Tag: Covid 2.0

Growth expectations of NBFCs moderated in Q1 FY22

Banking & Finance

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

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

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

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

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

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

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

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

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

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

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

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

Restructuring

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

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

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

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

Raise capital

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

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

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HDFC Bank sees stress emanating from loans restructured during Covid 1.0, BFSI News, ET BFSI

Banking & Finance

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HDFC Bank has warned of a rise in loan delinquencies as business and collection efficiencies have been hit by the Covid wave.

The second wave has accentuated problems for the people hit by the first wave and there will be stress emanating from borrowers who took the moratorium or restructuring, its chief executive Sashidhar Jagdishan said in an investor call.

“For the first time in as many years, we don’t have visibility on what is going to happen and, hence, near-term expectations are tepid,”Jagdishan said.

“There will be incremental slippages if this continues for a while longer.”The pace of vaccination is crucial for both clarity and visibility on likely delinquencies. he said.

He stressed that vaccinating more citizens, within the shortest period of time, was the only way of returning to normalcy.

“Unfortunately, the availability of vaccines is still a blind spot. A lot of people are struggling to get vaccinated, but as soon as this is smoothened, positivity should return to the future outlook,” he said. The bank has also asked its collection agents and door-to-door staff to function digitally.

Collections hit

“The impact of Covid 2.0 is much more than what we saw in the first wave, and the health of our staff is paramount,” he said. “So long as they are able to engage with customers digitally and secure business digitally, including collections, we will be alright.

Because we have also directed our collection agents not to step out, among the stressed borrowers we expect to see a higher amount of delinquency but these accounts should get resolved in the coming quarters.”

“As things stood in March, we would have had a very buoyant FY22, but as things stand now, our performance is on a best-effort basis,” he said. “But the platform is so good that we will be in a position to bounce back when things return to normalcy.”

Tech issues

Jagdishan also said the bank management was hard at work to solve the tech issues plaguing the lender in recent years. The bank faced three major digital outages in the last three years, prompting the central bank to direct curbs, including a standstill on launching new digital initiatives and onboarding credit card customers.

“A fair amount of work has happened though we still need some time before we can control the issues on resilience,” Jagdishan said. “We have done a fair amount of work on our IT systems, security, infrastructure, and our recovery timeline is something we are working on.

The strictures imposed by the RBI have given us a window to work faster. We are impacted, it is a blot on the bank that we are unable to source cards but I take this positively and build our technology that is better than that of anyone else in the system.”

HDFC Bank first saw a spurt in cheque bounce cases in April, coinciding with the second lethal Covid wave in the country.

Check bounce rates for HDFC Bank were improving up to March 2021. However, bounce rates increased in April, returning to January 2021 levels. Maharashtra, Madhya Pradesh, Punjab, and Telangana were seeing higher check bounce rates.



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Karnataka Bank will focus on cost-light liability portfolio, says MD

Banking & Finance

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The Mangaluru-based Karnataka Bank navigated the challenges posed by the Covid pandemic last year, and earned a net profit of ₹451.20 crore in the first nine months of 2020-21 against the profit of ₹431.78 crore for the full year of 2019-20.

In an interview to BusinessLine, Mahabaleshwara MS, MD and CEO of the bank, highlighted the strategies that helped the bank to perform better, and its plans for the current financial year amidst the second Covid wave. Excerpts from interview:

India is witnessing the second wave of Covid. How is your bank planning to tackle this fresh challenge?

The first half of the last fiscal was spent in understanding and fighting the pandemic while the business was muted and there was no clear picture about the Covid pandemic. Our innovative business principle of ‘conserve, consolidate and emerge stronger’ immensely helped us to tide over the said crisis-like situation and be able to come out with satisfactory numbers. But now the situation is different. At least now, we have one year of experience in navigating through the pandemic and that is a huge advantage.

To overcome Covid wave 2.0, as in the previous fiscal, our bank will continue to practice the principle of ‘conserve, consolidate and emerge stronger’ along with the required cost cutting measures this year too. We will continue to be cautious and conservative. We will focus on developing a cost-light liability portfolio by concentrating more on CASA and low-cost retail term deposits besides developing a healthy asset portfolio which is largely protected against the ill effects of pandemic in the long run to tide over the economic challenges associated with the Covid wave 2.0.

Your recent letter to the shareholders mentioned that the bank is aiming at a ‘moderate’ growth of 12 per cent for 2021-22. What are the reasons for this moderate outlook?

Yes. The bank has set a moderate growth target of 12 per cent for business turnover for the current fiscal. Considering the Covid second wave that is sweeping the country with enormous impact on health and business in the short and medium term, we expect growth challenges in key sectors during the first half of the current year. Even though MSME and agriculture sectors are less impacted which are the main components of our retail loan book growth, the entire ecosystem of the economy already took a shock and it may need sufficient time to come out of this, if there are no more waves of Covid going forward.

We also expect the customers to be conservative in investing in new or big projects or expansion of business. Our focus will be to conserve, maintain the asset quality and grow steadily with quality during this fiscal. However, the bank will always be in a ‘ready mode’ to catch up business at any stage of economic rebound, beating our own guidance level. We have superior digital loan journey infrastructure and in a better position to encash such opportunities on the very first sight of economic turnaround.

Do you think the fresh Covid wave will lead to the increase in the NPAs in the coming days? If yes, how are you planning to handle that?

Even though the economic impact of the second wave of Covid pandemic and the related lockdowns ,etc have just started unfolding, no one can take it lightly and it may be too early to foresee the impact. The banking industry in India has fully exhibited its resilience and was able to face the challenges posed by the first wave of Covid, mainly because of the ‘economic vaccines’ in the form of regulatory packages such as moratorium, OTR / MSME restructuring, Emergency Credit Line Guarantee Scheme, charging of simple interest during moratorium, etc announced by the Government / Reserve Bank of India.

By opting for the said ‘economic vaccines’, the borrowers managed their cash flow with extended loan period. However, now the country is better placed with all its populace in the age group of 18 years and above are poised to get vaccines. Further, the borrowers have also remodelled their business and became more agile. However, it is also expected that revival and recovery may take more than the expected time. RBI has also recently announced a ‘booster dose’ with various relief measures both for the bankers as well as individual borrowers, small borrowers and MSMEs. This is expected to give the required impetus to the economy. Hence, the response for Covid 2.0 and going beyond, should be collective, comprehensive, decisive and long lasting besides forward looking.

Going by the current trend (until a major portion of India gets vaccinated), Covid waves are likely to recur at regular intervals. How is your bank planning to handle this?

The good news is that the Government has allowed vaccination for individuals aged 18 years and above. With vaccination initiatives and also with more awareness being created among the public about the this, it is hoped that maximum people would get vaccinated in about two-three months considering the current progress. It is expected that once the herd immunity is developed, the surge of Covid would also come down significantly. Like previous fiscal, our bank would continue to be cautious in lending and would ensure adding remunerative and quality assets besides focusing on a cost-light liability portfolio. Necessary steps will be taken at our disposal to protect the interest of all our stakeholders. With the strong fundamentals and improved capital adequacy ratio, we are confident of sailing smooth this year also in spite of unforeseen challenges.

Like earlier economic shocks such as the global recession, global financial crisis of 2007-08, this time too Indian banking sector, I am sure, will withstand the challenges and come out with flying colours. We will stand rock solid with the Government, RBI and the customers.

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