Tag: covid

Banks to limit branch operations in Covid areas, BFSI News, ET BFSI

Banking & Finance

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Banks are planning to limit footfalls to prevent the spread of infections in areas where Covid cases are on the rise. On Wednesday, the Indian Banks’ Association convened a meeting of bank chiefs to assess the current situation.

The services that branches will provide will be determined by state-level bankers’ committees (SLBCs). The SLBC will also provide the specific standard operating procedures (SOPs) for branches. Bank branches, being classified as essential, have been exempted from the lockdown.

During the same period last year, bank branches cut down on several activities to reduce footfalls. In 2020, HDFC Bank reduced its operating hours and stopped the sales of foreign currency. SBI had restricted services like account opening, cash withdrawals, passbook printing and currency exchanges. in the first phase of the lockdown, last year.

Banker present at the meeting said, “Customers can obtain their balance or statement through a variety of digital channels. Customers can use missed call banking, WhatsApp banking, mobile applications, and ATMs to avail most of the services without having face-to-face interaction.”



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Can banks weather the new second Covid wave?, BFSI News, ET BFSI

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Indian banks were gearing up for an upcoming credit boom in the second half, but they may have to look at the dire warning of RBI‘s fiscal stability report unveiled in January.

Most of the banks are set to report good fourth-quarter results, but the recovery may give way to despair in the coming months. An uncontrollable spike in Covid cases has raised the prospects of lockdowns and strict curbs being extended to May, at least. This may nip the nascent recovery and lead to the closure of many businesses, which are already reeling from revenue crunch. The lockdowns may also lead to unemployment, hit repayments and lead to defaults by companies and individuals out of job.

“In the first year we did not see any impact as 20% additional money was given. Guaranteed loans were given so no bank gave a second thought in giving the loans. In many cases, my customers went to other banks and got loans. Problems were not revealed on the first wave. In the second wave no such support is given so naturally, the impact of the second wave will be much larger on the bank,” a senior banker said on the condition of anonymity.

The unemployment rate in urban India is rising in the current months. From 7.21% on April 4, it jumped to 9.81% for the week ended April 11 and further to 10.72% for the week ended April 18, according to CMIE.

Early signs of rising stress are visible; HDFC Bank has reported a rise in cheque bounce cases in April. The rate is back to January level after improving in March.

Also, with lockdown in states like Maharashtra, which account for 24% of all loans, banks are in a double whammy. About 80 per cent of the new infections are being reported in six states which account for 45 per cent of banking sector loans.

Another banker said that credit growth is going to be muted. “Due to this unexpected wave, no investment is going to be placed right in any industry because of this uncertainty. Even though the government says there is not going to be a complete lockdown, like last time but still the impact can be easily known because of people’s fear,” the banker said.

“So those who want to invest, they’ll take a backseat that let’s wait and see. And the money circulation is going to be impacted. Moreover, the stay on NPA classification, which was lifted by Supreme Court, is going to add soon many NPAs to the banking sector. These things will definitely impact. Banks are kept out of the purview of this lockdown but people should come to banks you know and do their activity,” he added.

RBI stress test

Bank NPAs may rise to 13.5% under the baseline stress test scenario by September, the highest in more than 22 years, according to the RBI’ financial stability report in January this year.

The gross bad loan ratio of banks which stood at 7.5% as of 30 September, could almost double to 14.8% under a severe stress scenario, RBI warned. Under the severe stress scenario, RBI has assumed a 7.6% economic contraction in the six months to 31 March and a tepid 3.8% growth in the first half of the next fiscal. However, uncertainty over vaccines and the severity of the Covid wave hobbles the 3.8% growth projection.

The last time banks saw such stress was in 1996-97 when the bad loan ratio rose to 15.7%.

No cover this time

Banks, which got protection and support by a swift moratorium on loans when the pandemic first struck, have no such cover this time.

As the second wave intensifies, most of the relief measures and schemes announced by the government and Reserve Bank of India have expired. On top of it, the central bank is non-committal on moratoriums.

In today’s conditions, there is no need for a moratorium,” RBI governor Shaktikanta Das said after the central bank’s monetary policy review.

Also, a spike in overdue loans after the lifting of the moratorium has been worrying analysts.

“The level of loans in overdue categories has increased after the moratorium has been lifted and the impact on asset quality will be spread over FY2021 and FY2022 as various interventions and relief measures have prevented a large one-time hit on profitability and capital of banks,” rating agency Icra had said in a report.

On top of it, banks may have to foot the bill for compound interest waiver relief to borrowers. HDFC Bank has already provisioned Rs 500 crore for the waiver.



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Third party motor insurance premium may go up in 2021-22

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The general insurance industry is hoping for an increase in third party motor insurance rates for 2021-22.

The rates are notified by the Insurance Regulatory and Development Authority of India (IRDAI) on an annual basis and had not been changed last year due to the Covid-19 pandemic.

The new rates for 2021-22 are yet to be notified by IRDAI.

According to general insurers, the premium needs to be revised in order to make the segment sustainable.

Further, court judgements in the recent past have also had an impact on the sector.

“Our view is that last year we didn’t get a hike in rates . Before that in February 2020, exposure draft for an increase had come but then the first wave of Covid happened and that was put in the cold storage,” Bhargav Dasgupta, Managing Director and CEO, ICICI Lombard, General Insurance, had said after the fourth quarter results in a media call.

Responding to a question, he had also pointed out that court judgements had had an impact, even on past claims. He, however, did not comment on the expected quantum of hike in rates.

The Covid -19 pandemic and lockdown had brought down motor claims in the initial months but they have started coming back to normal, according to insurers.

Meanwhile, industry data indicates some traction in motor insurance premium in recent months.

In 2020-21, motor third party premium increased by 4.4 per cent to ₹10,650 crore compared to ₹ 10,198 crore in 2019-20.

However, on an overall basis, motor premium fell 1.68 per cent to ₹ 67,790 crore last fiscal.

“In 2021-22, along with the expected uptick in the health segment, any increase in the premium levels of the Motor TP segment, which was held steady in 2020-21, could drive the non-life premiums,” Care Ratings had said in a recent report.

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Bank, NBFC loan collections drop up to 10% as Covid intensifies, BFSI News, ET BFSI

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April took a sudden turn for banks moving towards normalcy.

Bank, NBFC loan collections drop up to 10% as Covid intensifies

Bank and non-banking finance companies saw a drop in loan collections from the first fortnight of this month.

Collections dropped 5 per cent to 10 per cent as lockdowns hit businesses.

Banks are now going slow on disbursals too sensing troubled times ahead.

The worst affected have been the micro and small enterprises, micro-finance and the commercial vehicles (CV) segments where collection efficiencies dropped rapidly.

Weak business activity

As per a report by Emkay Global, the first fortnight of April 2021 has been weak in terms of business activity which is down by 20% across various segments due to lower working days and onset of an aggressive second wave of Covid-19 infections. This is expected to fall further with far stricter enforcement of localised lockdowns.

The collection efficiencies were improving from August-September onwards on a month-on-month basis across asset classes. However, a year back, the restrictions announced so far are lower in trajectory or intensity. So while there will be an impact on collections and delinquencies, the impact should be lower than what we saw in Q1 of last year.

Bank, NBFC loan collections drop up to 10% as Covid intensifies
Bank, NBFC loan collections drop up to 10% as Covid intensifies

But if there was a rise in the intensity of cases accompanied by containment measures and restrictions, it could further impact collections.

In the case of NBFCs, gold loan and home loan NBFCs will be least impacted whereas unsecured loans, MSME loans and wholesale loans will be more impacted given the vulnerability of the underlying borrower class.

The spread intensity and duration of the pandemic, how long the lockdown and curbs last and vaccine trajectory will decide the severity of hit to banks.

The customer cash flows

The salaried class includes a large segment of IT professionals whose salary levels and jobs have not been impacted, though their discretionary expenditure has come down.

However, a bulk of the salaried class is facing pay cuts and job losses while among the self-employed, those in the essential segment like agrochemicals, pharmaceuticals, have not seen much impact but others have faced a drop in cash flows.

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Goldman Sachs, BFSI News, ET BFSI

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Bandhan Bank reported a steady improvement in collection efficiency to 96% in March’21 while it has not seen any major surge in top-up loans. The improvement in collection efficiency for the microfinance sector is 95% in March versus 90% in January.

“Bandhan has declared its top-up loans for a cumulative amount of Rs 3,300 crore and, based on ALM maturity data and industry checks, we estimate it has extended government guaranteed loans of about Rs 2,000 crore over 1Q-3QFY21, which together would be roughly 14% of quarterly repayment over that same time frame as well as 11.4% of quarterly disbursements (over 1Q-3QFY21),” Goldman analysts wrote in a note. Based on company data, it appears the residual maturity of the loan portfolio (ex housing) has been consistent with the past, subject to some minor changes in the maturity buckets towards longer duration, it said.

Since 1QFY19, Bandhan has collected Rs 10,300 crore on a quarterly basis, and disbursed Rs 12,700 crore (in loans excluding mortgages) quarterly. On average, ECLGS and top-up loans accounted for 14 percent of quarterly repayments over the last three quarters and 11.4 percent of quarterly disbursements (over 1Q-3QFY21).

According to loan maturity data, approximately 30% of MFI loans are collected every three months, implying an average term of nine months. The length of loans has elongated slightly over the last three quarters, with loans of more than one year duration rising by 100 bps, owing to the use of ECLGS loans, and the RBI’s moratorium, which was in effect until August.

Industry peers and Assam

Strong and long vintage client relationships have been helping Bandhan’s collection efficiency compared to other banks/MFI players, which are 10-15 percentage point lower in terms of collection efficiency.

On the Assam loan book, Goldman Sachs said Bandhan witnessed nearly 400,000 additions in the number of new loan accounts — one of the highest among banks. Bandhan’s deposit business grew 16 percent /24 percent in 2Q/3QFY21, compared to 3 percent /4 percent for other major banks, and it now has a deposit market share of 1.3 percent in Assam. Within advances, Bandhan’s credit grew 6 percent /3 percent in 2Q/3QFY21, compared to 8 percent /6 percent for other major banks, and its market share was 9.4 percent as of December 2020.

The road ahead

Bandhan’s growth over 2Q-3QFY21 came primarily from urban areas, whereas incremental advances were driven by rural areas, which shows a distinction between the deposit and loans market composition for Bandhan Bank. Other banks’ ECLGS portfolios ranged from 5-23 percent of their loan books, whereas Bandhan’s is about 4 percent of total loans.

With surging Covid cases across India, Bandhan could potentially witness headwinds to its asset quality in the near term, Goldman Sachs estimates the Rs 74,00 crore of slippages over 4QFY21 -FY22, translating to 9% of FY21 total loans (v/s 7% of 3Q loans).

According to Goldman Sachs, Bandhan will be able to leverage its strong customer relationships and market share leadership to navigate through near-term headwinds with a manageable effect and deliver a 15 percent return on equity in FY21 25% RoE in FY22.

Goldman remains bullish on Bandhan Bank based on its improving liability franchise and healthy pricing power as evidenced by its favourable cost of deposit, and superior return ratios. Downside risks include any sharp increase in virus cases, slippages in strategy execution, or any disruption in home markets, especially MFI customer acquisition or liability buildouts.



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FinMin asks State-run banks, insurers to consider postponing promotion process

Banking & Finance

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The finance ministry has asked all public sector financial intermediaries to take cognisance of the prevailing Covid-19 pandemic situation and take appropriate steps to ensure that the promotion process factors in the constraints likely to be faced by their officers and staff.

The ministry emphasised that the officers and staff of the public sector financial intermediaries — public sector banks (PSBs), public sector insurance companies (PSICs) and financial institutions (FIs) — may be given adequate opportunity for participating in the promotion process.

Postponement of the promotion process may also be considered, it added.

The promotion process has coincided with a spike in Covid-19 cases across the country, along with lockdown/curfew and increase in micro-containment zones.

There also cases of bank employees or their family members being hospitalised due to Covid-19 infection.

When the Covid-19 pandemic set in last year, some of the public sector financial intermediaries went online for conducting promotion interviews.

Sanjeev K Bandlish, Convenor, United Forum of Bank Unions (UFBU), in a letter to the finance ministry, said: “In the current wave that is sweeping across the nation, we are distressed to note that already several bank employees and officers have died. It is shocking to note that some of them could not even get admitted to hospitals due to the dearth of beds.”

Govt should usher in five-day week

Bandlish sought reduced working hours, five-day banking and exemption from duty to employees with existing comorbidities, pregnant employees/officials, persons with disabilities (Divyangjan), among others.

Referring to the Centre recently declaring every Saturday as a public holiday for the Life Insurance Corporation of India (LIC) in the run up to its initial public offer, KS Krishna, General Secretary, All India SBI Employees’ Association, observed that bank employees too should get relief in the form of five-day week amid the raging pandemic.

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Why Citi, the bank that never sleeps, failed in India, BFSI News, ET BFSI

Banking & Finance

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Citi has decided to shut its India retail banking business, which includes credit cards, savings bank accounts and personal loans, as part of a global decision to exit 13 markets as the US-based lender focuses on a few wealthy regions around the world.

But why did the lender, which is profitable and has the biggest balance sheet among foreign banks which operate on a branch model in India, shut shop abruptly.

“We believe our capital, investment dollars, and other resources are better deployed against higher returning opportunities in wealth management and our institutional businesses in Asia,” said Jane Fraser, CEO at Citi, while announcing the shutdown decision.

The reasons

Citi’s decision to exit the market is an impact of the accelerated disruption caused by the Covid 19 pandemic which has forced large banks to refocus management bandwidth and capital across the globe, according to experts.

The disruption caused by Covid has forced all banks to realign their strategy as building a localised retail model especially in India where phyigital is emerging, is tough. Also, there is competition from new lenders like Bandhan and IDFC First and small finance banks.

Also, due to regulations, the bank was not able to build scale in consumer banking. To be sure, RBI has allowed foreign banks to set up branches or acquisitions if they shift from the current branch model to wholly-owned subsidiary model. DBS India shifted to the subsidiary model and has expanded hugely with the acquisition of Lakshmi Vilas Bank.

Citi has expanded its retail business in the early 2000s and was among the pioneers of corporate sector salary business with its Suvidha accounts, but was hit after the 2008 financial crisis globally, which saw the break up of the bank. It was then steered out of the crisis by Indian born CEO Vikram Pandit.

Citi India, which operates as a branch of the global giant, has a balance sheet size of Rs 2.18 lakh crore. HSBC with a balance sheet size of Rs 2.11 lakh crore and Standard Chartered with Rs 1.84 lakh crore in 2019-20.

Global focus on a wealthy few

“As a result of the ongoing refresh of our strategy, we have decided that we are going to double down on wealth,” Fraser said. The move to focus on the remaining markets “positions us to capture the strong growth and attractive returns the wealth management business offers through these important hubs.”

Under the new CEO Jane Fraser, who took charge a month ago, Citigroup’s equities desks, undersized among Wall Street’s giants, are proving strong enough to lift the firm to a record quarterly profit just as a new chief executive officer takes the helm.

SPACs all the way

The bank reaped the most revenue from stock trading in the first quarter since 2009, while fees from underwriting shares quadrupled, helped by the firm’s dominance in taking blank-check companies known as SPACs to public markets. That offset a slump in revenue from Citigroup’s massive fixed-income trading division.

“It’s been a better-than-expected start to the year,” Fraser said as she credited the “strong performance” of the company’s Wall Street operations and said the firm is optimistic about its outlook for the economy.

Citigroup has raised more than any other bank for special-purpose acquisition companies this year, as managers of the vehicles set out to hunt unspecified takeover targets. That helped the firm reap $876 million in fees from equity underwriting. Quarterly stock-trading revenue, typically less than $1 billion at Citigroup, surged to $1.48 billion.



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MFIN CEO, BFSI News, ET BFSI

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The microfinance sector is unlikely to face major challenges from the second wave of COVID-19 and is well prepared to face any disruption, Microfinance Institutions Network (MFIN) CEO Alok Misra said.

Over the past year, microfinance institutions (MFIs) have streamlined their processes, trained field staff on COVID-appropriate behaviour and in dealing with lockdowns, and focussed on digitisation, and these steps will help them in managing any kind of situation, he added.

“In the last one year, training, involvement of senior-level people at the ground level and digital content have ensured that the (MFI) sector is far better prepared (now) than when it (COVID-19) hit us last year,” Misra noted.

Till the time the pandemic continues, there will be local level lockdowns that would create medium to minor level disruptions to livelihoods, but the industry has learned to live with it, he said.

“I can’t say that it would be normal to pre-COVID days. Some impact would be there, but it would be minimal, which will not be debilitating on the industry,” Misra added.

MFIN is an RBI-recognized self-regulatory organisation (SRO) for the microfinance industry. It has 58 NBFC-MFIs and 39 associates, including banks, small finance banks (SFBs) and NBFCs as its members.

Misra said the MFI industry is adopting innovative methods to reach out to their clients, keep the connect going on and survive.

Rating agency Icra Ratings in a recent report said the overall long-term growth outlook for the domestic microfinance industry, including microfinance institutions (MFI) and micro finance-focused small finance banks (SFB)s, remains robust, even though the near-term outlook is clouded given the COVID-19 induced disruptions.

It, however, said the asset quality pressures for the MFI industry will continue in the near term and the same may get accentuated with the recent increase in COVID-19 infections and localised restrictions/lockdowns.

“Nevertheless, improving collection efficiency, good on-balance sheet liquidity and capitalisation should help most entities to withstand the stress,” the agency added.

MFIN releases performance numbers of MFIs every quarter. The fourth-quarter numbers are yet to be declared.

Misra said during the third quarter of FY21, the sector disbursed around Rs 60,000 crore, similar to the corresponding quarter of FY20.

“If I extrapolate that (Q3 FY21 trend) then the disbursement pattern in January-March, when the COVID-19 situation was better than Q3, would have been normal,” he said.

The collection efficiency of MFIs in the fourth quarter stood at close to 92 per cent, he added.



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Ujjivan SFB partners with NIRA to provide personal loans, BFSI News, ET BFSI

Banking & Finance

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Ujjivan Small Finance Bank announced its collaboration with fintech NIRA as a part of its strategy of leveraging its API Banking platform for fintech partnerships.

Through this partnership, salaried customers can apply for a Personal Loan by using the NIRA app which is available in the play store.

NIRA is a Bangalore based fintech that helps to fund the salaried class, starting at incomes as low as Rs. 15,000 per month. This partnership will help Ujjivan SFB to on-board customers for Personal Loans.

Dheemant Thacker, Head – Digital Banking, Ujjivan Small Finance Bank said, “A robust API Banking framework to enable fintech partnerships such as NIRA is at the core of our digital strategy and helps augment our digital expansion. Collaboration with fintechs like NIRA plays a vital role in the financial ecosystem, especially to serve the mass market. Such partnerships will help us to reach out to more customers with better products and offerings with ease and convenience.”

Manish Kumar Raj, Business Head – Personal Loan, Ujjivan Small Finance Bank said, “We have been actively pursuing this partnership and many others in our quest to serve every segment of customers. NIRA with their very diversified approach gave us this opportunity and we hope this will be a successful collaboration.”

Rohit Sen, CEO and cofounder at NIRA said “After navigating the COVID crises extremely well, we’re now refocusing on our mission to bring credit access to the urban mass market in India.”

“We’ve developed strong expertise in credit scoring and collecting from this group, and in collaboration with banks such as Ujjivan SFB, we can deliver the right product in a timely manner to this segment” added Rohit.

Ujjivan SFB selects fintechs for partnership which identify and solve specific needs of this segment at large. The bank also has an extensive set of APIs for faster integration with fintechs and start-ups.

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