposed in December last year.

Mortgage lender HDFC assigned loans amounting to Rs 7,132 crore at the end of the September quarter versus Rs 3,026 crore a year earlier. It sold loans worth Rs 27,199 crore in the preceding 12 months versus Rs 14,138 crore in the previous year, regulatory filings show.

Private sector lender IndusInd Bank reported better-than-expected credit growth of 10% with total loans at Rs 2.2 lakh crore at the end of the September quarter, preliminary numbers filed with stock exchanges showed.

“The credit growth indicates underlying strong credit re-acceleration in the retail book,” said Anand Dama, senior research analyst at Emkay Financial Services. “The bank has been growing its corporate book since the June quarter and we believe that the bank is likely to have seen healthy momentum in the corporate book in September quarter as well.”

IDFC First Bank posted 9.75% growth in advances at Rs 1,17,243 crore for the second quarter ended September.

Leading non-bank lender Bajaj Finance reported it had booked 6.3 million new loans at the end of the September quarter versus 3.6 million a year ago. It’s assets under management (AUM) stood at Rs 1.66 lakh crore for the quarter under review as against Rs 1.37 lakh crore a year earlier.

Non-bank lender Mahindra & Mahindra Financial Services posted a 60% year-on-year growth in disbursements at Rs 6,450 crore at the end of the September quarter. With further improvement in mobility during September, the collection efficiency for the NBFC was reported at 100% for September 2021.

“Subject to improvement in auto supply chain, the company is hopeful of a good Q3 FY22 ahead, supported by festival season and harvest cash flow.” M&M Finance said in a statement.

Private lender Yes Bank posted a 3.6% rise in its advances to Rs 1.72 lakh crore, though retail disbursements grew at a faster rate and grew by 126.6% over last year to Rs 8531 crore at the end of the September quarter as against Rs 3764 crore a year ago.



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Banks’ credit growth gradual in August, industry weakest link, says ICICI Sec, BFSI News, ET BFSI

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The overall credit growth of banks in August has been gradual from July, with signs of improvement only in pockets, ICICI Securities said in a report.

Industry credit continues to be the weakest link, dragging overall credit growth.

The industry, which comprises 29.2% of total non-food credit, was down 0.2% on month. Under-utilisation of existing sanction limits, modest demand outlook and run-down of exposure in few sectors were among the key factors, the brokerage said.

However, the brokerage expects industry credit to revive in the near future, given economic recovery from the COVID-19 crisis.

“We believe India Inc is now better positioned and confident to anvil on the path of re-leveraging. Indian financiers, too, have saddled themselves with ample liquidity to tap the emerging opportunity. Recovery in economic activity and the derivative effect of increased investments and corporate, government spending on consumption will sustain the momentum of more than 15% growth over FY22-FY25,” ICICI Securities said.

Also read: Banks’ credit outlook ‘stable’ for FY22, says Crisil Ratings

Credit extended for home loans has stayed put since March, up 0.8% year-to-date, while vehicle loans moderated to a 1% month-on-month accretion and is likely to pick up during the festive season.

Other personal loans also saw a strong momentum, up 18% on year.

With gradual easing of COVID-19 restrictions, credit card portfolio sales have risen 3.9% on month and 10.3% on year, witnessing the quickest recovery as business activity levels revived, the brokerage said.

Credit to non-food sectors was up a mere 0.5% on month and 6.7% on year, with agri and retail being the main drivers.

Retail credit is sustaining double-digit growth, but has not been robust, despite relaxation of COVID curbs, the brokerage said. The growth in retail credit was primarily due to the traction in vehicle and personal loans, and credit card sales.

Roads, airports, railways, iron and steel, cement, telecom and sugar are among the key sectors that are continuously deleveraging, the brokerage said.

“We believe industry growth will have to emerge as a key driver to boost credit growth in coming years. While it may happen with some lag, revival in consumer demand and rise in government spending can be potential triggers,” the brokerage said.

Credit to micro, small and medium enterprises was up 4% on month and 63% on year, the brokerage noted.

Lending to housing finance companies was up 21% on month, while loans to public public financial institutions was down 1% on year. After running down high risk assets, NBFCs are now pursuing growth opportunities in a risk-calibrated manner, the brokerage said, adding that now bank lending to NBFCs should stabilise.



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Banks’ credit outlook ‘stable’ for FY22, says Crisil Ratings, BFSI News, ET BFSI

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Crisil Ratings has kept a ‘stable’ credit outlook for banks for the second half of financial year 2022.

Strong capitalisation will remain a key factor for private banks to have a stable credit growth, while public sector banks benefit from government support.

However, privatisation of two public sector banks, as announced in Union Budget 2021-22, will be eyed.

Banks’ credit growth is expected to revive 9-10% in FY22, after a fall of around 5% in FY21, the agency said, adding that profitability of the banking sector is set to improve over the medium term.

Gross non-performing assets are likely to touch 10-11% by the end of this fiscal.

According to reports, the GNPA is at 8-9%, supported by government schemes and restructuring dispensation, the agency said. In FY18, the GNPA had hit a peak of 11.2%.

The NPA level improved because banks have lowered their provisioning levels from before, thereby limiting the impact of legacy NPAs on future earnings, Crisil said, in its half yearly ratings round up report.

Retail segment growth is expected to return to the mid-teens this fiscal, after a slow growth reported a year ago. Within retail, housing loans, which constitute more than half of retail advances for banks, saw slow growth last fiscal, but demand remains strong over the long term, the agency said.

With rising affordability and the recent trend of working from home, demand for own houses and larger houses are likely to rise, and banks will benefit from lower competition from non-banks as well as surplus liquidity, it added.

However, a potential third COVID-19 wave remains a key near-term risk, while deceleration in economic and demand growth, both global and domestic, due to tapering of monetary and fiscal stimuli will be key medium-term risks.

The impact of the third wave is likely to be contained due to the increase in the pace of inoculations, with nearly 70% of the adult population receiving at least one dose.

For non-banking financial companies, the agency expects better credit quality than last year, but has retained a ‘monitorable’ outlook.

The credit quality growth for NBFCs is expected to pick up to 6-8% in FY22 from 2% in FY21. However, it remains lower than the pre-pandemic level of 18%.

Crisil expects NBFCs to witness an uptick in stressed assets as MSME and unsecured loans have been hit the most. However, loans to other sectors have been relatively resilient.

Asset quality in these segments continue to be impacted the most, with delinquencies rising almost 300 basis points in June 2021 against March 2021 levels, despite higher restructuring and write-offs last fiscal compared with other asset classes. Delinquency levels for these segments will remain elevated given a likely higher recovery period for borrowers, Crisil said.

Improved capitalisation and strong parentage will be key support factors for non-bank lenders. The agency noted that many NBFCs have strengthened their provisioning buffers, factoring in the COVID-19 crisis, leading to more comfortable liquidity in the sector.

Crisil expects the sector to witness organic consolidation with stronger NBFCs, who have strong parentage, and gain market share.

Performance on asset quality and impact on earnings will remain key monitorables for NBFCs.



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Banks get RBI nod to use any other ARR in place of LIBOR

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The Reserve Bank of India (RBI) has permitted banks, which are authorised to deal in foreign exchange, to use any other widely accepted/alternative reference rate (ARR) in place of the London interbank offered rate (LIBOR) for interest payable in respect of export/import transactions.

The central bank has issued a circular in this regard to authorised dealer banks in view of the impending cessation of LIBOR as a benchmark rate.

RBI Governor Shaktikanta Das, in a statement on August 17, observed that the transition away from LIBOR is a significant event that poses certain challenges for banks and the financial system. “The Reserve Bank has been engaging with banks and market bodies to proactively take steps. The Reserve Bank has also issued advisories to ensure a smooth transition for regulated entities and financial markets,” Das said.

Also read: LIBOR transition will be a complex exercise

Banks will be permitted to extend export credit in foreign currency using any other widely accepted ARR in the currency concerned, he added. Since the change in reference rate from LIBOR is a “force majeure” event, banks are also being advised that change in reference rate from LIBOR/ LIBOR related benchmarks to an ARR will not be treated as restructuring, the Governor then said.

On June 8, 2021, the RBI had advised banks and other regulated entities to cease entering into new contracts that use LIBOR as a reference rate and instead adopt any ARR as soon as practicable and in any event by not later than December 31, 2021.

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Emerging Asia-Pacific markets incline towards cashless payments, shows McKinsey survey, BFSI News, ET BFSI

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The number of users in emerging markets in Asia-Pacific, which includes India, has increased from 65% in 2017 to 88% in 2021, according to a survey by consultancy firm McKinsey.

The shift to digital banking was likely accelerated by existing trends such as increasing use of digital channels, including banking, broader use of video calls in place of face-to-face meetings, etc. These trends have intensified during the COVID-19 pandemic, and high levels of digital adoption are likely to hold even as the pandemic subsides, the survey suggests.

In emerging markets, FinTech apps and e-wallet penetration reached 54% in 2021, compared with 43% in developed Asia–Pacific. In 2017, the penetration was just 38% in emerging markets.

More than half of the respondents in most Asia–Pacific markets report that cash is used for less than 30% of weekly spending, the survey said.

The survey results indicate that banks can expand their digital offering, by leveraging existing assets. According to McKinskey, banks will need to reinvent its business and delivery models by focusing on three key areas – value of branches, customer engagement, and overall competitive positioning.

Approximately 97% of all Asia–Pacific consumers favour mobile and online banking, and 2% of consumers in developed Asia–Pacific and 3% in emerging Asia–Pacific continue to conduct most of their bank business at the branch.

With digital banking becoming more and more popular, the question of functionalities of bank branches arises. However, despite these numbers, McKinsey says that bank branches will continue to be consumers’ primary partner in managing money. Banks can make sure that branch staff have time to concentrate on activities like advising on loans, insurance, or investments to customers, and digitise other processes, it said.

To further engage customers in digital banking, McKinsey’s research suggests that banks should urge customers to buy banking products online. Even though 70% of respondents expressed openness for using digital channels for services beyond transactions, only 20-30% said they were comfortable to buy online banking products like savings accounts, loans, or credit cards.

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Banks may sell Rs 1 lakh crore of fraud-hit loans to NARCL, ARCs, BFSI News, ET BFSI

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Banks may offload about Rs 1 lakh crore of accounts with fraudulent activities to National Asset Reconstruction Company Ltd (NARCL) and other ARCs with the Reserve Bank of India allowed lenders to sell such loans.

In the last three years, banks have declared loan frauds amounting to Rs 3.95 lakh crore.

The new rule is part of the RBIs final norms on the transfer of loan exposures.

The move has opened a new avenue for ARCs, which till now were allowed to take over non-performing assets as well as loans which are in default for 60 days.

This bad loans that ARCs can take over include loan exposures classified as fraud as on the date of transfer provided that the responsibilities of the transferor with respect to continuous reporting, monitoring, filing of complaints with law enforcement agencies and proceedings related to such complaints shall also be transferred to the ARC, the central bank said. The transfer of such loan exposures to an ARC, however, does not absolve the transferor from fixing the staff accountability as required under the extant instructions on frauds.

Banks have to make 100% provision in four quarters for accounts tagged in the fraud category. In the case of non-performing assets without delayed recovery, 100% provisioning effectively happens over eight quarters.

Swiss challenge

Banks may sell Rs 1 lakh crore of fraud-hit loans to NARCL, ARCs

The RBI has clarified on the called Swiss Challenge Method, applicable while transferring stressed loans by lenders. The RBI had proposed de-regulate price discovery by departing from Swiss Challenge auction method, where the highest bid in the first round or unsolicited bid received becomes the base for seeking counter offers.

The central bank said that in cases where the aggregate exposure of lenders to a borrower whose loan is being transferred is above 1 bln rupees, Swiss Challenge method must be followed. In all other cases, the bilateral negotiations shall be subject to the price discovery and value maximisation approaches adopted by the transferor as part of the board approved policy, which may also include Swiss Challenge method, it said However, in case of such transfers used as means for resolution under the RBI’s Jun 7, 2019 circular, Swiss Challenge method would be mandatory irrespective of the exposure threshold.

The RBI said that lenders must have a board-approved policy on the adoption of Swiss Challenge method. The policy could include parameters such as a tolerance limit on haircut required by the lenders in the base-bid and minimum mark-up for over the base for seeking counter offers, the RBI said. Such minimum mark-up, difference between the challenger and the base-bid expressed as a percentage of the base-bid, must not be less than 5% and not be more than 15%.

The bad bank

Banks may sell Rs 1 lakh crore of fraud-hit loans to NARCL, ARCs

Finance Minister Nirmala Sitharaman on Thursday announced a Rs 30,600 crore government guarantee for the National Asset Reconstruction Company Limited (NARCL) for acquiring stressed loan assets, paving the way for operationalisation of the bad bank.

The finance minister in Budget 2021-22 announced the setting up of a bad bank as part of the resolution of bad loans worth about Rs 2 lakh crore.

The bad bank or NARCL will pay up to 15 per cent of the agreed value for the loans in cash and the remaining 85 per cent would be government-guaranteed security receipts (SRs). The government guarantee would be invoked if there is a loss against the threshold value.



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Beware of trojan malware attack, MeitY warns customers of 27 major banks

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Ministry of Electronics and Information Technology’s Indian Computer Emergency Response Team (CERT-In) on Tuesday notified that customers of nearly 27 Indian banks including major public and private banks are at the risk of attack from a new banking trojan malware masquerading as income-tax refund related link.

Modus operandi

The victims first receive an SMS link to a phishing website, disguised as the Income Tax Department website, they are then asked to fill in a few personal details before being sent a malicious APK file to be downloaded to complete verification. On opening the app, the victim is asked to grant permissions to access SMS, call logs and contacts.

If the victim doesn’t allow permission to any of these, the same form appears on opening the app asking for data including full name, PAN, Aadhar number, address, date of birth, mobile number, email address and financial details like account number, IFS code, CIF number, debit card number, expiry date, CVV and PIN, the federal cybersecurity agency noted.

Also read: Chinese hackers target UIDAI, Times Group, report says

Once these details are entered, the application states that there is a refund amount that could be transferred to the user’s bank account.

“When the user enters the amount and clicks ‘Transfer’, the application shows an error and demonstrates a fake update screen. While the screen for installing the update is shown, Trojan in the backend sends the user’s details including SMS and call logs to the attacker’s machine,” CERT-In said.

“These details are then used by the attacker to generate the bank specific mobile banking screen and render it on the user’s device. The user is then requested to enter the mobile banking credentials which are captured by the attacker,” it added.

These attacks are likely to jeopardise the privacy and security of sensitive data ultimately resulting in large scale attacks and financial frauds.

Drinik suspected

Claimed to be done using Drinik malware, the earlier version of this malware came in 2016 as a primitive SMS stealer and has recently evolved into a banking trojan demonstrating a phishing screen persuading users to enter sensitive banking information.

“Such trojans have become very common lately. But something like Drinik which has been dormant since 2016 can be tracked easily even using a Google Play Protect. Personally, I haven’t come across any strong active version of this malware recently. Also, consumers need to be wary that any legitimate government website will use ‘.gov.in’ in the link, anything else is not allowed in India for government websites,” Sunny Nehra, Admin, Hacks and Security told BusinessLine.

“These days people blindly give permissions to random apps to access personal data on phones without even thinking if that app really needs access to say your camera, gallery, phone book and so on. It’s good that MeitY is spreading awareness and updating users about such threats,” he added.

Kapil Gupta, Co-founder, Volon Cyber Security said,“Along with Drinik, another new Android malware ‘Elibomi’ has also been targeting taxpayers, luring them by offering tax filing service in a similar way. This malware too is getting delivered by SMS text phishing attack, pretending to come from income tax department. Users are recommended to not click on any unverifiable links from text messages. They should use reliable security application in mobile to protect against malicious applications”

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How did public sector banks become profitable in FY21?, BFSI News, ET BFSI

Banking & Finance

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Finance Minister Nirmala Sitharaman last week, while making the announcement of the National Asset Reconstruction Company Ltd, claimed that the performance of public sector banks has improved, with just two public sector banks reporting losses.

“In 2018, just two out of 21 public sector banks were profitable. But in 2021, only two banks reported losses for the full year,” she had said.

Also read: Finance Minister Sitharaman announces bad bank, Cabinet approves backing of up to Rs 30,600 crore

From 2015, when the Reserve Bank of India conducted an Asset Quality Review (AQR), public sector banks started to make a lot of provisions in their loans. Non performing assets in the banking sector jumped 80% in FY16, according to RBI data, quoted in the July 2015 AQR.

The AQR created havoc on banks’ profitability, especially affecting state-owned banks because majority of their loans were provided to corporates.

Banks had been directed to keep increasing provisioning of accounts that were restructured from 5% to 15%, and accounts that were classified as sub-standard (first category of NPA), would slip into doubtful category if it stayed sub-standard for 12 months, attracting 40% provisioning. And if the loan is not serviced at all, the bank would have to treat it as a loss account with 100% provisioning.

Major PSBs reported record losses for the first time in the fourth quarter of FY16, like Bank of Baroda with Rs 3,230 crore and Punjab National Bank with Rs 5,367 crore.

Banks entered an NPA cycle, till 2021. The government came out with two major relief measures – recapitalisation, starting 2017, and merger of smaller public sector banks with large anchor banks.

Also read: Several NPAs transferred to bad bank may head to liquidation, cost govt a bomb

“Mergers of the banks is the step in the right direction as fewer banks with larger balance sheets would be able to compete better in the market,” said Yuvraj Choudhary, research analyst at Anand Rathi Financial Services.

In FY18, there were a total of 21 public sector banks, and as Sitharaman said, only two public sector banks reported profits – Indian Bank and Vijaya Bank.

“PSBs were reeling under corporate asset quality burden for long, more so after RBI’s AQR exercise. This was aggravated by forced mergers, which led to losses due to accelerated recognition and provisioning. Growth too decelerated as banks were busy with merger and had capital constraints,” an analyst with Emkay Global Financial Services said.

PUBLIC SECTOR BANKS FY18 STANDALONE NET PROFIT/LOSS (in Rs)
State Bank of India (-) 6,547 crore
Punjab National Bank (-) 12,283 crore
Bank of Baroda (-) 2,432 crore
Bank of India (-) 6.044 crore
Central Bank of India (-) 5,105 crore
Canara Bank (-) 4,222 crore
Union Bank of India (-) 5,247 crore
Indian Overseas Bank (-) 6,300 crore
Punjab & Sind Bank (-) 744 crore
Indian Bank 1,259 crore
UCO Bank (-) 4,436 crore
Bank of Maharashtra (-) 1,146 crore
Oriental Bank of Commerce (-) 5,872 crore
United Bank of India (-) 1,455 crore
Andhra Bank (-) 3,413 crore
Allahabad Bank (-) 4,674 crore
Corporation Bank (-) 4,054 crore
Syndicate Bank (-) 3,223 crore
IDBI Bank (-) 8,238 crore
Dena Bank (-) 1,923 crore
Vijaya Bank 727 crore

Starting FY21, only 12 state-owned banks have remained. Six weaker PSBs had been merged with four anchor banks – Andhra Bank and Corporation Bank were merged with Union Bank, Oriental Bank of Commerce and United Bank of India with Punjab National Bank, Syndicate Bank with Canara Bank, and Allahabad Bank with Indian Bank.

In 2019, Dena Bank and Vijaya Bank were merged with Bank of Baroda, and IDBI Bank was recategorised as a private bank, with Life Insurance Corporation of India buying 51% stake. So far, IDBI Bank is the only PSB that has been privatised.

Mergers of public sector banks aided in reducing operation costs for the banks, but banks are not in the position to absorb any weak banks, according to analysts. “This is true even for SBI. Privatization of weak banks is the best way to weed them out,” the analyst at Emkay Global said.

Though mergers had caused a bit of a correction in the PSBs’ profitability earlier, mergers did not have any role to play in their profitability in FY21, analysts said.

“PSBs have turned profitable since past few quarters mainly due to healthy treasury gains and some lumpy corporate resolutions, (for eg. Bhushan Power). Impact of COVID-19 on corporate portfolio was relatively moderate, leading to further moderation in NPAs and lower incremental provisioning, which supported profitability,” the analyst at Emkay Global said.

Of the 12 banks, only two reported losses in FY21 – Punjab & Sind Bank and Central Bank of India.

PUBLIC SECTOR BANKS FY21 STANDALONE NET PROFIT/LOSS (in Rs)
State Bank of India 20,410 crore
Punjab National Bank 2,022 crore
Bank of Baroda 829 crore
Bank of India 2,160 crore
Central Bank of India (-)888 crore
Canara Bank 2,558 crore
Union Bank of India 2,905 crore
Indian Overseas Bank 831 crore
Punjab & Sind Bank (-)2,732 crore
Indian Bank 3,004 crore
UCO Bank 167 crore
Bank of Maharashtra 550 crore

Sitharaman, at the press conference last week, also said that banks have recovered Rs 3.1 lakh crore since March 2018.

This was possible because sizeable recovery from lumpy corporate NPAs, by way of cash and write-offs, was expected. Some resolutions including Essar, Bhushan, were major contributors to these recovery numbers, analysts said.

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Banks should not ‘try to imitate’ fintech in process of re-imagination of biz models: Ex RBI deputy governor Mundra

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According to Mundra, it is very important for banks to have a ‘very hard look’ at the traditional models which banks have been pursuing.

While the process of re-imagination of business models for banks has already started, the banks should not ‘try to imitate’ fintech companies in totality as it is not the right approach, former RBI deputy governor S S Mundra said on Tuesday.

Growingly, it is looking like banks are evolving as the fintech companies, which also do the business of accepting deposits and do lending, Mundra said while speaking at the 14th edition of the Banking Colloquium, organised by CII.

“Banks have to be conscious that fintech companies are compact entities, they are nimble. So, banks trying to imitate a fintech company in its totality, to my mind is not a right approach and it is not a right business model,” he pointed out.

According to him, it would be beneficial for both the banks and the fintech companies to have a meaningful cooperation, and in this way, both can leverage their respective strengths. “So it is that situation where there is a competition, but there is a cooperation.”

Mundra said fintech companies have the strength of being nimble and innovative, while banks have the advantage of having good resource bases, reach and trust of the customers. “So, these things can be complementary and to the advantage of both,” he emphasized.

The former RBI deputy governor said both banks and fintech companies ‘should avoid the temptation’ of introducing too many products and too many processes, whether it is by way of collaboration or in-house, in short intervals.
“My personal observation and experiences are it leaves both their important constituencies confused. And, the important constituencies are their own staffs and their own customers,” he said.

According to Mundra, it is very important for banks to have a ‘very hard look’ at the traditional models which banks have been pursuing.

“I am not suggesting that branches should go away but there is a need to reimagine the business model. One has to see which are the branches that are loss making and which are the branches that are contributing positively, which are the branches which can be downsized and which branches can be completely done away with and where you can rely completely on technology and where you can rely on agency arrangement,” he said, adding for every bank it was important to do a complete holistic assessment of their branch networks and how to derive maximum value from this.

On corporate lending, he said banks should not sell only products to a corporate as most corporates are now expecting ‘solutions’ from the banking system. “So if you only focus on products you will only end up making some topline, but it will not add to your bottomline. So you need to adopt a solution-based approach if you want to do corporate banking,” he added.

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