Tag: coronavirus

Indian bankers in talks as court rulings threaten over $6 billion in loans

Banking & Finance

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Informal talks are taking place to deal with the fall-out from two rulings by the Supreme Court that threaten the repayment of loans totalling nearly ₹500 billion ($6.73 billion) to some of India’s largest banks, bankers close to the matter say.

Any failure to recoup the money adds to stress in the banking sector, which is already dealing with an increased level of bad loans and reduced profits because of the impact of the Covid-19 pandemic.

Biyani-Ambani deal in trouble as Supreme Court rules in favour of Amazon

Last week, the Supreme Court effectively blocked Future Group’s $3.4-billion sale of retail assets to Reliance Industries, jeopardising nearly $2.69 billion the retail conglomerate owes to Indian banks.

That ruling was delivered days after the Supreme Court rejected a petition to allow telecom companies to approach the Department of Telecommunications to renegotiate outstanding dues in a long-running dispute with Indian telecom players.

Following SC ruling, NCLT to pause hearing on Future-Reliance deal

That raises concerns, bankers say, over whether Vodafone Idea will repay some ₹300 billion ($4.04 billion) it owes to Indian banks and billions of dollars more in long-term dues to the government.

Future of Future?

Two bankers, speaking on condition of anonymity, said negotiations were taking place to try to limit potentially severe consequences.

Loans to Future worth nearly ₹200 billion were restructured earlier this year, giving it more time to come up with repayments due over the next two years, but that was on the premise that Reliance would bail it out, the bankers said.

Future group did not immediately respond to a request for comment.

Should Future be taken to a bankruptcy court, bankers say they are concerned they will have to take haircuts on the loans of more than 75 per cent.

“The immediate apprehension is that the restructuring deal will fall through for banks by December,” said a banker at a public sector bank that has lent money to Future.

Future’s leading financial creditors include India’s largest lender State Bank of India, along with smaller rivals Bank of Baroda and Bank of India.

Bank of India, the lead bank in the consortium lending to Future, did not immediately respond to an emailed request for comment.

Vodafone Idea

Banks have also started discussing Vodafone’s debt to lenders of nearly ₹300 billion. Top lenders to Vodafone include YES Bank, IDFC First Bank and IndusInd Bank, as well as other private and state-owned lenders.

Vodafone, YES Bank, IDFC First Bank and IndusInd did not immediately respond to a request seeking comment.

“Even though banks have the option of restructuring loans in case the company defaults, it will only make sense if there is clear cash flow visibility, which is not the case right now,” a senior banker at a public sector bank said on condition of anonymity.

Already, at the end of March, Indian banks had total non-performing assets of ₹8.34 trillion ($112.48 billion), the government has said. It has yet to provide more updated figures.

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Usefulness of digital tools for buying and claiming insurance

Personal Finance

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The outbreak of Covid-19 ushered in accelerated digitisation in the insurance industry as well as rapid acceptance and adoption by customers.

The industry introduced many features including telemedicine. Life insurance, which was predominantly done offline, largely moved to online channels.

Digital insurance or ‘InsurTech’ has disrupted the entire insurance sector and is bridging the insurance gap in the country. With smartphones and cheap internet, customers can use various platforms like social media, website, email, apps to interact with the insurers and get help in terms of selection, purchase, and filing for claims.

Ease in claim settlement

Digital tools like mobile applications have been helping consumers across the entire policy life cycle, starting from purchasing policies, intimation of claim incidents, processing claims through submission of documents online to claim settlement across all categories.

Also read: Demystifying restore benefit in health insurance

For example, if a car gets damaged today, the customer can share the photo of the damaged car with the insurer. Once the proof of the damaged car has been submitted, the insurance company can automatically verify it using AI and telematics and after verification, the amount of the claim will be paid to the customer’s bank account, usually within 24 hours.

Personalised insurance

Online channels have made insurance a personalised experience, much like the e-commerce virtual platforms. Advancement in technology including big data, artificial intelligence and machine learning have helped insurers to understand personalised consumer behaviour, their family needs and help them reach out with more accurate need-based insurance solutions.

For example, based on the information provided including health history of the individual and his/her family, insurer can guide the customer with the right policy and the right cover amount.

Also read: All you wanted to know about cyber insurance

Disease specific optional cover (such as diabetics) or need based cover (such as maternity) will also be recommended.

Options to compare and choose the best

Digital platforms of aggregators or insurers provide unbiased comparisons and analysis of various insurance products based on price, quality and other features.

Consumers can evaluate the pros and cons of each product. Digital tools have made the process of insurance transparent, credible, seamless, personalised, and less time consuming.

(The author is CEO & Co-founder at RenewBuy)

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Goldman Sachs to raise pay for junior investment bankers: report

Banking & Finance

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Goldman Sachs Group Inc is raising salaries for its junior employees in the investment bank division, Business Insider reported on Sunday.

The bank’s second-year analysts will now make $125,000 in base compensation, while first-year associates will earn $150,000, Business Insider reported citing two people familiar with the situation.

No formal announcement about the pay raise has been made and it was unclear which other levels of employees at the investment banking division have also been given salary increases, the report from the financial and business news website said. Goldman Sachs declined to comment.

Goldman Sachs sets up centre in Hyderabad

Investment banks have raised pay for first- and second-year associates this summer in an attempt to ease the strain on these workers and compensate them more for their work supporting more senior staff in a year of unprecedented deal making.

Citi Group, Morgan Stanley, UBS Group AG and Deutsche Bank AG have already increased pay for their first-year analysts to around $100,000, a raise of about $15,000.

‘Saturday rule’

In February, a group of junior bankers in Goldman’s investment bank told senior management they were working nearly 100 hours a week and sleeping five hours a night to keep up with an over-the-top workload and “unrealistic deadlines.” Half of the group, which consisted of 13 first-year employees, said they were likely to quit by summer unless conditions improved.

Goldman Sachs to set up 250 beds across 4 hospitals in Bengaluru

Goldman’s Chief Executive Officer David Solomon has said the bank was working to hire more associates to help with the workload, and vowed to enforce the “Saturday rule,” which prohibits employees from working between 9 pm Friday night and 9 am on Sunday, except in certain circumstances.

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Equitas Small Finance Bank’s Q1 net profit drops 79%

Banking & Finance

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Equitas Small Finance Bank has reported a 79 per cent drop in net profit to ₹11.93 crore in the first quarter as against a net of ₹57.67 crore for the same quarter last year. The bank said the Profit After Tax was affected due to provisions made on restructured accounts.

The Bank has restructured loans amounting to ₹400.48 crore as of June 30, 2021; ₹496.52 crore in July 2021 and has made a provision of ₹110.51 crore against these restructuring under Resolution Framework 2.0

“The Bank primarily caters to small retailers and transporters engaged in daily use products. During the quarter due to lockdowns and other Covid related restrictions, cash flows of these small retailers had been significantly impacted,” said PN Vasudevan, MD and CEO of Equitas Small Finance Bank.

Net Interest Income for Q1FY22 stood at ₹461 crore (₹404 crore) while net interest margin stood at 7.87 per cent. Total income of the bank grew by 23 per cent to ₹922.59 crore ( ₹750.96 crore).

Total advances as of Q1FY22 stood at ₹17,837 crore, growing at 15 per cent Y-o-Y while deposits (excluding CDs) stood at ₹17,021 crore with a Y-o-Y growth rate of 48 per cent.

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RBI’s digital index shows online payment is on the rise

Banking & Finance

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The Reserve Bank of India–Digital Payments Index for March 2021 rose to 270.59 as against 207.84 for March 2020.

“The RBI-DPI index has demonstrated significant growth in the index representing the rapid adoption and deepening of digital payments across the country in recent years,” the RBI said on Wednesday. The index stood at 217.74 for September 2020.

Also read: Mastercard to file an independent audit report

The composite RBI-DPI with March 2018 as base aims to capture the extent of digitisation of payments across the country. The index was launched on January 1 this year.

It comprises of five broad parameters that enable measurement of deepening and penetration of digital payments in the country over different time periods.

Also read: Reserve Bank working towards phased implementation of digital currencies

These parameters are payment enablers, payment infrastructure – demand side factors, payment infrastructure – supply-side factors, payment performance and consumer centricity.

Digital payments have seen a sharp growth in recent years, particularly since the Covid-19 pandemic that led to social distancing and work from home.

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Microfinance sector hit as defaults surge in pandemic

Banking & Finance

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Small loan specialists in India that typically cater to people without bank accounts are facing a jump in pandemic-related defaults that could force some of them out of business, industry experts warn.

Loans overdue by 30 days are expected to reach 14-16 per cent of all so-called microfinance loans in the immediate aftermath of the second Covid-19 wave sweeping India, said Krishnan Sitaraman, senior director at credit rating agency Crisil.

That’s higher than 6-7 per cent in March, before the second wave took hold, and also above the 11.7 per cent reached in March 2017 after the demonetisation drive — an attempt to boost digital transactions and crack down on undeclared money that also hit microfinance lenders hard.

ALSO READ MFIs need bold policy support

“Older loans that were taken in 2019 or early 2020 are at a higher risk of defaults and they form about 60-65 per cent of the loanbook for lenders,” said Harsh Shrivastava, former head of the Microfinance Institutions Network, an association representing the sector in India.

Rahul Johri, chair of Vector Finance, a microfinance firm that provides loans to small enterprises, said many support measures brought in by the government had only helped larger institutions, while smaller players had struggled.

“It has become an existence issue for several small and mid-sized microfinance institutions as business has been severely impacted and collections are down,” said Johri.

Loan collection efficiency across the total loan pool has fallen to about 70 per cent from a peak of nearly 95 per cent in March, analysts say, indicating a potential build up in stress.

The gross loan portfolio of India’s microfinance lenders stood at ₹2.6-lakh crore ($35 billion) as of March 31, according to Crisil.

ALSO READ NBFC-MFIs: Sector sees nearly 25% decline in FY21

Bumpy road ahead

Despite the short-term challenges, some remain bullish on the sector and expect it to bounce back if an anticipated third wave is not so severe.

“About 55 per cent of the market is still untapped which means there is huge market opportunity … so things will look up soon,”said Johri.

But for now, many smaller microfinance firms are struggling.

Such companies, typically with loan books of less than ₹5-lakh crore ($67 million), have also seen their cost of funds rise by 100-150 basis points as banks and companies have become less willing to lend to them, said one industry executive, speaking on condition of anonymity.

Some microfinance firms have had to scale back capital raising plans due to tepid interest from investors, said the heads of two firms that have been looking to raise funds.

As smaller players falter, some have stopped paying salaries, or incentives to employees in recent months, they added, asking not to be identified due to the sensitivity of the matter.

“We are now only getting basic salaries, incentives have completely stopped in the last few months as collections are down,” said a collection agent.

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Growth expectations of NBFCs moderated in Q1 FY22

Banking & Finance

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Growth expectations of Non-Banking Financial Companies (NBFCs) have moderated vis-à-vis the expectations six months earlier in view of the possible impact of Covid 2.0 on business in Q1 (April-June) FY2022, according to an ICRA survey.

The survey expects the asset quality related pain to persist in the current fiscal as well.

As per the survey across NBFCs, covering over 65 non-banks, constituting about 60 per cent of the industry assets under management (AUM), 42 per cent of the issuers now expect growth of more than 15 per cent in the AUM in FY2022, much lower than 56 per cent earlier.

The survey includes Micro Finance Institutions (MFIs), NBFCs, and housing finance companies (HFCs), excluding infrastructure finance companies and Infrastructure Debt funds.

ALSO READ NBFC-MFIs: Sector sees nearly 25% decline in FY21

Manushree Saggar, Vice-President, Financial Sector Ratings, ICRA, said: “While 42 per cent of the issuers (by number) are expecting a more than 15 per cent growth in AUM in FY2022, the proportion based on AUM weights is much lower at 8 per cent; indicating that larger players in the segment expect a relatively moderate growth in FY2022.

“With most of the lenders (74 per cent; in AUM terms) indicating an up to 10 per cent AUM growth, we expect the growth for the overall industry to be about 7-9 per cent for FY2022.”

The agency emphasised that within the non-bank finance sector, segments such as MFIs, SME-focused NBFCs and affordable housing finance would continue to record much higher growth than the overall industry averages; supported by good demand and lower base.

Notwithstanding the optimism on AUM growth, the non-bank finance companies are expecting the asset quality related pain to persist in the current fiscal as well, opined ICRA.

The agency said said overall, 87 per cent of issuers (by AUM) expect reported gross stage-3/NPAs to be either same or higher than March 2021 levels, which in turn will keep the credit costs elevated.

This is also reflected in over 90 per cent of lenders (by AUM) expecting the credit costs to remain stable or increase further over FY2021 levels.

ALSO READ RBI links NBFC dividend payout to capital, NPA norms

Restructuring

On the restructuring front, while lenders are expecting marginally higher numbers as compared to the last fiscal, the overall numbers are expected to be low, the agency said in a note.

Almost 73 per cent of lenders (in AUM terms) have indicated an incremental restructuring of up to 2 per cent of AUM and another 21 per cent are expecting a restructuring between 2-4 per cent of the AUM, under Restructuring 2.0.

Within the non-bank finance sector, relatively higher impacted segments such as MFIs, SME lending and vehicles are expected to undergo larger share of restructuring compared with the industry average., according to the note.

The housing portfolio is likely to remain largely resilient, in line with the trend seen in FY2021.

Raise capital

The agency assessed that 80 per cent of the issuers are expected to maintain or increase on-balance sheet liquidity to take care of market volatility. Further, despite the pressure in the operating environment, 94 per cent of the issuers expect higher or stable profitability in FY2022 vis-à-vis FY2021.

The number of issuers expecting to raise capital almost doubled to 56 per cent this year compared with earlier survey results.

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Covid claims for life insurers to rise but sector well prepared: Sumit Rai

Banking & Finance

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The number of Covid related claims for life insurers in the second wave of the pandemic is likely to be three to four times of the first wave, believes Sumit Rai, Managing Director and CEO, Edelweiss Tokio Life Insurance.

“Claims have increased significantly but typically they come with a lag,” Rai said, adding that most life insurers had anticipated it and are prepared for it.

“I don’t expect the impact to be very adverse and don’t think it will set the industry back very significantly,” he said in an interaction with BusinessLine. The impact of the higher claims will be visible on aspects like term pricing, he added.

Edelweiss Tokio settled 487 Covid related claims amounting to ₹45.82 crore in 2020-21. In the first quarter of this fiscal, it has settled 153 such claims of ₹16.39 crore.

RBI report

According to the Reserve Bank of India’s Financial Stability Report, July 2021, the life insurance industry received 22,205 claims worth ₹1,644.56 crore during 2020-21 where death was due to Covid and related complications, which amounted to 0.3 per cent of total premium income of the year.

“The pandemic did not have a significant impact on death claim settlement rates,” it noted.

However, there is concern among analysts that the spike in claims in the second wave could put pressure on the bottomline of insurers in the quarter ended June 30, 2021.

Kotak Life Insurance had said it expects to incur a loss of up to ₹275 crore in the quarter ended June 30, 2021 due to increased Covid claims.

Rai is, however, optimistic about the prospects of the life insurance sector and expects the industry will grow by 12 per cent to 15 per cent in the next few years. “This pandemic has given a fillip to life insurance. On a long term basis, industry will continue to do well,” he said.

Edelweiss Tokio expects to grow at a higher rate than the industry. “Our goal is to grow better than the industry at between 15 per cent to 20 per cent over the next two to three years,” he said, adding that the focus will be to be multi-channel. The insurer plans to launch a new term product as well as a guaranteed return product this fiscal.

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Gold loan defaults within permissible limits, says Thomas John Muthoot

Banking & Finance

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Gold auction notices by private lenders in regional dailies spread across more than one full page are becoming regular which, to the uninitiated, may point to the pandemic-induced financial stress among not just the economically weak sections but also the salaried class.

Leading NBFC Muthoot Fincorp recently ran a multi-page auction notice listing about 24,000 mortgage items for auctioning this July across its various branches since customers failed to pay up in time.

Statutory advertisements

But the lender would not attach significance to the advertisement and maintained that the “default cases continue to remain within acceptable limits”.

This is a statutory advertisement, he told BusinessLine. The actual auctions amount to just less than one per cent and is not a matter of concern since 99 per cent of customers redeem or renew their loans.

“We have to take these steps; otherwise, we would be breaching the NPA norms of the Reserve Bank which will not be seen good in the eyes of rating agencies, banks and the RBI as well.”

Extra time to pay up

On special request, the NBFC grants customers extra time to redeem their gold. “We would in fact want customers to save their gold. This is important for us, too. Because of Covid, we have a special scheme for customers to renew their loan at 11.99 per cent. Lot of these steps are being taken thoughtfully.”

In fact, John Muthoot noted that the gold loans portfolio witnessed healthy growth during FY 2020-21. Coupled with rescheduling of earlier auctions due to lockdowns, this had resulted in a higher number of loans going into auction.

Overall, this is a small percentage compared to the total disbursements of ₹39,500 crore during the period, he said. But John Muthoot did agree that the Covid-19 second wave and resultant lockdown did disrupt economic activities and compromised the financial position of customers.

Element of uncertainty

“But if we compare it with the first wave in March 2020, the element of uncertainty is evident. The community demonstrated resilience and preparedness to face the situation. The lockdown has been relaxed in most states. Normalcy will enable the common man to return to work and resume activities”.

According to him, gold loans continue to witness a healthy demand. “The common man is our customer and his financial needs continue to be our focal point. We are in constant touch with customers and our product research capabilities enable us to understand their needs. The demand for fresh loans is picking up post-relaxations in lockdown,” he added.

On business outlook for the next few quarters, Muthoot said: “We remain bullish on the growth story of Indian economy. The Centre as well as the Central bank has reiterated the commitment by announcing packages or capital investments to propel the growth. As businesses reopen and activities restart, we are sure that the economy will rebound. We expect to grow by 12-15 per cent as higher demand unfolds”.

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Pressure on risk currencies subside, US inflation in focus

Banking & Finance

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Risk currencies hovered above their recent lows against the dollar and the yen on Monday, as fears about slowdown in the global economic recovery appeared to have subsided for now.

The outlook for US inflation and the speed of the Federal Reserve‘s future policy tightening are back in focus ahead of Tuesday’s consumer price data and Fed Chair Jerome Powell’s testimony from Wednesday.

“If we see strong data, the Fed could bring forward their projection for their first rate hike further from their current forecast of 2023. That would also mean they have to finish tapering earlier,” said Shinichiro Kadota, senior FX strategist at Barclays.

The euro traded at $1.1873, edging back from its three-month low of $1.17815 set on Wednesday while against the yen the common currency stood at ¥130.87, off Thursday’s 2-1/2-month low of ¥129.63.

Sterling also ticked up to $1.3900, while the Australian dollar bounced back to $0.7487 from Friday’s seven-month low of $0.7410.

ALSO READ Rupee slides toward year’s low as India’s trade deficit widens

Risk currencies slipped earlier last week as investors curtailed their bets on them, in part as economic data from many countries fell short of the market’s expectations.

Concerns about the Delta variant of the novel coronavirus also added to the cautious mood although few investors thought the economic recovery would be derailed.

Chinese eonomy

Selling in risk currencies subsided by Friday, however, and sentiment was bolstered further after China cut banks’ reserve requirement ratio across the board, to underpin its economic recovery that is starting to lose momentum.

On Monday, the Chinese yuan was flat at 6.4785 per dollar, off Friday’s 2-1/2-month low of 6.5005.

A recovery in risk sentiment hampered the safe-haven yen on Monday. The Japanese currency stood at 110.17 yen per dollar, off Thursday’s one-month high of 109.535.

With the data calendar on Monday relatively bare, many investors are looking to Tuesday’s US consumer price data for June.

Economists polled by Reuters expect core CPI to have risen 0.4 per cent from May and 4 per cent from a year earlier after two straight months of sharp gains in prices.

Any signs that inflation could be more persistent than previously thought could fan expectations the Fed may exit from current stimulus earlier, supporting the dollar against other major currencies.

Conversely, more benign data could lead investors to think the US central bank can afford to maintain an easy policy framework for longer, encouraging more bets on risk assets,including risk-sensitive currencies.

Cryptocurrencies were little moved, with bitcoin at $34,267and ether at $2,137.

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