Tag: Covid-19

Bank credit sees uptick, but will it hold amid Covid resurgence ?

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Bank credit has seen an uptick in recent months indicating a recovery in economic activities but the resurgence of Covid-19 cases and limited lockdowns are raising fresh concerns.

Reserve Bank of India data reveal that year-on-year growth in non-food bank credit was 6.5 per cent in February. This is not bad when compared to a growth of 7.3 per cent in February 2020.

But the ongoing lockdowns are set to impact credit growth. CARE Ratings has pegged the potential loss of GVA to the country from the lockdown in Maharashtra for a month at about ₹40,000 crore in real terms.

Amongst sectors, credit growth to agriculture and allied activities, service and personal loans recorded robust expansion. However, credit to industry contracted marginally by 0.2 per cent in February compared to 0.7 per cent growth in February 2020 “mainly due to contraction in credit to large industries by 1.5 per cent”, RBI data showed.

Bankers expect a revival in credit demand to large industries in the second half of the fiscal with the capex push from the Union Budget.

Between end of March 2020 and February 2021, gross bank credit grew 3.3 per cent against 3.5 per cent last year, which analysts say is quite robust given the lockdown in the first quarter of 2020-21.

Provisional data by banks for the fourth quarter on loans and advances has shown an improvement compared to earlier quarters since the pandemic.

HDFC Bank reported a 13.9 per cent growth in advances as on March 31, compared to a year ago while Federal Bank’s gross advances increased by nine per cent in the same period. Advances growth for IndusInd Bank and YES Bank was more modest.

 

RBI policy

With the Monetary Policy Committee of the Reserve Bank of India expected to continue with its accommodative stance and maintain status quo on rates, there could possibly be continued demand for credit.

More clarity on economic prospects will be available on April 7 when the RBI comes out with the Monetary Policy statement.

According to rating agency Crisil, bank credit growth is set to speed up to 9-10 per cent in the new fiscal after mid-single digit growth in fiscal 2021 but it has cautioned that the sharp rise in Covid-19 cases since mid-February and the impact of any stringent containment measures on businesses are the key threats to the nascent demand recovery and could impact the credit quality outlook adversely.

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RBI’s MPC starts deliberating on next monetary policy

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Reserve Bank of India Governor Shaktikanta Das-headed rate-setting panel MPC started its three-day deliberations on the next monetary policy on Monday amid a sudden surge in Covid-19 cases and the government’s recent mandate asking the central bank to keep retail inflation around 4 per cent.

The RBI will announce the resolution of the Monetary Policy Committee (MPC) on April 7.

Also read: RBI seen leaving repo rate unchanged in first review of FY22

Experts are of the view that the RBI will maintain status quo on policy rates at its first bi-monthly monetary policy review for the current fiscal. It is also likely to maintain an accommodative policy stance.

The policy repo rate or the short-term lending rate is currently at 4 per cent, and the reverse repo rate is 3.35 per cent.

Last month, the government had asked the RBI to maintain retail inflation at 4 per cent with a margin of 2 per cent on either side for another five-year period ending March 2026.

Also read: Govt’s borrowing plan to mount pressure on G-Sec yields in H1

M Govinda Rao, Chief Economic Advisor, Brickwork Ratings (BWR), said given the rise in the spread of coronavirus infections and the imposition of fresh restrictions to contain the virus spread in the major parts of the country, RBI is likely to continue with its accommodative monetary policy stance in the upcoming MPC meeting.

“Considering the elevated inflation levels, BWR expects the RBI MPC to adopt a cautious approach and hold the repo rate at 4 per cent,” Rao said.

Rao noted that in the last MPC, RBI initiated measures towards the rationalisation of excess liquidity from the system by announcing a phased hike in the cash reserve ratio (CRR) for restoration to 4 per cent.

“In the current scenario, the RBI may like to drain in excess liquidity, while higher borrowings and the frontloading of 60 per cent borrowings in H1 FY21 may put pressure on yields, and hence, the RBI may go slow in reversing its liquidity measures announced as a Covid-19 stimulus since March 2020,” Rao added.

Meanwhile, G Murlidhar, MD and CEO, Kotak Mahindra Life Insurance Company, said 2021 has seen a rise in yields across the globe in line with the vaccination-led optimism.

“However, the case for India is a little different this time, with a rapid rise in new Covid-19 cases over the last few weeks. In the upcoming policy, MPC may continue to emphasise the importance of ‘orderly evolution of the yield curve’ given benign inflation trajectory and second wave headwinds to nascent growth recovery,” said Murlidhar.

In a bid to control the price rise, the government in 2016 had given a mandate to RBI to keep retail inflation at 4 per cent, with a margin of 2 per cent on either side, for a five-year period ending March 31, 2021.

The central bank mainly factors in the retail inflation based on Consumer Price Index while arriving at its monetary policy. On February 5, after the last MPC meet, the central bank had kept the key interest rate (repo) unchanged citing inflationary concerns.

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Srei Equipment Finance sets up panel to raise fresh capital

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Srei Equipment Finance Ltd (SEFL), a wholly-owned subsidiary of Srei Infrastructure Finance Ltd, on Wednesday said that it had received interest from international investors for proposed capital infusion.

The company, which has been facing cash flows issues in the wake of the Covid-19 pandemic-driven economic stress, has constituted a Strategic Coordination Committee (SCC), comprising independent directors to coordinate, negotiate and conclude discussions with potential strategic investors.

“The board of SEFL at its meeting held on Tuesday, constituted a Strategic Coordination Committee (“SCC”), comprising of independent directors. The SCC will coordinate, negotiate and conclude discussions with potential strategic and/or private equity investors, to raise fresh capital for the business in consultation with the management,” the company said in a press statement.

The company said it had received an “expression of interest from international investors” for the proposed capital infusion.

“The proposed capital infusion is expected to strengthen SEFL’s capital base and help the company emerge out of pandemic induced stress in Indian financial services space,” the release said.

The SCC would be chaired by Malay Mukherjee, an independent director and the other committee members, including Suresh Kumar Jain, Dr. (Mrs.) Tamali Sen Gupta, Uma Shankar Paliwal and Shyamalendu Chatterjee with invitees having relevant domain knowledge.

The committee will take forward the expression of interest received from international investors and initiate discussions with other potential suitors who have been in touch with the company over the last year in consultation with the management. The committee will be assisted by advisors and investment bankers who will be working closely with the members.

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MPC meet dates announced – The Hindu BusinessLine

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The Reserve Bank of India (RBI) on Wednesday announced the bi-monthly meeting schedule of the six-member rate-setting monetary policy committee (MPC) for FY2022.

Also read: Jarring signals on economy as inflation is rising, factory output shrinking

Unlike last year, when the first MPC meeting (originally scheduled for March 31, April 1 and 3, 2020) was advanced to March 24, 26 and 27, 2020, and the Governor issued a statement on April 17, 2020 in view of the Covid-19 pandemic, the meeting schedule for FY2022 is spread out evenly.

According to RBI, MPC’s first meeting is scheduled from April 5 to 7, 2021. The subsequent meetings will be held from June 2 to 4, August 4 to 6, October 6 to 8, December 6 to 8, and February 7 to 9, 2022.

Last year, the repo rate (the interest rate at which banks borrow funds from RBI to overcome short-term liquidity mismatches) was cumulatively cut by 115 basis points in two tranches (to 4.40 per cent from 5.15 per cent on March 27, 2020 and to 4 per cent from 4.40 per cent on May 22, 2020), with the accommodative policy stance continuing throughout.

The reverse repo rate (the interest rate banks earn for parking surplus liquidity with RBI) was also cumulatively cut by 65 basis points in two tranches (to 3.75 per cent from 4 per cent on April 17, 2020 and to 3.35 per cent from 3.75 per cent on May 22, 2020).

According to a Barclays report, RBI may maintain its monetary accommodation for a while longer in order to enable the recovery to become entrenched.

Also read: Ten questions for the MPC to consider

The report, ‘Monetary policy: Talking the walk’, observed that recovering output lost to the pandemic could take longer than anticipated, and policy makers will be best served by letting the economy run ‘hot’ for a few quarters.

“The RBI will also need to balance nurturing the recovery and financial stability risks.

“Estimates show that the output gap will be negative well into 2022, and we believe monetary accommodation will be required to support growth recovery,” Rahul Bajoria, Chief India Economist, Barclays Securities (India) Pvt Ltd, and Shreya Sodhani, Research Analyst, Barclays Investment Bank, Singapore.

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Bank NPAs may rise by Rs 2 lakh crore in March quarter, face Rs 30,000 cr provisioning, BFSI News, ET BFSI

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The Supreme Court‘s lifting of the stay on classifying overdue loans is not only set to add to a sizeable chunk to banks’ non-performing assets, but hit their balance-sheet substantially.

In absence of a standstill by the Supreme Court, the GNPAs for the banks would be higher by Rs 1.3 lakh crore (1.2%) and net NPAs would have been higher by Rs 1 lakh crore (1%), according to estimates by ICRA.

However, the Icra estimates exclude the stressed loans recommended by K V Kamath panel for restructuring. The Kamath panel has suggested certain norms for restructuring loans in 16 sectors most hit by the pandemic and banks are in the process of identifying such loans. While the restructuring of such loans has to be done June 2022, the RBI may ask banks to recognise these loans as NPAs in the March quarter itself, which may raise the bank NPAs to Rs 2 lakh crore.

Also, banks will need to provide about Rs 30,000 crore for the newly added soured loans as per the norms. They need to provide 15% in the first year and the rest over three years.

Interest booked

Banks follow the accrual method of accounting and in the absence of the NPA tag, they were booking interest on these loans, even though the money was not coming into their accounts. With these loans now classified as NPAs, banks have to reverse the interest they have booked, which may lead to Rs 10,000 crore hit for them.

Silver lining

However, most banks have made provisions on proforma NPAs, which they will be allowed to write back. This will not lead to any large impact on the balance-sheets of most lenders. Also, proforma NPAs are falling, while the provision coverage ratio has improved by an average of 300 basis points to over 70% for private banks and above 65% for public sector banks in the same period.

The proforma numbers

Following the Supreme Court (SC) stay order, banks have not tagged overdue loans as NPAs since August 2020. However, they have been listing such loans as portfolio-level proforma NPAs and making provisions for them.

Compound interest hit

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.

As per 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. If the government takes the burden of Rs 7,500 crore on compound interest relief for large borrowers above Rs 2 crore, banks will be relieved to that extent.



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Fintech will be the silver bullet for growth in 2021

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The fintech sector has facilitated business growth during the pandemic. What seemed like an option in 2019, has become an imperative.

There has been a clear shift of digital payments from a nice idea to an essential service. Consumers started using digital payments for groceries, utility payments, etc and now it has become a preferred mode for all their transactions.

This has been propelled by two factors — convenience and the fear of infection which comes with managing cash. Our conversations with consumers indicate that this trend will continue in the post-Covid world as well. Another interesting trend that we have seen is the use of digital payments by what we call the Silver Tech generation — people in the age group of 50-70 years.

Exediting the adoption

According to IBM’s US Retail Index, the pandemic has accelerated the move from storefronts to e-commerce by five years. The ripple effect of e-commerce has fuelled fintech adoption rates. The mobile payments in India are said to grow by ~ 60 per cent by FY 2022.

As nations plan for the next normal, what should businesses be thinking about to succeed in 2021?

Although consumption continues to be low across economies, consumer spending on e-commerce platforms tell a different story. In October, e-commerce sales in India jumped to $ 4.1 billion – across the sale and festive days announced by e-commerce majors – up by $ 2.7 billion a year ago. This indicates green shoots of recovery in consumption.

Livestreaming

The new record set can be attributed to the convenience and safety of shopping from home. Another driver could be that brands and retailers who livestream or use modern technologies such as augmented reality (AI), appear to have a competitive edge, resonating strongly with their customers.

The hesitancy to handle cash will force the adoption of contactless and digital payments as the preferred transaction method both offline and online. In Q3, we saw 15.2 million new active accounts – our second highest quarter in organic user growth, coupled with 1.5 million new merchants come onboard – twice our usual rate in a quarter.

Consumer trust in e-commerce intensifies amidst pandemic

Salesforce’s State of the Connected Customer research report also found that consumers now spend 60 per cent of their time interacting with companies online compared to 42 per cent before the pandemic. By incorporating the Online to Offline (O2O) model, which refers to services such as online information, discounts or services, member rebates, in-store pick-up of items purchased online, or the allowing of online purchases to be returned to physical stores, to their business strategies, companies can improve customer experience, service and loyalty. On the O2O model, we also expect consumers to opt for payment methods that act as a bridge between online and offline, such as digital wallets offering QR codes.

On an average, 88 per cent of shopping carts globally are abandoned, with one of the most common reasons attributed to complex checkout processes.

For businesses looking to keep and grow their customer base in this competitive environment, a simpler, faster, more intuitive checkout process with seamless and safe payment options is critical.

India attracted $2.7 billion in fintech investment in 2020: KPMG

Building trust

This accelerated digital and e-commerce growth, unfortunately, has drawn unwanted attention from bad actors exploiting vulnerabilities for nefarious purposes. Email scams related to Covid-19 have surged in recent times. They will probably continue as scammers push our psychological buttons to acquire our personal and financial information.

With the changing times, consumer preferences have evolved. Retailers now need to review their business models to align to a new normal, where digital DNA will drive growth.

The author is Senior Vice-President, Europe and Australia Enterprise and Growth Markets, Paypal

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Beginning of the end? Covid cases in India may top 25 lakh in ongoing second wave, BFSI News, ET BFSI

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A total 25 lakh cases are expected pan India in the second Covid wave that began in India in February 2021 based on trends till March 23.

Considering the number of days from the current level of daily new cases to the peak level during the first wave, India might reach the peak in the second half of April, according to SBI Research.

The entire duration of the second wave might last up to 100 days counted from February 15.

Notably, Maharashtra alone accounts for the majority of the daily new cases currently.

Localised lockdowns/restrictions have not resulted in controlling the spread of infection, it said, adding, “This is visible in the case of many states including Maharashtra and Punjab.”

Vaccines

Though the global COVID-19 experience shows a second wave is much higher in intensity than the first wave, the presence of the vaccine makes the difference currently. Thus India will be able to manage the situation better, it said.

District wise analysis reveals that cases have again started increasing in top 15 districts, mostly urban, while the spread in rural districts is almost stable: Shift in rural penetration from Kerala in January 21 to Maharashtra in March 2021 cases are largely localised and concentrated, it said in a report, ‘Second wave of infections: The beginning of the end?’

The research house added it thought it will never have to put together slides documenting the second wave.

Certain states like Rajasthan, Gujarat, Kerala, Uttarakhand, Haryana have vaccinated more than 20% of their elderly
population (above 60 years)

Several states with a higher elderly population (>60 years) including Punjab, Tamil Nadu, Andhra Pradesh, Maharashtra and West Bengal have vaccinated less percentage of their elderly population and must increase their pace of inoculation, it said

If we assume more number of people are willing to take vaccines and the daily vaccine inoculation increases to 40-45 lakh from the current maximum level of 34 lakh, then with this capacity we can vaccinate our population above 45 years in four months from now.

There has also been a study in the past of the Great Pandemic flu of 1918-19 by Hatchett, Mecher and Lipsitch (2007) whose findings support the hypothesis that rapid implementation of multiple non-pharmaceutical interventions (NPIs) including the closure of schools, churches, and theatres can significantly reduce influenza transmission, but that viral spread will only be renewed upon relaxation of such measures, it said.

Other countries

Daily cases during the second wave peak witnessed in other countries has been multiple times the peak daily cases during the first wave: But at that time there was no vaccination. For instance, France witnessed peak daily cases of around 11.7 times the daily peak of new cases witnessed during its first wave.

But India might be able to handle well as vaccine is now available, it said.

“If we consider the days required to reach the current level from the lowest level of daily new cases witnessed in Feb’21, overall number of days that India took during the second wave is similar to what was during the first wave,” it said.

However, the difference lies in the speed of spread of infection in certain States like Gujarat, MP, Maharashtra, Punjab and Chhattisgarh, where the cases have increased at a much faster pace during the current second wave, it said.



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Covid-related health cover claims up 50%

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Covid-related health insurance claims have again risen steeply over last one month, according to general and health insurers.

The total registered claims now stand at about ₹14,287 crore as per data compiled by the General Insurance Council for the industry. Out of this, claims worth ₹7,561 crore have so far been settled by the general and standalone health insurers.

This is much higher than the earlier estimate which pegged the Covid claims for the present financial year at about ₹10,000- crore to ₹12,500 crore.

Though the increase in the number of claims differ from company to company, on an average, the industry is witnessing about 50 per cent surge in claims, say industry sources.

“There has been a substantial increase in the number of Covid-related health claims,’’ Rakesh Jain, ED & CEO, Reliance General Insurance, told BusinessLine.

Rising cases

“The claims reported at RGI rose to 36.2 per cent (proportionate) in March compared to February and January and we also noticed a steep increase in the number of cases in February and March,’’ Jain said. In comparison with the number of claims in the January-February period, there has been an almost 50 per cent increase in Covid-related health insurance claims being reported, said Bhaskar Nerurkar, Head – Health Claims, Bajaj Allianz General Insurance.

The increase in claims is obviously driven by spurt in the number of fresh cases, say insurers.

“On an average the number of Covid cases per day increased from 15,620 to 29,377 in March 2021,’’ said Jain.

The spatial distribution of claims also point to emerging clusters of Covid cases.

“If one looks at the origin of claims, they come from relatively new locations/cities such as Nagpur, Indore, Vadodara and Amaravati,’’ Nerurkar said.

Claim settlement

Given the magnitude of claims, insurers have also put in place special measures for speedy settlement. For instance, RGI launched ‘Self I’ app immediately after the pandemic for ease of claim intimations for the customer.

Bajaj Allianz General Insurance has an in-house claim settlement team dedicated for Covid-19 claims. “We earmarked a few resources to settle Covid-19 claims on priority. This helped us settle Covid-19 claims faster,’’ said Nerurkar.

According to chief of underwriting of a major general insurer, a few cases of fraudulent claims were also reported. “There has been a significant increase in the number of home-care treatment for Covid,’’ he said.

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Ettutharayil Group acquires Delhi-based NBFC BKP Commercial India

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Ettutharayil group, the Kayakulam-based financial services firm providing business loans for the past two decades, has acquired New Delhi-based non-banking financial company BKP Commercial India.

With the acquisition, the group which currently operates in savings, insurance and investment sectors, will branch out into vehicle loans and various other secured loans, including loans against property and gold loans.

Priya Anu, Managing Director, BKP Commercial, said in a statement that the company would open new branches within and outside Kerala. At present, Ettutharayil has 14 branches in Kerala, while BKP will open 15 more branches in 2021. Of these, five branches are expected to be functional within three months.

The company’s first branch in Kerala was inaugurated by Kochi Mayor M Anilkumar. BKP Commercial targets to disburse loans worth around ₹60-70 crore in 2021-22.

Anu said that BKP would focus on technology-based loan instruments catering to customer requirements. Given the sluggish market conditions prevailing in the Covid-19 pandemic situation, BKP has launched doorstep gold loans for senior citizens and working women. Another product launched is online gold loan that provides customers the safety of keeping their unused gold ornaments in BKP’s lockers with insurance cover and avail loans as and when required for up to 75 per cent LTV.

BKP has also launched Salary Bridge Loan in association with employers having 10 or more employees. The Digi Passbook Business Loan targets small and medium traders offering short-term loans for business purposes based on the volume of their digital transactions.

She added that the company has recently concluded a rights issue and is currently raising part of their fund requirements through an NCD issue.

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Indifi Technologies bags ₹35-cr debt funding from IndusInd Bank

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Indifi Technologies, a Gurugram-based online lending platform for small businesses, has secured ₹35 crore in debt financing from IndusInd Bank Ltd, with a guarantee from US International Development Finance Corporation (DFC).

These funds were from IndusInd Bank’s impact investing group to Riviera Investors Private Ltd, which is Indifi’s in-house NBFC arm. These funds will be used for onward lending to small businesses to accelerate post-Covid-19 economic recovery, the company said in a statement.

“The guarantee from DFC eliminates foreign exchange rate fluctuation risk from the balance sheet of Riviera and it has become an important tool to mobilise debt funding for impact space companies. We have done $30 million of DFC’s guarantee-backed transactions till date, out of which $25 million has been done in FY21,” Roopa Satish, Head-Corporate & Investment Banking, CSR & Sustainable Banking at IndusInd Bank, said.

Indifi has disbursed more than 30,000 loans across over 12 industries since inception through a network of 20 lenders and 80 partners. Recently, Indifi forayed into the pharmaceutical segment and will be extending its credit line solution to retailers — especially pharma distributors and local chemists — for managing their working capital needs and cash flows.

“Indifi deploys a unique and innovative approach to improve access to finance for small businesses, which are an important engine for economic growth in the Indian economy. Indifi’s support is especially important for India’s small businesses as they weather the effects of the Covid-19 pandemic and recover from its effects,” Loren Rodwin, Managing Director of Social Enterprise Finance in DFC’s Office of Development Credit, said.

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