Tag: care ratings

NPA position of Indian Banks indicates gradual improvement: CARE Ratings

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The non-performing assets (NPA) situation of the Indian banking system as represented by 23 banks — nine public sector banks (PSBs) and 14 private sector banks (PvBs) — that have declared results so far indicates a gradual improvement in the NPA ratio in September 2021, according to an assessment by CARE Ratings.

The Gross NPA (GNPA) ratio of the aforementioned banks has improved to 6.97 per cent as at September-end 2021 against 7.32 per cent as at June-end 2021 and 7.36 per cent as at September-end 2020, the credit rating agency said.

In absolute terms, the GNPA of the banks as at September-end 2021 was at ₹4,53,145 crore (₹4,40,124 crore as at September-end 2020) in a gross advance of ₹64,98,609 crore (₹59,82,606 crore).

Barring State Bank of India, Bank of Baroda and Union Bank of India, most of the other large banks have announced their second quarter financial results, CARE Ratings said.

Improving ratio

The Gross NPA (GNPA) ratio of PSBs has improved to 11.52 per cent as at September-end 2021 against 11.94 per cent as at June-end 2021 and 12.32 per cent as at September-end 2020, according to the agency.

The Gross NPA (GNPA) ratio of PvBs has improved to 3.94 per cent as at September-end 2021 against 4.16 per cent as at June-end 2021 and 3.82 per cent as at September-end 2020.

According to the Reserve Bank of India’s latest Financial Stability Report (July 2021), macro stress tests indicate that the GNPA ratio of scheduled commercial banks (SCBs) may increase from 7.48 per cent in March 2021 to 9.80 per cent by March 2022 under the baseline scenario; and to 11.22 per cent under a severe stress scenario, although SCBs have sufficient capital, both at the aggregate and individual level, even under stress.

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Bank credit to grow at 7.5- 8.0 per cent for FY’22: CARE Ratings

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The outlook for bank credit growth is expected to be in the range of 7.5 per cent to 8.0 per cent for FY22 on the back of a low base effect, economic expansion, extended Emergency Credit (ECLGS) support, and retail credit push, according to CARE Ratings.

On a year-on-year (y-o-y) basis, non-food bank credit growth stood at 4.9 per cent in March 2021 as compared to 6.7 per cent in March 2020, per Reserve Bank of India data.

“The medium-term prospects look promising with diminished corporate stress and increased provisioning levels across banks. Retail loan segment is expected to do well as compared with industry and service segments,” the credit rating agency said in a report.

Q2 disbursements by some banks rise but overall loan growth muted

The agency assessed that y-o-y bank credit growth rate increased by 160 basis points (bps) to 6.7 per cent (fortnight ended September 24, 2021) from the year ago level of 5.1 per cent (fortnight ended September 25, 2020) and remained stable when compared with the previous fortnight.

“The y-o-y increase reflects the low base effect and the easing of lockdown restrictions across regions in India.

“In absolute terms, credit offtake increased by ₹ 6.8 lakh crore over the last twelve months and by ₹ 0.5 lakh crore as compared with the previous fortnight,” the report said.

Festive season credit pick up

The agency expects bank credit to improve further in the coming fortnights led by growth in the retail segment in the wake of onset of the festive season and rate cuts.

“This rise is expected to be supported by rate cuts by banks to push retail credit as several banks are offering loans at record low-interest rate ahead of the festive season,” the credit rating agency said in a report.

For example, in September 2021, banks like Kotak Mahindra Bank and Punjab & Sind Bank cut 1-year MCLR/ marginal cost of funds based lending rate (on m-o-m basis) by 5 basis points (bps) each, respectively.

Also, to attract borrowers several banks have slashed the home loan interest rates as a special offer in the festive season — for example, State Bank of India, Bank of Baroda and Kotak Mahindra Bank have reduced their home loan rates by 45 bps, 25 bps, and 15 bps, respectively, the report said.

Similarly, foreign banks have also started to pitch for home loans at lower interest rates. HSBC India reduced home loan interest rates by 10 bps to 6.45 per cent.

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HFCs may see robust growth but NPAs could rise: CARE Ratings

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The second wave of the Covid-19 pandemic is expected to lead to a rise in the non-performing assets of housing finance companies in the near term with the Gross Stage 3 ratio expected to increase by 30 basis points this fiscal.

According to a report by CARE Ratings, the Gross Stage 3 ratio for housing finance companies would be 3.1 per cent, which would be around 30 basis points higher that 2.8 per cent in 2020-21.

“The deterioration would be higher in the first half of 2021-22; however, we expect that collections and asset quality for housing finance companies would improve in the second half as the economy improves,” CARE Ratings said on Monday.

While a large portion of deterioration would come from developer loan book, it expects that retail prime loans would also witness stress as borrowers have also been impacted economically during the pandemic.

The agency had earlier estimated a 20 basis points increase in Gross Stage 3 assets to 2.9 per cent at the end of 2021-22 from an estimated 2.7 per cent last fiscal.

For the analysis, it has considered top six large housing finance companies it rates.

Robust business growth

However, business growth for housing finance companies has remained robust and early indications from this fiscal suggest there would be a growth of about 8 per cent to 12 per cent in their portfolios, it said.

It also noted that many large housing finance companies have raised equity capital during last fiscal and some are in the process of raising equity capital in this financial year. “This has improved the strength of their balance sheets and augmented their loss-absorption capacity,” it said.

CARE Ratings further said that according to its estimate, the total equity capital likely to be raised during the current fiscal along with actual equity raised last fiscal would be more than sufficient for the total increase in Gross Stage 3 assets during 2020-21 and 2021-22.

“While we expect that the impact of the pandemic on Gross Stage 3 assets would be higher than what was earlier estimated, stronger balance sheets of large housing finance companies and higher equity capital buffers provide good comfort,” it said, adding that improvement in fund-raising abilities of these firms by tapping retail deposits augurs well for their longer-term credit outlook.

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CARE Ratings upgrades Muthoottu Mini Financiers Ltd to BBB+ from BBB

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CARE Ratings has upgraded ratings on various debt instruments of Muthoottu Mini Financiers Ltd to BBB+ (Stable) from (BBB Stable).

Muthoottu Mini registered a growth of 18 per cent for the financial year 2020-21. The company, during FY 20-21, mopped up ₹700 crore through listed public non-convertible debenture issues. Further, it posted excellent organic growth, adding four more lending banks during the period. As many as 23 branches and five zonal offices were added during the financial year.

Mathew Muthoottu, Managing Director, Muthoottu Mini, said, “We at Muthoottu Mini Financiers consider this upgrade in ratings as an indication that the company is growing in the right direction. This could not have been possible without the unstinted support of our customers. This upgrade will further enable us in widening our reach both in corporate and retail sectors. We believe that our commitment is to provide support to fulfil the financial needs of our customers.”

Muthoottu Mini Financiers eyes 100 new branches, increasing booksize by ₹1,500 cr this FY

The total CAR and Tier I CAR of the company stood at 25.75 per cent and 22.38 per cent respectively, as on March 31, with a noted increase in the scale of operations during the period.

Improvement in resource profile

The group has been maintaining a ROTA above 2.50 per cent on a sustained basis along with improvement in scale of operations and improvement in resource profile, with a good mix of borrowings from diversified sources. MMFL has registered improvement in interest spread of 0.82 per cent in FY21 as compared to previous year, by reducing the cost of borrowings and operating expenses with increased AUM per branch.

CARE Ratings incorporates ‘Association of Indian Rating Agencies’

Backed by one of the safest securities around i.e. gold, the loans are secure with good asset quality, according to the company. The proportion of gold loans having tenure up to six months increased from 1 per cent as on March 31, 2020, to 81 per cent as on March 31, 2021, which allows the company to keep price volatility in check. Gross NPA and Net NPA have been reduced to 0.86 per cent and 0.75 per cent as on March 31, 2021 as against 1.89 per cent and 1.34 per cent as on March 31, 2020.

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Acuité Ratings and CARE Ratings come together to set up Association of Indian Rating Agencies

Banking & Finance

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Acuité Ratings and Research and CARE Ratings join hands to set up the Association of Indian Rating Agencies (AIRA) that aims to represent domestic rating agencies.

“To continue to push the agenda of enhancing rating standards and help build trust with investors and issuers, a few rating agencies have come together to form an industry association,” said a statement on Tuesday.

AIRA has been incorporated as a Section 8 (not-for-profit) company and is expected to work closely with the regulator and government for the development of the debt market.

Also read: About 50% of rated entities are ‘issuer non-cooperating’

“The rating industry, in active engagement with and facilitation by SEBI, has taken several steps to enhance the standards of credit ratings in the country,” it further noted.

While Acuité Ratings and Research and CARE Ratings are the founding members of the association, all rating agencies are invited to be a part of the association.

Other members

The process of inducting two more rating agencies is currently underway and expected to get completed soon.

AIRA has also written to the other three rating agencies welcoming them to join the association as shareholders-cum-members.

At present, there are seven credit ratings agencies registered with SEBI that cumulatively have ratings coverage on over 57,000 entities.

Ajay Mahajan, Managing Director and CEO, CARE Ratings said, “Through this association, we aim to engage extensively and constructively with all stakeholders, including the regulators and policy makers, for the orderly development of the debt market with the increased usage of credit rating.”

Sankar Chakraborti, Group CEO and Executive Director, Acuité Ratings & Research said the association will work with all stakeholders to enhance availability and flow of information needed for ratings and create awareness of best practices adopted by the industry.

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Marginal impact of SC verdict on moratorium on earnings

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With banks gearing up to close the financial year and announce results for the fourth quarter and full fiscal 2020-21 in the coming weeks, analysts and experts believe that the Supreme Court verdict on loan moratorium will have marginal impact in terms of their earnings. It is expected that most lenders are likely to move into expansion mode now thanks to signs of economic recovery and improved credit demand.

“Our analysis indicates the earnings impact of the residual exposure is not very material,” said Edelweiss Research in a recent report.

Also read: Loan moratorium: SC orders full waiver of interest on interest

It has worked out three scenarios of such loans being 15 per cent, 20 per cent and 25 per cent of the moratorium books of its coverage banks. “The impact of a hit from loss of interest on interest for this moratorium period will, at most, result in a few basis points dent to the annual net interest margin, even if incremental costs are entirely borne by the banks and with no further government contribution,” it said.

Private sector lenders are set to announce their fourth quarter results in the coming weeks in April followed by public sector banks. HDFC Bank is scheduled to announce its results for the quarter ended March 31, 2021 and the fiscal year 2020-21 on April 17 while ICICI Bank will announce it on April 24.

A report by Axis Securities said it is not yet clear whether this incremental hit will be absorbed by the government or passed on to the banks.

“Even so, it will be a one-time hit and not have a material impact as it only pertains to interest on interest for five months period only. We expect that with NPA standstill withdrawn, banks will report actual NPAs in the fourth quarter of 2020-21 instead of reporting proforma NPAs, which could lead to some margin compression,” it said, adding that with better clarity on asset quality, banks with excess provisions such as ICICI Bank could result in some provision write-backs.

“On overall basis, we remain positive on banks due to improving macro-economic recovery feeding into better credit growth and limited asset quality disruption,” said Emkay Financial Services in a recent note.

Improved credit demand

Bankers have also been talking about increased credit demand in recent months.

CARE Ratings noted bank credit growth has stood largely stable compared to the last fortnight and returned to the levels observed in the early months of the pandemic (the bank credit growth ranged between 6.1 per cent to 7 per cent during March and February 2020).

“The credit growth stood at an almost similar level during the last two fortnights at 6.6 per cent and 6.5 per cent, marginally higher compared with last year’s level of around 6.1 per cent, as economic activities gather pace,” it said.

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Bank lending 50 per cent higher in October-February, BFSI News, ET BFSI

Banking & Finance

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Bank credit growth is accelerating with unlock trade gathering momentum as aggregate loans disbursed in the five months to February this year rose nearly 50 percent.

An analysis of RBI‘s credit data shows that banks lent Rs 5 lakh crore between end September and February of the current fiscal compared to Rs 3.3 lakh crore in the same period of FY’20.As of February 26, overall credit growth was higher at 6.6 per cent than 6.1 per cent a year ago. But loan growth in Septmber’20 was lower at 5.1 per cent compared to 8.8 per cent in the same period a year ago, indicating that the unlock phase has spurred credit demand.

Much of the growth in the post pandemic period has been due to various government initiative undertaken as a part of the stimulus package to help the MSME sector to revive the economy post COVID-19. ” ECLGS disbursements at Rs 1.6 lakh crore in the first nine months of this fiscal have lent support” Ratings firm Crisil said in a report.

Besides, the better monsoons this year also lifted prospects for agriculture even as the pandemic derailed the industry and services sector. This also reflected in growth of agri-loans have also risen at a higher pace this year at 9.9 per cent in January, compared to 6.5 per cent with fresh sanctions in absolute terms crossing the Rs one lakh crore mark so far this fiscal.

But the trends till January also show that since the pandemic, some new heads like loan against gold jewellery-132 per cent, bank lending to non-HFC NBFCs-150 per cent, social infrastructure-98 per cent and aviation-120 per cent has gone up by over 100 per cent-

As for loan against gold jewellery this can largely be attributed to focus of banks towards secured lending products post LTV relaxation, said a report by ICICI Securities. “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” it said.

Besides lending opportunities arising out of general economic revival and pick up in consumption demand, banks will also have an edge over NBFCs because of their access to low cost funds. “Competition is intensifying. With low-cost funding access, banks will be aggressive in the retail segments, especially housing and new vehicle finance” Crisil said.



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Bank credit grows by 6.63 per cent

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Bank credit rose by 6.63 per cent to Rs 107.75 lakh crore and deposits grew by 12.06 per cent to Rs 149.34 lakh crore in the fortnight ended February 26, according to a report.

In the fortnight ended February 28, 2020, bank credit stood at Rs 101.05 lakh crore and deposits at Rs 133.26 lakh crore, the recent data released by the Reserve Bank of India (RBI) showed.

Bank credit increased by 6.58 per cent to Rs 107.04 lakh crore and deposits rose by 11.75 per cent to Rs 147.81 lakh crore in the previous fortnight ended February 12, 2021.

Care Ratings in a report said the bank credit growth in the fortnight ended February 26 stood stable compared to the last fortnight and returned to the levels observed in the early months of the pandemic, when the loan growth ranged between 6.5 per cent to 7.2 per cent during April 2020.

According to analysts, the growth in bank credit is driven by an increase in retail loans.

Emkay Global Financial Services in its March 5 report said it expects overall retail credit growth, which is currently at 9 per cent, to accelerate further, led by mortgages (contributing 51 per cent of retail loans) and back-end support by unsecured (cards/ personal loans) and vehicle loans.

“The current market conditions favour banks armed with lower funding rates, strong balance sheet, better asset quality and strong captive customer base,” Anand Dama, an analyst at Emkay Global, had said in the report. Large private banks such as HDFC Bank (despite suspension in new card acquisition) and ICICI Bank have been at the forefront of retail growth momentum, while Kotak Bank too is finally showing signs of much-needed growth and trying to raise the retail game, the report had said.

Among state-run banks, SBI and Bank of Baroda, which have been the key players in the mortgage market, are changing gears in the auto finance space as well, the research report said.

Care Ratings believe that the increase in the credit outstanding during the next fortnight is anticipated as year-end transactions are expected to push up bank credit as banks undertake the year-end closing activities. This trend can be witnessed for the last three-four years. In the first nine months of the current fiscal, while the growth in credit was 3.2 per cent, bank deposits saw a rise of 8.5 per cent.

“While bank credit growth had contracted 0.8 per cent in the first half of this fiscal, it recovered sharply in the third quarter by growing around 3 per cent sequentially. In the fourth quarter, too, it should clock near 3 per cent sequential growth,” Crisil Ratings Senior Director Krishnan Sitaraman had said in a report released earlier this month.

The rating agency expects bank credit to rise 4-5 per cent in the current fiscal despite the sharpest contraction the Indian economy has seen since independence.

In the financial year 2021-22, bank credit is seen growing 400-500 basis points (bps) higher at 9-10 per cent, as the country’s economy recovers, supported by budgetary stimulants and measures announced by the Reserve Bank of India (RBI), the Crisil report had said.

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Lending, G-Sec rates not moving in tandem: CARE Ratings

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The movement of commercial lending and Government Security (G-Sec) rates are not in sync, according to CARE Ratings.

The credit rating agency, in a report, said the weighted average lending rate (WALR) on fresh loans declined from 9.26 per cent in February 2020 to 8.82 per cent in March 2020 to 8.14 per cent in January 2021.

However, the 10-year G-Sec yields, which ranged between 5.8-6 per cent in the second part of the year (July-December 2020), climbed to the 6.20 per cent after the Budget and monetary policy were announced in early February 2021, it added.

“There is surplus liquidity in the system as banks are parking large amounts in reverse repo auctions.

“Growth in credit is lagging that of deposits and yet there is a tendency for G-Sec yields to increase notwithstanding aggressive measures by the Reserve Bank of India to keep them down,” said the report.

At the same time, banks are lowering their lending rates to garner business, especially on the retail side. Hence, the movement of commercial lending rates and G-Secs are not in consonance, said the agency.

Banks’ mobilise 85% more deposits

Bank deposits have increased by ₹12.13-lakh crore between March-end 2020 and February 12, 2021. This is almost 85 per cent more than that of last year when they increased by ₹6.52-lakh crore, CARE said.

As far as banks are concerned, they get to keep a larger part of these deposits as the cash reserve ratio (CRR) was lowered this year from 4 per cent to 3 per cent, it added.

Bank credit has grown by ₹3.33-lakh crore during the period March-end 2020 to February 12, 2021, compared to ₹2.71-lakh crore last year.

Admittedly, there can be considerable increase during the last fortnight of the financial year in March when the year-end impact pushes up credit as banks seek to meet their targets, emphasised the report.

The net result of the surplus liquidity could be seen in the relentless parking of funds in the overnight reverse repo window, which ranged between ₹4-lakh crore and ₹7-lakh crore on daily basis, with the amount crossing ₹8-lakh crore in May 2020 on a couple of occasions.

“It may be expected that the RBI will continue to support the system as stated in the last policy. However, markets will still be influenced by inflation as well as the government borrowing programme which will start from April for the next financial year,” the agency said.

CARE expects demand for private investment to also increase as the economy is expected to grow by 10-10.5 per cent in FY22 which will require support from banks.

It observed that the surplus liquidity seen throughout FY21 may no longer be available in the same quantum.

The agency expects the 10-year G-Sec yields to remain stable in the 6.20-6.30 per cent range in FY22 in the absence of a repo rate cut. The upward tendency of inflation may come in the way of the Monetary Policy Committee’s decision to lower the same, it added.

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Govt could raise up to ₹12,800 cr if it divests in 2 PSBs: CARE Ratings

Banking & Finance

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The government could raise between ₹6,400 crore and ₹12,800 crore if it cuts its stake to 51 per cent in two of the four public sector banks (PSBs) — Indian Overseas Bank (IOB), Bank of Maharashtra (BoM), Bank of India (BoI) and Central Bank of India (CBoI) — said to be candidates for disinvestment, according to CARE Ratings.

As per an equity matrix — based on average price (one-year average daily), paid-up capital, number of shares and government ownership — drawn up by the credit rating agency, IOB has the highest equity capital (₹16,437 crore), while BoI has the highest market price (₹44.75 per share) relative to the others.

Also read: PSBs consolidation: It is credit negative if govt divests stake in left out banks, says ICRA

Based on the aforementioned banks’ market prices — BoI (₹44.75 per share/ government stake: 89.1 per cent) and IOB (₹9.88/ 95.8 per cent), if the government were to lower its stake to 51 per cent, which would still leave majority ownership of these banks in the government’s hands, then the amount that could be raised from these two banks would be around ₹12,800 crore, as per CARE’s assessment.

BoM (₹11.85 per share/ government stake: 92.5 per cent) and CBoI (₹14.85/ 92.4 per cent) would garner around ₹6,400 crore, it added.

But if the government were to divest fully from these two banks, the amount that could be raised would be around ₹28,600 crore, the agency said.

In her Budget speech on February 1, 2021, Union Finance Minister Nirmala Sitharaman said: “Other than IDBI Bank, we propose to take up the privatisation of two public sector banks and one general insurance company in the year 2021-22.

“This would require legislative amendments and I propose to introduce the amendments in this Session itself.”

In 2021-22, the government would also bring the initial public offer of Life Insurance Corporation of India, she added. For this also, the government will bring in the requisite amendments in this Session itself.

The government has estimated ₹1.75-lakh crore as receipts from disinvestment in FY2021-22.

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