Tag: disruption

HFCs’ AUM to grow 8-10 per cent in FY22 against 6 per cent in FY21: ICRA

Banking & Finance

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Housing Finance Companies’ (HFCs) growth is expected to pick up in the rest of FY2022 despite headwinds in the first quarter (Q1) of FY2022, but weak asset quality is likely to keep their profitability subdued, according to ICRA.

The credit rating agency estimated that HFCs’ portfolio is likely to grow by 8-10 per cent in FY2022 against 6 per cent in FY2021.

ICRA expects gross non-performing assets (GNPAs) to improve marginally from June 2021 level (of 3.6 per cent), but to stay elevated and higher by 40-70 basis points as on March 31, 2022, as compared to March 31, 2021 (of 2.9 per cent).

The agency opined that though the portfolio growth is expected to drive an improvement in revenue, the expected elevated credit costs are likely to keep the profitability subdued in FY2022.

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ICRA observed that healthy demand in the industry, increasing level of economic activity and increasing vaccination in the country are expected to result in a steady growth in disbursements and improvement in collection efficiency (CE) in FY2022.

Covid impact

Sachin Sachdeva, Vice-President and Sector Head, Financial Sector Ratings, ICRA, said: “Overall on-book portfolio of HFCs in India is estimated at ₹11.0 lakh crore as on June 30, 2021, with exposures across home loans (HLs), loan against property (LAP), construction finance (CF), and lease rental discounting (LRD).

“The Covid-19-induced disruptions moderated the portfolio growth to 6 per cent in FY2021. Nevertheless, despite nil sequential growth in Q1 FY2022, aforementioned favourable factors provide hope for better growth prospects in FY2022 with an estimated growth rate of 8-10 per cent.”

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The agency noted that HFCs’ asset quality metrics weakened quite sharply in Q1 FY2022 because of the localised lockdowns imposed by various States/Union Territories (UTs) on account of the second wave, which impacted the borrowers’ cash flows and hence the CE.

“The jump in overdues was the sharpest in the recent past, as borrower-level liquidity got stretched in the absence of loan moratorium. The marginal borrowers, therefore, slipped into the NPA (non-performing asset)/overdue category in Q1 FY2022,” ICRA said.

Consequently, the Gross NPAs increased to 3.6 per cent as on June 30, 2021, from 2.9 per cent as on March 31, 2021 (2.3 per cent as on March 31, 2020).

Per the agency’s assessment, though the asset quality deteriorated across segments, CF was worst hit followed by LAP and HL. Thus, entities with high exposure to CF witnessed a higher impact than the industry average.

The headline asset quality numbers are expected to moderate slightly from current level as the trend in the CE continues to remain encouraging.

Nevertheless, ICRA expects a 40-70 basis points (bps) increase (net of recoveries and write-offs) in GNPAs by March 31, 2022, from GNPAs as on March 31, 2021, assuming there are no further Covid-19 induced lockdowns. One basis point is equal to one-hundredth of a percentage point.

Sachdeva said the pre-tax return on average managed assets (profit before tax/PBT per cent) for FY2022 is likely to remain similar to FY2021 level (1.9-2.0 per cent). Optimistically, if the collection efficiency trends post a steady and healthy revival and if slippages remain contained, then PBT per cent may also benefit from reversals in provisions.

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Customers to face disruption as only 60% banks are auto debit norm ready

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With the Reserve Bank of India’s new auto-debit norms coming into effect from Friday, consumers may face some disruption as only about 60 per cent of the banks are ready with a new system.

Industry experts say that most public sector banks are still working to meet the RBI requirement. For example, auto debit on State Bank of India’s debit card will go live only by mid-October while its credit card system is set up to meet the norms starting tomorrow.

Private lenders, including HDFC Bank, ICICI Bank, Citibank, IDFC Bank and Axis Bank, are ready, while others such as IndusInd Bank, Bank of Baroda, RBL Bank and YES Bank are geared to meet the deadline.

Shashank Kumar, CTO and co-founder, Razorpay, said, “In the long run, the RBI norms are good for the ecosystem and will benefit the consumer. But, in the short term, the September 30 deadline can cause a lot of confusion for existing mandates. Where the cards have not migrated to the new system or banks that have not complied, the mandates will not be processed.”

Sounding off customers

Banks and credit card companies have already sent communications to customers informing them about the changes and their state of readiness. Customers of banks, which are yet to comply, will face disruption in payment of utility bills, OTT subscriptions, etc. However, mandates for SIPs, mutual funds and EMIs, set up through bank accounts, will not be affected.

To ensure a smooth transition for customers, the Payments Council of India has requested the RBI to extend the norms for auto debit mandates for recurring transactions by one to two months.

Extension sought

“We have written to the RBI for a short extension of one or two months to ensure a smooth transition to the new norms. All ecosystem players have been working hard but it will take some more time,” said Vishwas Patel, Chairman, Payments Council of India and Executive Director, Infibeam Avenues Limited.

Mandar Agashe, Founder, Vice-Chairman and MD, Sarvatra Technologies, said, “With the new regulations, customers will now be required to re-register each of their payment instruments — be a debit or credit card or UPI for service under the recurring mandate. Post-re-registration, the first transaction will have to be executed via additional factor authentication (AFA) by approving the auto-debit request beforehand. Transactions above ₹5,000, will require OTP verification every time.”

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Small businesses hit as banks freeze current a/cs

Banking & Finance

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Operations of thousands of small businesses across the country were disrupted after their current accounts were closed on Monday, as banks rushed to comply with the Reserve Bank of India’s directive on the opening of such accounts by borrowers aimed at preventing diversion of funds.

As per the RBI’s directive issued in August 2020, no bank can open current accounts for customers who have availed of credit facilities in the form of cash credit (CC)/overdraft (OD) from the banking system. While the central bank had given banks time until end-July to implement the new rules, many account holders were caught unaware.

Accounts frozen

Rajiv Podar, President of IMC Chamber of Commerce & Industry, said borrowers across corporate as well as non-corporate structures did not receive any intimation from the banks and were surprised to find all the current accounts frozen, leading to complete operational disruption.

“For example, project accounts are frozen, plant-wise current accounts are frozen, banks have withdrawn current account products without any intimation, which is against the spirit of banking. How will the companies pay salaries in August and even all other statutory dues?,” Podar asked.

Besides maintaining a cash credit/overdraft account with the lead bank in the consortium of banks, businesses with pan-India operations also have relationships with other banks with either a strong presence in specific geographical locations or offering superior product and service capabilities or both. But concerned about the diversion of funds by borrowers via accounts outside the consortium, the RBI had imposed restrictions on the opening of CC/OD accounts by borrowers.

Banks are now forcing companies to route all their transactions only through the bank which had extended cash credit and overdraft facilities. While MSMEs are allowed to open as many current accounts as possible for receiving credits, all debits have to happen only through the bank which has an exposure of over 10 per cent of the borrower.

Chandrakant Salunkhe, President, SME Chamber of India, said many small units are struggling to meet their payment commitments even after having the required money in the bank as their accounts are frozen and attempt to release the funds would take 15 days to one month.

Compliance status

Meanwhile, the RBI, on Monday, took stock of the compliance status of banks with its directive. Banks are believed to have largely complied with the RBI’s directive.

To alleviate the suffering of borrowers, Podar sought a breather of six months for implementing the guidelines in a modified manner, with proper guidelines to banks and clients.

“Lead banks should be allowed to hold multiple shadow current accounts to meet borrower requirements such as salary, contract-specific, location-specific, purpose-specific, etc. Each shadow account shall have a unique number and a standalone bank statement,” the IMC President said.

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