Tag: Covid-19

10-year G-Sec auction sees devolvement

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Government securities (G-Secs) prices rose on Friday despite the Reserve Bank of India (RBI) devolving the 10-year benchmark G-Sec on primary dealers (PDs) at the weekly auction.

Market participants attributed this to the aforementioned security being among the six G-Secs RBI will be buying under the third tranche of open market purchase of G-Secs under the G-Sec Acquisition Programme (G-SAP 1.0).

Though the cut-off price at the auction of the 10-year G-Sec came in at ₹98.97 — about 19 paise higher than previous closing price (of ₹98.7850) — bond dealers say many of the bids would have been below Thursday’s closing price, leading to devolvement of the paper PDs.

PDs, who underwrite G-Sec auctions, had to pick up ₹9975.763 crore worth of this paper out of the total notified amount of ₹14,000 crore.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said the central bank has kept the yield on the 10-year on a tight leash in view of the large Government borrowing programme amid the Covid-19 pandemic, while the market players want it to leave the yields to market forces.

Keeping yields in check

Irani observed that G-Sec prices did not fall despite devolvement of the 10-year G-Sec on PDs as market participants know that RBI will buy this security through G-SAP.

In the secondary market, the benchmark 10-year G-Sec coupon rate: 5.85 per cent) rose 9 paise to close at ₹98.875 (previous close ₹98.785), with the yield declining about a basis point to 6.0072 per cent (6.0199 per cent).

Bond yield and price are inversely related and move in opposite directions.

The auction of the other two G-Secs — 4.26 per cent GS 2023 and 6.76 per cent GS 2061 — sailed through.

Under G-SAP, RBI commits upfront to a specific amount of open market purchases of G-Secs with a view to enabling a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions. According to State Bank of India’s economic research report “Ecowrap”, the G-SAP programme of the RBI has been largely successful in keeping the bond yields in check.

However, to make the impact more meaningful, RBI may consider shifting the focus on 7-8 year papers while announcing Open Market Operation/ G-SAP, etc., it added.

“This will smoothen the curve and also reduce upward pressure on benchmark yield. Additionally, RBI can also come up with a prior calendar of bucket-wise maturity for GSAP-2.0,” Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said.

Furthermore, more purchases might be done in illiquid securities compared to liquid securities in each bucket. Accordingly, banks will be able to offload their HTM (held-to-maturity) stocks and buy liquid ones.

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NBFC-MFIs: Risk of protracted delinquencies remains, says CRISIL

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A hit to the collection efficiency of microfinance institutions (NBFC-MFIs) owing to protracted Covid-19 curbs will increase asset-quality pressures in the sector, with loans in arrears for over 30 days likely to cross the surge in the aftermath of demonetisation (DeMon), cautioned CRISIL Ratings.

With loans in arrears for over 30 days – or the 30+ portfolio at risk (PAR) mounting, the MFI sector is expected to resort to restructuring of loans to a larger extent than last fiscal as this is perhaps the only practical option to support borrowers and not let accounts slip into the non-performing bucket, the credit rating agency said in a note.

CRISIL Rating assessed that the 30+ PAR could rise to 14-16 per cent of portfolio this month from a recent low of 6-7 per cent in March. This number had surged to 11.7 per cent in March 2017, in the aftermath of demonetisation.

“But unlike last fiscal, when loan moratorium helped keep delinquency increases at bay, more MFIs are likely to opt for permitting restructuring under the Reserve Bank of India (RBI)’s Resolution Framework 2.0 announced last month, and continue with higher provisioning,” CRISIL Ratings said.

Ground level challenges

Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, observed that the medical impact of the second wave of the pandemic has been much worse than the first wave, and afflictions have percolated to the rural areas too.

“Ground-level infrastructural and operational challenges, as well as restrictions on movement of people, have impinged on the MFI sector’s collection efficiency.

“Though overall collection efficiency is expected at 75-80 per cent in May, compared to 90-95 per cent in March, pressure on asset quality would be higher as borrowers do not have a blanket moratorium this time, while their cash flows have been impacted by the second wave,” opined Sitaraman.

Considering the current ground-level challenges, the note emphasised that encouraging collections through the digital mode is imperative for MFIs – the way they have transitioned to cashless disbursements.

Restructuring, Delinquencies & Provisioning

With 30+ PAR mounting, CRISIL Ratings is of the view that the demand under restructuring 2.0 could be in high-single digits compared to 1-2 per cent seen during restructuring 1.0 for the overall sector.

“Yet, the risk of protracted delinquencies eventually leading to credit costs staying elevated, remains.

“For one, borrowers’ track record of repayment ability is yet to be established for already restructured portfolios. Two, lack of prudence is also a possibility,” the note said.

CRISIL estimates that close to half of the total assets under management (AUM) of NBFC-MFIs of about ₹80,000 crore as on March 2021, were generated from December 2020 onwards.

Given the relatively vulnerable credit profiles of borrowers and the fact that local economic activity is yet to normalise, sustainability of collections, especially for the recent disbursements, will be the key monitorable in the coming quarters, it added.

Ajit Velonie, Director, CRISIL Ratings, said: “To be sure, NBFC-MFIs have created provisions (including a special Covid-19 provision in the fourth quarter last fiscal) estimated at 3-5 per cent of the AUM as on March 2021.

“Considering the likely rise in delinquencies and restructuring, higher-than-normal provisioning is warranted even in the first half of this fiscal to absorb the shocks.”

NBFC-MFIs with adequate liquidity, lower leverage, or those backed by strong parentage, will be better placed to withstand the current situation, he added.

According to CRISIL Ratings, large MFIs rated by it are either backed by strong parentage with access to capital, or have comfortable capitalisation with gearing at about 3-3.5 times, which should allow them to withstand the stress.

They also have the liquidity to cover over two months of debt repayments – even after assuming nil collections – because disbursements have been low, too, which has helped conserve cash.

Nevertheless, the trajectory of recovery, access to incremental funding and capital position will bear watching, especially of the smaller MFIs, the agency said.

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Bharti AXA Life Insurance expects 20% growth in business in current fiscal

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Bharti AXA Life Insurance expects 20 per cent growth in business during the current fiscal backed by higher demand for protection and guaranteed plans amid the Covid-19 induced pandemic. The company had witnessed a four per cent growth in business premium at ₹2,281 crore in FY21.

According to Parag Raja, MD & CEO, Bharti AXA Life, the life insurance industry is estimated to grow 12-15 per cent during the current fiscal, as against a single digit growth it had clocked in FY21.

“The current pandemic has forced consumers to shift their mindset when it comes to life insurance as a product category. Pre covid, people generally bought life insurance for tax saving or for some for sort of obligation, but the current humanitarian crisis has forced people to start thinking about this. Our estimate is that the life insurance industry should grow by 12-15 per cent during the current fiscal and we want to outperform the industry growth,” Raja told BusinessLine.

The company’s assets under management grew by 36 per cent and renewal premium grew by 10 per cent in FY-21, which indicates that customers have understood the need for staying invested in insurance products, he said. Close to ₹1,500 crore out of the total premium of ₹2,281 crore was renewal premium.

In FY21, Covid-related claims accounted for nearly 16 per cent of the total 2,874 claims registered. In value terms, Covid related claims accounted for nearly 21 per cent of the total payout of around ₹180 crore. However, in the second wave there has been a sharp rise in claims.

“In the second wave we have already received 60-70 per cent of last years’ Covid claims in the first two months,” he said.

Growing demand

The pandemic has led to a clear shift among consumers to protection products which has hospitalisation and critical illness built into it. Moreover, consumers are not looking for too long term product and instead are willing to pay for shorter duration because of the uncertainty around personal financial position beyond five years.

Protection plans, which accounted for a meagre two-to-three per cent of the company’s total premiums, increased to five per cent by the end of last fiscal. This has further increased to around 10 per cent in the last two-to-three months.

Based on consumer insights, the company had modified seven existing products and launched three new products last year. This year again, it is looking to launch three new products one under guaranteed income platform, one on par platform and for the third one it is waiting for IRDAI’s final guidelines post which it plans to launch an index linked product subject to the regulator’s approval.

“Pure protection products are cheaper. In the new protection plans we launched we gave them option to pay for shorter period of time. We have also introduced some innovative features and giving benefits to clients who are practising healthy habits in the form of a discount,” he said.

Digital approach

According to Raja, nearly 60 per cent of consumers are researching online and purchasing offline and this trend is here to stay.

The pandemic has forced the entire industry to re-imagine business model, particularly the technology and digital solutions offered to both employees and customers. The company has launched a direct to consumer channel apart from its traditional proprietary and partnership channel. This apart, it has also launched WhatAapp servicing for customers to ensure that nearly 90 per cent of services including claims intimation can be done through the platform.

“Digital business, which currently accounts for nearly five per cent of our total sales, is expected to grow to 15-20 per cent in the next three-to-four years,” he said.

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Canara Bank donates 50 oxygen concentrators

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Canara Bank, a public sector bank, has donated 50 oxygen concentrators and made a ₹1 crore contribution to the Karnataka Chief Minister’s Relief Fund to help Covid-19 patients.

Bank’s Executive Director A Manimekhalai, handed over the cheque to Karnataka Chief Minister B S Yediyurappa and oxygen concentrators were donated under the bank’s CSR Activities, said a bank release.

K A Sindhu, General Manager, P C Wing, HO, A Ramalingam, DGM, FI Wing, HO, B Parswanath, DGM, Circle Office, Bengaluru accompanied the Executive Director.

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The outlook is uncertain but use of digital will keep increasing: Tarun Chugh

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It is an uncertain time for the life insurance sector amidst the ongoing second wave of the Covid-19 pandemic and forecast of a third wave, said Tarun Chugh, Managing Director and CEO, Bajaj Allianz Life Insurance. In an interview with BusinessLine, he said that while the industry is expecting higher claims, it is not much of a concern. Excerpts:

What is your outlook for this year?

It is uncertain at this point of time. Normally, when we start the first quarter, we are clear about the strategy, but it is an uncertain time this year given how things have panned out in May. It is very difficult to forecast anything. This year, we are going more with scenario planning and not a forecast of the year as we don’t know when this wave will end and then there is a forecast of a third wave. The only thing we are certain about is that the usage of digital will keep increasing and we expect customers to still get life insurance in their portfolio because of the desire to cover risks.

Are high mortality claims an issue for the life insurance industry?

In respect to Covid claims, Bajaj Allianz Life has settled over 1,300 claims amounting to more than ₹74 crore. We are sensing that there will be higher mortality and impact on some claims. But last year too, we didn’t get the claims very early. It takes families some time to recover. But it is not a concern for the industry. All companies are comfortably placed in reserves. This year’s number will take a hit but nothing beyond that.

What is your strategy for the year?

Our first focus area is employee safety. We will be able to launch an employee vaccination programme soon. We are also focussing on growing our digital assets. We are also focussing on keeping our branches open and about 80 per cent of our branches are still open but with very limited staff.

How Bajaj Allianz Life’s agency channel revved up to face pandemic woes

What are the products that are seeing demand?

Unlike last year, all products are in demand unlike this year. May has not been a great month due to the lockdown. However, the uptake of term and guaranteed products continues. This time, since markets are doing well, ULIPs are also popular. The Budget proposal has not impacted ULIPs too much. We have seen an uptick in ULIPs less than Rs 2.5 lakh and some dip in above Rs 2.5 lakh but not significant. There is just a three to four per cent shift. The number of customers buying ULIPs less than Rs 2.5 lakh has gone up.

Sales of ULIPs are likely to start picking up: Tarun Chugh

How have life insures made underwriting norms tougher post Covid?

It has been a tough year for claims and underwriting has become stricter. For example, we have added a Covid questionnaire. But if somebody goes for their medicals and submits documents properly and fills up the Covid questionnaire, there is not so much of an issue. For people who have had Covid, we tell them to wait for 90 days and then apply for life insurance.

Is another round of hike in term insurance rates expected?

In the last 15 to 20 year, rates for term insurance have come down significantly. The industry had hit the bottom in terms of pricing and a correction was due and Covid became the right time for the price hike. I won’t be surprised if there is a slight price hike now as well but we will have to wait and watch. The increase will vary from insurer to insurer.

Are you launching any new products?

We recently launched our pension plan and that has done very well, particularly as in pensions, we don’t need to get any medicals done and the age group of above 45 has a lot more money. This has surprised us a lot in its uptake and about 12 per cent to 13 per cent of our entire business is coming from pensions.

Any plans to use the higher foreign direct investment cap for the insurance sector?

It is more of a shareholder matter and there has not been any move in that direction. We are fully capitalised, we have the highest amount of capital and reserves. There is no requirement of money.

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Kotak announces pandemic benevolent policy for its 73,000 employees, BFSI News, ET BFSI

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Kotak Mahindra Group (Kotak) has announced a Pandemic Benevolent Policy for its ~73,000 employees. Under this policy, family members/nominee of deceased employees from 1st April, 2020 and subsequent cases up to 31st March, 2022 will receive full monthly fixed salary (Cost to Company) for two years beginning June 2021.

The financial services conglomerate said the policy is applicable to families/nominee of all deceased employees irrespective of the cause of death – whether pertaining to Covid-19 or any other cause not related to the Covid-19 pandemic. They will also be eligible for annual bonus and year-end bonus for FY2020-21 and additional Kotak’s Mediclaim insurance will cover the spouse & minor children of the deceased employee for FY2021-22.

The firm said in a release, “To help and support employees across the country in their fight against the pandemic, Kotak has put in place a series of emergency measures including tie-ups for medical emergency response services, isolation facilities, telemedicine services, financial assistance for medical expenses as well as the formation of internal volunteer teams across the country to assist employees and their families with critical resources. Kotak is also striving to vaccinate all Kotakites and family members quickly, to win the fight against the virus and make each Kotakite safer and healthier.”

Kotak Mahindra Group (Group) offers a wide range of financial services from commercial banking, to stock broking, mutual funds, life and general insurance and investment banking.



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PMC Bank receives 1,229 applications for deposit withdrawal

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The administrator of the scam-hit Punjab and Maharashtra Co-operative (PMC) Bank received 1,229 applications for withdrawal of deposits specifically for treatment of Covid-19 illness.

These applications were received since April 16, 2020, when the Reserve Bank of India (RBI) allowed withdrawals up to Rs 5 lakh for treatment of critical illness under medical hardship ground, including Covid-19.

As per the affidavit filed by the Administrator in the Delhi High Court in the matter relating to Bejon Kumar Misra versus Union of India and others, of the aforementioned applications, 419 were received from March 15, 2021 till May 24, 2021.

 

PMC Bank’s Administrator AK Dixit stated that all the applications have been duly processed and approved by him as per RBI’s directions.

The administrator submitted that extension of present directions (issued by RBI with effect from the close of the bank’s business on September 23, 2019) has been done for financial reasons, owning to prevailing conditions and to preserve scarce resources of the bank till the time its resolution is achieved.

As per the affidavit, the financial condition of PMC Bank continues to be precarious, with its liquidity position not improving enough to allow much room for enhancement of withdrawal limit.

Further, the bank also needs to maintain bare minimum liquidity to run as a going concern and to make itself viable for prospective investors for any takeover/ merger. The resolution efforts also are at advanced stages, the affidavit said.

By virtue of the enhanced withdrawal limit of Rs 1 lakh (upped from Rs 50,000 on June 19, 2020), more than 84 per cent of the depositors of the Bank will be able to withdraw their entire account balance, according to the administrator.

However, depositors have been allowed to withdraw up to Rs 5 lakh on hardship grounds for treatment of terminal illnesses, including treatment of Covid-19 .

The Centrum Capital and BharatPe combine are believed to be the front runners to takeover PMC Bank.

The Bank has been under RBI directions for over 20 months now and depositors, especially senior citizens, have been finding it difficult to make ends meet. Deposit withdrawal has been capped at Rs 1 lakh per depositor during the entire period the bank is under directions.

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Kotak Mahindra introduces Pandemic Benevolent Policy for its 73,000 Employees

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Kotak Mahindra Group has announced the introduction of a Pandemic Benevolent Policy for its close to 73,000 employees.

Under this policy, family members or nominees of deceased employees from April 1, 2020 and subsequent cases up to March 31, 2022 will receive full monthly fixed salary for a two year period, starting June 2021.

“This policy is applicable to families or nominees of all deceased employees, irrespective of the cause of death – whether pertaining to Covid-19 or any other cause not related to the Covid-19 pandemic,” it said in a statement.

Family members or nominees of deceased employees eligible for annual bonus will also receive the annual year-end bonus for 2020-21. Additionally, Kotak’s Mediclaim Insurance will cover the spouse and minor children of the deceased employee for the current fiscal year.

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‘Consumer confidence slips to a new low in May’

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Our Bureau The Consumer Confidence Survey released by the Reserve Bank of India for the month of May showed that the consumer confidence for the current period weakened further.

The current situation index (CSI), which has been in the negative territory since July 2019, fell to a new all-time low as consumer perceptions on general economic situation and employment scenario lowered further.

The future expectations index (FEI) moved to pessimistic territory for the second time since the onset of the pandemic. This was driven by sharp fall in expectations on general economic situation, employment scenario and household income over one-year horizon.

Household spending, too, weakened in the latest survey round, with essential spending showing signs of moderation while non-essential spending continues to contract.

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RBI policy will help revive growth amidst second wave of Covid, say Bankers

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The status quo on rates and the accommodative stance of the Reserve Bank of India will help revive growth amidst the second wave of the Covid-19 pandemic, bankers said.

“The RBI approach to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis is quite encouraging. Given the challenging situation, the status quo on signal rates is on the expected line,” said Raj Kiran Rai, Chairman, Indian Banks’ Association and Managing Director and CEO, Union Bank of India.

Dinesh Khara, Chairman, State Bank of India, said the coordinated and active efforts of the RBI and government will support growth on a more durable basis during these difficult times

“The policy announcements of the RBI are clearly focused on extending liquidity support to stressed sectors by a more equitable distribution. The growth and inflation numbers have been revised looking at the current uncertain environment. The policy announcements are unequivocal in supporting growth through liquidity and market interventions through Regional Rural Banks and also by fast tracking resolution of stressed MSME sector,” he said.

“The decision of keeping the repo rate unchanged along with maintenance of accommodative stance is on expected lines and necessary to mitigate the growth uncertainty and inflation concerns,” said SS Mallikarjuna Rao, Managing Director and CEO, Punjab National Bank.

Zarin Daruwala, Cluster CEO, India and South Asia markets (Bangladesh, Nepal and Sri Lanka), Standard Chartered Bank, said, RBI’s reiteration of its accommodative stance till economic growth recovers, should help ease financial conditions and cap interest rates.

“RBI continued its focus on targeted credit delivery to sectors in need of liquidity by augmenting the special liquidity window to SIDBI for on-lending to MSMEs and by providing Banks with subsidised on-tap liquidity for on-lending to COVID intensive sectors,” she further noted.

Economists said a further downward revision in the RBI’s growth projection of 9.5 per cent for 2021-22 is possible while inflation may be higher than the estimated 5.1 per cent.

“The second wave of the pandemic, apart from immediate loss of economic activity, will likely also result in medium-term headwinds in recovery in business and consumer confidence. While the RBI has lowered their 2021-22 growth forecasts today by 1 percentage point, one feels further material downside to the same remains a possibility,” said Siddhartha Sanyal, Chief Economist and Head – Research, Bandhan Bank.

“We think a critical mass of the population will be vaccinated by December, and the rise in activity and demand will give producers the confidence to pass on higher input costs to consumers, putting upward pressure on core inflation,” said a note by HSBC Global Research.

However, as long as CPI inflation remains under 6%, we are not expecting a repo rate hike in the foreseeable future, or for as long as private investment remains subdued, it further said.

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