Tag: borrowers

Borrowers hasten plans to raise bonds after RBI’s steps to cut easy money, BFSI News, ET BFSI

Personal Finance

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Companies are rushing to raise bond funds after the Reserve Bank of India took steps to cut easy money in its bi-monthly policy last week, resulting in an uptick in rates.

Companies including Indian Railways Finance Corporation, State Bank of India, Punjab National Bank and IndusInd Bank are likely to raise about Rs 15,000 crore in one or two weeks, market sources told ET.

Indian Railways Finance is aiming to raise about Rs 5,000 crore. It is already in talks with the Employees’ Provident Fund Organisation (EPFO) and is also set to hold discussions with potential investors this week.

These borrowers did not reply to ET’s queries. EPFO could not be contacted immediately for comment.

“The company always seeks to rationalise its fund costs, which may rise in coming days,” said a senior executive involved in the matter.

State Bank of India is set to launch its Additional Tier 1 bond sales this week, aiming to raise up to Rs 6,000 crore.

“Changing rate sentiment will drive borrowers to raise money, particularly when the economy is reopening,” said Mahendra Jajoo, chief investment officer – fixed income, at Mirae Asset Investment Manager (India).

It is natural for companies rushing to garner funds before they turn costlier, he said. “Bond Street should witness heightened activities in the coming days.”

The RBI discontinued the Government Securities Acquisition Programme in the last credit policy. It is billed as a step for liquidity normalisation.

The central bank also proposed to conduct the 14-day long-term variable rate reverse repo (VRRR) auctions on a fortnightly basis for a total estimated amount of Rs 25 lakh crore by December 3. This will suck out excess money out of the banking system that has a surplus of Rs 7.83 lakh crore now versus Rs 8.33 lakh crore at the beginning of the month.

“Market is now fairly convinced about RBI’s objective, which in turn is already reflecting in some of the money market rates and benchmark bond yields,” said Ajay Manglunia, managing director – head of institutional fixed income, at JM Financial.

“Borrowers are engaging with arrangers or directly talking to potential investors to raise debt via bonds before the rates start moving one-way northward,” he said.

The benchmark bond yield rose as much as 17 basis points in the past three weeks, raising overall funding costs.

At a 14-day VRRR auction last Friday, the cut-off rate, above which none can bid, yielded almost 4%, on par with the repo at which banks borrow money from the RBI. It was 3.60% in the previous fortnight.

Before that on September 28, the 7-day VRRR cut-off yield came at 3.99%, twisting interest rate sentiment compared with 3.38% the preceding fortnight.

In the past one-week, corporate bond sales totalled just about Rs 1,000 crore, much less than usual volumes. Investors chose to stay off from the bond street ahead of the RBI’s monetary policy that was widely anticipated to spell out a stance on liquidity.



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Lenders hire specialist agencies to analyse default probability of borrowers, BFSI News, ET BFSI

Banking & Finance

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Risk-averse lenders wary of large exposures in the post-Covid era are hiring consultants and specialist agencies to analyse the default potential of all proposals in excess of Rs 500 crore.

Lenders want to ensure that they have a clear perspective of the borrower’s future default risks and cash flow situation in light of peculiar challenges brought about by the pandemic.

“The pandemic has disrupted cash flows of businesses in a significant way, and since large value loan proposals are on the rise, we thought it prudent to hire agencies and check the company’s default risk and default probability,” said a lender that has hired one such agency. “These agencies are checking the total debt, debt-service coverage ratio, cash flows and various other metrics to determine whether they will be able to service debt obligations.”

Banks want clear visibility over companies’ subsidiary operations and other activities, especially around the moratorium period. In many cases, companies are also approaching banks with expansion plans and lenders also wish to scrutinise whether firms have a clear strategy in place and what could be the macroeconomic and sectoral drivers.

“The pandemic, loan moratoriums and an uncertain business environment have led to many banks seeking clarity and additional comfort around the financial health of borrowers at the time of fresh loan proposals or renewal of facilities. There is heightened diligence, detailed financial analysis and a deeper assessment of credit risk and default around loan proposals – particularly when the amounts are Rs 500 crore and above,” said Gaganpreet Puri, leader, risk and regulatory, Alvarez & Marsal India, a turnaround specialist.

In several instances, the lenders claim that they have no visibility on operations of the companies. Many companies have seen a spurt in their valuations, especially the listed ones, but banks are concerned of the underlying assets and impact on future profitability and revenues.

“Many companies have even approached the banks as they are looking to undertake mergers and acquisitions and require financing. In these cases, banks want a rationale behind such manoeuvres,” said a person in the know.

Firms specialising in this segment say that they are being asked to give objective and automated credit analysis and rating based on the company’s financial metrics.

“AI driven automated predictive credit analysis tools are being increasingly adopted by banks and financial institutions,” said Amit Maheshwari, Strategic Advisor to FinMind – a start-up offering automated financial insights.

FinMind claims its predictive analytical capabilities enable early identification of potential credit risk events and has successfully predicted credit weakening of several companies in the past.

Bank credit growth has been languishing for the last few years. Central bank data showed that credit rose 6.61% for the fortnight ended August 13, from 6.2% in the previous fortnight. Loans to the corporate sector continued to remain weak and grew a meagre 1% during the same period.



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Bank lending hit as corporates head to bond St, fintech firms poach retail borrowers, BFSI News, ET BFSI

Banking & Finance

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Overall bank lending could drop during this fiscal as corporate loan demand slumps and other sources of borrowings emerge.

Bank credit flow during April to August has shrunk over the same period a year ago, according to data from the Reserve Bank of India. This is despite the private-sector lenders such as HDFC Bank and ICICI Bank reporting double-digit growth in lending in the first quarter.

The overall fund flow into the economy grew by 10% in FY21 despite the pandemic. However, the incremental bank lending shrank 1.6% in FY21, while non-bank sources grew 30%.

Corporates reluctant

Banks are hoping for a lending spurt with the revival of capital expenditure, but it remains doubtful due to uncertainty over Covid.

Also, corporates are looking at cheaper avenues for funds. They raised Rs 1.8 lakh crore from the bond market this fiscal so far. Foreign direct investment and ECB have been also been strong, which has been bad news for banks. The buoyant equities market has seen corporates raising over Rs 1 lakh crore from the avenue during this fiscal till August.

In July

The total outstanding loans to large industries by the banking sector has shrunk for the 11th straight month in July 2021 as companies continue to deleverage and shift to cheaper options such as bonds. Most of the bank credit is driven by the retail and agri segments as sanctioned limits of corporates remain unutilised to the extent of 25%. The credit to large industries shrank 2.9% in July.

The credit growth in the last two months is being led by is led by MSMEs, agriculture and retail as corporate lending stays tepid.

PSU banks hit

The deleveraging has led to a drop in corporate loan demand for banks, especially PSU ones.

The domestic corporate loans by the State Bank of India fell 2.23 per cent to Rs 7,90,494 crore in the quarter ended June 30, 2021, compared to Rs 8,09,322 crore in the same quarter last year. In the first quarter of FY21, SBI reported 3.41 per cent growth in corporate advances.

Union Bank of India‘s share of industry exposure in domestic advances dropped to 38.12 per cent at Rs 2,40,237 crore from 39.4 per cent at Rs 2,47,986 crore in the same quarter a year ago. Corporate loans dropped 3% at Indian Bank during the last quarter. At PNB, corporate loans fell 0.57 per cent at Rs 3,264,66 crore in June quarter 2021 compared to Rs 3,28,350 crore a year ago.

Retail front

Banks, which have been relying on the retail sector, are facing competition. Non-banking financial companies that were reeling after the collapse of IL&FS have bounced back and emerged out of the pandemic relatively less hurt. Banks are facing competition from fintech firms, which have made borrowing a seamlessly easy experience.

with the advent of account aggregators, transaction details of borrowers can be open to lender, which may lead to poaching of customers.



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Borrowers fear bank watch list, avoid govt guaranteed loans, BFSI News, ET BFSI

Banking & Finance

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The emergency credit line guarantee scheme (ECLGS ), which was a major driver of loan uptake in the first phase of the pandemic, is seeing a lacklustre response from borrowers.

The scope of the scheme which was increased to Rs 4.5 lakh crore, has seen Rs 2.7 lakh crore sanctioned as of July 2. Of this, Rs 2.1 lakh crore has been disbursed.

The ECLGS aimed to provide and government-guaranteed loans to mitigate the economic distress faced by micro, small and medium enterprises ( MSMEs) and other entities due to the Covid-induced lockdowns. The government has extended the scope of

Why tepid response

According to bankers, borrowers eligible and in need of additional have already availed of the loans in the first two rounds. Borrowers do not want to be under a watchlist for stressed loans.

The number of applicants has been dropping with the new version and bankers see fresh demand of loans during the festive season.

ECLGS 4.0

In June Finance Minister Nirmala Sitharaman on Monday announced a slew of measures, including Rs 1.1 lakh crore (Rs 1.1 trillion) credit guarantee scheme for improving health infrastructure, and enhancing the limit under the ECLGS by 50 per cent to Rs 4.5 lakh crore for the MSME sector facing a liquidity crunch.

Sharing the details of the stimulus package, the finance minister said this comprises eight relief measures and other eight measures to support the economic growth.

She announced Rs 1.1 lakh crore loan guarantee scheme for Covid-affected sectors, including the health sector, which includes guarantee cover for expansion or for new projects.

Besides, she said, additional Rs 1.5 lakh crore limit enhancement has been done for ECLGS.

Besides, the validity of the scheme was extended by three months to September 30 and or till guarantees for an amount of Rs 3 lakh crore are issued.

The last date of disbursement under the scheme has been extended to December 31.

Under the ECLGS 4.0, 100 per cent guarantee cover was given to loans up to Rs 2 crore to hospitals, nursing homes, clinics, medical colleges for setting up on-site oxygen generation plants.

The interest rate on these loans has been capped at 7.5 per cent, which means the banks can offer loans less than this ceiling.



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Collection efficiency of bank loans improves in June, BFSI News, ET BFSI

Banking & Finance

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Chennai: Banks witnessed an improvement in loan collection efficiency in June after states relaxed multiple lockdowns as the second Covid wave recedes.

For Equitas Small Finance Bank, collection efficiency for vehicle loans has come back to 89.3% in June, from 67.35% in May. While for microfinance loans, it is back at 66.9% from 63.6% and for small business loans it is back at 85.1% from 76.8%.

Its MD P N Vasudevan, “The Bank’s borrowers are largely in the informal segments dealing in daily use products and services which were temporarily disrupted due to the Covid-19 restrictions imposed. However, during June, states in the West and North experienced improved collection efficiencies as lockdowns eased while Southern states opened up towards the end of the month. We anticipate a sharp improvement in collections in the coming months as Covid wave recedes.”

For Indian Overseas Bank, the loan collection efficiency rate for small loans, vehicle and housing loans has improved to 85% between June and July from 70%-75% in May. The state-owned bank expects the recovery to be better in the September quarter, as it expects a large recovery of loans.

City Union Bank’s managing director N Kamakoti said that on an overall level, collection efficiency has recovered significantly in June as businesses have understood and adapted to lockdowns better.

A research note from Kotak on banks’ asset quality Kotak said that the recovery environment showed improvement in 1QFY22 though it is still not fully normal. There is likely to be more discussion on the recovery environment for 2QFY22 given the impact of the second Covid wave. Besides small loans, the report said it expects banks to provide a positive outlook on corporate recovery especially given a few large resolutions that have been completed/will be completed soon.



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With no cushion like last time, second Covid wave poses challenges for auto lenders

Banking & Finance

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The second Covid-19 wave will have a material impact on automobile lenders’ asset quality as borrowers are grappling with reduced capacity utilisation and increased operating costs due to rising fuel cost, which would reduce their ability to service debt, says a report of India Ratings.

The impact of the first covid wave was cushioned with multiple measures that boosted optimism and recovery. However, the outcome may be different during the second wave, due to the widescale impact, including rural areas and pent-up demand being absorbed already.

Collections hit

April 2021 collections for most of the lenders remained at a decent level since the first 15 days were broadly normal across the nation. Top public sector bank State Bank of India had 95-96 per cent collection efficiency in April 2021. However, increase in localised and regional lockdowns has impacted collections of the lenders for the month of May 2021, according to industry representatives.

India Ratings estimates that the collection efficiency for the first fortnight of May could be lower by 5-7 per cent on the top of a similar decline in April over March 2021.

With reduced cash flows and rising operating cost due to fuel inflation, the excess capacity had its offsetting impact on freight contract renewals or market freight rates, all impacting borrowers’ cash flows.

Early demand indicators such as the E-way bill, diesel consumption are showing signs of moderation and asset inflation (rising prices of raw materials such as steel and cement) would impact demand offtake and thus load availability. Thus, both demand and rising operating cost would moderate borrowers’ cash flows in FY22.

Restricted mobility

Lenders’ collection efficiency would also be affected by restricted mobility as the second wave has spread across all geographies. Thus, the rating agency has a negative outlook on commercial vehicle finance as an asset class.

There are emerging trends of rising loan tenures across vehicle lenders to reduce servicing burden for borrowers. Incrementally, all vehicle segments would be impacted by the pandemic as it gets widespread, hindering business activity and thus affecting borrowers’ cash flows.

Capacity utilisation levels have been significantly affected across the heavy commercial vehicle segment. The earlier estimate of replacement demand driving lenders’ growth would take a backseat, as normalisation would be a long-drawn process with borrowers looking at increasing utilisation on existing fleet rather than purchasing new vehicles.

Lenders would be impacted in the medium term due to restricted mobility and moderating borrowers’ cash flows. Collections have become difficult due to the surge in infected cases and would impact asset quality during the first half of this fiscal, said India Ratings.

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Wilful defaults near Rs 2.5 lakh crore mark during pandemic, BFSI News, ET BFSI

Banking & Finance

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Banks have tagged 662 borrowers with loans of Rs 38,976 crore as wilful defaults during the last calendar year.

With this, the total wilful defaults have reached Rs 244,602 crore from 12,917 accounts as of December 2020, from Rs 205,606 crore from 12,255 accounts in December 2019, according to a report.

While wilful defaults have doubled since 2017, the recovery from top borrowers remains negligible.

The country’s top 100 wilful defaulters owe Rs 84,632 crore to banks as of March 2020, with the top 10 including Winsome Diamonds & Jewellery and accounting for 32% of it, data from the Reserve Bank of India shows. While banks wrote o nearly three-fourth of it to clean their balance sheet and get tax benefits, the default borrowers continue to appear in RBI‘s internal CRILC database till they clear the default.

Top 100 wilful defaulters

The total size of the top 100 wilful defaults rose 5.34% in FY20 from Rs 80,344 crore as of March 2019.

Mehul Choksi-owned Gitanjali Gems topped the wilful defaulters’ list with Rs 5,693 crore dues, followed by Jhunjhunwala brothers’ REI Agro with Rs 4,403 crore and Jatin Mehta’s Winsome Diamonds & Jewellery with Rs 3,375 crore.

The top 10 wilful defaulters include another jewellery maker Forever Precious Jewellery, and Vijay Mallya’s Kingfisher Airlines Punjab National Bank had the highest exposure to Gitanjali Gems with Rs 4,644 crore of non-performing assets (NPA) as on March 2020. PNB also had Rs 1,447 crore exposure to Gili India and Rs 1,109 crore to Nakshatra Brands.

Write-offs

State Bank of India had Rs 1,875 crore dues from top 10 wilful defaulter ABG Shipyard with the bank writing o the entire amount. Uco Bank had Rs 1,970 crore exposure to REI Agro with half of it being written off.

Write-offs are accounting entries for shifting NPAs from active balance sheet to off-balance sheet accounts. These are backed by 100% provision and therefore any recovery from these accounts adds to net profit.

RBI collects credit data from banks monthly, with data on defaults being collected on a weekly basis. The regulator has mandated banks to provide fully against NPAs older than four years and allowed to write these old NPAs.

The reduction in NPAs during FY20 was largely driven by write-os, RBI had said in its report on Trend & Progress of Banking in India. Banks’ total gross NPA reduced to 8.2% at the end of March 2020 from 9.1% a year earlier.



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CreditAccess Grameen’s collection improves to 94% in Jan-March quarter

Banking & Finance

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CreditAccess Grameen, a NBFC-MFI, said its collection efficiency (loan EMIs collected from women borrowers) as also its year-on-year (YoY) and quarter-on-quarter (QoQ) loan disbursement (microfinance loans given to women borrowers) has improved during the January to March 2021 quarter.

The company in a release said it YoY and also QoQ consolidated disbursement has risen by 42 per cent and 3 per cent to ₹4,726 crore, respectively in January to March 2021 quarter. The collection efficiency for CAGL, too, has risen from 91 per cent in December 2020 to 94 per cent in March 2021 and for its subsidiary Madura Microfinance, collection efficiency increased from 86 per cent in December 2020 to 90 per cent in March 2021.

The number of women customers fully paying their loan instalments, has risen to 92.4 per cent in March 2021 for the company, as compared to 88.1 per cent in December 2020. The percentage of women customers not paying their EMIs, for the company, has come down to 4.4 per cent in March 2021 compared to 5.1 per cent in December 2020.

Active borrowers

The performance is on the back of a number of active borrowers rising to 29.63 lakhs for the company and 10.98 lakhs for its subsidiary. The new borrower addition during the January to March 2021 quarter, too, has seen a healthy rise to 2.88 lakhs on a consolidated basis. The consolidated Gross Loan Portfolio, too, has increased YoY by 16 per cent and QoQ by 13 per cent to ₹13,878 crore.

Owing to improved performance, the overall portfolio at risk for 30 days, 60 days and 90 days, has seen gradual decline to 6.6 per cent, 5.9 per cent and 5.4 per cent, respectively for the company as on March 31, 2021.

Regarding its subsidiary Madura Microfinance, the overall portfolio at risk for 30 days, 60 days and 90 days, gradually declined to 9.7 per cent, 6.7 per cent and 4.7 per cent, respectively on March 31, 2021. The restructured book amounts to ₹75 crore (0.6 per cent of GLP) as on March 2021 for CreditAccess Grameen.

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Compound interest relief may cost banks 2% of their operational profits, BFSI News, ET BFSI

Banking & Finance

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The Supreme Court has allowed compound interest relief for borrowers with loans over Rs 2 crore. While the government has picked the tab for such payment for small borrowers, banks may have to pony for relief to larger ones.

Banks may have to take a hit of Rs 7,500 crore after the Supreme court extended the compound interest relief to loans above Rs 2 crore.

“All the borrowers irrespective of moratorium status and loan size will be eligible for compounded interest benefit for six-month moratorium period.

No compound or penal interest will be charged during the six-month loan moratorium period announced last year amid the COVID-19 pandemic and the amount already charged shall be refunded, credited or adjusted, SC said in its order.

The math

As per rating firm ICRA, compound interest for six months of moratorium across all lenders is estimated at Rs 13,500-14,000 crore.

The government had already announced relief for borrowers having loan up to Rs 2 crore which was estimated to cost about Rs 6,500 crore to the exchequer.

SC said compound interest should be charged on deliberate or wilful defaulters, in the nature of penal interest. The government’s March 27, 2020 notification had provided for deferment of installments due and payable during the moratorium period.

“Once the payment of installment is deferred…non-payment of installment during the moratorium period cannot be said to be willful and therefore there is no justification to charge interest on interest/compound interest/penal interest for the period during moratorium.

“Therefore, we are of the opinion that there shall not be any charge of interest on interest/compound interest/penal interest for the period during the moratorium from any of the borrowers and whatever the amount is recovered by way of interest on interest/compound interest/penal interest for the period during the moratorium, the same shall be refunded,” the apex court said.

It said there was no rationale to restrict such relief to loans up to Rs 2 crore only.

“As a result, borrowers excluded earlier may get additional relief of Rs 7,000-7,500 crore in the form of compound interest benefit,” Anil Gupta, Vice President – Financial Sector Ratings, ICRA Ltd said.

Who will pick the tab?

On who will bear the additional burden of refunding compound interest or penal interest already collected during the moratorium period, Gupta said it is premature to assume the hit will be on the government.

On whether the banks should pay from their pocket, he said, “We don’t know”, adding the amount is not very large.

To give a perspective, Gupta said the banks, accounting for 70 per cent of the loan market, have operating profits of over Rs 3 lakh crore.

“So, that way Rs 7,000 crore on Rs 3 lakh crore will be like 2 per cent of their operating profits,” he added.

Clarity to banks

Finance minister Nirmala Sitharaman said the judgement brings much-needed clarity to lenders on these issues, adding that it also clears the way for lenders to recognise non-performing assets, which they had not been able to do since the end of the moratorium period in August 2020. Reported gross non-performing assets of the banking system are estimated to be around 7% as of Dec 31. These would have been 100 basis points higher at 8%, if not for the apex court’s standstill order on recognition of such loans. “Standstill on recognition of NPAs had tied the hand of lenders and consequently impacted the credit discipline of borrowers. Withdrawal of the same will enable lenders to enforce various legal measures and support their recovery efforts,” Sitaraman said.



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Kotak Mahindra Bank Q3 net profit up 16%

Banking & Finance

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Private sector lender Kotak Mahindra Bank reported a 16.1 per cent increase in its standalone net profit at ₹ 1,853.54 crore for the third quarter this fiscal as against ₹ 1,595.90 crore in the same period last fiscal.

Net interest income for the quarter ended December 31, 2020 rose by 17 per cent to ₹ 4,007 crore, from ₹ 3,430 crore a year ago. Net interest margin for the quarter under review was at 4.51 per cent.

Other income was almost flat at ₹ 1,334.38 crore (₹ 1,341.43 crore).

Provisions soared by 34.9 per cent to ₹ 599.03 crore in the third quarter this fiscal as against ₹ 444 crore a year ago.

“Covid related provisions as at December 31, 2020 stood at ₹ 1,279 crore,” the bank said in a statement on Monday.

In accordance with the Resolution Framework for Covid-19 announced by RBI on August 6, 2020, as at December 31, 2020, the bank has approved, for certain eligible borrowers, one-time restructuring of 0.28 per cent of net advances, it further said.

As at December 31, 2020, gross non performing assets was 2.26 per cent and net NPA was 0.50 per cent.

Had the bank classified the borrowers more than 90 days overdue on December 31, 2020 as NPA, gross NPA would be 3.27 per cent (September 30, 2020: 2.70 per cent); net NPA would be 1.24 per cent (September 30, 2020: 0.74 per cent), it further said, adding that it has made provision for such advances including towards interest accrued but not collected for the entire period, with moratorium.

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