Tag: Covid-19

Kerala inks $125-million pact with World Bank to boost disaster preparedness

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Government of India, the Government of Kerala and the World Bank have signed a $125-million programme to support Kerala’s preparedness against natural disasters, climate change impacts, disease outbreaks, and pandemics.

Rajat Kumar Mishra, Additional Secretary, Department of Economic Affairs, Ministry of Finance, Government of India; Rajesh Kumar Singh, Additional Chief Secretary, Government of Kerala; and Junaid Ahmad, Country Director, World Bank are signatories to the agreement consummated in Delhi.

Need for building resilience

A World Bank spokesperson quoted Junaid Ahmad as saying that in today’s context of increased economic, climatic, and health shocks, building resilience of economies is a policy imperative.

The World Bank is investing in Kerala’s capabilities to respond to shocks to the state economy and, importantly, prevent as much as possible the loss of lives, assets, and livelihoods. The objective is not to finance schemes but partner with the State government to improve the state’s financial health.

The programme also seeks to invest in sectors like health, water resources, social protection and agriculture, and address the drivers of natural disasters, climate change, and pandemic risks.

Multi-sectoral approach

For instance, in the Pamba River Basin, a multi-sectoral approach will be tested in Idukki, Kottayam, Pathanamthitta, and Alappuzha districts which represent a microcosm with tropical monsoon forests, dense urban settlements, and a rice bowl. Its success will have a demonstration impact across the state.

This is part of a programmatic series of World Bank-financed operations in the state. The First Resilient Kerala Development Policy Operation approved in June 2019 undertook several initiatives, the spokesperson said.

It helped the state draft a River Basin Conservation and Management Act, which will conserve and regulate water resources and ensure their sustainable management, allocation, and utilisation. It also introduced climate-resilient agriculture, risk-informed land use, and disaster management planning.

State Partnership Framework

The programme laid the foundations for a five-year State Partnership Framework and will focus on two key areas. First, it will incorporate disaster risk planning in the master plans of urban and local self-governments to ease financial constraints on the State government when faced with unexpected shocks.

Second, it will help make the health, water resources management, agriculture, and road sectors more resilient to calamities. Meanwhile, the Department of Economic Affairs, Ministry of Finance, stated that the state has shown resilience against the impacts of natural disasters and climate change.

It has been undertaking comprehensive shifts in policies, institutions, and programmes to address challenges. The Resilient Kerala Programme will help institutionalise disaster preparedness across sectors to ensure a resilient recovery and sustainable development pathway for the state.

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Economic recovery is underway but credit growth remains tepid: Deepak Parekh

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HDFC Ltd Chairman Deepak Parekh on Tuesday expressed confidence that the country’s macroeconomic fundamentals are strong and recovery is underway.

“Owing to the second wave, the Indian economy is likely to mirror a similar trend seen in 2020-21, where the first half of the financial year is weaker and the second half is significantly stronger,” Parekh said at the annual general meeting of HDFC Ltd.

However, while parameters such as foreign exchange reserves and capital markets are strong, he underlined that key laggard remains overall credit growth which continues to remain tepid.

Parekh also said the inherent demand for home loans continues to be strong and even in commercial real estate, most companies have not given up on their office space in the pandemic.

He also noted that there are segments of real estate with immense potential to grow.

“With the e-commerce boom, demand for real estate is coming from warehousing and fulfilment centres,” he said, adding that with the build-up of digital infrastructure, demand for data centres have increased.

The demand for housing has also continued to be strong after the easing of the national lockdown and was for both affordable housing and high-end properties.

“Asset quality has been challenging for non-individual loans at a systemic level. the corporation has always been prudent in identifying loans where there could be stress and has adequately provided for such loans,” Parekh further said.

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Microfinance sector hit as defaults surge in pandemic

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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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RBI’s nod to SFBs and holding companies merger can unlock value for Ujjivan, BFSI News, ET BFSI

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Ujjivan Small Finance Bank said it would initiate steps for the amalgamation of the holding company Ujjivan Financial Services Ltd with the bank after RBI’s nod. Samit Ghosh, Founder, Ujjivan Financial Services, helps us understand how it may be good news for shareholders.

Now that, RBI has given nod to SFBs and respective holding companies to apply for a merger, help us understand how really does this help in unlocking share value for you?
This is extremely good news which we were expecting for quite some time and the first in the line of course is Equitas. Equitas and us, we worked earlier on this and we are very glad, it has come through. Basically, there is a holding company structure in which is the Ujjivan Financial Services Ltd. which owns the bank Ujjivan Small Finance Bank and we own 83% of the bank so, what the RBI has committed is that the holding companies can reverse merge into the bank and there will be one entity. Before that, there was the uncertainty of this and consequently, we are the holding company stock– UFSL stock was anywhere between 40% to 50% discount. Now, this discount will gradually narrow, so, there is a tremendous upside on the Ujjivan Financial services stock.The bank stock depends on how the bank actually performs in terms of business, but this is extremely good news for the Ujjivan Financial Services stock- the holding company stock, and that was the original shareholders. We have about 80,000 retail shareholders out of which there are at least 10,000-15,000 employee shareholders, who originally invested in the bank and this is extremely good news for them.

Our fifth year is in February 2022, and we can apply three months before that -for the reverse merger—with the RBI as per its new direction. RBI will evaluate the proposal and see whether we can go ahead, chances are that things are normal, we will be allowed to reverse merge. There is one issue which was there, by the fifth year the shareholding of the holding company was required to come down to 40% but we are quite confident that since RBI is allowing us to totally reverse, much of it- at the end of five years, going to be waved, so we do not think that is an issue at all. It is good news for the holding company shareholders.

When will this merger process be completed?
We will apply late October-early November and then RBI will give us the approval, I think the process cannot start before our fifth anniversary, which is early February 2022 and the whole legal and all that clauses NCLT etc. can take anywhere between eight to 12 months, so, that is the kind of time frame we are looking at.

Post the merger which entity will remain listed?
The bank will remain, the holding company will completely disappear so all the shareholders of the holding company will then become shareholders of the bank.

What has been the impact of the second wave on your business, are you now seeing faster recovery as compared to what we have witnessed last year and in light of that what would be the outlook on your growth disbursements for FY22?
I am not part of the bank, I think this question you should raise with Nitin Chugh, who is the managing director of the bank but what I can tell you overall in the industry-the second wave has receded to a certain extent, things are much better now, but this kind of crisis, which we are facing is an unprecedented crisis. We had faced an earlier crisis, demonetisation, which was like one shock kind of crisis and we overcame, but here, because of the multiple waves of the COVID crisis–it hits our customer and business in waves and the ultimate solution getting the population of India 70% or 80% vaccinated. Unfortunately today, the vaccine availability is still an issue, hopefully, in a couple of months from the production of the vaccine to the scheduling of the production in India, there will be abundant supply. There was a hesitancy even among our customer base before the second wave, but post the second wave that hesitancy has also gone. As as soon as the vaccines are available and we are able to vaccinate all our customer base or the entire population in India, then there is going to be a solution to this problem.

So, the most important thing to do is proactively help our customer base to get vaccinated, meanwhile RBI has given a lot of restructuring, opportunities for good customers and also to provide them additional cash, which is very important because people have either exhausted their savings or their working capital, and not only the restructuring but providing them the extra cash would help them but this has to be carefully done only for our good customers and that process is sort of a lengthy process. So, I think there is time till September, the bank is undertaking that and most micro finance institutions are undertaking that, it has to be done very carefully and I think that will help us to get out of the crisis.



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Gold loan defaults within permissible limits, says Thomas John Muthoot

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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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Western Union aims to scale up outbound remittance service

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Western Union, a global leader in cross border, cross-currency money movement and payments, wants to scale up its outbound remittance service from India this year, Sohini Rajola, Head of Network — APAC and Middle East, has said.

“Today sending money to India is easy. But for sending money from India there is still a room for process streamlining and improvement. We need to make it as seamless as sending money to India currently is. Scaling our outbound remittance service will be the focus area for Western Union India business this year,” Rajola told BusinessLine in an interview.

“As infrastructure develops at our end, we need to offer the same convenience to people sending money out as well. As and when we are able to offer direct debit or have simplified documents based on guidelines, our product will keep changing,” Rajola added.

India is the largest remittance recipient market in the world with annual inbound remittance of over $80 billion. The market for outbound remittance is however smaller at estimated level of $14 billion as of end March 2021. Infact, there has been a steady growth in outward remittance under the Liberalised Remittance Scheme (LRS) route over the last few years with volumes going up from as little as $1.33 billion in 2014-15 to $ 13.79 billion in FY’18-19 and touch high of $18.76 billion in FY’19-20.

Outbound market biz

“In any country we operate, we want to offer both inbound and outbound services. Outbound is definitely a smaller market in India. But if we have been serving the Indian consumer for 25 years, we definitely want the next phase where we can serve that segment well. It is not about whether it is worth it or not. It is about the gamut of services that Western Union offers,” Rajola said when asked it was worth the effort to focus energies on relatively smaller outbound market in India.

Rajola said that her aspiration this year would be to see how Western Union can work together with the regulator and authorities to simplify the processes and offer the same level of convenience of digital remittances to people sending money out of India as available for those making inward remittances.

Impact of Covid-19

On the overall impact of Covid-19 on remittance business, she said that personal remittances saw resilient volumes despite the pandemic. “Overall as a business we processed more business in 2020 than in 2019. We don’t share corridor-specific information, but our principal increased globally,” she said.

“When the pandemic struck initially, there was an apprehension that this will drop overall remittance volumes. What we saw was there was only minor impact. We saw a big jump on the principal volume that was transacted through Western Union,” she added.

Infact, in the first wave, given the cash restrictions, Western Union’s digital business took off in a big way as from people were sending money to support their family, she added. Also, RBI categorising remittance service as an essential service helped some locations to remain open, according to Rajola.

However, in the second wave there was not that big impact on the retail locations. The impact on the physical retail business has been more muted and digital continues to be showing healthy business, she added. At a global level, Wester Union is on course to clock digital revenues of $1 billion this year.

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Digital payments recover in June

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With the gradual opening up of the economy from June, digital payments also shot up last month after subdued transactions in April and May.

Payments through the Unified Payments Interface touched a record high and neared the ₹5.5 lakh crore mark in June, according to data released by the National Payments Corporation of India.

As many as 280 crore transactions worth ₹5.47 lakh crore took place through UPI last month as against 253 crore transactions totalling ₹4.9 lakh crore in May.

This is only the second time that UPI payments crossed the ₹5 lakh crore mark. It was previously at ₹5.04 lakh crore in March, after which it fell for two consecutive months.

Payments on the Immediate Payment Service (IMPS) platform also registered growth in June. Over 30.3 crore transactions worth ₹2.84 lakh crore took place through IMPS as compared to 27.9 crore transactions amounting to ₹2.66 lakh crore in May.

Transactions on Bharat BillPay saw even more robust growth with 4.54 crore payments worth ₹7,934.71 crore in June. In contrast, it had registered 3.92 crore transactions totalling ₹6,270.31 crore in May.

Transactions on the Bharat BillPay platform have been rising all through April and May when there were localised lockdowns, with more people choosing to use it for payment of utility bills.

Payments through NETC FASTags also recovered in June but were still subdued compared to April levels. It recorded 15.78 crore transactions worth ₹2,576.28 crore in June as against 11.64 crore payments totalling ₹2,125.16 crore in May.

Transactions through Aadhar Enabled Payment System (AePS) also registered a sharp growth last month totalling 8.75 crore in volume worth ₹24,667.8 crore. In contrast, there were 8.42 crore transactions worth ₹24,619.24 crore in May on the platform.

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Covid-19: Out-of-pocket expenses down at about 30% of claim amount

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Insured people are seeing a drop in out-of-pocket expenses for Covid treatment in recent months, but they still have to shell out about 30 per cent of the claim amount.

Data with the Insurance Regulatory and Development Authority of India (IRDAI) reveals that, on an average, about 71.4 per cent of the claimed amount for Covid-19 treatment is settled by insurers while the remaining 29 per cent has to be paid out of pocket by the policy-holder.

The data reveals that of the average claim amount of ₹1.33 lakh, as much as ₹95,512 is settled through insurance.

Also read: Insurers settle Covid claims worth over ₹15,000 cr

Earlier, the out-of-pocket expenses were higher and could be to the tune of about 40-45 per cent.

Insurers say that there are various factors which lead to out-of-pocket expenses for customers during Covid treatment. However, it has come down significantly due to lower costs of consumables and standardised treatment protocols.

“Disallowances are around four main buckets. The first one is when the product runs out sum insured,” said Rajagopal Rudraraju, Senior Vice-President and National Head – Accident and Health Claims at Tata AIG General Insurance.

Reasons for out-of-pocket expenses

According to him, one of the biggest reasons for out-of-pocket expenses by customers is that the amount of treatment exceeds the sum insured. “The insurer cannot do anything in such a case. In normal claims, this issue of sum insured running out comes up less frequently but is more common in Covid-related health claims,” he noted.

The cost of consumables such as PPE kits and gloves has also come down but depending on the insurance cover, can add to the out of pocket expenses. “During the peak of the pandemic last year, it was up to 13 per cent to 15 per cent of the bill. Now, it is eight per cent to seven per cent of the bill,” he said.

In regular health insurance claims, the cost of consumables is usually two to three per cent of the bill.

The third reason for out-of-pocket expenses tend to be the sub-limits in the policy, such as those for co-pay. There are also technical reasons regarding medications that lead to such disallowances.

“Treatment costs for Covid have gone down and so have the out-of-pocket expenses for most policy-holders who have to go in for hospitalisation. There is much more standardisation of procedures and costs,” noted another insurer who did not wish to be named on the issue.

Parag Ved, President and Head, Consumer Lines at Tata AIG General Insurance noted that the sum insured for health covers has also increased to about ₹5 lakh on average. While, to some extent, this is due to higher treatment costs of Covid, there has also been a higher medical inflation in the last three to four years.

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Gold loan demand is expected to spike after lockdown: Indel Money CEO

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Pledging of household gold is expected to go up across states with the gradual easing of lockdown restrictions, according to Umesh Mohanan, Executive Director and CEO, Indel Money, a Mumbai-based NBFC.

He says that customers are strapped for cash to honour committed outflows. The virus has been deadly this time with rising infection rate, caseloads and number of deaths, forcing people to borrow more. All these have added to the financial woes of the common people, he adds. Edited excerpts of an interview:

What is the outlook on gold loan for the current fiscal? And what will drive the growth of gold loans?

The outlook for gold loan demand is positive and the demand will be fuelled by healthcare requirements, pandemic-driven uncertainty, the limitations of the banking sector to serve gold loan demand at the earlier pace due to decreased gold prices and end of 90 per cent LTV lending on last March 2021, apart from increased credit crunch due to the prevailing policies.

Our gold loan book has registered around 40 per cent growth in FY20-21. We expect around 50 per cent plus growth in FY21-22, thanks to our expanded geographical presence.

Has there been growth in the gold loan business in April and May of FY22 compared to the same period last year?

The branches in locations with reduced restrictions on movements have witnessed larger pent-up demand in comparison to last year. The industry has been growing at over 25 per cent. Gold loan demand is expected to spike after the lockdown and the post-lockdown demand growth is expected to surpass growth registered during the post lockdown period last year.

Also read: Borrowers to get option to repay a part of the Gold (Metal) Loan in physical gold

Recently, gold loan NBFCs auctioned record tonnage of pledged gold through auctions. Does this point to the growing credit risks for firms offering short-term loans?

Truly, at this point when cash flow is constrained for the common consumer, the facility to keep their gold live by remitting interest and continuing at their original LTV would be a better option than the short-term loans. The consumers have to settle interest along with principal within a short period of time, and correspondingly re-pledge at relatively lower LTV. This will result in huge cash outflow for the customer, in comparison with the longer-tenure schemes.

What are your plans for the company?

We are planning to explore various options such as capital injection by the group holding company, raising funds through public NCDs and PE/VC placement for our expansion. We have recently opened 25 branches across Andhra Pradesh and Telangana. We also have plans to enter Maharashtra and Gujarat with our conventional brick-and-mortar format by Q4 FY21-22. We are also planning to set up a support hub in all major cities to spread our doorstep gold loan facility which functions through the network of virtual branches.

We are planning to launch pre-paid cards. Our disbursals are fully automated because of our tie-ups with banks through our app. Existing customers can use our portal or mobile app to extend the exposure of the gold pledged with us on the basis of the prevailing LTV.

We will set up an automated process in which customers can manage the credit line according to their preferences. We are also planning to expand our online gold loan facility to take the branches to the homes of customers as the upper segments of MSMEs are not comfortable visit gold loan company branches during the gold appraisal process.

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AMNS India executes paperless bill discounting transaction in partnership with ICICI Bank, BFSI News, ET BFSI

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New Delhi: AMNS India on Sunday said its has executed “a paperless bill discounting transaction” in partnership with ICICI Bank. Gujarat-based ArcelorMittal Nippon Steel (AMNS) India said it is first such transaction in India.

The end-to-end electronic transaction, comprising digital issuance of letter of credit (LC), advisory and presentment of documents took place among AMNS India, its Baroda-based customer Vijay Tanks and ICICI Bank, the steel maker said in a statement.

“In a step forward for digitising trade payments, AMNS India today (Sunday) announced it has executed the country’s first domestic paperless bill discounting transaction in partnership with ICICI Bank,” it said.

ICICI Bank was the intermediary between the buyer and seller, the statement said.

The bank’s branch in Baroda, Gujarat, issued an LC for the buyer Vijay Tanks, while its branch at Hazira advised and negotiated for the seller AMNS India, it said.

The terms of the LC required AMNS India to digitally present the documents to ICICI Bank evidencing the transaction flow.

In the statement, AMNS India Deputy Chief Financial Officer Amit Harlalka said it is a positive step towards enabling the digitisation of trade payments and provides for better working capital efficiency for the company and trade partners.

“This transaction is seen by many in banking and business as a prelude to the blockchain, a technology even more robust in security, identity and transparency, and which is now being widely studied for possible adoption by Indian banks,” he said.

ICICI Bank Head (Transaction Banking and SME Group) Ajay Gupta said, “We are glad to have partnered with AMNS India to execute India’s first paperless bill discounting transaction. The bank continues to play a pioneering role in re-imagining digital and cashless payments in India.”

This innovative solution has the potential to enable greater velocity of trades at lower cost for customers, AMNS India said.

In paper-based trades, physical goods at times arrive before their supporting documents, leading to corporates incurring demurrage charges. This will be a thing of the past with such digital developments, it said.

AMNS India further said it actively encourages the digitisation of processes across all its work streams from finance to sales to operations.

The COVID-19 pandemic forced companies in steel sector and beyond to manage their manufacturing and administration in different ways, and accelerated the adoption of digital technology, the statement said.



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