Tag: corporates

Time taken to admit a case to NCLT needs to come down, says RBI Governor

Banking & Finance

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Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday said there is scope for improvement in the Insolvency and Bankruptcy Code (IBC) so that the time taken to admit a case to the National Company Law Tribunal (NCLT) is reduced.

In this regard, there is perhaps need for certain legislative amendments also, Das said in an interaction with Financial Times – Indian Express.

The RBI has made some suggestions to the government on the same.

“For example, it takes a lot of time to admit a case to the NCLT. So, can we deal with this issue through some legal amendments…. So, there is scope for some improvement. And the time taken in the whole process needs to be reduced by simplifying certain procedures,” the Governor said.

Average recovery and haircut

On lenders taking almost 90 per cent haircut in some of the IBC resolutions, Das observed that while the percentage of recovery is an important factor, the primary objective of the Code is resolution of bad assets — wherever possible to resolve the business so that the company/ business continues its operations and the economic value which the business creates continues unabated.

The Governor emphasised that the intention is that if a business or a company continues, economic activity continues and jobs also remain protected.

“The average recovery under the IBC was about 45 per cent for the previous four-five years. It came down to 40 per cent, taking into account the pandemic year.

“Now, yes, in some cases the haircut has been 90 per cent but there are cases where the haircut has been much less,” Das said.

NPAs quiet manageable

The Governor underscored that according to the numbers that RBI has, currently, the non-performing asset (NPA) numbers of lenders look quiet manageable.

“For example, at the end of June 2021, for the banking sector, the Gross NPA was about 7.5 per cent (of gross advances) and for the NBFC sector, it was a little less than that.

“.…At the moment, the situation on the stressed assets front, looks well within manageable limits,” Das said.

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Corporates prepay loans, shrink banks’ loan books, BFSI News, ET BFSI

Banking & Finance

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Corporates that are flush with cash on account of booking bumper profits are looking to deleverage their bank loans and prepaying them.

HDFC Bank has received Rs 30,000 crore in prepayments through the Jue quarter, mainly from companies in the commodities and infrastructure sectors.

For companies that have run loans for more than two years, there is no prepayment penalty for business loans.

In the April-June quarter, AAA or AA-rated companies sought to deleverage as they recorded solid cash balances. Cash flows were robust at commodity companies because of record iron ore or aluminium prices, boosting net profits. Infrastructure companies, too, reported fatter bottom lines due to the government’s extensive highway-building programme.

With demand collapsing during pandemic and uncertainty rising, companies had put a pause on expansion and have focused on becoming debt-free.

PSU loan books shrink

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.

Up to May, the gross loans to large industries declined by 1.7 per cent year­-on­year, according to RBI data.

However, HDFC Bank expanded its corporate loans over 10% in the April-June quarter to about Rs 3.15 lakh crore.

Shift to bonds

The corporate world focused on deleveraging high-cost loans through fundraising via bond issuances despite interest rates at an all-time low. This has led to muted credit growth for banks.

Corporates raised Rs 2.1 lakh crore in the December quarter and Rs 3.1 lakh crore in the fourth quarter from the corporate bond markets. In contrast, the corresponding year-ago figures were Rs 1.5 lakh crore and Rs 1.9 lakh crore, respectively.

Bonds were mostly raised by top-rated companies at 150-200 basis points below bank loans. Most of the debt was raised by government companies as they have top-rated status.

For AAA-rated corporate bonds, the yield was 6.85 per cent in May 2020, which fell to 5.38 per cent in April 2021 and to 5.16 per cent in May 2021.



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IPs to face penalty for non-compliances

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Insolvency regulator IBBI has come up with a novel step to ensure Insolvency Professionals ( IPs) better discharge their duties and at the same time help distinguish the performers and non-performers amongst them. It has come up with a graduated system of levy of monetary penalty for minor non-compliances by the IPs.

For this purpose, the Insolvency & Bankruptcy Board of India (IBBI) has now directed the three Insolvency Professional Agencies (IPAs) to amend their bye-laws so as to provide maximum and minimum monetary penalty for certain non-compliances by IPs registered with such agencies.

Till date, there are three IPAs registered with the IBBI. These are ICSI Institute of Insolvency Professionals, Indian Institute of Insolvency Professionals of ICAI and Insolvency Professional Agency of Institute of Cost Accountants of India.

Monetary penalty

The IPAs have now been directed to provide for the maximum and minimum monetary penalty in the interest of objectivity and uniformity. The penalty will be imposed where the Disciplinary Committee of the IPAs decides to impose such penalty on its professional members.

As many as 14 contraventions have now been listed out by the IBBI in a circular along with the minimum and maximum penalty that can be imposed.

The contraventions include failure to submit disclosures, returns etc. to IPAs or incorrect disclosures, returns relating to any assignment as required under IBC (penalty of upto ₹1 lakh or 25 per cent of fee, whichever is higher, subject to a minimum of ₹50,000); accepting an assignment having conflict of interest with stakeholders (upto ₹ 2 lakh or 25 per cent of fee, whichever is higher, subject to a minimum of ₹1 lakh), etc.

Experts’ views

Ashok Haldia , Chairman of Indian Institute of Insolvency Professionals of ICAI, said “Prescription of a graduated system of monetary penalty for minor non compliances is welcome as it would bring in objectivity and uniformity in dealing with cases within an IPA and across all the IPA. It differentiates between non compliances and violations.”

Abhishek Saxena, Co-founding Partner, Phoenix Legal, said this marks a welcome step to ensure better diligence and integrity in the system.

Nakul Sachdeva, Partner, L&L Partners, said “The circular would lead consistency in the quantum of penalty imposed”.

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How corporates gorged on RBI’s easy money, shunned banks?, BFSI News, ET BFSI

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Corporates took the advantage of liquidity offered by Reserve Bank‘s special liquidity windows to raise funds from the bond market, reducing their dependence on bank loans during the quarter

While the corporate bond market is still dominated by financial companies, non-financial companies have increased borrowing in the last one year.

The corporates tapped the long-term repo operations (LTRO) funds, and targeted LTRO offered by the RBi last year, raising funds for up to three years. Firms raised funds aggressively during the third and fourth quarters of the last year for deleveraging high-cost debt.

The fundraise

Corporates raised Rs 2.1 lakh crore in December ended quarter and Rs 3.1 lakh crore in the fourth quarter from the corporate bond markets. In contrast, the corresponding year-ago figures were Rs 1.5 lakh crore and Rs 1.9 lakh crore, respectively.

Bonds were mostly raised by top-rated companies at 150-200 basis points below bank loans. Most of the debt was raised by government companies as they have top-rated status.

For AAA-rated corporate bonds, the yield was 6.85 per cent in May 2020, which fell to 5.38 per cent in April 2021 and to 5.16 per cent in May 2021.

Debt reduction

The corporate world focused on deleveraging high-cost loans through fundraising via bond issuances despite interest rates at an all-time low. This has led to muted credit growth for banks.

According to data analysis by the SBI research wing, the top 15 sectors with more than 1,000 listed entities reported over Rs 1.7 lakh crore of debt reduction in 2000-21.

Refineries, steel, fertilizers, mining & mineral products, and textile alone reduced debt by more than Rs 1.5 lakh crore during FY21.

Fertilizers, mining and minerals, FMCG, cement products, consumer durables, and capital goods were among the sectors where loan reduction of 20 per cent or more was reported during FY21.

According to data from the Reserve Bank of India, loan growth fell to a 59-year low of 5.6% on year as of March 31. Credit was logging a 6.4% in the previous fiscal.

Low interest rates

As interest rates drop to an all-time low, corporates reduced their loan liabilities to facilitate a lower finance cost, which resulted in the primary issuance of bonds increasing by nine per cent.

The spread of AAA bonds for a 10-year tenor declined from 124 bps in April 2020 to 70 bps in April 2021.

Similarly, the spread for 5 year and 3-year bonds declined from 89 bps and 147 bps in April 2020 to 9 bps and 30 bps in April 2021 respectively.

This trend is continuing in FY22 also.

These companies not only reduced their loan liabilities at lower finance cost but also increased their cash and bank balance by around 35% in March, as compared to March 2020, suggesting a conservative approach to conserve cash during uncertain times.

Corporate willingness for new investments also remains tepid as the economy is still recovering from the second wave.



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ICICI Bank launches ‘ICICI Stack’ for corporates and their partners, BFSI News, ET BFSI

Banking & Finance

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ICICI Bank launched ‘ICICI STACK for Corporates’, a comprehensive set of digital banking solutions for corporates and their entire ecosystem including promoters, group companies, employees, dealers, vendors and all other stakeholders. It provides customised digital banking services to companies in over 15 leading industries– such as financial services, IT/ITES, pharmaceuticals, steel to name a few – and their entire ecosystem. These services can further be tailor-made for companies within an industry.

ICICI Bank has opened eight ecosystem branches- five in Mumbai and three in Delhi NCR. It plans to launch another four in this financial year.

“With an objective to cater to the ecosystem of every corporate, we have launched a digital ‘ICICI Stack for Corporates’ with many industry first features. It offers banking solutions to corporates with backward and forward integration for their entire network of employees, dealers, vendors and all other stakeholders. We look forward to partnering with our customers for the banking needs of their entire ecosystem and unlock the full potential.” said Vishakha Mulye, Executive Director at ICICI Bank in a statement.

This stack delivers services like digital account opening, payments and collections, trade and foreign exchange services in addition to instant reconciliations and working capital solutions. It also provides an e-BG (electronic bank guarantee) solution that acts as an electronic repository of authenticated BG, automated stamping (AeS) which eliminates the need for physical stamp paper from branches for bank guarantees, suite of API-based payments and collection solutions that directly integrate with a customer’s ERP system, and iValidate, an API based real-time reconciliation system of collecting funds from multiple parties.

The bank has its own web-based platform, which facilitates instant approval and disbursement of loans for channel partners. The bank also provides a cloud-based platform, which provides a fully embedded solution customised for the dealer and vendor management system of the corporates.

The list of 350 solutions includes the instant opening of salary accounts using Aadhaar, access to a suite of cards, private and wealth banking, instant sanction of loans/credit limits, pay later digital credit for pre-approved customers of the corporate, access to emergency funds through salary overdrafts and loan against shares and mutual funds and protection solutions like insurance. These services are available on the Bank’s mobile application, iMobilePay.

The bank also provides expertise in private banking for services like wealth management, setting up of trusts and family offices among other curated services for promoters and directors.



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ICICI Bank launches digital banking solutions for corporates

Banking & Finance

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Private sector lender ICICI Bank on Wednesday announced the launch of a comprehensive set of digital banking solutions for corporates and their entire ecosystem including promoters, group companies, employees, dealers, vendors and all other stakeholders.

Called ICICI STACK for Corporates, it provides customised digital banking services to companies in over 15 sectors such as financial services, IT/ITES, pharmaceuticals, steel and their entire ecosystem, the lender said in a statement.

Also read: 20 lakh customers of other banks log in to ICICI Bank mobile app

“Armed with the bank’s state-of-the art digital platforms, these services can further be tailor-made for companies within an industry. The four main pillars of the ‘ICICI STACK for Corporates’ are digital banking solutions for companies; digital banking services for channel partners, dealers and vendors; digital banking services for employees and curated services for promoters, directors and signatories,” ICICI Bank further said.

It has also opened eight ecosystem branches —five in Mumbai and three in the National Capital Region (NCR) to supplement these efforts. It plans to launch another four such branches in this financial year.

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Bond yields are soaring; Will banks focus on Corporate loans?, BFSI News, ET BFSI

Banking & Finance

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Corporates have been tapping the bond market and avoiding bank loans for the last few years as depressed yields kept borrowing costs lower as against the bank loan rates.

Banks were also wary to extend loans to the corporates but were happy to subscribe to highly rated corporate issuances.

Rising yields

However, after the rise in global bond yields and the government’s plan of borrowing a huge Rs 12 lakh crore, the yields on government bonds are rising for the last two months.

Since January, government bonds yields have surged by 35%. This is leading to a rise in yields of corporate bonds too with those on two-, three- and five-year bonds climbing 50-100 basis points.

With borrowing costs in the bond market rising, corporates are reducing the number of issuances. There has been an 18% month-on-month drop in issuances for February, according to Sebi data.

Banks shying away

Banks are also shying away from investing in bonds as rising yields spell mark-to-market losses as the bond prices go down as yields rise.

Banks have cut their investments in corporate bonds and debentures in the past two months by 3.5% with total investment in corporate bonds by banks down to Rs 5.64 lakh crore by February-end, according to RBI data.

Lower participation

On Tuesday, the corporate bond market saw lower participation with yields on bonds of 10-year maturity fell due to strong demand from long-term investors, mainly life insurance companies and a few pension and provident funds. However, yields on bonds maturing in three to five years remained steady as most investors were engaged in only requirement-based trade.

While it fell on year-on-year basis, the fundraising through a private placement of corporate bonds rose 12% month on month in February as some major public sector companies issued bonds to conclude their borrowings for the current fiscal. Also, some companies fearing a rise in yields stepped up their debt issuances.

Bank credit

Meanwhile, bank credit rose by 6.63 per cent to Rs 107.75 lakh crore in the fortnight ended February 26, according to RBI data.

In the fortnight ended February 28, 2020, bank credit stood at Rs 101.05 lakh crore, the recent data released by the Reserve Bank of India showed. Bank credit increased by 6.58 per cent to Rs 107.04 lakh crore in the previous fortnight ended February 12, 2021.

Thanks to RBI’s stance, banks are flush with liquidity and can offer home loans at low rates seen 15 years back.



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ICICI Bank signs MoU with MUFG Bank

Banking & Finance

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ICICI Bank on Friday announced it has signed a Memorandum of Understanding with Japan’s MUFG Bank for collaboration towards catering to the banking requirements of Japanese corporates present in India.

“The MoU was signed at a virtual event by Vishakha Mulye, Executive Director, ICICI Bank, and Junsuke Koike, Executive Officer and Regional Executive for India and Sri Lanka, MUFG Bank, in the presence of senior officials of both banks,”the private sector lender said in a statement.

The MoU establishes a framework of partnership between the banks across various domains including trade, investment, treasury, corporate and retail banking, it said, adding that it also paves way for the two banks to cater to the banking requirements of Japanese corporates operating in India.

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