Tag: credit rating agency

CRISIL upgrades Bank of India’s Tier-I Bonds rating

Banking & Finance

[ad_1]

Read More/Less


CRISIL Ratings has upgraded its rating on the Tier-I bonds (under Basel III) of Bank of India (BoI) to ‘AA/Stable’ from ‘AA-/Stable’. The credit rating agency has also assigned its ‘AA+/Stable’ rating to the public sector bank’s ₹1,800 crore Tier-II bonds (under Basel III).

The upgrade in the rating of Tier-I bonds (under Basel III) factors in improved position of BoI to make future coupon payments, supported by an adjustment of accumulated losses with share premium account, and the improved capital ratios, CRISIL said in a statement.

“Pursuant to the adjustment, the eligible reserve to total assets ratio for the bank has improved,” it added.

Additionally, as per the Department of Financial Services Gazette notification of March 23, 2020, referred to as Nationalised Banks (Management and Miscellaneous Provisions) Amendment Scheme, 2020, the bank still has share premium reserves which can be utilised to set off any losses in future, and this supports the credit profile of Tier-I (under Basel III) instruments.

Also read: Imitating a fintech firm not the right business model: Former RBI Deputy Gov

“However, any substantial depletion of the share premium account or any regulatory changes to appropriation of the share premium account pertaining to adjustment of accumulated losses are key monitorables,” CRISIL said.

The agency emphasised that supported by the regular capital infusion made by the government of India (GoI) and higher accrual, BoI’s capital ratios have improved, as reflected in Tier-1 and overall capital to risk-weighted adequacy ratio (CRAR) of 12 per cent and 15.1 per cent, respectively, as on June 30, 2021 as against 9.5 per cent and 12.8 per cent, respectively, as on June 30, 2020 (12.0 per cent and 14.9 per cent, respectively, as on March 31, 2021).

Further, the recent qualified institutional placement (QIP) of ₹2,550 crore in August 2021, should also support the capital position.

The overall ratings continue to reflect the expectation of strong support from the majority stakeholder, GoI, and the established market position and comfortable resource profile of the bank. “These strengths are partially offset by weak asset quality and modest earnings profile,” the agency said.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , ,

Lending, G-Sec rates not moving in tandem: CARE Ratings

Banking & Finance

[ad_1]

Read More/Less


The movement of commercial lending and Government Security (G-Sec) rates are not in sync, according to CARE Ratings.

The credit rating agency, in a report, said the weighted average lending rate (WALR) on fresh loans declined from 9.26 per cent in February 2020 to 8.82 per cent in March 2020 to 8.14 per cent in January 2021.

However, the 10-year G-Sec yields, which ranged between 5.8-6 per cent in the second part of the year (July-December 2020), climbed to the 6.20 per cent after the Budget and monetary policy were announced in early February 2021, it added.

“There is surplus liquidity in the system as banks are parking large amounts in reverse repo auctions.

“Growth in credit is lagging that of deposits and yet there is a tendency for G-Sec yields to increase notwithstanding aggressive measures by the Reserve Bank of India to keep them down,” said the report.

At the same time, banks are lowering their lending rates to garner business, especially on the retail side. Hence, the movement of commercial lending rates and G-Secs are not in consonance, said the agency.

Banks’ mobilise 85% more deposits

Bank deposits have increased by ₹12.13-lakh crore between March-end 2020 and February 12, 2021. This is almost 85 per cent more than that of last year when they increased by ₹6.52-lakh crore, CARE said.

As far as banks are concerned, they get to keep a larger part of these deposits as the cash reserve ratio (CRR) was lowered this year from 4 per cent to 3 per cent, it added.

Bank credit has grown by ₹3.33-lakh crore during the period March-end 2020 to February 12, 2021, compared to ₹2.71-lakh crore last year.

Admittedly, there can be considerable increase during the last fortnight of the financial year in March when the year-end impact pushes up credit as banks seek to meet their targets, emphasised the report.

The net result of the surplus liquidity could be seen in the relentless parking of funds in the overnight reverse repo window, which ranged between ₹4-lakh crore and ₹7-lakh crore on daily basis, with the amount crossing ₹8-lakh crore in May 2020 on a couple of occasions.

“It may be expected that the RBI will continue to support the system as stated in the last policy. However, markets will still be influenced by inflation as well as the government borrowing programme which will start from April for the next financial year,” the agency said.

CARE expects demand for private investment to also increase as the economy is expected to grow by 10-10.5 per cent in FY22 which will require support from banks.

It observed that the surplus liquidity seen throughout FY21 may no longer be available in the same quantum.

The agency expects the 10-year G-Sec yields to remain stable in the 6.20-6.30 per cent range in FY22 in the absence of a repo rate cut. The upward tendency of inflation may come in the way of the Monetary Policy Committee’s decision to lower the same, it added.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , ,

Banks’ impaired loans and credit costs to rise: Fitch

Banking & Finance

[ad_1]

Read More/Less


Indian banks’ improved financial metrics do not fully reflect the impact of the coronavirus pandemic, cautioned Fitch Ratings.

The global credit rating agency expects both impaired loans and credit costs to rise as forbearance and easy-liquidity conditions ease even as it projected India’s real GDP growth at 11 per cent in FY22.

Also read: RBI allows AD Cat-I Banks to post and collect margin in India

Fitch believes the state-led banks are more vulnerable than private banks, given their participation in relief measures, while their earnings and core capital buffers are weak.

The agency observed that the operating environment remains challenging as the banking sector tries to balance a gradually recovering economy with preserving moderate loss-absorption buffers.

Pressure on retail, stressed SMEs loans

Indian banks’ aggregate non-performing loan (NPL) ratio fell to 7.2 per cent by end-December 2020 (end-March 2020: 8.5 per cent).

Fitch said NPLs exclude unrecognised impaired loans under judicial stay, restructured loans, loans under watch and loans overdue by 60 plus days, which formed 4.2 per cent of loans.

It underscored that average contingency reserves of 0.7 per cent of loans are inadequate to absorb heightened stress, although private banks are well above the average.

Fitch sees high risk of a protracted deterioration in asset quality with more pressure on retail and stressed SMEs loans (8.5 per cent of loans, 1.7 per cent state guaranteed).

Credit growth

Credit growth was weak at 4.5 per cent in the first nine months of the financial year ending March 2021 (9MFY21), in line with Fitch’s expectations, as banks remained risk averse.

Fitch said private banks are better poised to tap growth opportunities in 2021 as their higher contingency reserves offer better earnings and capital resilience.

The state-led banks’ average buffer between pre-provision profits and credit costs is only 160 basis points (bps) versus 340 bps at private banks, it added.

State-run banks: Limited core capital

Fitch assessed that state-led banks also have limited core capital buffers (average common equity Tier 1 ratio: 9.8 per cent) in the event of further asset stress, which is unlikely to be remediated solely via the state’s planned capital injections of $5.5 billion (0.7 per cent of risk-weighted assets) in FY21 and FY22.

Also read: India needs to make efforts to get rating upgrade in line with fundamentals: CEA

The agency emphasised that the plan is well below its estimated capital requirement of $15 billion to $58 billion under varying stress scenarios.

The strategy to either not lend or lend only to capital-efficient sectors is likely to continue as low market valuations leave state-led banks with limited scope to access fresh equity on their own, it added.

Stress among retail customers

Fitch said the faster-than-expected GDP rebound in 3QFY21 (October-December 2020) is positive, but many sectors continue to operate well below capacity.

In addition, the decline in private consumption (3QFY21: -2.4 per cent), and reports of rising urban utility bill defaults and social security withdrawals point towards stress among retail customers.

Fitch believes that the SME sector faces a litmus test in FY22 as short-term credit support extended in FY21, which, in its view, deferred the recognition of stress, comes up for refinancing.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , , , , , ,

Govt could raise up to ₹12,800 cr if it divests in 2 PSBs: CARE Ratings

Banking & Finance

[ad_1]

Read More/Less


The government could raise between ₹6,400 crore and ₹12,800 crore if it cuts its stake to 51 per cent in two of the four public sector banks (PSBs) — Indian Overseas Bank (IOB), Bank of Maharashtra (BoM), Bank of India (BoI) and Central Bank of India (CBoI) — said to be candidates for disinvestment, according to CARE Ratings.

As per an equity matrix — based on average price (one-year average daily), paid-up capital, number of shares and government ownership — drawn up by the credit rating agency, IOB has the highest equity capital (₹16,437 crore), while BoI has the highest market price (₹44.75 per share) relative to the others.

Also read: PSBs consolidation: It is credit negative if govt divests stake in left out banks, says ICRA

Based on the aforementioned banks’ market prices — BoI (₹44.75 per share/ government stake: 89.1 per cent) and IOB (₹9.88/ 95.8 per cent), if the government were to lower its stake to 51 per cent, which would still leave majority ownership of these banks in the government’s hands, then the amount that could be raised from these two banks would be around ₹12,800 crore, as per CARE’s assessment.

BoM (₹11.85 per share/ government stake: 92.5 per cent) and CBoI (₹14.85/ 92.4 per cent) would garner around ₹6,400 crore, it added.

But if the government were to divest fully from these two banks, the amount that could be raised would be around ₹28,600 crore, the agency said.

In her Budget speech on February 1, 2021, Union Finance Minister Nirmala Sitharaman said: “Other than IDBI Bank, we propose to take up the privatisation of two public sector banks and one general insurance company in the year 2021-22.

“This would require legislative amendments and I propose to introduce the amendments in this Session itself.”

In 2021-22, the government would also bring the initial public offer of Life Insurance Corporation of India, she added. For this also, the government will bring in the requisite amendments in this Session itself.

The government has estimated ₹1.75-lakh crore as receipts from disinvestment in FY2021-22.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , ,

Covid-19 to boost digital financial services growth; SBI, large private banks to benefit: Moody’s

Banking & Finance

[ad_1]

Read More/Less


The coronavirus pandemic will accelerate growth of digital financial services, benefiting State Bank of India (SBI) and large private sector banks, according to Moody’s Investors Service.

The coronavirus outbreak and restrictions on physical contact will further boost demand for online financial services, making it more imperative for banks to accelerate digitalisation, the global credit rating agency said in a report.

“Yet only SBI and a small number of large private sector banks have the resources to effectively capitalise on the growing preferences for digital services among consumers and businesses.

Also read: RBI proposes 24×7 helpline for digital payment services

“Except for SBI, public sector banks generally have limited financial capacity to invest in technology because of weak asset quality and profitability. Small private sector banks lack resources to invest heavily in digitalisation,” Moody’s said in the report.

This means that digitalisation will help SBI maintain its leadership and large private sector banks gain market share on the other state-owned peers, which will increasingly face challenges in acquiring and retaining customers, particularly individuals and MSMEs, as they become accustomed to digital services, said the agency.

“While public sector banks have larger shares in loans and deposits than private sector lenders, HDFC Bank, ICICI and Axis along with SBI, dominate digital payments.

“This segment is at the core of banks’ retail banking strategies because digital payments not only help banks retain brand recognition but also increase customer engagement and create cross-selling opportunities, which can lead to growth in revenue per customer,” the report said.

Digital financial services: Rapid growth

Moody’s said digital financial services are rapidly growing in India. It observed that the Government’s efforts to boost financial inclusion and make the economy less dependent on cash have driven growth in the use of digital financial services, particularly electronic payments.

The Reserve Bank of India’s (RBI) Digital Payments Index (DPI), which was constructed with March 2018 as the base period — DPI score for March 2018 is set at 100 — DPI for March 2019 and March 2020 stood at 153.47 and 207.84 respectively, indicating appreciable growth.

Also read: RBI sets up working group to identify risks posed by unregulated digital lending

“Further, the regulator estimates that the number of digital transactions will jump to 87 billion in 2021 from about 40 billion in 2020. Already, the number of digital payments increased by more than seven times from 2015 to 2020, according to data from the RBI,” the report said.

India has a number of factors favourable for the further development of digital financial services, including a large and growing middle class population and a well-established digital identification system, via the Aadhaar, an increasing penetration of smartphones and high-speed internet.

MSME lending

The agency underscored that one segment with abundant growth potential is digital lending to small businesses, many of which have difficulty borrowing from banks because they have limited financial records and lack proper documentation.

Given that micro, small and medium enterprises (MSMEs) have relied on informal lenders at interest rates as high as 30 per cent-35 per cent, almost twice as high as rates charged by banks, Moody’s said this has created an opportunity for digital lenders to target the unmet demand for financing among MSMEs.

Alternative lending is the second-most funded and one of the fastest-growing segments of fintechs in India. The country now has more than 300 lending start-ups, it added.

Moody’s observed that for MSMEs, digital lenders can be attractive because they can process loan applications faster than banks. Digital lenders can use identification information gathered via Aadhar and bank accounts.

Also, they use artificial intelligence, machine learning and big data to assess MSMEs’ earnings and cash flow, and build models for credit scoring that do not solely depend on formal records.

However, a focus on riskier customer segments, nascent underwriting models and a lack of customer histories can lead to larger loan losses for digital lenders than incumbent banks in the initial stages.

At the same time, fintech firms are increasingly collaborating with traditional non-banking financial companies (NBFCs) in lending to MSMEs to benefit from the latter’s loan collection channels.

Fintech sector: attracting foreign interest

Reflecting the growth potential of India’s fintech sector, it is attracting capital from global venture capital companies. In the past six years, fintech start-ups have raised about $10 billion in capital funding, the report said.

In 2019 alone, more than 200 companies raised about $3.2 billion. In addition to venture capital firms, Amazon.com Inc. and Facebook have invested in the sector, while Singapore’s DBS Bank Ltd has created a digital bank in India, says the report.

In addition, global incubators and accelerators, Startupbootcamp, Barclays Rise and Swiss Re InsurTech, have rolled out programs in India.

[ad_2]

CLICK HERE TO APPLY

2 Comments , , , , , ,