Tag: eclgs

Indusind Bank says whistleblower claims baseless; gave 84k loans sans client consent in May, BFSI News, ET BFSI

Banking & Finance

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Mumbai, Terming whistleblower allegations on loan evergreening as “grossly inaccurate and baseless”, Indusind Bank on Saturday admitted to have disbursed 84,000 loans without customer consent in May owing to a “technical glitch”. Lending without the consent was reported by the field staff in two days, and the glitch was also rectified expeditiously, the private sector lender said in a clarification.

On Friday, there was a media report about anonymous whistleblowers writing to the bank management and the RBI about BFIL, the microlending-focused subsidiary of the bank, allegedly resorting to evergreening of loans, wherein existing borrowers unable to pay dues were given new loans to present the books as clean.

“The bank strongly denies the allegations of ‘evergreening’. All the loans originated and managed by BFIL, including during the COVID period which saw the first and second waves ravaging the countryside, are fully compliant with the regulatory guidelines,” an official statement said.

“Due to a technical glitch in May 2021, nearly 84,000 loans were disbursed without the customer consent getting recorded at the time of loan disbursement,” it added.

“Operational issues” due to the pandemic’s second wave like lockdowns, containment zones, and restrictions at the village/panchayat level had necessitated disbursement of some loans in cash, it said.

At the end of September, 26,073 of these 84,000 clients were active with the loan outstanding at Rs 34 crore, which is 0.12 per cent of the September-end portfolio, the bank said, adding that it carries necessary provisions against the loans.

It also said that the Standard Operating Procedure has since been revised to make biometric authorization compulsory, and that in October 2021, nearly 100 per cent of the loan disbursements were in the bank accounts of the customers, as in pre-COVID time.

During the pandemic, customers faced operational difficulties and some have turned to intermittent payers, though a large part of them demonstrated a strong intent to repay on many occasions, the bank statement said.

The bank added that help was rendered to such clients, including through additional liquidity support to the extent of 20 per cent of the outstanding as on February 29, 2020 as applicable under the ECLGS (Emergency credit line guarantee Scheme), restructuring, and additional loan with a longer tenor and lower EWI (equated weekly instalments) for customers, after they cleared of their arrears and with their due consent.

It can be noted that nearly all the lenders have reported reverses on the microloans front since the beginning of the pandemic. The activity is concentrated in rural areas, where field agents of a lender go deep to disburse loans and also collect dues in cash on a weekly basis.

With the easing of the lockdown measures, all lenders are reporting an improvement in collections and also disbursements.

Indusind Bank management had reported an increase in stress in the microfinance loans portfolio, with the gross non-performing assets ratio moving up to 3.01 per cent as of September, up from 1.69 per cent in June.

The fresh slippages in the book had stood at Rs 1,070 crore in the September quarter, while the net after-recoveries and upgrades stood at Rs 460 crore.

As per the media report on Friday, communication from the whistleblowers to the bank’s chief executive Sumant Kathpalia, independent directors and RBI officials had happened between October 17 and October 24. Additionally, there was also an “outsider” who had written to RBI on October 14, it said.

The report had highlighted that a month prior to the October 14 complaint, BFIL’s non-executive chairman M R Rao had stepped down and also flagged RBI’s concerns on the loans given without customer consent in his resignation letter, calling it a deliberate act to shore up repayment rates. PTI AA DRR DRR



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Banks disburse over Rs 2 lakh cr under ECLGS till mid-July, BFSI News, ET BFSI

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Nearly 17 months after the launch of the Emergency Credit Line Guarantee Scheme (ECLGS), banks have sanctioned Rs 2.76 lakh crore, with disbursals adding up to Rs 2.14 lakh crore till mid-July.

Similarly, the PM SVANidhi scheme, providing loans of up to Rs 10,000 to street vendors, has seen flows of a little over Rs 2,500 crore to 25 lakh vendors, although the internal target was more ambitious, with banks nudged to give loans.

Although the government has announced an increase in the ECLGS limit from Rs 3 lakh crore to Rs 4.5 lakh crore, officials do not expect a major surge, amid demands that eligibility norms be eased to enable more small businesses to use the window. When the scheme was announced last year, it was meant for micro, small and medium enterprises (MSMEs), but the scope was enlarged later as the demand was not sufficient.

Up to July 2, a little less than 1.1 crore MSME borrowers have been provided guarantee-based support amounting to Rs 1.65 lakh crore, which translates into an average ticket size of Rs 1.5 lakh. Under the originally announced scheme, MSMEs that had loans of up to Rs 50 crore at the end of February 2020 were eligible even with past dues of up to 60 days.

MSME industry groups say that the conditions are such that it is difficult for businesses to get a loan. “The requirements were such that only a certain set of entities with existing loans were eligible. Now banks are reluctant to lend. The government should have dropped the condition of prior credit because we are seeing cash flows being disrupted for a lot of MSME units,” said Animesh Saxena, president of Federation of Indian Micro and Small & Medium Enterprises (FISME).

Recently, the parliamentary standing committee on industry noted that there is a huge gap between sanctions and disbursals as banks feared defaults in the wake of the second wave, and also said that only half the amount has gone to small businesses.



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Banks disburse over Rs 2 lakh crore under ECLGS till mid-July, BFSI News, ET BFSI

Banking & Finance

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NEW DELHI: Nearly 17 months after the launch of the Emergency Credit Line Guarantee Scheme (ECLGS), banks have sanctioned Rs 2.76 lakh crore, with disbursals adding up to Rs 2.14 lakh crore till mid-July. Similarly, the PM SVANidhi scheme, providing loans of up to Rs 10,000 to street vendors, has seen flows of a little over Rs 2,500 crore to 25 lakh vendors, although the internal target was more ambitious, with banks nudged to give loans.

Although the government has announced an increase in the ECLGS limit from Rs 3 lakh crore to Rs 4.5 lakh crore, officials do not expect a major surge, amid demands that eligibility norms be eased to enable more small businesses to use the window. When the scheme was announced last year, it was meant for micro, small and medium enterprises (MSMEs), but the scope was enlarged later as the demand was not sufficient.

Up to July 2, a little less than 1.1 crore MSME borrowers have been provided guarantee-based support amounting to Rs 1.65 lakh crore, which translates into an average ticket size of Rs 1.5 lakh. Under the originally announced scheme, MSMEs that had loans of up to Rs 50 crore at the end of February 2020 were eligible even with past dues of up to 60 days. MSME industry groups say that the conditions are such that it is difficult for businesses to get a loan. “The requirements were such that only a certain set of entities with existing loans were eligible. Now banks are reluctant to lend. The government should have dropped the condition of prior credit because we are seeing cash flows being disrupted for a lot of MSME units,” said Animesh Saxena, president of Federation of Indian Micro and Small & Medium Enterprises (FISME).

Recently, the parliamentary standing committee on industry noted that there is a huge gap between sanctions and disbursals as banks feared defaults in the wake of the second wave.



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Borrowers fear bank watch list, avoid govt guaranteed loans, BFSI News, ET BFSI

Banking & Finance

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The emergency credit line guarantee scheme (ECLGS ), which was a major driver of loan uptake in the first phase of the pandemic, is seeing a lacklustre response from borrowers.

The scope of the scheme which was increased to Rs 4.5 lakh crore, has seen Rs 2.7 lakh crore sanctioned as of July 2. Of this, Rs 2.1 lakh crore has been disbursed.

The ECLGS aimed to provide and government-guaranteed loans to mitigate the economic distress faced by micro, small and medium enterprises ( MSMEs) and other entities due to the Covid-induced lockdowns. The government has extended the scope of

Why tepid response

According to bankers, borrowers eligible and in need of additional have already availed of the loans in the first two rounds. Borrowers do not want to be under a watchlist for stressed loans.

The number of applicants has been dropping with the new version and bankers see fresh demand of loans during the festive season.

ECLGS 4.0

In June Finance Minister Nirmala Sitharaman on Monday announced a slew of measures, including Rs 1.1 lakh crore (Rs 1.1 trillion) credit guarantee scheme for improving health infrastructure, and enhancing the limit under the ECLGS by 50 per cent to Rs 4.5 lakh crore for the MSME sector facing a liquidity crunch.

Sharing the details of the stimulus package, the finance minister said this comprises eight relief measures and other eight measures to support the economic growth.

She announced Rs 1.1 lakh crore loan guarantee scheme for Covid-affected sectors, including the health sector, which includes guarantee cover for expansion or for new projects.

Besides, she said, additional Rs 1.5 lakh crore limit enhancement has been done for ECLGS.

Besides, the validity of the scheme was extended by three months to September 30 and or till guarantees for an amount of Rs 3 lakh crore are issued.

The last date of disbursement under the scheme has been extended to December 31.

Under the ECLGS 4.0, 100 per cent guarantee cover was given to loans up to Rs 2 crore to hospitals, nursing homes, clinics, medical colleges for setting up on-site oxygen generation plants.

The interest rate on these loans has been capped at 7.5 per cent, which means the banks can offer loans less than this ceiling.



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Fresh NPAs may see a spike, but overall bad loans may decline to 7.1% in FY22, BFSI News, ET BFSI

Banking & Finance

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Notwithstanding the Reserve Bank of India projections of gross non-performing assets rising to 9.8% of total loans this fiscal, the bad loans may decline to at least 7.1 percent by March 2022, as against 7.6 percent at FY21-end.

The NPAs will go lower on higher recoveries and upgrades, and also faster credit growth, ratings agency Icra said, adding that the fresh accretion to the NPAs will be higher in FY22 due to the absence of any regulatory dispensations like moratoriums.

The GNPAs and NNPAs (net NPAs) are expected to decline to 6.9-7.1 percent and 1.9-2.0 percent respectively by March 31, 2022, it said.

What RBI said

The Reserve Bank’s financial stability report had said the GNPAs at March 2021 had come at 7.6 percent and estimated it to rise to 9.8 percent in FY22-end under its base-case assumptions. RBI Governor Shaktikanta Das had said the dent on balance sheets and performance of financial institutions in India has been much less than projected earlier, but a clearer picture will emerge as the effects of regulatory reliefs fully work their way through.

The new math

The rating agency said the fresh NPA generation declined to Rs 2.6 lakh crore or 2.7 percent of advances in FY21 compared to Rs 3.7 lakh crore or 4.2 percent in FY20 and added that the same will be higher in FY22. The headline asset quality numbers of banks do not reflect the underlying stress on the income and cash-flows of the borrowers impacted because of COVID-19 and various regulatory and policy measures such as the moratorium on loan repayment, standstill on asset classification and liquidity extended to borrowers under Emergency Credit Line Guarantee Scheme (ECLGS) had a positive impact on the reported asset quality of lenders.

In the absence of standstill on asset classification, we expect the fresh NPAs generation to be higher, however, we also expect the recoveries and upgrades to improve in FY22, it said, adding that the first half of the ongoing fiscal can see higher accretions due to the second wave of the pandemic. The credit provisions for the banks moderated to 2.5 percent of advances in FY21 compared to 3.7 percent in FY20, even as the core operating profits improved with the cost curtailment measures.

PSB turnaround

Within the sector, the turnaround was remarkable for public sector banks, which reported profits after five consecutive years of losses and with NNPAs at the lowest levels seen over the last six years (3.1 percent as of March 31, 2021), ICRA expects the public sector banks (PSB) to remain profitable going forward. After the capital raising exercises, the improved capital positions coupled with lower NNPAs mean a better solvency profile as well as an improved outlook on the ability to support growth and better future profitability.

“We believe that the banks are relatively better placed to handle the stress from the second wave and hence we continue to maintain a stable outlook on the sector.” the rating agency said.



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Banks can lend about ₹46,000 crore to MSMEs, civil aviation sector

Banking & Finance

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Banks can lend about ₹46,000 crore to the micro, small and medium enterprises, civil aviation sector and for setting up oxygen generation plants in hospitals, nursing homes, clinics and medical colleges under the Emergency Credit Line Guarantee Scheme (ECLGS).

Last May, the Cabinet had approved additional funding of up to ₹3-lakh crore to eligible MSMEs and interested MUDRA borrowers through ECLGS.

Under the Scheme, 100 per cent guarantee coverage is provided by National Credit Guarantee Trustee Company Limited (NCGTC) for the additional funding.

Also read: Banks to extend unsecured personal loans for Covid treatment

Of the total approved ECLGS amount, loans aggregating ₹2.54-lakh crore have been sanctioned and ₹2.40-lakh crore have been disbursed so far, according to Sunil Mehta, Chief Executive, Indian Banks’ Association (IBA).

Under ECLGS 4.0, unveiled by the government on Sunday, 100 per cent guarantee coverage will be available for loans up to ₹2 crore to hospitals, nursing homes, clinics and medical colleges for setting on-site oxygen plants.

The interest rate on the aforementioned loans has been capped at 7.50 per cent.

ECLGS 3.0 has been modified, whereby the maximum ceiling on credit outstanding of ₹500 crore across all banks has been removed. This is subject to a maximum of 40 per cent or ₹200 crore, whichever is lower.

Under ECLGS 3.0, civil aviation sector has been included as an eligible sector. Earlier, hospitality, travel & tourism, leisure & sporting sectors were eligible.

Also read: FM yet to take a call on grant of fiscal stimulus to industry

Under ECLGS 1.0, additional assistance of up to 10 per cent of the outstanding as on February 29 (borrowers eligible for restructuring) will be offered.

The maximum tenure of the loan has been increased to five years (from four earlier), with repayment of interest only for the first 24 months (12 months earlier) with repayment of principal and interest in next 36 months

Also, the validity of ECLGS is extended to September-end or till guarantees of₹3-lakh crore are issued. Disbursement under the scheme is permitted up to December-end 2021.

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Government expands Emergency Credit Line Guarantee Scheme for MSMEs, BFSI News, ET BFSI

Banking & Finance

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The government has expanded the ECLGS scheme for the MSMEs impacted by the lockdowns imposed by governments to curtail the spread of coronavirus.

The government in a release said, “On account of the disruptions caused by the second wave of COVID 19 pandemic to businesses across various sectors of the economy, Government has further enlarged the scope of Emergency Credit Line Guarantee Scheme.”

In the ECLGS 4.0, 100% guarantee cover to loans up to Rs.2 crore to hospitals/nursing homes/clinics/medical colleges for setting up on-site oxygen generation plants, interest rate capped at 7.5%.

Further borrowers who are eligible for restructuring as per RBI guidelines of May 05, 2021 and had availed loans under ECLGS 1.0 of overall tenure of four years comprising of repayment of interest only during the first 12 months with repayment of principal and interest in 36 months thereafter will now be able to avail a tenure of five years for their ECLGS loan i.e. repayment of interest only for the first 24 months with repayment of principal and interest in 36 months thereafter.

The government has also said that additional ECLGS assistance of upto 10% of the outstanding as on February 29, 2020 will be given to borrowers covered under ECLGS 1.0, in tandem with restructuring as per RBI guidelines of May 05, 2021

The Current ceiling of Rs. 500 Cr. of loan outstanding for eligibility under ECLGS 3.0 to be removed, subject to maximum additional ECLGS assistance to each borrower being limited to 40% or Rs.200 crore, whichever is lower.

In the ECLGS 3.0, civil aviation sector has been included as it has been impacted the most due to the curbs on travel.

Further, validity of ECLGS extended to 30.09.2021 or till guarantees for an amount of Rs.3 lakh crore are issued. Disbursement under the scheme permitted up to31.12.2021.

The government in the release said, “The modifications in ECLGS,would enhance the utility and impact of ECLGS by providing additional support to MSMEs, safeguarding livelihoods and helping in seamless resumption of business activity. These changes will further facilitate flow of institutional credit at reasonable terms.”

The detailed operational guidelines will be issued by the National Credit Guarantee Trustee Company.



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Gross NPAs of banks likely to decline in FY21 amid MSME schemes, restructuring, write-offs: CARE Ratings

Personal Finance

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The year-on-year gross bank credit growth to MSEs in March had declined to its lowest level, amid the second Covid wave, since May in the financial year 2020-21.

Gross non-performing assets of banks are likely to decline in FY21 due to restructuring, write-offs, and resilience in the economy, rating agency CARE Ratings said on Wednesday. The decline is expected as several regulatory and government support schemes for MSMEs and others had helped borrowers to access liquidity and conserve cash flows. For instance, the moratorium on loan repayments for six months till August 30, 2020, Covid-related restructuring scheme for MSMEs till March 31, 2021, and for large corporates till December 31, 2020, Resolution Framework 2.0 scheme for personal loans and MSMEs till September 30, 2021, ECLGS to enable banks and NBFCs provide funding to MSMEs, TLTROs, special refinance facilities to NABARD/SIDBI/NHB to address sectoral credit needs, and extended partial guarantee scheme, the agency noted.

“The government had enabled loan of up to 20 per cent of an MSME’s total outstanding credit in the Rs 3 lakh crore ECLGS scheme. So, loans were guaranteed by the government and MSMEs got significant breathing space with immediate cash flows being taken care of so that they may not default and deteriorate their credit score, etc. Given that MSMEs generally have a significant share of NPAs, now that share will be much more muted than what we would have expected otherwise,” Sanjay Agarwal, Senior Director, CARE Ratings told Financial Express Online.

Gross NPAs had jumped by 43.7 per cent from Rs 7.1 lakh crore in March 2017 to reach Rs 10.2 lakh crore by the end of March 2018 following which the NPAs witnessed moderation and reached Rs 8.9 lakh crore by end of March 2020, the report said. The asset quality pressure witnessed by the banks over post asset quality review (AQR) had been reducing in a couple of years prior to Covid. The movement in gross NPA had declined to Rs 9 lakh crore in FY19 and to Rs 8.9 lakh crore in FY20.

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Despite a challenging year (FY21), the quantum of gross NPAs of scheduled commercial banks (SCBs) is expected to decline by the end of March 2021 as compared with the previous year due to write-offs, lower slippage, restructuring schemes, and ECLGS support for MSMEs, the agency said in the report. However, as anticipated with the Supreme Court judgment allowing for the recognition of NPAs, FY21-end numbers are expected to be either similar or slightly above the Q3 FY21 numbers, it added. “Slippages are largely from MSMEs in retail. MSME slippages have been reduced because of the ECLGS,” added Agarwal.

The FY21 gross NPAs is estimated to settle at Rs 7.9 lakh crore, according to CARE Ratings. While public lenders’ gross NPA amount is expected to be around Rs 6.0 lakh crore at the end of March 2021 vis-à-vis Rs 6.8 lakh crore at the end of March 2020, for private lenders, the gross NPA amount increased from Rs 1.8 lakh crore in March 2018 to over Rs 2 lakh crore in December 2019. However, it is subsequently expected to have retreated to around Rs 1.96 lakh crore by the end of March 2021.

Moreover, write-offs’ share in gross NPAs has markedly increased post FY18, indicating that SCBs have cleaned their books taking a hit and recoveries have had a smaller share of the same, the agency said. “MSMEs right off every quarter by all banks has been very significant because the government had given quite a lot of equity and banks had made a lot of provisions. Now they have written off against the provisions. So it doesn’t reflect in the profit and loss statement but writes-offs are very significant,” said Agarwal.

Importantly, the year-on-year gross bank credit growth to MSEs in March had declined to its lowest level, amid the second Covid wave, since May in the financial year 2020-21. The credit outstanding as of March 26, 2021, was Rs 11.07 lakh crore – up only 2.5 per cent from Rs 10.8 lakh crore in March 2020, according to the RBI’s monthly bulletin. Moreover, the share of MSEs in India’s overall gross bank credit also continued to decline for the third straight month. From 12.11 per cent in December 2020, the MSE share contracted to 12.09 per cent in January 2021 and 11.8 per cent in February before slipping further to 11.3 per cent in March. The overall gross bank credit as of March 26, 2021, stood at Rs 97.2 lakh crore.

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Banks to see growth in FY22; ECLGS and gold loans drive City Union, says Kamakodi, BFSI News, ET BFSI

Banking & Finance

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Growth is not a priority

City Union Bank has not put growth as a priority this year, due to the impact of Covid-19.

“In February 2020, even before the onset of Covid, we said that we are taking our legs off the growth pedal because we are not entirely comfortable with how things were panning out at that moment. After the onset of Covid also we clearly communicated that growth is not going to be a priority until things get back to normal,” said N Kamakodi, MD & CEO, Citi Union Bank.

He added that they have seen the bulk of the growth from the Emergency Credit Line Guarantee Scheme (ECLGS) and gold loans.

Credit demand

According to Kamakodi FY22 will be a better year.

“We will start the investment for particularly building the capacity of businesses only after the current capacity is fully utilised, which we believe will happen around the half of FY 21-22,” he said.

He finds the current pick-up in the economy genuine and sustainable.

In a detailed interview, Kamakodi explained that his bank will take only those accounts to IBC which are already declared as NPA. He also said that SARFAESI is much better than IBC.

On privatisation, Kamakodi said that the government should think of privatising those banks which are unable to generate the cost of capital. He also believes that DFI is an appropriate move and helps solve the problem of infrastructure financing.



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HDFC Bank’s MSME book grows 30% to cross Rs 2 trillion-mark, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: HDFC Bank‘s MSME book grew 30 per cent year-on-year to cross the Rs 2-lakh-crore-mark as of December-end, mainly boosted by the pandemic-induced ECLG scheme under which it disbursed over Rs 23,000 crore. The growth is also driven by a renewed push towards customers in semi-urban and rural areas, the bank has said.

In December 2019, the bank’s MSME book stood at Rs 1.4 lakh crore, which has grown by over 60,000 crore or 30 per cent to Rs 2,01,758 crore by the December 2020 quarter, giving it a 10.6 per cent share system-wide MSME lending, becoming the second-largest lender in this segment after the State Bank of India, the bank added.

“Our MSME lending is back to pre-pandemic levels, with loan book growing at 30 per cent year-on to Rs 2,01,758 crore as of the December 2020 quarter,” Sumant Rampal, senior executive vice-president, business banking and healthcare finance, at the bank told on Friday.

“While the ECLG scheme was the biggest driver boosting the loan book by Rs 23,000 crore disbursed to around 1,10,000 MSME customers, our own renewed push towards customers in semi-urban and rural areas has also helped us during the pandemic, leading to an incremental loan growth of over Rs 60,000 crore,” he said, adding most of the ECLGS disbursals took place only in the past three-four months.

At 30 per cent loan growth, the MSME book is the fastest-growing vertical for the bank. “This is a testimony to our commitment to strengthen the MSME sector that accounts for about 30 per cent of GDP and the largest employer,” Rampal said.

The government launched the third version of the Rs 3-lakh crore emergency credit line guarantee scheme (ECLGS) last November for MSMEs, following the KV Kamath committee report.

On Thursday, Union MSME minister Nitin Gadkari told the Lok Sabha that banks and other financial institutions have cumulatively sanctioned Rs 2.46 lakh crore of the Rs 3 lakh crore scheme, while disbursal stood at low Rs 1.81 lakh crore, as of February 28, according to the data from the National Credit Guarantee Trustee Company, which is the implementing agency of the ECLGS.

The scheme comes with a 2 per cent interest subvention and is a five-year tenor of which the first year gets a payment moratorium.

“Our MSME portfolio is geographically balanced spread across all metropolitan cities, urban, semi-urban and rural regions. And we reached out to them with a suite of customised products which they could access conveniently either through physical or electronic channels,” said Rampal.

The bank offers a range of services to MSMEs, ranging from conventional working capital/term loans, structured cash flow management and financing solutions, trade financing solutions, forex services, individual banking needs of promoters and family, salary accounts plus advisory on investment banking.

Its MSME portfolio is spread across sectors like textiles, fabrication, agri-processing, chemicals, consumer goods, hotels & restaurants, auto components, pharma and the paper industry, and also include the entire selling chain ranging from wholesalers, retailers, distributors, stockists and supermarkets, he said.

On Q4, Rampal refused to share numbers citing the Nasdaq silent period, just saying my team is busy at work and pointed to the large market of 6 crore registered MSMEs, but only 1.2 crore of them borrowing even after all the push by the government and the Reserve Bank.

He said of their 5,500 branches, 1,800 of them have more than 25 per cent of their loans to MSMEs and 4,800 units service this segment of customers. Geographically speaking, the bank is present in 630 districts, of these, 560 districts have MSMEs.

There is no concern on the asset quality front for the bank, which has a history of having the lowest NPAs in the system. In December 2019, the MSME bad loans for the bank were just 0.48 per cent and Rampal said, anyway currently the entire ECLGS book is under mandatory moratorium.

He said, the services industry is still facing challenges and expressed apprehension about the second wave of the pandemic.



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