Tag: deposits

RBI sees Rs 2 lakh crore hit from Covid; medical spends depleting deposits, cash fast, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India has estimated that the second wave may result in a Rs 2-lakh-crore loss in output during the current fiscal even as it said speed and scale of vaccinations will determine economic recovery.

The RBI’s output loss is factored into its revised GDP forecast in the latest monetary policy estimates, where it slashed growth projections from 10.5% to 9.5%.

The projection was on the assumption that real GDP will grow by 18.5% in the first quarter, which is on a much lower base given the contraction last year.

“By current assessment, the second wave’s toll is mainly in terms of the hit to domestic demand. On the brighter side, several aspects of aggregate supply conditions – agriculture and contactless services are holding up, while industrial production and exports have surged amidst pandemic protocols,” the central bank said.

A loss of economic output may not have a direct corelation with the GDP, but points to some loss in the value-addition across the economy, it said.

Deposits, cash depleting

The RBI said the rate of decline in deposits has been higher, indicating that household savings have dropped in sharp contrast to the first wave. “Additionally, currency holding with the public has also decelerated significantly to 1.7% during April 2021 in comparison to the growth of 3.5% a year ago, implying heavy outgo towards Covid-induced medical expenditure.”

The move ahead

The report highlights the advantages of repurposing and reprioritising revenue and expenditures to extract “bang for the buck”. The report said that the public sector can lead the private sector in unlocking growth opportunities. In addition, it can partner the private sector, and step back to allow the private sector to take the lead in sunrise areas.

“While has tested the limits of flexibility in fiscal policy frameworks in India as in the rest of the world, it has offered a unique opportunity to redefine fiscal policy in a manner that emphasises ‘how’ over ‘how much,” the report said.

The report, authored by RBI deputy governor M D Patra highlights the finance ministry estimates that to achieve herd immunity and regain recovery momentum, the target population to be vaccinated is 70 crore by September 2021 and around 113 crore more doses are needed. Accordingly, around 93 lakh vaccinations are required per day to achieve the herd immunity.

Covid wave weakening

RBI observed that the second wave is rolling back almost as fast as it rolled in. On June 14, the daily cases fell to a seventh of their peak of 4,14,188 a month ago (May 6). The seven-day average, which smooths out daily fluctuations, also declined by a fifth from its peak of close to 4 lakh. This is also reflected in the doubling rate, which increased to 247 days from its trough of 34 days at the end of April.

Supply bottlenecks

While the surge in inflation may have a lot to do with pandemic base effects, it is also fuelled by years of underinvestment having made the supply response less dynamic, exacerbated by supply chain bottlenecks, the RBI said. “In this situation, monetary policy is hostage to its own stance and loose financial conditions that it creates will cause excessive risk taking in markets even as inflation migrates upwards,” it said.



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All you wanted to know about NRI bank fixed deposits

Personal Finance

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With central banks world over resorting to easy monetary policy, interest rates have plunged to all-time lows. If you are an NRI the rates offered on fixed deposits by banks in India may, however still be relatively higher when compared to those on fixed income investments in countries where you currently reside – be it the USA, UK, Australia, Saudi Arabia, or Denmark.

NRIs can invest in bank FDs in India either in Indian rupees or foreign currency. The rupee-denominated bank deposits can be NRE or NRO depending on the source of the money being invested. If income has been earned in India, the money must be deposited in an NRO (Non Resident Ordinary) deposit only. In other cases, an NRE (Non Resident External) deposit will be opened.

Those wishing to keep the money in the currency of the country where they currently live, can choose between FCNR (Foreign Currency Non Repatriable) Deposits and RFC (Resident Foreign Currency) deposits. These FDs fetch interest income in foreign currency and help save on costs (also losses at times) on account of currency conversion. Most banks accept FCNR deposits in currencies such as the Great Britain Pound, the US Dollar, the Euro, the Canadian Dollar, the Japanese Yen, and the Singapore Dollar.

However, in case of RFC deposits, banks mostly accept deposits in the Great Britain Pound and the US Dollar. The RFC deposits are mostly a preferred choice for those who wish to return to India or have already returned to India. RFC deposits, which can be held for a maximum tenure of three years, allow such NRIs to park incomes earned abroadon their return to India. These deposits help save taxes when you lose your ‘non-resident’ status as per the tax laws.

Not only do these different deposits available for NRIs offer varying interest rates but their taxability and the rules of repatriation also differ. To help you choose better, here is a lowdown on their varying features.

Returns and taxes

The rates offered on NRO and NRE term deposits are mostly at par with those offered to resident deposit holders. The tenure too is similar. In the case of NRE term deposits alone, however, most banks do not offer deposits for less than a year’s term.

Currently, Indian banks offer interest rates in the rage of 4.9 to 6.5 per cent per annum, on deposits with tenures ranging from one to five years.

That said, since the interest earned on NRE deposits is exempt from taxation in India, the post-tax return is higher for these deposits. The interest earned on NRO deposits, which comprise monies earned in India is taxed as ‘income from other sources’. Besides, the tax rate is as per the DTAA (Double Taxation Avoidance Agreement) between India and the respective country. Under Section 80 C of the Income tax Act, while investments in certain NRO deposits (tenure of five years or more) are eligible for tax deduction, the interest earned on the same continues to be taxable.

The interest rates offered on FCNR and RFC deposits vary according to the currency and the tenure selected. For instance, SBI offers interest rates in the range of 0.66 to 1.38 per cent per annum on its USD denominated deposits for 1 to 5 year tenures. While for the Euro denominated deposits of a similar deposit, the bank offers 0.01 to 0.15 per cent per annum.

The interest earned on FCNR deposits is tax-free for all NRIs, while that on RFC deposits is exempt only for taxpayers defined as resident but not ordinarily resident per the IT Act. For other NRIs, interest earned on RFC Deposits shall be taxable.

Repatriable or not

For NRIs, repatriation of funds might also play a crucial role in deciding the kind of deposit. Funds deposited in NRE, FCNR or RFC deposits are fully repatriable —both principal and interest. In the case of NRO deposits, while the interest earned on such deposits can be freely repatriated, the principal amount deposited is repatriable only subject to conditions.

Since the amount deposited in NRO accounts construes monies earned in India, repatriation is allowed only in the cases of certain current incomes such as rent, dividend, and pension. The RBI permits free repatriation (without prior approval) of up to USD 1 million, per financial year from such balances held in NRO accounts (along with other eligible assets), subject to tax payment.

Joint holders

While two or more NRIs can freely open a joint account in any of the above deposits, a joint deposit account with any person resident in India (irrespective of their relationship with the NRI) is permitted only in the case of an NRO account, that too on a ‘former or survivor’ basis. This means that in such joint deposits, the primary holder (NRI) will operate the account in all circumstances except in case of his/her death. Only in case of death of the first person, the joint holder will be eligible to operate the account.

For NRE, FCNR and RFC deposits, joint deposits with residents are permitted on a ‘former or survivor’ basis, only with their resident relatives These relatives include spouse, parents, siblings, and children and their respective spouses. The resident relative can, however, operate the account as a Power of Attorney holder during the lifetime of the NRI/ PIO account holder.

Akin to the term deposits discussed above, NRIs can also open a savings account, current account or a recurring deposit. Again depending upon the source of income, these can be either NRE/NRO accounts.

Do note that FCNR and RFC are choices available in term deposits only. Unlike term deposits, such savings/ current accounts can come in handy for meeting regular expenses of your dependants in India.

NRO, NRE deposit rates are at par with offers for residents

Interest earned on NRE deposits is exempt from taxation in India

NRE, FCNR or RFC deposits are fully repatriable

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Private sector banks increased share in deposits, credit at the cost of PSBs in FY21: RBI

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Bank credit growth decelerated while aggregate deposit growth accelerated in March even as the share of private sector banks in total deposits and credit of scheduled commercial banks (SCBs) increased during 2020-21 at the cost of public sector banks, according to the Reserve Bank of India (RBI).

Bank credit growth decelerated to 5.6 per cent year-on-year (yoy) in March from 6.4 per cent a year ago, according to RBI’s ‘Quarterly Statistics on Deposits and Credit of SCBs: March 2021’.

Public sector and private sector banks credit growth slowed to 3.6 per cent (4.2 per cent in March 2020) and 9.1 per cent (9.3 per cent), respectively, during 2020-21. Lending by foreign banks contracted 3.3 per cent vs 7.2 per cent growth

Combined credit by bank branches in top six centres (Greater Mumbai, Delhi, Bengaluru, Chennai, Hyderabad and Kolkata, which together accounted for over 46 per cent of total bank credit) declined marginally during 2020-21, the RBI said.

Deposit growth picks up

According to RBI data, credit by bank branches in metropolitan areas (includes all centres with population of 10 lakh and above) declined to 1.7 per cent in March 2021 from 4.8 per cent in March 2020. Bank branches in urban, semi-urban and rural areas, on the other hand, recorded 9.4 per cent (8.8 per cent in March 2020), 14.3 per cent (8.4 per cent) and 14.5 per cent (11.5 per cent) credit growth, respectively, during the year.

Aggregate deposits growth accelerated to 12.3 per cent yoy in March 2021 from 9.5 per cent a year ago.

Metropolitan branches, which account for over half of total deposits, recorded nearly 15 per cent growth during 2020-21 from 6.9 per cent a year ago. However, aggregate deposits of branches in rural and semi-urban areas declined to 6.9 per cent (15.5 per cent) and 9.3 per cent (12.3 per cent), respectively.

Aggregate deposits of branches in urban areas increased to 11.4 per cent (10.5 per cent).

RBI said the share of current account and savings account (CASA) deposits in total deposits increased to 44.1 per cent in March from 42.1 per cent a year ago.

Lower growth in credit vis-à-vis deposits led to decline in the all-India credit-deposit (C-D) ratio to 71.5 per cent in March from 76.0 per cent a year ago.

The central bank did not specify the market share gained by private sector banks in deposits and credit.

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Covid 2.0 estimation quite devastating, but impact to be lower than in FY21: Udaya Kumar Hebbar

Banking & Finance

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As Covid-19 second wave of infection has spread, how is the company gearing up to face it?

The sudden spread of the second wave of Covid-19 pandemic has again created a challenging and operating environment. We are anticipating the collections to witness a temporary decline in Q1 FY22 on account of several intermittent lockdowns/ restrictions being imposed across various states. The situation impacts the customers’ ability to manage their activities, as well as our ability to ensure seamless meeting with the customers. Our preliminary estimation is that the Covid2.0 is quite devastating, but impact on business will be lower compared to FY21. We draw confidence based on sufficient learning acquired last year to effectively manage the payment behaviour of borrowers in case of long duration moratorium.

How has the company managed to connect with customers during the difficult times?

Post first wave, we have revamped/ updated our customer contact database, enabling us to reach almost every customer through phone. We have also enabled various mechanisms to enable cashless repayments for customers. We have also enabled on-field disbursements which do not require customers to visit our branches.

As state after state are declaring lockdown, has the company tweaked its business model?

The company has not tweaked its business model. Learning from the first wave of Covid will help us to effectively handle the challenges on account of Covid2.0. In the event of various states declaring lockdowns, we shall be adhering to the regulatory guidelines from respective states and accordingly manage our branch and field operations. All safety measures will be adopted at branches to safeguard the health of our employees and where collections are difficult, we are working on rescheduling the collections.

Has lockdown impacted company’s operations both in terms of deposits, disbursements and recoveries?

The ongoing lockdowns are expected to have an impact on disbursements and recoveries in Q1 FY22. However, we shall continue to maintain regular telephonic engagement with our customers to understand their issues and provide the required support. Continuous customer connect will help us in faster recovery in collections as the lockdowns are gradually lifted across various states. We are having adequate liquidity on our balance sheet which will cover our fixed obligations over the coming 2-3 months. Hence we are confident of effectively managing the current challenges. As you recall, during the last financial year, we could get only 5-6 months for the normal business and still we were able to grow and present strong financials. We believe we should get 6-9 months to do normal business during this year.

After one year of Covid-19, how has the company fared in terms of deposits, disbursement and NPA recoveries?

The company ended FY21 on a very positive note with disbursements maintaining strong pre-Covid momentum, gross loan portfolio on consolidated basis growing by 13 percent Y-o-Y to ₹13,587 crore, collection efficiency on consolidated basis crossing 93 percent, gross NPA declining from 6.14 percent in Dec-20 to 4.43 percent in Mar-21, backed by provisioning of 5.01 percent. The company had a strong liquidity position with cash and cash equivalents amounting to 16.5 percent of total assets, sufficient to cover our fixed obligations over the next 2-3 months. Capital position also remains comfortable with capital adequacy ratio of 26.8 percent on consolidated basis as on Mar-21, as against 15 percent required by RBI norms.

In the last six months, what measures has the company taken to strengthen its liquidity position?

The company continued to maintain a diversified borrowing profile with a mix of domestic and foreign sources consisting of 36 commercial banks, 3 financial institutions, 2 NBFCs, 9 foreign institutional investors. Company added 12 new lenders and added 5 instruments/structures consisting of TLTRO, PCGS, CP, SLS and covered bonds. As on Mar-21, the company maintained a robust liquidity position with cash and cash equivalents of ₹2,484.4 crore, amounting to 16.5 percent of total assets, further backed by ₹2,614 crore of undrawn sanctions at start of the year. Consequently, liquidity maintained by the company is close to 18 percent of AUM, despite carrying a bit of negative carry on the interest costs.

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Yes Bank turns focus to lending after winning back depositors

Banking & Finance

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Yes Bank Ltd., the target of India’s biggest financial bailout, will focus on boosting lending to businesses this year after winning back depositors, Chief Executive Officer Prashant Kumar said.

Regaining depositors and raising capital were the first order of business for Kumar, who took over the reins of Yes Bank in March 2020 after regulators seized the lender to prevent its imminent collapse. A year later, its deposits have grown nearly 55% as opposed to losing 40% of the total before the bailout.

“We have achieved our target for derisking our corporate book,” Kumar said in an interview to Bloomberg News on Saturday. “Getting back on the front-foot of lending and accelerating our bad loan recoveries will be the key focus areas this year.”

Yes had shrunk its exposure to businesses to de-risk its balance sheet after a history of lending to weak companies under former co-founder and ousted CEO Rana Kapoor. Piling bad loans, poor capital ratios and flight of depositors led to the bank’s downfall, leading to its seizure and transfer of control to a group of lenders led by State Bank of India.

The bank will aim to grow its corporate loan book by 10% now, Kumar said, versus a 11.7% contraction last financial year. The focus will also be on expanding the less-risky retail and small businesses lending by 20%, he said.

Virus Impact

Kumar is confident of recovering at least ₹5,000 crore of soured debt in the current financial year even as activity curbs to stem a second coronavirus wave in India adds to the economy’s pain and threatens to push up banks’ bad loans going ahead.

“Last year, it was a complete lockdown,” Kumar said. “Economic activity is much better now. Also, this time we have vaccinations. We are quite optimistic.”

 

The bank incurred a loss of ₹3,790 crore ($512 million) in the quarter ended March as it stepped up bad loan buffers. Its gross bad loan ratio was 15.4% as of end of March, an improvement from 20% level in the three months prior.

Kumar has reasons to believe the worst is over and says the bank will not need to significantly step up its provisions that have acted as a big drag on its profitability so far. Yes Bank expects less than ₹5,000 of slippages with most of it likely from its ₹13,700 crore of stressed book, he said.

The lender has approval to raise up to ₹10,000 of capital, but it might not need to do so this year unless there is a massive lending opportunity. It had raised $2 billion last July.

“Life is always full of challenges and especially if you are running a bank which was almost about to collapse just a year back,” Kumar said. “This journey will definitely be challenging.”

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Why HDFC deposits are a safe option for senior citizens

Personal Finance

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The prevailing low interest rates on deposits have been pinching senior citizens the most. Seniors who are more keen on capital conservation than higher interest rates can consider the deposits from HDFC. Currently, HDFC offers seniors 6.1 per cent interest for 24-month deposits

Depositors who wish to get regular payouts can opt for the non-cumulative option, with monthly/quarterly/half yearly or annual payouts. Those who don’t need regular payouts, can instead opt for the cumulative option which offers annual compounding.

The minimum amount that can be deposited with HDFC for a fixed deposit is ₹20,000.

While the deposits of HDFC, an NBFC, are not covered by deposit insurance (bank deposits of up to ₹5 lakh are covered by DICGC), its 40-year plus stable business provides significant confidence. Besides, the company has been maintaining a AAA rating on its deposits for more than 26 years.

How they fare

As interest rates have almost bottomed out, they are likely to inch up in the next two to three years. Hence, at the current juncture, it is wise to lock into deposits with a tenure of one or two years.

For such tenures, HDFC offers seniors better interest rates than those offered by prominent banks such as SBI (up to 5.6 per cent), HDFC Bank (up to 5.4 per cent), ICICI Bank (up to 5.5 per cent) and Axis Bank (up to 6.05 per cent), which are considered safest options among banks.

Other private sector banks and small finance banks, however, offer even higher rates (up to 7.5 per cent) for one to two year deposits. The recent debacles at YES Bank and other co-operative banks have stoked fear in the minds of depositors. Given that, seniors may prefer safety of capital over the lure of higher rates.

HDFC also offers better rates compared to corporate FDs with similar ratings from other NBFCs such as LIC Housing Finance, that offers up to 5.9 per cent for a tenure of up to 2 years.

About HDFC

Incorporated in 1977, HDFC, a housing finance company currently offers loans to individuals (comprising 76 per cent of the loan book) and corporates (6 per cent). HDFC also lends for construction finance (11 per cent) and lease rental discounting (7 per cent).

With an outstanding loan book of ₹,52,167 crore as of December 2020, HDFC is India’s largest housing finance company. HDFC’s non-performing assets (proforma) are contained at less than 2 per cent. In addition to that, the company’s provisions (cumulative including those related to covid) cover up to 2.56 per cent of the loan book exposure.

As at the end of December 31, 2020, HDFC’s capital adequacy ratio stood at 20.9 per cent, well above the regulatory requirement of just 14 per cent.

HDFC also has several financial subsidiaries –prominent ones among them are HDFC Bank, HDFC Asset Management Company, HDFC Life Insurance, HDFC Credila and HDFC Ergo. Its consolidated profits at the end of the first nine months of FY21 stood at ₹1,33,900 crore.

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HDFC Bank shows loan growth in Q4, but faces impact of non-issuance of credit cards, BFSI News, ET BFSI

Banking & Finance

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HDFC Bank, which has been hit by the Reserve Bank of India curbs on credit card issuances, saw a tepid growth in advances in the quarter ended March 2020 with total loans growing 14% on a year-on-year basis, lower than analysts’ expectations of a 16% growth.

HDFC Bank shows loan growth in Q4, but faces impact of non-issuance of credit cards

The slowdown in loan growth was mainly due to a lacklustre rise of 7.5% in retail loans over last year. Experts attributed the drop to conscious moderation in vehicle finance and commercial vehicle lending plus a prolonged suspension in new card business acquisition.

However, the wholesale loans which though slowed sequentially grew at 21% year-on-year owing to the bank’s focus on capturing market share in better-rated corporates.

After the pandemic, the bank has changed its strategy to offset lower retail lending growth in the rest nine months of the last fiscal year through higher corporate loan growth, which grew at an average of 30% year-on-year.

The curbs

The Reserve Bank of India in December 2020 had asked HDFC Bank to temporarily stop all digital launches and sourcing new credit card customers. This after the bank suffered its third big outage in the span of just two years.

The RBI has advised to stop all launches of the Digital Business generating activities planned under its program – Digital 2.0 (to be launched) and other proposed business generating IT applications and (sourcing of new credit card customersHDFC bank said in an exchange filing

“The above measures shall be considered for lifting upon satisfactory compliance with the major critical observations as identified by the RBI.”

Other banks

IndusInd Bank too reported loan growth slowing significantly with a 3% growth over March last year. Though deposits grew at a healthy pace of 27% though on a low base. Yes Bank too reported tepid loan growth numbers with a 0.8% rise in advances over last year. It more than doubled its retail disbursements over March quarter last year when it had faced a moratorium from the Reserve Bank of India. Its deposits grew at 54.7% bulk of which came from current and savings accounts. Private lender Federal Bank also reported a 9% growth in its advances over the same period last year while deposits grew 13%.The year ahead

Banks are likely to report lacklustre loan growth numbers in the quarters ahead. The system loan growth at 6.5% for the fortnight ended March 12, remaining weak due to low credit demand. Deposit growth at over 12% continues to outpace credit. Almost Rs 5.4 lakh crore of excess liquidity parked in the reverse repo window March shows the risk aversion in the banking system.

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TS Cooperative Apex Bank FY21 profit up 31% at ₹67 crore

Banking & Finance

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Telangana State Cooperative Apex Bank (TSCAB)’s gross profit increased 31 per cent at ₹67.20 crore during the financial year ended March 31,2021 as against ₹ 51.15 crore during the previous fiscal.

“Since the formation of TSCAB in the year 2015, the financial year 2020-21 has been the best year for the Apex bank as it surpassed all the targets set during the fiscal year,” the bank said in a release.

With only 0.14 per cent of gross Non-Performing Assets (NPAs), TSCAB had set a ‘record’ among all the state cooperative banks in the country with lowest NPAs, it added.

It also recorded steady growth in share capital collection of ₹ 230.64 crore during the financial year 2020-21 with growth rate of 34.10 per cent when compared to ₹ 172 crore during the financial year 2019-2020.

It had done a business of ₹13,269 crore in the year 2020-21 with growth rate of 22.33 per cent when compared to ₹10,847 crore during the financial year 2019-2020.

The deposits increased from ₹ 4,644.69 crore in the year 2019-20 to ₹ 5,466.41 during the year 2020-21 with an increase of 17.69 per cent.

The loans and advances had increased from ₹ 6202.46 crore in the year 2019-20 to ₹ 7,802.50 crore in 2020-21 with a growth rate of 25.80 per cent.

The bank had set a target of doing business of ₹ 16,000 crore during the year 2021-22.

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IndusInd Bank Q4 deposits up 27 per cent, net advances rise 3 per cent

Banking & Finance

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Private sector lender IndusInd Bank reported a 3 per cent increase in net advances and 27 per cent rise in deposits as on March 31, 2021, compared to a year ago.

According to a regulatory filing by the bank on Monday, its net advances increased to ₹2.13 lakh crore as on March 31, 2021, versus ₹2.06 lakh crore a year ago. Even sequentially, net advances increased by 3 per cent from ₹2.07 lakh crore as on December 31, 2020.

Deposits increased to ₹2.56 lakh crore as on March 31, 2021, compared to ₹2.02 lakh crore a year ago.

Moody’s affirms IndusInd Bank’s ratings, revises outlook to ‘stable’

“Retail deposits and deposits from small business customers amounted to ₹95,811 crore as of March 31, 2021, as compared to ₹85,914 crore as of December 31, 2020,” IndusInd Bank said.

On a sequential basis, deposits increased 7 per cent in the fourth quarter of last fiscal from ₹2.39 lakh crore as on December 31, 2020.

Why IndusInd Bank FD is an attractive short-term choice

The bank’s CASA ratio was at 41.8 per cent as on March 31, 2020, from 40.4 per cent a year ago.

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