Tag: Crisil

Analysts, BFSI News, ET BFSI

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The Reserve Bank may be hitting the end of its tolerance for high inflation and will most likely hike interest rates in the first half of 2022, analysts said on Friday.

The central bank will also start rolling back its accommodative policies which have led to easy liquidity conditions, they said.

The view from analysts came even as inflation cooled down to 5.6 per cent for July, after two months of breaching the upper end of the RBI‘s tolerance band of 6 per cent.

The central bank has been keeping the status quo on policy and continuing with the accommodative stance to help revive GDP growth.

Finance Minister Nirmala Sitharaman had on Thursday opined that the current conditions do not warrant withdrawal of the accommodative measures.

“The RBI has been tolerant of inflation and has stayed accommodative to support growth given the deep hit suffered by the economy. But it appears to be reaching the end of tether as inflation remains elevated,” rating agency Crisil said.

“If this pressure (on inflation) continues and systemically important central banks, especially the (US) Fed, begin normalising, the RBI will start to roll back accommodation. We expect the RBI to make a more definitive statement by this fiscal end, and raise rates by 0.25 per cent,” it added.

Its peer Acuite said it expects policy normalisation to begin in a gradual fashion with comfort on vaccination, clarity on fiscal stance, and global rates setting and called the increase in the quantum of variable reverse repo auctions as the first small step towards the same objective.

Next, the central bank can look at increasing the reverse repo rate by 0.40 per cent to narrow the difference between repo and reverse repo rate to 0.25 per cent by February 2022, it said, adding that the repo will be unchanged at 4 per cent.

In parallel, the vaccination drive is expected to lead to herd immunity and thereafter, the RBI will follow up with a 0.25 per cent rate hike in April 2022, it said.

Analysts at Japanese brokerage Nomura said last week’s review had signs of RBI policy pivoting towards normalization, pointing out to one of the members of the monetary policy committee also dissented against the “accommodative stance” and the increase in FY22 headline inflation target to 5.7 per cent.

“The August policy meeting already bore initial signs of a policy pivot via calibrated liquidity normalisation. We believe this will be followed by the phasing out of durable injectors of liquidity, a 0.40 per cent reverse repo rate hike (in December quarter) and 0.75 per cent of repo/reverse repo rate hikes in 2022,” it said.



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Share of upgraded listed debt issues at a three-year high for ICRA and Crisil in Q4 FY21: FSR

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The share of upgraded listed debt issues was at a three-year high for two rating agencies while the share of downgraded listed debt issues in total outstanding ratings fell in the fourth quarter of 2020-21 as against previous quarters.

This was revealed by the Financial Stability Report, July 2021 of the Reserve Bank of India.

“On an aggregate basis, the share of downgraded listed debt issues in total outstanding ratings declined significantly during the fourth quarter of 2020-21 vis-à-vis earlier quarters, while the share of upgraded listed debt issues was at a three-year high for both ICRA and CRISIL,” the FSR said.

For ICRA, upgraded and re-affirmed listed debt issues was 99.8 per cent in the fourth quarter of last fiscal while downgraded and suspended issues were 0.2 per cent. This is in contrast to just 88 per cent upgraded and re-affirmed listed debt issues in the fourth quarter of 2019-20.

Similarly, in the case of Crisil upgraded and re-affirmed listed debt issues was 99.9 per cent in the March 2021 quarter versus 91.2 per cent in the fourth quarter of 2019-20.

For Care Ratings too, upgraded and re-affirmed listed debt issues had risen to 95.2 per cent in the fourth quarter of 2020-21 as against 78 per cent in the same period in the previous fiscal.

“Out of the rating downgrades during the fourth quarter of 2020- 21, the share of the NBFC and housing finance company sectors as well as banks and financial services went down significantly as compared to the preceding quarter,” the FSR further noted.

In the quarter ended March 31, 2021, the rating downgrades for NBFCs accounted for 11.1 per cent of the overall downgrades in the quarter as against 28.6 per cent in the December 2020 quarter.

The share of banks, financial services in rating downgrades was nil in the March 2021 quarter versus 11.9 per cent in the previous quarter.

The power sector had the largest share of rating downgrades in the March 2021 quarter at 38.9 per cent as against 38.1 per cent in the previous quarter.

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Crisil fears large companies will benefit from RBI sops for contact-intensive sectors, BFSI News, ET BFSI

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Leading domestic ratings agency Crisil on Friday said feared risk aversion among banks may lead to only the large companies benefitting under the Rs 15,000-crore on-tap liquidity window for contact-intensive sectors announced earlier in the day. The Reserve Bank of India‘s (RBI) aggregate debt-eligibility thresholds for small enterprises to avail loan recasts takes the total number of entities able to access the facility to two-thirds of the rated mid-size portfolio, it said.

Earlier in the day, the RBI relaxed the eligibility criteria for the restructuring window offered under the Resolution Framework 2.0 to Rs 50 crore. Earlier, only half of the rated companies were eligible for the package when the loan eligibility threshold was set at Rs 25 crore. It also launched the Rs 15,000-crore liquidity facility.

The on-tap liquidity window for contact-intensive sectors such as hospitality, travel and tourism, and aviation ancillary services, which have borne the brunt of the second wave of the pandemic, is timely also, the agency said.

“There is a possibility that only large existing borrowers in contact-intensive sectors actually benefit from this on-tap liquidity window as banks may have greater comfort with them,” the agency said.

In the current environment, it is possible that a number of banks could be risk-averse and the benefit of on-tap liquidity facility may not, therefore, reach the smaller and lower-rated companies in these sectors fully, it said.

A clarity will emerge once the banks come out with their updated policies after the RBI announcement. Crisil will monitor the impact of the development on its rated credits on a case-to-case basis, it said.

Crisil said it rates 6,800 mid-size companies, excluding those engaged in the financial sector, and 4,700 of those are small and medium enterprises (SMEs), having bank loan exposure of up to Rs 50 crore and were standard accounts as of March 2021.

“The RBI’s relaxation in overall bank exposure threshold is timely, as it now increases the coverage of stressed companies that typically have weaker credit profiles,” its Chief Rating Officer Subodh Rai said.

Rai added that three out of four companies eligible for restructuring have sub-investment category ratings, indicating their relatively weak ability to manage liquidity shocks, he added.

Rescheduling of loan repayments under the restructuring 2.0 window will provide interim relief to these companies against such liquidity shocks, he said.



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Private banks’ net advances grow in March quarter

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The largest private lender HDFC Bank has shown a 13.9% year-on-year (y-o-y) growth in the loan book.

Private lenders have reported an improvement in the net advances during the March quarter (Q4FY21), according to provisional data released by the banks. While the largest private lender HDFC Bank has shown a 13.9% year-on-year (y-o-y) growth in the loan book, Federal Bank reported over 9% y-o-y growth in the advances. Similarly, IndusInd Bank has shown a 3% y-o-y increase in the net advances during the March quarter.

Although, Yes Bank has registered a meagre 0.8% y-o-y loan growth, its retail disbursements more than doubled to Rs 7,828 crore during Q4FY21. The provisional data also suggests a robust deposit growth for private lenders.

While Yes Bank’s deposits grew 54.7% y-o-y, IndusInd Bank registered a 27% deposit growth during the March quarter.

Similarly, HDFC Bank has shown a 16.3% y-o-y growth and Federal Bank showed a 13% growth in its deposit base.

The growth was supported by a strong current account savings account (CASA) deposits rise of 51.8% in Yes Bank, 27% growth in HDFC Bank and 26% in Federal Bank. In early March, rating agency Crisil said that in FY21, bank credit was seen rising 4-5%. This was a revision of the rating agency’s projection from June 2020, when they had expected the bank credit growth to be 0-1%.

In FY22, Crisil expects the bank credit to bounce back to 9-10% levels, driven by a pick-up in corporate credit, the government’s infrastructure push and a likely revival in demand. According to RBI’s latest bulletin, private banks clocked a credit growth of 8.6% y-o-y till February, 2021. The bulletin also mentioned that credit growth of scheduled commercial banks (SCBs) appears to have bottomed out as it grew at 6.6% y-o-y in February, 2021. Later, the non-food credit grew at 6.44% y-o-y for the fortnight ended March 12, 2021.

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Government not inclined to bear loan moratorium costs, BFSI News, ET BFSI

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The government is not inclined to bear the burden arising of the recent Supreme Court judgement on a blanket waiver of compound interest or interest on interest on all loan accounts which opted for moratorium during March-August 2020.

“They (banks) are well-poised to handle this and we don’t see any space for government relief,” said a senior government official.

The government has already compensated banks for the interest on interest they had lost on loans outstanding below Rs 2 crore. Analysts estimate the additional cost to reimburse banks for all loans at Rs 7,000-10,000 crore.

“There is no directive from the court ordering the government to bear this cost,” the government official said on the condition of anonymity.

Since there is no deadline to refund the compound interest they have charged, banks can stagger the payment depending on individual account period and other conditions. A final call would be taken shortly, he said.

In its ruling last week, the Supreme Court refused to extend the moratorium beyond August 31, 2020 but directed lenders to waive interest on interest for all borrowers.

According to ICRA estimates, the compounded interest for six months of moratorium across all lenders was around Rs 13,500-14,000 crore, and the relief already extended over loans up to Rs 2 crore had cost the exchequer about Rs 6,500 crore.

A Macquaire research report has put the additional amount at around Rs 10,000 crore.

On account of the stress due to the Covid-19 pandemic, the Reserve Bank of India had announced the loan moratorium scheme to grant temporary relief to borrowers for payment of instalments due between March and August 2020.

The apex court in its judgement observed that the government and the central bank would decide on economic policy based on expert opinion. It further said a waiver of complete interest was not possible as it would affect depositors. The court ruled out an extension of the period of loan moratorium and any specific sector-wise relief.

According to Crisil Ratings, standstill on recognition of non-performing assets (NPAs) had tied the hand of lenders and consequently impacted the credit discipline of borrowers.

“Withdrawal of the same will enable lenders to enforce various legal measures and support their recovery efforts,” it said in a note.



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CRISIL upgrades Muthoot FinCorp’s rating to A+

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CRISIL has upgraded its rating of Muthoot FinCorp Ltd from ‘ A’ (Stable) to ‘A+ (Stable)’.

The CRISIL rating upgrade underscores a high degree of safety regarding the timely servicing of the company’s NCDs (non-convertible debentures) — they carry very low credit risk, a statement issued here said.

Thomas John Muthoot, Chairman and Managing Director, said: “The rating upgrade by CRISIL is very significant in strengthening the confidence of our lenders and retail investors. The upgrade will also enable the company to widen its retail and corporate investor base.”

The rating signals that Muthoot FinCorp’s business profile will continue to be supported by its established market position in the gold loan segment, strengthened by the promoters’ extensive experience in the gold loan industry, healthy asset quality, and improving earnings profile in the gold loan portfolio, he said.

During the financial year, the company, through three public issues, has raised NCDs to the tune of ₹1,138.59 crore. In addition, the company issued NCDs via private placement to banks amounting to ₹1,750 crore and raised market-linked debentures (MLD) of ₹997 crore.

The company’s gold loan business AUM (assets under management) grew 24 per cent during the last three-quarters of the current fiscal. It is expected to grow by 28 per cent for FY2020-21. The company has maintained healthy asset quality over the years, as reflected in its gross non-performing assets of 1.0-1.8 per cent under the gold loan portfolio being maintained during the past five fiscals.

In the current financial year, MFL has disbursed about ₹38,000 crore to 75 lak customers, of which 45 lakh are nano, micro or small enterprises.

The rating upgrade is the reflection of the company’s healthy performance in its core gold loan portfolio, its established position in the country’s gold loan business, its strong fundamentals, its healthy performance manifested by steady growth in assets under management, sound asset quality and increased earnings profile, the company claimed.

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Crisil: Credit ratio nears 1 as rating upgrades pick up speed

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Rating agency Crisil, on Monday, said its credit ratio (upgrades to downgrades) has been inching closer to 1 between October and February this fiscal, with a recovery in demand that has led to “guarded optimism” about the credit quality of India Inc.

“These five months saw as many as 244 upgrades compared with 208 for the whole first half,” it said, adding that downgrades continue to be material because the end of moratorium on debt servicing has impacted vulnerable companies.

According to Subodh Rai, Chief Ratings Officer, Crisil Ratings, the improvement in credit ratio was driven by more upgrades in moderately resilient sectors such as construction, engineering and electricity generation, which got support from the relaxation of lockdown, revival in demand and higher commodity prices.

“In comparison, the credit ratio for the first half had fallen to a decadal low of 0.54,” he said.

The agency said the turnaround has been sharper in investment-linked sectors such as construction and engineering, and consumption-linked sectors such as packaging. The credit ratio in these sector has already doubled, compared with the first half, supported by macroeconomic revival.

But in low-resilience sectors such as hotels and resorts, real estate developers and airport operators, downgrades continue to outpace upgrades due to their discretionary nature and leveraged balance sheets.

Akshay Chitgopekar, Director, Crisil Ratings, said: “We maintain a cautiously optimistic outlook on credit quality for the near to medium term, supported by normalisation of economic activity, good agriculture performance and sustained rural demand, and the Budget proposal to infrastructure investments.”

Second wave

He, however, warned of a second wave of pandemic – especially with mutations that undermine the effectiveness of vaccines – leading to containment measures can derail the ongoing recovery.

According to Crisil, other downside risks to the outlook include slower-than-anticipated demand growth, especially for services, continuing job losses, and sub-par implementation of the growth-oriented fiscal measures in the Union Budget.

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Bank loan growth likely to double next fiscal, BFSI News, ET BFSI

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Bank loans are growing at a slower pace while deposits are clipping ahead fast.

The non-food bank credit grew at 5.7% in January 2021 as against an increase of 8.5 per cent in the same month last year, according to RBI data.

As on February 12, outstanding bank loans stood at over Rs 107 lakh crore, which was up 6.6% on year. However, on a fortnightly basis, outstanding loans fell by Rs 1,040 crore between January 29 and February 12.

The contraction

Loans to industry contracted by 1.3% in the reporting month as compared to 2.5%growth in the same period last year, mainly due to contraction in credit to large industries, the data showed.

Credit growth to the services sector decelerated year-on-year moderately to 8.4% in January 2021 from 8.9%.

However, credit to transport operators and trade continued to perform well during the month, registering accelerated growth.

Personal loans growth decelerated by 9.1% in January 2021 compared to 16.9% a year ago, the data showed.

Deposits

However, deposits are going strong as people tend to save money during uncertain times.

As on February 12, bank deposits stood at nearly Rs 148 lakh crore, up 11.8% on year, while investment by banks was 17.9% higher at close to Rs 45 lakh crore.

Due to lower credit demand, banks were forced to park their surplus deposits in investments such as government bonds and corporate debt papers.

Why the drop?

Experts say credit growth has been supported for the last few months by retail loans, especially home loans, along with disbursements to micro, small and medium enterprises under the government’s Emergency Credit Line Guarantee Scheme.

However, companies have restricted their borrowing from banks and some are tapping the bond market for their credit requirements.

Also, the availability of low-cost funds under the RBI’s targeted long-term operations has hit credit growth.

According to CRISIL Ratings, corporate credit growth is likely to contract this financial year as the companies have put capital expenditure on the back burner.

The silver lining

Bank credit is expected to grow at a higher pace during the next fiscal by at least 9% to 10%. This is in contrast to the bank credit growth which was seen rising at around 4% to 5%, despite the Covid-induced contraction.



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CRISIL upgrades rating of Muthoot Finance’s long-term debt facilities to AA+

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CRISIL Ratings has upgraded its ratings on the long-term debt facilities of Muthoot Finance to ‘CRISIL AA+/Stable’ from ‘CRISIL AA/Positive’.

CRISIL Ratings, in its rating rationale, has stated: “The upgrade is driven by Muthoot Finance’s demonstrated ability to profitably scale up its core gold loan business while maintaining its strong financial risk profile.” It added that an “established track record and brand name in gold financing industry, strong capitalisation and profitability among the best in the industry, which is expected to remain healthy, are the strengths of Muthoot Finance Ltd.”

The AA+ rating is just one level below ‘AAA’ rating, which is the highest rating for long-term debt instruments. Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.

The rating upgrade will enable the company to raise more long-term debt funds as well as attract a wider set of investors. It can further attract investments from retail investors in the public issue of non-convertible debentures (NCDs) in which the company has a track record of 24 issuances raising ₹17,392 crore cumulatively. Moreover, the company will be able to raise funds at much more competitive rates.

George Alexander Muthoot, Managing Director, said: “This is another golden feather in the cap for Muthoot Finance, and it is a recognition of its leading and long-sustained track record in gold loan business. With this rating upgrade, Muthoot Finance has become one of the few NBFCs that has achieved this rating level on a standalone basis without any parental support factored in rating.”

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