Tag: Crisil

IBC needs a stronger push: Crisil

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The Insolvency and Bankruptcy Code (IBC) needs a stronger push after recovery of about ₹2.5 lakh crore over five years since it took effect, according to Crisil Ratings.

From here, reforms must stress quicker resolution and maximise recovery, the credit rating agency said in a study.

Per the agency: “A closer look at the data shows, however, the recovery rate and resolution timelines have a lot more room for improvement.

“This makes a continuous strengthening of the Code and stabilisation of the overall ecosystem imperative.”

Lesser traction

As of June 30, 2021, IBC had enabled recovery of about ₹2.5 lakh crore, against admitted financial claims of about ₹7 lakh crore, translating to a recovery rate of 36 per cent for the 396 cases resolved out of the total 4,541 admitted.

Of the remaining cases, 1,349 were under liquidation; 1,114 were closed under appeal/ review/ settled or withdrawn, and 1,682 were outstanding.

The agency emphasised that the recovery marks a significant shift in the insolvency resolution process and credit culture in India.

Gurpreet Chhatwal, Managing Director, Crisil Ratings, said: “The recent resolution of a large financial services firm with a recovery of about ₹37,000 crore against admitted financial claim of about ₹87,000 crore, translating to a recovery rate of about 43 per cent, underscores the efficacy of IBC. The resolution value was about 1.4 times the liquidation value.”

The agency underscored that while the IBC has tilted the power equation in favour of creditors from debtors and helped strengthen India’s insolvency resolution ecosystem, its performance against its twin objectives – maximisation of recovery and timebound resolution – has been a mixed bag.

“One, only a few large cases have seen higher recovery. Excluding the top 15 cases (by resolution value) from the 396 resolved cases, the recovery rate halves to 18 per cent.

“Two, average resolution time for the aforementioned resolved cases is 419 days compared with the stipulated maximum of 330 days. About 75 per cen of outstanding cases have already been pending for more than 270 days,” the study said.

Liquidation: a challenge

Nitesh Jain, Director, Crisil Ratings, noted that besides low recovery rate and longer timeframe, a key challenge is the high number of cases going to liquidation.

“As of June 30, 2021, nearly one-third of the 4,541 admitted cases had gone into liquidation, with a recovery rate estimated at merely 5 per cent.

“That said, around three-fourths of these cases were either sick or defunct. With closure of these vintage cases, recovery rate as well as timelines are expected to improve,”he said.

Notwithstanding these challenges, the IBC has played a key role in resolution of stressed assets so far, according to the study.

“Its effectiveness will continue to be tested given the elevated level of stressed assets in the Indian financial system,” it added.

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Private banks’ NPAs fall in Q2 as economy charts recovery path, BFSI News, ET BFSI

Banking & Finance

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With the economy opening up, the asset quality of private banks improved in the September quarter. Further, banks efforts in reducing slippages, improved collections, better recoveries from written off accounts and RBI mandated loans recast also helped banks keep a lid on NPAs.

While the year on year NPA figures of most banks were higher than the last quarter’s figures, they are not comparable as after the Supreme Court‘s stay on classifying loans that were standard as on August 31 from NPAs banks had reported NPAs under proforma figures.

The drop

HDFC Bank, India’s largest private sector lender, reported a drop in gross non-performing assets (GNPAs) to Rs 16,346 crore during July-September against Rs 17,099 crore in the preceding quarter. Provisions and contingencies also dropped to Rs 3,924.70 crore during the quarter compared with Rs 4,830.84 crore in the June quarter. GNPA ratio fell to 1.35 per cent as of September from 1.47 per cent in the June quarter. It was 1.08 per cent in the same quarter, a year ago.

ICICI Bank‘s gross non-performing assets fell to 4.82 per cent of gross advances as on September 30, against 5.15 per cent in the June quarter. Net NPAs (bad loans) also fell to 0.99 per cent from 1.16 per cent sequentially in the September quarter.

Federal Bank‘s asset quality improved on a sequential basis as gross NPA came at 3.24% as against 3.50% in the previous quarter. Its net NPA stood at 1.12% from 1.23% quarter-on-quarter (QoQ). However, the gross NPA during the year-ago quarter stood at 2.84% whereas net NPA at 0.99%. Provisions (other than tax) and contingencies declined to Rs 245 crore as against Rs 543 crore in the previous quarter and Rs 532 crore in the year-ago quarter.

Axis Bank and Kotak Bank

Axis Bank’s gross NPAs came in at 3.53% in the second quarter, lower than 3.85% in the June quarter and 4.18% in the previous year period. Meanwhile, the net NPA ratio during the quarter stood at l.08%.

Kotak Mahindra Bank’s gross NPAs during the second quarter stood at 3.19% compared with 3.56% in the June quarter. However, it was higher than 2.70% in the year-ago quarter. Meanwhile, the net NPA improved to 1.06% versus 1.28% on a sequential basis, and remained flat on a year-on-year basis.

What Crisil says

GNPAs of banks will rise to 8-9 per cent this fiscal, well below the peak of 11.2 per cent seen at the end of fiscal 2018, with the COVID-19 relief measures such as restructuring dispensation, and the Emergency Credit Line Guarantee Scheme (ECLGS) helping limit the rise, according to CRISIL Ratings.

GNPAs as at March-end 2021 had declined to 7.5 per cent against 8.2 per cent as at March-end 2020.

With about 2 per cent of bank credit expected under restructuring by the end of this fiscal, stressed assets ― comprising gross NPAs and loan book under restructuring ― should touch 10-11 per cent (against March-end 2021 estimate of about 9 per cent), the credit rating agency said.



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IndusInd Bank raises Rs 2,800 cr debt capital via bonds, BFSI News, ET BFSI

Banking & Finance

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New Delhi: Private sector IndusInd Bank on Friday said it has raised Rs 2,800 crore by issuing bonds on private placement basis.

The Finance Committee of the board of the bank in its meeting approved allotment of 2,800 rated, listed, non-convertible, subordinated and unsecured Basel III compliant bonds in the nature of debentures towards non-equity regulatory tier 2 capital (T2 bonds) for cash aggregating to Rs 2,800 crore, the bank said in a regulatory filing.

The bonds, sto mature in 10 years, bear a coupon rate of 8.11 per cent payable annually.

The bonds are rated AA+ by Crisil and India Ratings.

IndusInd Bank stock traded at Rs 1150.50 apiece on BSE, down 2.12 per cent from previous close.

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Banking system set for positive times ahead

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Things seem to be looking up for banks, going by the assessment of credit rating agencies (CRAs) Moody’s Investors Service and Crisil Ratings.

Moody’s has revised the outlook for the Indian banking system to “stable” from “negative” on the back of stabilising asset quality and improved capital drive.

Crisil Ratings said the rise in bank NPAs will be muted (at 8-9 per cent in FY22 against 7.5 per cent in FY21) due to various Covid-19 pandemic-related dispensations such as the restructuring dispensation, and the Emergency Credit Line Guarantee Scheme (ECLGS).

This is well below the peak of 11.2 per cent seen at the end of fiscal 2018.

In its banking system outlook for India, Moody’s observed that the deterioration of asset quality since the onset of the coronavirus pandemic has been moderate, and an improving operating environment will support asset quality.

Moody’s view

The global credit rating agency opined that declining credit costs as a result of improving asset quality will lead to improvements in profitability. It assessed that capital will remain above pre-pandemic levels.

Moody’s expects India’s economy to continue to recover in the next 12-18 months, with GDP growing 9.3 per cent in the fiscal year-ending March 2022 and 7.9 per cent in the following year.

The agency noted that the pick-up in economic activity will drive credit growth, which it expects to be 10-13 per cent annually.

Weak corporate financials and funding constraints at finance companies have been key negative factors for banks but these risks have receded.

According to Moody’s, the deterioration of asset quality since the onset of the pandemic has been more moderate than it expected despite relatively limited regulatory support for borrowers.

The agency said the quality of corporate loans has improved, indicating that banks have recognised and provisioned for all legacy problem loans in this segment.

“The quality of retail loans has deteriorated, but to a limited degree because large-scale job losses have not occurred. We expect asset quality will further improve, leading to decline in credit costs, as economic activity normalises,” Moody’s said.

Crisil outlook

Crisil Ratings said Covid-19 related relief measures will help limit the rise in NPAs.

While loans in the retail and MSME segments are expected to be the most impacted, corporate loans are seen to be far more resilient. The agriculture segment is expected to remain relatively stable.

With about 2 per cent of bank credit expected under restructuring by the end of this fiscal, Crisil assessed that stressed assets comprising gross NPAs and loan book under restructuring should touch 10-11 per cent (against March-end 2021 estimate of about 9 per cent).

Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings, said: “The retail and MSME segments, which together form about 40 per cent of bank credit, are expected to see higher accretion of NPAs and stressed assets this time around.

“Stressed assets in these segments are seen rising to 4-5 per cent (from 3 per cent last fiscal) and 17-18 per cent (14 per cent), respectively, by this fiscal end. The numbers would have trended even higher but for write-offs, primarily in the unsecured segment.”

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Gross NPAs of banks to rise 8-9 per cent this fiscal: Crisil

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Gross non-performing assets (GNPAs) of banks will rise to 8-9 per cent this fiscal, well below the peak of 11.2 per cent seen at the end of fiscal 2018, with the Covid-19 relief measures such as the restructuring dispensation, and the Emergency Credit Line Guarantee Scheme (ECLGS) helping limit the rise, according to CRISIL Ratings.

GNPAs as at March-end 2021 had declined to 7.5 per cent against 8.2 per cent as at March-end 2020.

With about 2 per cent of bank credit expected under restructuring by the end of this fiscal, stressed assets ― comprising gross NPAs and loan book under restructuring ― should touch 10-11 per cent (against March-end 2021 estimate of about 9 per cent), the credit rating agency said.

Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, said: “The retail and MSME segments, which together form about 40 per cent of bank credit, are expected to see higher accretion of NPAs and stressed assets this time around.

“Stressed assets in these segments are seen rising to 4-5 per cent and 17-18 per cent, respectively, by this fiscal-end. The numbers would have trended even higher but for write-offs, primarily in the unsecured segment.”

Retail segment singed by pandemic

The agency underscored that the retail segment, which had a relatively stable run over the past decade, has been singed by the pandemic, with salaried and self-employed borrowers alike facing significant income challenges and higher medical expenses, especially in the second wave.

Thus, in a first-of-its-kind move, the Reserve Bank of India (RBI) introduced loan restructuring for retail borrowers to help them tide over the situation. This followed a six-month moratorium permitted by lenders last fiscal.

Despite these measures, CRISIL Ratings believes stressed assets in the retail segment will rise to 4-5 per cent by the end of this fiscal from about 3 per cent last fiscal.

The agency assessed that while home loans, the largest segment, will be the least impacted, unsecured loans are expected to bear the brunt of the pandemic.

MSME segment: Asset quality to deteriorate

CRISIL Ratings cautioned that the MSME segment, despite benefiting from ECLGS and the recent limit enhancement and tenure extension, is likely to see asset quality deteriorate and will require restructuring to manage cash-flow challenges.

In fact, restructuring is expected to be the highest for this segment, at 4-5 per cent of the loan book, leading to a jump in stressed assets to 17-18 per cent by this fiscal end from about 14 per cent last fiscal, per the agency’s estimates.

Corporate segment: Resilient

CRISIL Ratings observed that the corporate segment, though, is expected to be far more resilient.

“A large part of the stress in the corporate portfolio had already been recognised during the asset quality review initiated five years ago.

“That, coupled with the secular deleveraging trend, has strengthened the balance sheets of corporates, and enabled them to tide over the pandemic relatively unscathed compared with retail and MSME borrowers,” the agency said.

This is evident from restructuring of only about 1 per cent in the segment. Consequently, corporate stressed assets are expected to remain range-bound at 9-10 per cent this fiscal.

Rural segment: Strong recovery

CRISIL Ratings noted that the rural segment, which was hit harder during the second wave of the pandemic, has also seen a strong recovery.

Therefore, stressed assets in the agriculture segment are expected to remain relatively stable at about 10-11 per cent.

Restructured portfolio: Needs close monitoring

Subhasri Narayanan, Director, CRISIL Ratings, observed that while the performance of the restructured portfolio will definitely need close monitoring, the slippages from the restructured book are expected to be lower this time.

Restructuring under various schemes in the past focussed on larger exposures and primarily involved extension of maturity without any material haircuts, resulting in high subsequent slippages, she said, and added that this time, the entry barriers for restructuring are more stringent.

Also, recent trends indicate that a reasonable proportion of borrowers, primarily on the retail side, have started making additional payments as their cash flows improve, despite having availed of restructuring, Narayanan said. MSMEs, however, may take longer to stabilise and we remain watchful.

CRISIL Ratings’ estimates are predicated on a base-case scenario of 9.5 per cent GDP growth this fiscal and continued improvement in corporate credit quality.

“A virulent third wave and significant deceleration in demand growth could pose significant downside risks to these estimates,” the agency said.

On the other hand, operationalisation of the National Asset Reconstruction Company Ltd by the end of this fiscal and the expected first-round sale of Rs 90,000 crore NPAs could lead to lower reported gross NPAs.

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A future yardstick or just another buzz word?, BFSI News, ET BFSI

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BY: Harsh kumar

Businesses around the world are moving towards a more actionable and measurable sustainable development approach through Environment, Social, and Governance (ESG) reporting. It seems to be an attractive proposition for investors who prefer more environmentally, socially responsible companies over just profit-making organisations. ESG, according to various reports, could potentially facilitate more corporate accountability in terms of its performance.

According to a survey by rating agency CRISIL, over 80% of issuers and institutional investors intend to integrate ESG in their decision-making.

“Investor community not just looks at investment opportunities but also considers risks associated during the recovery as well as structured exit from an investment. Sectors that lack long term sustained growth may find it difficult to secure equity and quasi-equity investments since we all know that equity is costlier to debt. New ideas and investment opportunities without long term vision will find fewer investors,”Inderjeet Singh, director at Deloitte India.

Regulatory bodies and government institutions are continuing to encourage ESG reporting, with Securities and Exchange Board of India stating that a Business Responsibility and Sustainability Report (BRSR) will be mandatory from FY23 for the top 1000 listed companies, by market capitalization. SEBI said that this would replace the existing Business Responsibility Report (BRR).

ETCFO discussed with Inderjeet Singh, about the challenges, strategies and the pivotal role technology plays in ESG investing. Here are the edited excerpts of the interview:

Q. What strategic decisions have companies made that will bring sustainability?

Investors and regulators have both worked towards mainstreaming sustainability into businesses during the past decade. A transition to sustainable business approaches is becoming visible across sectors. There are the following strategic decisions that various companies have taken:

  • Companies have started measuring their specific energy consumption, specific water consumption and environmental footprint. These are some of the most critical parameters which have a direct bearing on the long term business sustenance
  • Several businesses have introduced the “cost of carbon” into their investment evaluation processes, thereby ensuring all new investments (including business expansion) is based on the principles of decarbonization. There are companies in power generation business with decision of capacity addition only through renewable sources of energy
  • Some companies are even considering disinvestments or removing highly polluting businesses from their portfolio
  • Several medium to large businesses have embarked upon the journey of non-financial disclosures to obtain feedback from stakeholders, as such disclosures act as channels to resonate with society and its expectation
  • Environment inclusiveness has become an integral part of business continuity and the same has been appended into the corporate risk register of companies
  • SEBI (LODR amendments of 2021) have also introduced mandatory BRSR compliance from FY 2022, which will further improve sustainability and allied disclosures across the value chain

Q. Do organisations think ESG investing is the way forward for long term strategy and decision making or do they think of it as just another buzzword in the industry? If yes, please tell us major challenges which organisations and investors are facing in adopting ESG reporting.Yes. Indeed ESG performance has become a yardstick for investment decisions among the investor community. There are multiple challenges that may play out differently among specific sectors such as:

  • Highly competitive businesses operate at a thin margin wherein cost optimization is the operational ask, unless a large number of players transition out to more sustainable operations, the sector continues to operate as business as usual. Policy & regulatory interventions along with additional benefits such as subsidies, tax holidays etc. may be required to support it.
  • Investor community not just looks at investment opportunities but also considers risks associated during the recovery as well as structured exit from an investment. Sectors that lack long term sustained growth may find it difficult to secure equity and quasi-equity investments since we all know that equity is costlier to debt. New ideas and investments opportunities without long term vision will find fewer investors
  • Access to technology at a reasonable cost is also one of the key challenges in developing countries, which may hamper the economic growth in several countries. India can leverage population dividends to its advantage across sectors by further strengthening its readiness against leading ESG practices. Skipping Euro V and introducing Euro VI has resulted in access to global automotive technologies for Indian customers

Q.As one of the biggest consultancy firms, please tell us how we can leverage technology and data for ESG implementation?

Technology will be an enabler for ESG implementation. The material elements/indicators for disclosure are required to be continuously monitored by the companies making regular disclosures. It is important that a digital interface for data collection, monitoring, analysis and course correction is easily accessible to decision-makers/compliance officials within a company.

Several SaaS (Software as a Service) players are offering data capture and management solutions across the ESG value chain. Even the reporting requirements from companies to MCA require uploading of ESG performance data in xRBL format, which may help evaluate the performance of listed companies by SEBI / MCA over a period of time.

The ease of access to data, performance measurement, sector benchmarking and identification of champions; all of this is practically going to be facilitated through digitization. Digitization will remove bias and bring objectivity into the long term decision-making process.



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HDFC plans to raise Rs 6,000 crore via bonds, BFSI News, ET BFSI

Banking & Finance

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The country’s largest mortgage lender Housing Development Finance Corporation (HDFC) will raise up to Rs 6,000 crore by issuing bonds on a private placement basis to augment its long term resources. The bonds in the nature of secured redeemable non-convertible debentures (NCDs) have a base issue size of Rs 3,000 crore with the option to retain oversubscription up to Rs 3,000 crore, HDFC said in a regulatory filing on Monday.

“The object of the issue is to augment the long-term resources of the Corporation. The proceeds of the present issue would be utilised for financing/refinancing the housing finance business requirements of the Corporation,” it said.

The three-year tenor bonds rated ‘AAA‘ by Crisil and Icra will be up for redemption on September 30, 2024.

The bids for subscription will open on September 29, 2021, and close on the same day.

HDFC said the coupon rate on the bonds would be payable at a fixed spread of 80 basis points (0.80 per cent) over the benchmark that will be reset on a quarterly basis.

The benchmark will be a three-month T-bill (treasury bill) as published by FBIL and sourced from Bloomberg, it added. If Bloomberg data is not available, the simple average of FBIL 3-months T-bills closing rate, as published by Financial Benchmarks India Pvt Ltd (FBIL) may be recognised with certain parameters.

The first such quarterly setting of the coupon rate for September 30, 2021, would be 4.13 per cent per annum, HDFC said. Shares of HDFC closed flat at Rs 2841.10 apiece on BSE. PTI KPM BAL BAL



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IIFL Finance to raise up to Rs 1,000cr, BFSI News, ET BFSI

Personal Finance

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Fairfax-backed IIFL Finance plans to raise a Rs 1,000-crore public issue of secured bonds on September 27 for business growth and capital augmentation. The bonds offer up to 8.75% yield and are rated AA/Stable by Crisil and AA+/negative by Brickwork. The size of the issue is Rs 100 crore, with a green-shoe option to retain over-subscription up to Rs 900 crore (aggregating to a total of Rs 1,000 crore).

In addition to the coupon, the company will offer an incentive of 0.25% per annum for existing bond or equity shareholders. The NCD is available in tenors of 24, 36 and 60 months. The frequency of interest payment is available on a monthly, annual and at maturity basis for the 60-month tenor, while for other tenors it is available on an annual and at maturity basis.

“The funds raised will be used to meet the credit need of more such customers and accelerate our digital process transformation to enable a frictionless experience,” IIFL Finance CFO Rajesh Rajak said.

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BoI, Union Bank, PNB may gain most from bad bank, BFSI News, ET BFSI

Banking & Finance

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The National Asset Reconstruction Company (NARCL) will have maximum impact on loan books of Bank of India (BoI), Union Bank and Punjab National Bank (PNB), which will sell over 1% of their loans to the bad bank. According to rating agency Crisil, the bad bank, or NARCL, will lower the NPA level of banks by 20-25% over time.

However, the immediate impact on the bottom line will be limited as lenders who sell loans in the first phase will receive just around Rs 2,700 crore upfront cash payment as against the Rs 90,000 crore of bad loans they sell to the corporation. Also, investing in the security receipts issued by NARCL will not increase the capital requirement of banks due to the government guarantee.

Of the Rs 2 lakh crore of bad loans to be transferred to NARCL, around Rs 30,600 crore will be guaranteed for five years. NARCL will pay 15% of whatever amount the loans are valued at, in cash. The remaining 85% will be paid using security receipts. According to a Jefferies report, the government guarantee will keep the security capital neutral as without the guarantee banks will have to set aside funds towards provisions. A sovereign guarantee being risk-free does not attract similar capital requirements.

“For the guaranteed part, banks will recognise the value as an investment but that will not require any capital for 5 years as there is government guarantee. For non-guaranteed part, banks might not recognise value until actual recovery is made,” the Jefferies report said.

According to the report, of the first lot, SBI will be transferring the biggest chunk of loans at Rs 20,000 crore. However, given the size, the sale will be only 0.8% of its loan book. While BoI, Union Bank and PNB will be selling much less at Rs 5,500 crore, Rs 7,800 crore and Rs 8,000 crore, their loans will be a much bigger chunk of their balance sheet. For BoI, the loans sold will be 1.5% of its book, 1.3% for Union Bank and 1.2% for PNB, Jefferies said.

“The sovereign guarantee will cushion security receipt investors against potential lower recoveries. This could, in turn, potentially enable the development of a secondary market in security receipts, which has proved elusive so far,” said Crisil senior director and deputy chief ratings officer Krishnan Sitaraman.

The loans sold to the bad bank include Rs 22,500-crore exposure to Videocon Oil Ventures, where SBI is the lead bank. Another large account is Union Bank-led account of Amtek Auto, which has Rs 9,014 crore of bank loans. IDBI is the lead banker in three large accounts — Reliance Naval, Jaypee Infra and GTL.



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MSMEs, retail loans to take bank NPAs to Rs 10 lakh crore by March 2022, BFSI News, ET BFSI

Banking & Finance

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Banks’ bad loans might cross Rs 10 lakh crore by the end of this fiscal, mainly on account of slippages in retail and MSME sectors, a study said.

“NPAs are expected to rise to 8.5-9 per cent by March 2022, driven by slippages in retail, Micro, Small and Medium Enterprise (MSME) accounts, besides some restructured assets,” the study by industry body Assocham and ratings firm Crisil said.

Reserve Bank of India (RBI) Governor Shaktikanta Das this month had said the current levels of non-performing assets (NPA) looks manageable.

At the end of June, the gross NPA level of the banking system was 7.5 per cent and the capital adequacy level was around 16 per cent, which gives an adequate cushion, Das said at an event.

MSME, retail hit

The current asset quality stress cycle will be different than that witnessed a few years back. NPAs then came primarily from bigger, chunkier accounts.

According to the study, this time, smaller accounts, especially the MSME and retail segments, are expected to be more vulnerable than large corporates, as the latter have consolidated and deleveraged their balance sheets considerably in the past few years.

Even though the restructuring scheme announced for MSMEs and small borrowers should prevent the NPAs from rising too much, there is an opportunity for stressed asset investors with expertise and interest in these asset classes, it added.

”The effectiveness of the Insolvency and Bankruptcy Code (IBC) will be tested by the potential spike in NPAs as the standstill on initiation of fresh insolvency cases for year ended in March 2021 and as most of the pandemic-induced policies or measures are unlikely to be continued”the study said.

IBC to rescue

The expected increase in GNPAs of both banks and non-banks this fiscal, because of the pandemic, will provide an opportunity for players in the stressed assets market through resolution via various routes, with IBC likely to be the most preferred.

However, the GNPAs of banks have declined from the peak seen in March 2018 and were lower as of March 2021 as against March 2020. Supportive measures, including the six-month debt moratorium, Emergency Credit Line Guarantee Scheme (ECLGS) loans and restructuring measures were among the main reasons.

According to the study, the risk management practices of Indian banks, especially public sector banks, have scope for improvement.

In the past, laws were not in favour of lenders and allowed erring promoters to exploit the tedious recovery procedure. This is borne out by the high number of wilful defaulters of banks, it noted.

”However, RBI has tightened norms for such defaulters and made stressed asset resolution norms more stringent. That, coupled with increased resolution of large-ticket NPAs under the IBC framework, have contributed to better recovery of NPAs,” the study said.

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