Tag: deposits

RBI report shows decline in bank credit post festival season pick-up

Banking & Finance

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The outstanding credit of all scheduled banks declined by ₹5,034 crore in the fortnight ended November 19, indicating the festival season credit pick-up witnessed in the preceding fortnight has lost steam.

In the preceding fortnight ended November 5 the outstanding credit of all scheduled banks had increased by ₹1,25,262 crore, according to Reserve Bank of India’s data on “Scheduled Banks’ Statement of Position in India”.

Sluggish loan growth

“Loan growth continues to be sluggish with no sharp recovery in any specific segment barring Small and Medium Enterprise.

“A low interest rate environment continues but spreads remain elevated. With asset quality issues gradually receding, we should see spreads decline but loan demand issues remain,” Kotak Securities Analysts’ MB Mahesh, Nischint Chawathe, Abhijeet Sakhare, Ashlesh Sonje and Dipanjan Ghosh, said in a report.

Deposits during the reporting fortnight declined by ₹2,67,623 crore against an increase of ₹3,38,451 crore in the preceding fortnight.

Deposit rates flat

As per the latest data from RBI, deposit rates were flat month-on-month at about 5.1 per cent.

“Both private and PSBs have reduced their term deposit rates by about 50 basis points (bps) over the past 12 months. Wholesale deposit cost (as measured by Certificate of Deposit rates) has seen a much sharper decline. It has been broadly stable in FY2022,” the Analysts said.

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Policy rate cuts transmission higher for depositors than borrowers

Banking & Finance

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Interest rates for borrowers and depositors have been on a downward march since February 2019, when the current easing cycle first began. But data from the RBI suggest that while the reduction in policy rates has not been entirely passed on to borrowers, depositors have seen deeper cuts on their returns, with the transmission being faster for them.

With the rate cycle expected to turn sooner than later, further transmission to borrowers seem unlikely, while depositors may begin to see higher returns when policy rates move up.

Further drop unlikely

While repo rate was cumulatively cut by 250 basis points (bps) since February 2019, the weighted average lending rates (WALR) on all outstanding bank loans fell by just 118 bps, until August 2021.

However, RBI’s sector-wise data on WALR (outstanding loans) reveal faster transmission of rate cuts in the lending rates for large industries, infrastructure, trade, and professional services — in the range of 181 to 226 bps, over March 2019 to August 2021. On the other hand, the WALR on retail loans such as housing, vehicle and education loans dropped only by 98 to 185 bps. MSMEs also saw a fall of just 182 bps in their WALR (outstanding loans).

In the past, the transmission of policy rate cuts to lending rates have been more sluggish, thanks to the banks’ reliance on internal benchmarks, that is, their own cost of funds. However, the RBI, in 2019-20, mandated banks to move to an external benchmark for select loan categories. These include all new floating rate personal or retail loans and floating rate loans to micro, medium and small enterprises (MSMEs).

Following this, the share of external benchmark-linked loans in total outstanding floating rate bank loans increased from 2.4 per cent in September 2019 to 32 per cent in June 2021. Owing to this, the WALR on fresh rupee loans offered by banks, dropped by 190 bps (vs 118 bps on an overall level) during February 2019 to August 2021. However, with Marginal Cost of Funds Based Lending Rate (MCLR) based loans still accounting for a lion’s share of 60 per cent of overall floating rate loans, the transmission of rate cuts is slower on an outstanding loans level (118bps as discussed above).

Much of the funds that banks lend to borrowers comes from depositors – including low cost Current Accounts and Saving Accounts (CASA). On the other hand, banks’ reliance on RBI’s repo operations is as low as 10 per cent. The current share of MCLR-based loans – 60 per cent of outstanding floating rate loans – makes it more difficult for banks to pass on the repo rate cuts to borrowers.

Hence, industry experts feel much of the drop in interest rates has already been given effect to and a further drop is highly unlikely.

 

Upturn to help depositors

With inflation data in the US for October coming in at a 31-year high of 6.2 per cent, markets in the US are now pricing in two rate hikes next year as against zero expectations of a hike a few months back.

In India, too, core inflation continues to remain sticky. Domestic inflation apart, the RBI may also have to consider interest rate hikes to defend the domestic currency. Given these factors, a turn in the interest rate cycle in India is expected sooner than later. This may be good news for depositors as, compared with lending rates, deposit rates move faster with change in policy rates. In the ongoing down cycle, weighted average domestic term deposit rates were slashed by 180 bps from February 2019 to August 2021, which is higher than the fall in lending rates during the same period.

Basis the data compiled by Bankbazaar.com on interest rates offered on bank deposits, the rate reduction of deposits of private banks was in the range of 75 to 285 bps on deposits with a tenure of less than two years compared with just 110 to 160 bps decline in rates offered by public sector banks, for similar tenures, during the same period.

Deposit rates of small finance banks too fell sharply — in the range of 175 to 275 bps — for deposits with tenure of less than two years.

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IndusInd Bank records 10 pc loan growth in Sep qtr, BFSI News, ET BFSI

Banking & Finance

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Private sector lender IndusInd Bank on Tuesday said it has posted a 10 per cent growth in advances at Rs 2,21,821 crore for the second quarter ended September 30. Net advances stood at Rs 2,01,247 crore at the end of the second quarter of the last financial year, IndusInd Bank said in a regulatory filing.

The bank’s deposits also rose by 21 per cent (year-on-year) to Rs 2,75,486 crore in the quarter under review, from Rs 2,28,279 crore in the same period a year ago, it said.

IndusInd Bank’s low-cost deposits — current account and saving deposits (CASA) — stood at 42.1 per cent of the total liabilities during the quarter.

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Timely recoveries crucial for profitability of sale-bound IDBI Bank, says Icra, BFSI News, ET BFSI

Banking & Finance

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Timely recoveries will be a key driver of net profitability for IDBI Bank, in the absence of which it may remain at sub-optimal levels in the near to medium term, rating agency Icra has said.

“IDBI Bank’s profitability includes one-time income driven by recoveries from fully-provided legacy stressed assets, and it has utilised the same for accelerated provisioning on other stressed assets and potential asset quality stress in future. Incremental slippages could remain high, given the reasonably large overdue book amid the weak operating environment and certain other vulnerable exposures, the rating agency said in a note while upgrading the rating for the Mumbai-based private lender’s bonds, debentures and tier-II capital instruments from “A” to “A+”

While the bank maintains one of the highest provision coverage ratios on its stressed assets, the timing of recoveries from these could remain uncertain, it said.

The rating upgrade

The rating upgrade factors in the sustained improvement in the credit profile of IDBI Bank Limited with expectations that the internal capital generation is likely to be sufficient for growth as well as for maintaining sufficient cushion over the regulatory capital requirements.

Due to the weak asset quality and capitalisation levels in the past, IDBI Bank was placed under the Prompt Corrective Action (PCA) framework, thereby placing curbs on fresh wholesale lending. This, coupled with increased provision levels on NPAs, resulted in a sustained decline in the net advances to Rs. 1.23 lakh crore as on June 30, 2021 from the peak level of Rs. 2.19 lakh crore as on September 30, 2016. In contrast, the bank’s deposit base moderated less sharply to Rs. 2.23 lakh crore as on June 30, 2021, from Rs. 2.66 lakh crore as on September 30, 2016, that too driven by bulk deposits.

NPA generation

The bank has guided towards the normalisation of NPA generation at 2.0-2.5% in FY2022. However, this will remain contingent on its ability to contain incremental slippages, even as the overdue book, as indicated by the special mention account (SMA)-1 and SMA-2 book (corporate book and retail book combined), remained high at 3.6% of standard advances as on June 30, 2021 (3.3% as on March 31, 2021 and 3.4% as on March 31, 2020).

On a forward-looking basis, normalised operating profitability is expected to remain better compared to past levels although elevated operational costs on a reduced scale along with the continued impact of the high share of low/non-yielding assets on profitability will continue to weigh down the operating profitability, the rating agency said.



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SBI, BFSI News, ET BFSI

Banking & Finance

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Retail depositors are earning negative returns on their bank deposits and hence, there is a need for reviewing taxes on interest earned, economists at the country’s largest lender SBI have said.

If not for all the depositors, the taxation review should be carried out for at least the deposits made by senior citizens who depend on the interest for their daily needs, the economists led by Soumya Kanti Ghosh said in a note, which pegged the overall retail deposits in the system at Rs 102 lakh crore.

Senior citizens hit most

At present, banks deduct tax at source at the time of crediting interest income of over Rs 40,000 for all the depositors, while for senior citizens the taxes set-in if the income exceeds Rs 50,000 per year. As the policy focus has shifted to growth, the interest rates are going down in the system which pinches a depositor.

“Clearly, real rate of return on bank deposits has been negative for a sizeable period of time and with RBI making it abundantly clear that supporting growth is the primary goal, the low banking rate of interest is unlikely to make a northbound movement anytime soon as liquidity continues to be plentiful,” the note said.

Bull run gives leeway

It said the current bull run in financial markets is possibly a break from the past as households may have got into the bandwagon of self-fulfilling prophecy of a decent return on their investment.

“We thus believe, it is now the opportune time to revisit the taxation of interest on bank deposits, or at least increasing the threshold of exemption for senior citizens,” the note said.

The RBI can also relook at the regulation that does not allow interest rates of banks to be determined as per age-wise demographics, it said.

It can be noted that at present, banks are lending for as low as under 7 per cent for retail loans and have been public with their preference to lend to highly-rated corporate borrowers, where the lending rates get very competitive.



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Should you invest in Hawkins Cooker FD opening for booking on September 15?

Personal Finance

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With interest rates bottoming out, fixed income investors have been scouting for options with higher returns. But higher returns invariably mean higher risk. Consider the case of the FD scheme of Hawkins Cookers. The company is offering 7.5 per cent per annum for deposits with a tenure of 12 months. For deposits of 24 and 36 months, the rates offered are 7.75 per cent and 8 per cent per annum, respectively. These rates are higher than many others in the market today.

But the flipside is that FDs of Hawkins are rated ‘MAA’/Stable rating by ICRA. While this rating implies high credit quality and low credit risk, it is a couple of notches below the highest rating of ‘MAAA’ — indicating that the Hawkins deposit has higher risk than the safest deposits in the market today.

Investors who can take such higher risk for higher returns can consider the FD scheme of Hawkins that opens on Wednesday, September 15, 2021. Interested investors should note that they should pre-register for the FDs on the company’s website (https://www.hawkinscookers.com/fd2021.aspx), beginning 9:30 am. Once you register, you will get a pre-acceptance number and the payment has to be made within 10 days, with a filled in FD application form. If the pre-accepted numbers cross the threshold amount (₹28.17 crore) which the company intends to raise through FDs, you will be put on a wait-list. Wait-listed applications will be considered if pre-approved applicants fail to pay within the stipulated time.

At the current juncture, locking into deposits with longer tenures could mean missing out on higher returns when the rate cycle begins to move up. A one- to two-year time-frame hence, seems better, as this could perhaps give the opportunity to reinvest at higher rates later on.

Why FD investors get the short end of the stick under waterfall mechanism

The company accepts a minimum of ₹25,000 as deposit and in multiples of ₹1,000 thereafter — up to a maximum of ₹20 lakh. Investors can choose from the cumulative and non-cumulative options. Under the former, interest will be compounded at monthly rests and paid on maturity, along with the principal. A deposit of ₹25,000 will fetch ₹26,941/ 29,177/31,756, at maturity, for tenures of 12/24/36 months, respectively. For non-cumulative deposits, interest will be paid out on half-yearly basis.

Given the relatively higher risk, it is recommended that investors restrict their investments to the minimum amount. Also, it will suit those with a bigger investible surplus on hand as they can park only a portion of their surplus here.

Better rates than others

The interest rates offered by Hawkins are relatively higher across tenures. For a 12-month deposit, while public sector banks offer 4.25-5.15 per cent, private banks offer up to 6 per cent, and small finance banks (SFBs) offer up to 6.5 per cent — Hawkins offers 7.5 per cent. For tenures of 24/36 months, banks currently offer up to 7 per cent, while Hawkins offers 7.75 and 8 per cent, respectively.

But the relatively lower rates offered by banks on their deposits are commensurate with their relatively higher safety. FDs with banks (including those with SFBs) are covered under the deposit insurance offered by DICGC, for up to ₹5 lakh per bank. This cover is not available for corporate FDs such as those of Hawkins.

The rates offered by Hawkins are 150 to 220 basis points higher than those offered by NBFCs, such as Bajaj Finance and Sundaram Finance. But these deposits have a higher credit rating (AAA), indicating better safety.

Even among its peers with about similar rating, the rates offered by Hawkins score better. For instance, Shriram Transport Finance’s deposits, rated MAA+ by ICRA (also rated FAAA by CRISIL), offer 6.5/6.75/7.5 per cent per annum and tenures of 12/24/36 months, respectively. JK Paper has a similar rating (‘FAA’/Stable by CRISIL), but the interest rates offered by it are 50-75 basis points lower than those offered by Hawkins, across tenures.

About the company

Hawkins is one of the leading manufacturers of pressure cookers in India with a wide distribution network (the brand has second highest market share of 34.9 per cent). The company has also diversified its product portfolio into other cookware products that constitute about 20 per cent of its turnover.

However, Hawkins is a small company, both in terms of turnover and market capitalisation (₹3,281 crore).

While the company’s revenue grew by 10.3 per cent compounded annual growth rate (CAGR) over FY16 to FY19, the growth was muted in FY20 — 3.2 per cent (y-o-y) to ₹674 crore, owing to the Covid-19 lockdown restrictions in March quarter. In FY21, however, with the company upping its online presence, sales saw a re-bound and grew by 14 per cent (y-o-y) to ₹768 crore.

Net profit grew by 14.5 per cent CAGR over FY16 to FY21 to ₹80.6 crore.

Hawkins plans to meet its working capital requirements from this FD scheme, apart from using the money as a buffer for any unforeseen exigencies. The company has unencumbered cash and liquid investments of ₹167 crore in FY21 compared to ₹48.5 crore as of March 31, 2020, owing to shorter debtor turnover days during the year (revised policy in FY21). Besides, as per ICRA’s rating rationale, the company also has largely unutilised working capital limits, which provide a liquidity cushion.

The company is net-debt free, and its debt to equity ratio is healthy at 0.13 times as of March 2021.

All you wanted to know about NRI bank fixed deposits

While the lockdowns initially impacted the sale of its products, the WFH scenario has helped boost their demand, thereafter. In the recent June quarter, the company’s top line soared by 50 per cent over the year ago period to ₹151.45 crore. Besides, while continuing fixed costs despite abysmal sale volumes and rising input prices dented its profits last year, the company raised prices by 5-10 per cent this year. Following the price rise and sales getting back to normal, its net profits inched up to ₹17.13 crore during June 2021 quarter, compared to ₹6.45 crore in the corresponding quarter last year.

Conservative investors who prefer full safety of capital over returns may avoid this offer, given its lower credit rating and the unsecured nature of the deposits.

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Sundaram Finance to revise interest rates on deposits, BFSI News, ET BFSI

Personal Finance

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Chennai, Aug 6

K Surendran BJP state president (File photo)

Non-banking finance company Sundaram Finance Ltd has announced a revision in interest rates on its deposits with effect from August 8, the company said on Friday. According to a company press release, the interest rate on fresh deposits and renewals stand revised to 5.50 per cent per annum as against 5.75 per cent earlier, for deposits with a tenure of 12 months

Interest rates have been revised to 5.65 per cent per annum as compared to the earlier 6 per cent, for deposits with a tenure upto 24 months.

For deposits upto 36 months, the interest rates have been revised to 5.80 per cent as against 6.25 per cent earlier, a company statement said.

For senior citizens, the interest rate on deposits have been revised to 6 per cent per annum as compared to 6.25 per cent for deposits of upto 12 months, 6.15 per cent per annum for deposits upto 24 months as compared to the earlier 6.50 per cent.

For deposits upto 36 months, the interest rates have been revised to 6.30 per cent as compared to 6.75 per cent earlier.

As on March 31, 2021, Sundaram Finance said its deposit base stood at Rs 4,021 crore.



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SBM Bank ties up with 30 FinTechs to grow deposits, BFSI News, ET BFSI

Banking & Finance

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Mumbai: SBM Bank, a wholly-owned subsidiary of State Bank of Mauritius, has partnered with 30 fintech firms as a part of its strategy to acquire customers using the ‘banking as a service’ model.

Under this, the FinTechs provide an interface for customers, and the bank delivers the network effect by providing not just the banking platform but also access to other fintech services that it has partnered with.

SBM earlier operated as an Indian branch of its parent doing wholesale banking and did not have any electronic interface like internet or mobile banking. In end-2018, the bank got a full-fledged bank licence. “This enabled us to leapfrog in terms of IT and provide a new technology stack to the customer,” said MD & CEO Sidharth Rath. According to him, the bank took a call to build a liability (deposit) franchise first. “Building a branch network is expensive and it costs as much as Rs 1-1.5 crore to set up a branch. For us, the lockdown was a blessing as it hastened the move to digital,” he added.

The FinTechs the bank has partnered with include Paisabazaar, through which it issues innovative products like a secured credit card. Young people and others who are otherwise ineligible for credit cards can instantly open a fixed deposit online and get a secured credit card. Once they build a track record of paying bills in time, they are eligible for a regular card.

Similarly, through a partnership with PayNearby, the bank can get small recurring deposits through the ‘Bachat Khata’ offered by the FinTech, which offers business correspondent services on the digital platform. The bank can offer customers immediate cross-border payments through its partnership with Nium. Other partners include RedCarpet, EnKash, Karbon, Finin, Open and Kodo.

“While we are present in only eight cities with physical branches, we have opened accounts in 500 cities with these digital accounts. This will continue to grow because the relationships have just about started,” said Neeraj Sinha, head (consumer & retail banking). Another advantage that SBM is exploiting is that of its offshore parent, which enables the bank to facilitate remittances under the RBI’s Liberalised Remittance Scheme for purchasing shares or other assets through a foreign currency account. Additionally, SBM’s model gains from the fact that it is not capital-intensive. The bank, which started out with Rs 500 crore, has added another Rs 100 crore to its capital base and has managed to generate profits from its first year of business.



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Bandhan Bank advances, deposits decline in Q1

Banking & Finance

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Bandhan Bank registered a decline in advances and deposits on a quarter-on-quarter basis during the April-June 2021 period.

While advances have declined by nearly eight per cent at ₹80,128 crore during the June quarter as compared to ₹87,043 crore in the January-March quarter; deposits declined marginally by around one per cent at ₹77,336 crore during the quarter as compared to 77,972 crore in the March quarter.

However, on a year-on-year basis, advances and deposits grew as compared to the same period last year, the bank said in its initial disclosure to stock exchanges on Thursday.

Advances grew by eight per cent as compared to ₹74,331 crore during the June quarter last year; deposits grew by 28 per cent from ₹60,610 crore last year.

CASA deposits grew by 48 per cent at ₹33,197 crore (₹22,473 crore).

Collection efficiency for June 2021 was around 80 per cent. Within that, collection efficiency for emerging entrepreneurs business including microloans, stood at 72 per cent while non-micro loans were at 96 per cent. The liquidity coverage ratio as on June 30, 2021, was at around 138 per cent.

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