Tag: covid

Rupee plunges to 9-month low of 75.05 against the dollar

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The rupee depreciated further on Monday to cross 75 against the dollar mark, spooked by the likely adverse impact of the second wave of Covid-19 pandemic on economic recovery and unfavourable effects of surplus liquidity in the financial system.

The currency unit opened at 74.97 to the dollar, about 24 paise weaker against the previous close. The rupee crossed the 75 mark for the first time in about nine months, depreciating to a low of 75.145. Intra-day, it also tested a high of 74.78. It closed weaker at 75.055 to the dollar, down about 33 paise over the previous close of 74.73.

CARE Ratings, in a report, observed that the Reserve Bank of India’s policy of providing even more liquidity to the system through the Government Securities Acquisition Plan, though positive for the bond market (where yields have softened by 5-8 basis poinys), is not so for the currency.

“There is now excess liquidity of ₹7-lakh crore in the reverse repo basket and there will be an infusion of ₹25,000 crore on the 15th of this month. So much liquidity in the system is not good news for the rupee…,” CARE said.

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In Covid shadow, bank profits may double on annual basis in Q4, BFSI News, ET BFSI

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With the SC lifting freeze of classifying NPAs, the banks are likely to shift focus on recovery efforts and recognise NPAs in the fourth quarter.

“Although overall trends in asset quality have fared better than expectations, led by a sharp improvement in collection efficiency and a lower restructuring book, the recent surge in Covid cases and the fear of a lockdown in key districts keep us watchful on asset quality,” wrote Motilal Oswal analysts in their Q4 earnings preview for the banking sector.

While many banks have already provided for this likely increase and carry additional provision buffers, which should limit the impact on profitability, brokerage sees banks continuing to strengthen their balance sheets and credit cost staying elevated.

“A spate of Covid cases and soft reintroductions of certain government restrictions would likely tip the balance of Q4 provisioning policy in favour of conservatism. Write-backs/ offsets would probably start in earnest in H1FY22, writes Edelweiss Research in a note.

How are private banks likely to fare in Q4?

For private banks, operating profitability is likely to improve while provisions would remain elevated. Motilal estimates private banks to report Pre-provisioning operating profit (PPOP) growth of 19% YoY (+2.7% quarter on quarter) and net profit growth of 108% year on year (+2.2% quarter on quarter) due to a low base in the fourth quarter of FY20. the Motilal Oswal report said. Although credit cost is likely to remain higher, a pick-up in loan growth along with healthy traction in fee income and modest opex would support earnings.

Loan growth is likely to pick up, led by rising consumer demand, particularly in the Retail segment. Even growth in the Corporate segment is recovering, with the focus on lending to highly-rated corporates. Banks, however, remain cautious about growing their unsecured portfolio.

Asset quality would remain under watch as lenders would recognize actual NPAs as the stay on NPA recognition has ended. Though slippages would remain higher, it is likely to moderate on a sequential basis.

Margin to exhibit stable/improving trends

Net interest income (NII) is likely to grow 15% YoY at banks as the cost of funds is likely to remain low, given the excess liquidity in the system. Although negative carry on slippages could impact margins, gradual deployment of excess liquidity and repricing of deposit base would support margins, Motilal said, adding, large banks, with a strong liability franchise, are better placed to tackle margin pressure.

Deposit traction would remain strong, reflecting 12% YoY growth for the system, while many Banks have increased focus on ramping up retail deposits

Public sector banks

PSBs’ earnings to show a healthy pick up as operating metric for PSBs would improve. Within PSBs, the State Bank of India is likely to report a healthy performance supported by the resolution of Bhushan Power & Steel, which would result in healthy recoveries and a seasonally strong quarter on fee income. PSBs are expected to deliver NII/PPOP growth of 27%/16% YoY and PAT growth of 110% year on year on a low base.



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Enable Covid-19 vaccination on “priority basis” for banking sector staff: Finmin

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The Department of Financial Services (DFS) in the Finance Ministry has urged the Union Home and Health Ministries to enable Covid-19 vaccination on priority basis to bank, NPCI employees – who are on the “frontline and dealing with customers and critical infrastructure for seamless banking and payment system”.

This will go a long way in assuring them about the safety of themselves and their families and will boost their morale in continuing to provide their best services to their customers, the DFS said in a communication to the Home and Health Secretaries.

‘Priority groups’

Making a case for inclusion of banking sector staff in the “priority groups” for vaccination, the DFS has highlighted that the Parliamentary Standing Committee on Home Affairs on Management of Covid-19 pandemic had in their 229th report appreciated the efforts taken by the banking sector for providing uninterrupted banking facilities during the Covid-19 outbreak and the consequent lockdown.

The Committee had, therefore, placed on record the good work done by them and recognised them as Covid-19 warriors, the DFS has said. DFS has also now pointed out that many bank officials in their efforts to provide continuous service had lost their lives.

Reliance on digital banking services

Similarity, as people’s reliance on digital modes of payment increased, it was critical to ensure that electronic and digital payments channels were available seamlessly round the clock for a safe and secure customer experience. Here the NPCI staff played a critical role, the DFS has said.

DFS has said that bank employees had played a critical role over the past one year in ensuring that bank branches remain open and functional, and providing the complete suite of banking services to their customers.

This was despite issues on mobility of bank staff to their place of work and issues in adhering to social distancing norms and other precautions. “The effort of bank staff was even more important in view of the disbursal and withdrawal of benefits transferred by the government to beneficiaries under Pradhan Mantri Garib Kalyan Yojana,” the DFS has said.

India has so far covered over 9 crore citizens in its vaccination drive and has supplied over 64 million doses to over 84 countries, including 10 million doses as grant. Already Indian Banks Association, HDFC Bank and NPCI had written to the DFS seeking inclusion of bank employees in the priority list for vaccination.

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NABARD Tamil Nadu region aims ₹40,000 crore loan disbursals in FY22

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Our Bureau

The National Bank for Agriculture and Rural Development (NABARD) Tamil Nadu region is planning to make ₹40,000 crore of loan disbursal in FY22, according to a senior official of the development bank.

During FY21, loans disbursed by Tamil Nadu Regional Office of the NABARD reached an all-time high of ₹27,104 crore, nearly doubling from ₹14,458 crore disbursed the previous year.

“In FY21, our loan disbursal grew by 87per cent to ₹27,104 crore. If the same level of growth sustains and co-operation from all stakeholders continues, we are confident of disbursing loans worth ₹40,000 crore in FY22,” S Selvaraj, Chief General Manager, NABARD, Tamil Nadu Region said here on Thursday.

He was addressing a press conference in the city to highlight the milestone achieved by NABARD Tamil Nadu region.

Also read: Nabard staff strike on March 30, seek pension updation

Selvaraj said that the growth in loan disbursement of NABARD Tamil Nadu region is higher than the national growth rate and also assumes significance as it came during the pandemic-hit year.

“This growth (in disbursements) is really remarkable since office functioning were severely impacted during the first five months due to Covid-19,” Selvaraj said, adding, “The support from Tamil Nadu government and government institutions and from stakeholders such as commercial banks, co-operative banks, NBFC-MFIs, selfless work and dedication by NABARD officials and transparent and simplified procedures at NABARD are the major reasons that enabled this robust growth.”

At pan-India level, Loans and advances of NABARD grew by 25 per cent to to ₹6.03-lakh crore in FY21 as against ₹4.81-lakh crore in the previous year.

Of the total disbursement in Tamil Nadu during FY21, refinancing of loans to eligible financial institutions increased by 89 per cent to ₹23,062 crore while support for rural infrastructure stood at ₹4,042 crore. The development bank also extended a grant assistance of ₹31 crore to various innovative projects to Agri and allied sectors.

Also read: CAG seeks details of performance audit of public sector banks recapitalisation

Of the total refinancing, Cooperative banks accounted for a major share at ₹8,761 crore (38 per cent) followed by Commercial Banks (₹6,602 crore), Regional Rural Banks (RRBs) – ₹4,840 crore and NBFC / NBFC-MFIs at ₹2,858 crore.

The ratio between loan refinancing and rural infrastructure support stood 85-15 per cent in FY21. Selvaraj said in FY22, the share of rural infrastructure may go up to 25 per cent as per the demand.

To aid the economic revival, the Reserve Bank of India (RBI) on Monday extended a fresh support of ₹50,000 crore to the All-India Financial Institutions for new lending in FY22. Out of which, NABARD will be provided a special liquidity facility (SLF) of ₹25,000 crore for one year to support agriculture and allied activities, the rural non-farm sector and non-banking financial companies-microfinance institutions.

“RBI has announced a SLF window to address liquidity problems faced by banks due to the pandemic. Last year, we released ₹1,500 crore to banks in Tamil Nadu under this facility. This year also we expect to extend around ₹2,000 crore to Cooperative Banks and RRBs to meet liquidity challenges, if any,” Selvaraj said.

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Bank union calls for vaccination for all employees in Maha, BFSI News, ET BFSI

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With alarming rise in COVID-19 cases in Maharashtra, a bank union has written to Bank of Maharashtra, the State Level Bankers’ Committee (SLBC) convenor of the state, requesting a special vaccination drive for all bank employees. On Sunday, Maharashtra reported the highest single-day rise of 57,074 coronavirus positive cases, while 222 patients succumbed to the infection, according to the state health department.

“We request you to make special arrangements for vaccination of all bank employees who are frontline warriors in fighting Covid,” Maharashtra State Bank Employees Federation General Secretary Devidas Tuljapurkar wrote in the letter addressed to the general manager (SLBC), Bank of Maharashtra.

The union has requested to revisit the current situation and issue guidelines related to customers entry into bank branches through deployment of security guards, frequent sanitisation of branches, alternate day working and work from home for female bank employees and employees above 55 years.

The state government has announced a partial lockdown starting 8 pm today till April 30 and a complete shutdowns on weekends to curb the rapid spread of Covid-19.



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SBI Card sees over 50 percent of its transaction from online payments, says CEO, BFSI News, ET BFSI

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SBI Cards and Payment Services (SBI Card) has been seeing over 50 per cent of its transactions via online payments such as on groceries, utility bills, insurance premium, and hopes the trend to go up further as point of sale purchases are yet to pick up, top company executive said. Keeping a watch on the recent coronavirus resurgence in the country across some key locations, SBI Card MD and CEO Rama Mohan Rao Amara said it would be too early to say whether it will have any bearing on people’s purchasing behaviour.

However, online payments is a trend which is going to go up further, he added.

“Particularly within SBI Card, now, more than 53 per cent of the spends actually come from online payments which used to be around 44 per cent earlier. Almost 9 percentage points improvement is there mainly in terms of the categories like for groceries, apparel, utility bill payment, insurance premium, online education,” Amara told in an interview.

He added that for these kind of categories, suddenly the company has seen kind of an increase in spends online. “We believe (it) will remain online because once people get used to the comfort of it, they will continue with that. So, COVID or no-COVID, it will not impact that.”

However, he said the point of sale (PoS) locations have not opened that well, as and when the footfall increases, there will be a pick-up there also.

The pure-play card company is also seeing an emerging trend of securing more customers from non-metro locations. It is also banking on its parent company SBI’s huge customer base to expand further.

Maybe till 5-6 years ago, tier-I locations were contributing majorly to the credit card industry growth.

“But, if you look at our recent performance, around 58 per cent of our incremental sourcing is actually coming from non-tier cities that is tier II, III and IV.

“These are contributing more to our new credit card acquisitions, that is basically we have a piggyback of our parent bank (SBI) customer base,” he added.

The company’s card-in-force grew 15 per cent to 1.15 crore in the third quarter of the fiscal ended March 2021, against one crore in the year ago same period. The spends were higher by 8 per cent to Rs 37,797 crore from Rs 35,135 crore.

And, the new accounts volume increased 8 per cent to 9,18,000 accounts in the third quarter of 2020-21, compared with 8,48,000 in the third quarter of 2019-20.

Under the company’s pre-approved programme, wherein it looks towards the customer base of the parent bank and the cardable population, it has helped SBI Card immensely in terms of adding to the new card base, Amara added.

“It started around 2017, it has now reached a good volume. It contributes well but if you look at our disclosures, more than 50 per cent is coming from our bank channel which you essentially call kind of a SBI sourcing,” Rao said further.

He added that particularly, during the first and second quarters of FY21, when open market locations were closed and when sourcing were limited, the company’s banking channel helped it in terms of ramping up. “We were able to come back to almost 10,000 accounts per day, that was the usual run rate in best of the best times. So, we were able to get back to that trend by Q3.”

And, majorly, this growth has come from tier-II, -III and -IV cities, he added.

Amara also said the company will continue to work with its parent bank.

“If you look at the customer base of our parent bank, it is more than 400 million. We have hardly explored the base of around 20-22 per cent. So, there is a plenty of runway left,” Rao said.

However, he said the company will always look forward to forge new tie-ups and recently joined hands with Jio Payments also.

On the company’s tie-up with various airline companies, which were hit the most during the lockdown period and are running below the capacity off-take of passengers, Amara said the business has been impacted on that front, but exuded confidence that it will be back to track once things normalise.

In the nine-months ended December 2021, SBI Card witnessed a flat growth in its income at Rs 7,245 crore. And, the net profit was down by 30 per cent to Rs 809 crore during the April-December period of 2020-21.

Rao said the company had already reached to the pre-COVID-19 level business by third quarter and expects to post decent numbers for the overall fiscal.

The company is expected to declare the financial results for the fourth quarter of 2020-21 within the end of this month.



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Uday Kotak, BFSI News, ET BFSI

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Uday Kotak, MD & CEO, Kotak Mahindra Bank, in conversation with Nikunj Dalmia of ET NOW at the Times Network India Economic Conclave 2021.
During the last India Economic Conclave (IEC), you had said that India needs banks but it needs few PSU banks, it needs adaptation of fintech and it needs consolidation in the sector. I guess you knew what was happening because that indeed is happening one year after our interaction?
I do believe that India has made very serious progress in this pandemic era and actually grasped the opportunity of what we need to do. Therefore the financial sector is in for a significant change. The government’s move of testing out with two public sector banks is first of its kind and this combined with the fact that over time you will have four or five large state owned banks and private sector banks and at the same time opening up competition in the sector is the right way to go. At the same time, we need to be clear that in the last one year, Covid has changed our lives in the field of technology and financial services by a multiplier of five. What would have otherwise taken us five years is happening in one year. That is what we are going to be ready for.During the course of 2020 every time we interacted with you on various forums your words were: “India Inc has been hit. It is like a ship which is now trapped in muddy waters.” Is the challenging time behind us? Has the ship reached the shore?
Covid has created a new category of what I call as haves and have nots. The people who have had access to capital are in the category of haves and that is primarily the organised sector or companies which have access to public markets as also private equity and the have nots are the ones who did not have access to capital. There is a very stark difference between the haves and the have nots, based on access to capital. Therefore, even if you are from a stressed sector, if you have access to capital you are in good shape. If you do not have access to capital, you are in a tougher position and that is the difference which we have seen happen in front of us. That is as a result of dramatic pouring of money and liquidity globally and in India as well. That has enabled equity capital to rescue most of the organised sector.

The broad commentary from India Inc is one of highest-ever margins, strongest demand visibility and high optimism. A year ago, there was fear, gloom and doom on the Street. How does one differentiate the kind of indications which we are getting from India Inc.? Are these permanent or are there spurts of demand like sugar rush?
One year ago we did not know what hit us, we had no idea of the contours of the Covid impact. Today one year later, we seem to understand the virus a little better though it continues to mutate. At the same time, there is greater optimism on the possibility of vaccination of a lot of our people though I think it is going to take a few months more for us to get to a more comfortable place.

At the same time, we have started being able to deal with this virus in terms of our lives, what we can do, what we cannot do. We have adapted our life to the new reality. All these are the pluses and that is one of the reasons why business and industry feels they are in a better place than what it was one year ago.

Having said that, things will need to be better handled on the virus and vaccination moving forward but we have to be careful of a mindset of complacency. The virus has not gone one year later. It is still around and we feel more comfortable with it. But the virus is mutating and therefore I will certainly be looking with optimism because we are seeing a changed world. But I keep my guard up. I would not lower my guard too soon and make this more a marathon rather than a sprint.



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Are IPOs making NBFC a risky financing business?, BFSI News, ET BFSI

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The choppy markets are making initial public offerings (IPOs) in India, which are considered sureshot winning bets for their huge listing gains, a risky bet.

During the pandemic, the IPO market has had a dream run with many issues doubling in value on debut trade. However, with the second wave of Covid, markets have turned volatile and IPOs with higher concerns have listed at a discount.

Kalyan Jewellers IPO listed with 15% discount on Friday while Craftsman Automation dropped 6% on debut trade against its issue price. Earlier, SBI Cards IPO has listed at a 13% discount to the issue price.

This has brought focus on the thousands of rupees of NBFC financing trade in them.

Riding on the primary market wave, NBFCs such as Bajaj Finance, Aditya Birla Finance, Motilal Oswal, IIFL Wealth, Inna Finance, JM Financial and Edelweiss among others have been funding high net worth individuals through short-term lending, sometimes for just five-seven days. From Burger King to Happiest Minds, Gland Pharma to Route Mobile or Indigo Paints, well-heeled investors are jumping at the opportunity

to rake it in within a short span. That debut bump is leading to artificial asset inflation and price distortions, according to some market participants.

IPO financing

The IPO financing market is very vibrant in 2020, supported by an increase in HNI investors’ interest in IPOs in the quest for listing gains, with average demand between Rs 40,000 crore to Rs 50,000 crore per IPO.

About Rs 35,200 crore was raised for the Mrs Bector Food IPO while around Rs 26,000 crore was raised for the Burger King IPO, according to data on ICRA rated commercial paper. The amount raised for Chemcon Speciality Chemicals and Computer Age Management Services was more than Rs 37,000 crore. Similarly, about Rs 24,700 crore was raised for Happiest Minds Technologies. This has pushed subscription to several hundred times.

Margin money

Currently, HNIs, with money borrowed from NBFCs, are allowed to pay just 1% margin money to bid for the entire portion reserved for this group of investors. In effect, in a Rs 1,000-crore IPO, 50% of which is reserved for HNIs, these investors can pay just Rs 5 crore to bid for shares worth Rs 500 crore offered in the IPO. Bidding with borrowed money can lead to a huge rise in the total subscription in the IPO and then to the listing prices of these offers. Often a high oversubscription number in an IPO may mislead investors into thinking that the company is doing exceptionally well, shares are highly valued and hence the mad rush for them. Post-listing, however, the shares slide and some of the investors incur losses.

NBFC Funding

Typically, to fund clients, NBFCs raise short-term money through commercial paper at 4-5% and then lend at 6.5-8%. In the last six months, the top 10 finance firms have raised nearly Rs 1.8 lakh crore through commercial paper in the primary market with a tenure of 7-10 days for IPO funding, apart from self-funding and other sources of funds. Funds are raised with a yield to maturity between 3.2% and 6.25% per annum. The HNIs make money from the listing premium, and the gains in the recent issuances have been mind-boggling.

The risk

Financiers insist the risk is limited since there is a margin for the lender in terms of shares. Normally, higher the funding cost, lower the chances of making money on the IPO after all costs are factored in. Investors need to pay interest on the entire amount borrowed and not on the amount actually allotted. That is why higher oversubscription works against borrowers as they have to have more interest on idle funds.

RBI proposal

Earlier the Reserve Bank of India had proposed to cap IPO financing by NBFCs to up to Rs 1 crore per person, a move which may lead to a sharp drop in bidding by high net worth individuals (HNIs) and a drastic reduction in subscriptions of offers.

Banks have a Rs 10-lakh limit on IPO financing and there is no such cap for NBFCs. “IPO financing by NBFCs has come under close scrutiny, more for their abuse of the system,” the RBI said in a discussion paper. “Taking into account the unique business model of NBFCs, it is proposed to fix a ceiling of Rs 1 crore per individual for any NBFC,” the RBI said. Market players said that RBI’s proposed rule would surely bring a break to highly subscribed IPOs.



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

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

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

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

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

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

Vaccines

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

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

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

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

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

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

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

Other countries

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

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

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

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



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‘Current financial year turning out to be much better in terms of overall investment returns’

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The current fiscal is turning out to be much better than what was expected at the beginning of the year in terms of overall investment returns, believes Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life Insurance, adding that bond yields seem to have bottomed out and equity markets have recovered. In an interview with BusinessLine, he said it seems that bond yields have bottomed out. Excerpts:

How is the company doing in terms of investments?

The current financial year is turning out to be much better than what we had expected at the beginning of the year in terms of overall investment returns. The equity markets have recovered very well on the back of strong global liquidity and fiscal stimulus. Most of the economic indicators have started recovering and have come back to almost pre-Covid levels. Corporate earnings growth has also been better than expected. Even the fears of the second wave of Covid are addressed with the launch of vaccination drive globally, which has helped boost market sentiment and risk appetite. So, equity ULIP funds have also registered robust performance over the past year.

Are their concerns over returns, given the volatility in bond yields?

Bond yields have been on a declining trend over the past few years, giving scope for healthy capital gains in debt funds. The fall in yields has been sharp amid the Covid-19 pandemic, helping to boost returns for debt funds. However, this year, we have seen a significant rise in global and domestic bond yields due to rise in prices of commodities and stronger-than-expected revival in economic growth. We feel that rise in bond yields can lead to some volatility in equity markets.

Domestically, in India, we have significant fiscal expansion in 2020-21 and 2021-22. Therefore, it seems that bond yields have bottomed out, and the RBI is at the end of its rate cut cycle. From a fixed income perspective, we are presently positive on the shorter to medium term part of the yield curve.

How do you perceive the government’s borrowing programme for FY22?

The equity markets cheered the Budget. However, the bond markets have reacted negatively. Bond yields rose post Budget due to concerns of demand-supply mismatch on account of the large government borrowing. However, the RBI has reiterated its commitment to ensure availability of ample liquidity to support the nascent economic recovery and manage the high government borrowing program in an orderly and non-disruptive manner, which provides some comfort.

How are insurers managing investments amid the current demand for protection products?

Due to the market volatility and Covid-19 pandemic, we have seen a significant rise in demand for non-par savings or guaranteed return products and term plan products. Insurance companies have been using various instruments, including forward rate agreements, to hedge interest rate risk.

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