Tag: Exclusive

After SFB license, Shivalik to raise its first fund of Rs 100 crore, BFSI News, ET BFSI

Banking & Finance

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The co-operative bank turned Small Finance Bank, Shivalik Bank is going to raise funds for the first time as a small finance bank.

The recently turned SFB is looking to raise Rs 100 crore growth capital from institutional investors.

Harsh Mittal, Chief Financial Officer, Shivalik Small Finance Bank

Harsh Mittal, Chief Financial Officer, Shivalik Small Finance Bank in a conversation talks about the fundraising and expansion plans.

Maiden Fundraise

Mittal said, “This is the first raise we are going to raise funds as a small finance bank and there wasn’t a debt in the market that existed for co-operative banks before and this is the first raise the bank is going to do.”

He added, “We are looking to raise Rs 100 crore in this year and hopefully do it in next quarter for which requisite board approvals are in place. Board has given the scope to increase the amount.”

This is growth capital as the bank has already invested heavily in the digital and tech infrastructures in the past. Mittal said, “Most part of this capital will be used as growth capital towards ramping up disbursements and growing business to achieve our stated targets. This year we want to grow the business by 50% and increase the total business size to Rs 3000 crore and by 2024-25 we want to triple the size by Rs 6000 crore.”

Debt-Equity

Mittal explained that the great part is that the balance sheet has a lot of flexibility as we don’t have much debt on our balance sheet. Most of our capital adequacy is in Tier1 equity so this Rs 100 crore we are largely looking at equity raise and there’s a small component which will also be raised from debt.”

He adds, “80:20 split would be a reasonable number and are appointing investment bankers to run the process for us and the names will be finalised by the end of this month or mid-July.”

The bank is looking to onboard an institutional investor base including insurance companies especially the ones who already are in tie-ups and a couple of private equity players who have been investing in the SFB space. The idea is to broaden the investor base as at the moment it is broadly retail, Mittal said.

Credit Disbursement

The bank’s 50% of the book is secured business loans and will continue to focus on that.

Mittal explains, “One of the differentiating factors for us is that as an SFB 90% of our book is secured either by property or gold collateral. So we are a very secured lender in that sense and only 10% of our book is MFI.”

He adds, “Our focus would be on secured and gold loan business. The gold loan book has doubled in the last year and we plan to increase it further substantially again. Now that lockdowns have eased up we would want to cater to small businesses too.”

Expansion Plans

Shivalik Bank will be opening branches in unbanked regions as per the norm of RBI and is aiming to open 15 branches in FY22.

Mittal said, “This covers us on the regulatory requirement and in addition to regulatory requirement we are also looking at expansion in adjoining states in Delhi & Uttarakhand as we are already present in UP and Madhya Pradesh. On the digital side, we’ve tied up with India Gold for gold-related business and this year we are looking to add more FinTech partnerships which would help us to source customers on the liability side as well.”

Impact of Second Wave

The NPA recognition case in the Supreme Court didn’t allow it to issue recovery notices or proceedings. Mittal explained, “Since that got lifted towards the end of March, April was much better for us as we were able to issue some of the proceedings, and as a result borrower discipline was improved on the secured side.”

There was no major challenge in collection efficiency as due to the secured nature of our book, customers were more amenable discussing how they can improve their position and we don’t have large exposures in any of the currently challenging sectors like hospitality or aviation impacted due to Covid-19. Our book is very granular and the average ticket size is Rs 4 lakhs, said Mittal.

The bank saw restructuring of less than half a percent of its book in FY 20-21 and Gross NPA at 31 March 2021 was 3.9% which is expected to remain largely unchanged in Q1 21-22



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Millennials are killing it… Don’t LOL, BFSI News, ET BFSI

Personal Finance

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– By Tarika Sethia

They are not just young but their choices are too unusual. While the traditional investors are still confused over cryptocurrency, millennials have already found solace in it.

Millennials investing in crypto

Vartika, a 28-year-old girl living in Mayur Vihar, Delhi, has seen hundreds of videos on YouTube which are related to cryptocurrency investments. She has invested in bitcoin and also made some money.

“I understood what cryptocurrency is by watching videos and decided to invest in it,” she said.

Around one crore investors are holding over $ 1 billion of cryptocurrency investments in India and the majority of them are millennials.

About 62% of users at WazirX, India’s biggest cryptocurrency exchange, are below 34 years of age. According to CoinDCX’s report titled ‘Mood of the Nation- 2020’, 71% of respondents below the age of 35 had invested in crypto at least once.

According to the CNBC Millionaire survey, more than 33% of millionaire investors belonging to the millennial generation have over half their wealth in cryptocurrencies. As mainstream and quotidian as it gets, it becomes essential to ask why some Indian millennials are throwing all their savings into a volatile virtual currency that they cannot afford to lose or is it just an alternate investment.

Cryptocurrency and Millennials

All these numbers shed light on the curious eyes of the millennial demography. The notion of crypto being a young person’s asset choice isn’t a farce. However, the question remains, why? While the equity markets were touching fresh lows each day during the Covid lockdown in 2020, cryptocurrencies kept rallying. It was 2020 when many began surfing the crypto wave. Work from home expanded the opportunity to do more than just work and allowed some free time to people leading to huge clamour for ‘meme’ stocks on social media. Fear Of Missing Out (FOMO) has made millennials dash for a chunk of the crypto pie.

Two things are attracting millennials towards cryptocurrencies. First, everything is digital and can be processed seamlessly on the smartphone. Second, it fetches high returns which no other asset class seems to offer.

“I have done my calculations. There are high chances that I will earn far more than what I invest,” said Syed, a 25-year-old intern in a private company.

Living in a digital world, convenience leaves millennials drooling. With copious platforms emerging for crypto trading and each one of them innovating to provide a better user experience, investing and trading has become easier. Brisk KYC to instant crypto purchases, investing in digital currency has become swift and seamless. It is the gift of having everything at your fingertip.

Millennials are not risk-averse

With skyrocketing growth and hard-hitting falls, cryptocurrencies are not for the risk-averse. Millennials are still young enough to afford risking a part of their investment into highly oscillating asset classes, as advised by financial advisors and influencers on Instagram and YouTube. This isn’t very fresh advice but has always lingered in the investment world. However, now it has welcomed a new asset class. This ideology served with the appeal of building wealth faster encourages this bracket to run towards crypto.

Cryptocurrency and regulations

Neither the government nor the regulator has taken any firm stand on cryptocurrencies yet. The crypto exchanges are trying their best to convince the regulator. While India’s central bank has clearly stated that they have issues against cryptocurrency, the Finance Ministry has a different view.

“We want to make sure there is a window available for all kinds of experiments which will have to take place in the crypto world. The world is moving fast with technology. We cannot pretend we don’t want it,” said, Nirmala Sitharaman, Finance Minister.

Cryptocurrency and Global Push
The virtual currency has been dancing over tweets and has even attracted eyeballs of governments from El Salvador to India.

The curiosity about crypto is all over the world. It reached a new high when Tesla founder Elon Musk joined the race. In fact, after a drastic fall, Bitcoin soared this week after Musk’s tweets again favour the crypto.

Moreover, the European Investment Bank (EIB) issued its first digital bond on the Ethereum blockchain, in April this year. Richard Teichmeister, the head of funding at the EIB called the blockchain technology “revolutionary”. Dogecoin that started as a meme currency shot up in value when the tech billionaire Elon Musk tweeted about it.



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Ritesh Saxena, IndusInd Bank, BFSI News, ET BFSI

Banking & Finance

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Maintaining the cost of acquiring customers digitally is not easy as multiple banks & Fintechs are targeting the same set of customer base segment as compared to the physical branch led model where the costs are fixed.

Organisations acquiring customers digitally have often been at the mercy of aggregators and big search engines and so is the case similar with banks trying to funnel in customers through digital marketing and other platforms.

Ritesh Saxena, Head – Direct Banking at IndusInd Bank in a conversation with ETBFSI talks about the strategy at IndusInd Bank with digital acquisition, how digital marketing plays a role, important metrics and the partnership model. Edited Excerpts:

Ritesh Saxena, Head – Direct Banking, IndusInd Bank

Q. What is the strategy for digital business at IndusInd Bank?

The banking service is digital in nature with cash being the only physical aspect. To a large extent digital business in banking is evolving as compared to 3-4 years back when a lot of digital enablement was in nature of servicing only and not a way of doing business.

As a challenger bank, we had to be aggressive. Digital business evolved in two stages, one organic and inorganic – website, social media presence, ATMs which are web-enabled, mobile applications are now transformed into customer acquisition channels whereas previously functioned more from servicing point. Regulations and public infrastructure like Aadhar has helped a lot, we brought onboarding platforms on our web to acquire for both our asset & deposit customers.

KYC is just one part of onboarding, the customer does not give any business till he transacts or passes credit worthiness test. Getting these journeys completely digital, frictionless and seamless is important to ensure prospective customers don’t drop off.

Investments have gone beyond technology infrastructure, like – analytics, evolving credit models, partnerships with payment service providers. These internal and external parts come together to funnel the customer in and service them. The loss in physical onboarding through branches was off-set by digital acquisition channel through digital marketing with seamless onboarding to ensure there was no blip to business.

Q. How is digital marketing leveraged for direct digital business?Digital marketing is the other area of evolution which is core to digital business. While we create the digital platforms, we need to have a digital plan to work with platforms like Google and Facebook to get the right economics of acquiring customers. All Fintechs, start-ups have realised that creating a product, simple user journey is perhaps the easier part given all the tech evolution is happening, but getting the customer economics in (cost of customer acquisition) which does not kill you is tough. Reality is these Big Tech platforms don’t let you do digital marketing in a cost-friendly manner. That is the sad story which a lot of start-ups face and burn a lot of cash.

We banks don’t have investors (VC) funds to burn to get customers as it’s a P&L involved decision of optimising your cost of acquisition through various digital marketing initiatives like SEO, Redirecting advertisements and a lot of other initiatives.

Getting a customer and is he really worth following as few might funnel but not all are worth following. These are things that take time to perfect and eventually get the right implemental economics.

Digital marketing led acquisition is a different ball game as physical acquisition costs are fixed and given. Also, important to note banks are eyeing for the same pie of the business on the same medium for the same customer, unit economics really matters here.

Fintechs have mono-product lines as compared to banks that have multiple products, if a customer funnels in and may not have qualified for a credit card; we can pitch him a credit card against his FD so he gets serviced by some other product.

Most customers are price sensitive and everything is price led, it allows you to optimise the investments to get the customer by ensuring if he is not satisfied with one product you are able to get him another product and it’s a win-win.

Q. How does it work with the existing customer base?

Existing customers have been traditionally covered by RMs or through branches or contact centers for cross-sell or upgrading. The new digital platforms backed by analytics have allowed us to run it centrally without the need of assisted channels as a start point.

The bank has invested in a very Deep Artificial Intelligence led engine which runs across products and client databases from different segments like deposit to credit card to vehicle finance. I have that same universe within the bank. All we need is to create an ability similar to what aggregators (like Paisabazaar, Bank Bazaar) created for the open market.

A lot of good work and actual business has happened on the asset cross sell which is personal loan and credit card offerings to customers who keep their salary account or deposit account with us. More than 50% of our retail lending, deposit and even wealth business happens through digital channels and not just through open market but through a lot of analytics led, direct to customer, app based, email based and if required even tele-assisted follow-up for closure and a lot of these businesses have moved out of branches.

This is the next version of retail banking in India, if IndusInd Bank has 2000 branches in India which do an X business, for it to go 2X do we need 2X branches? or can I move all of the next X business to digital platforms without having to put a brick and mortar branch. That’s essentially the go-to. Physical channels will continue but a lot of the assisted business is moving to the sky RM models (digital).

Q. How are the metrics around digital marketing?

We doubled and tripled the investments in the digital marketing front across products and services not because we wanted to offset the dip in branch led business but because more customers were reaching out through these digital platforms. Pull-based business opportunities like health insurance were also in demand; a lot of digital marketing initiatives got fast tracked.

Video KYC changed the economics and at a fraction of physical cost we can do the physical KYC and do multiple business with him or would’ve been only one business of deposit before video-KYC where the customer wasn’t verified face-to-face.

On vectors being measured, earlier things were not straight through; most of our digital marketing arrangement partners were on the basis of cost per lead which captured mobile number either paid on per lead or impressions. Now the straight through journey changed the equation on this, earlier you were at the mercy of the aggregators and what would be the quality of the lead as banks make money on conversion of that lead.

The equation has moved from paying per lead to paying per converted customer and some of those have helped focus to target better and ensure that the same lead is not going to dozens of banks and see sub-optimal conversion.

Digital business is not only about aggregator arrangements it’s also on the payment side where merchant aggregators which are country wide operating in the payment gateway space and non-digital merchant led aggregators like old-age Pine Labs and similar players and how they’ve metamorphosed and deeply integrated with banks through APIs.

These payment partners get merchant customers to bank equivalent to current account journeys which have been created with more control as entity verification is bigger science than individual verification. For entities, you’ve to check their registrations, office, etc. all these risk parameters have been added to the onboarding mechanism and we have been among the first ones to launch a digital current account onboarding.



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RBL Bank aggressive on branch expansion, to add 75 branches in FY22, BFSI News, ET BFSI

Banking & Finance

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As digital adoption picks up across the board, RBL Bank continues to remain aggressive on its branch expansion to improve its presence across the country. RBL Bank’s head for branch banking, Surinder Chawla, talks about the strategy of branch expansion and business, user behaviour evolving across retail and MSMEs and the way forward. Edited Excerpts:

Surinder Chawla, Head – Branch Banking, RBL Bank

Q. How’s the shift in the branch banking business strategy taking into consideration the impact of the pandemic and lockdowns subsequently?

Multiple changes have happened before and after the lockdown.

The last 3-4 months have been very different from how we look and approach things. The first big change is digitisation. Customer adoption of digital technologies has been very high compared to earlier. That is a big change, and it is a good change from customers as well from the bank point of view. The second big change is that earlier you had to meet clients to get work done and all that is done digitally even from a product perspective. The third big factor is some products which were push based, because of the pandemic/ health concerns of the client, those have become very accepted by the clientele. The biggest jump that has happened is in health insurance. As a strategy what all is happening is our investment in digital has become digitally large. If you want to scale up, serve customers digitally, whether it is full Net banking or Whatsapp banking. We have put almost all of our products and services on the digital platform.

From the liabilities and CASA point of view, engagement has become so much more because digitally frequency is here. The strategy is digital, engaging and making sure that the client does most of the things on his own. We roughly have now 20-25,000 digital accounts being added per month and it was around 12,000 in January-February 2021. Last year this number would have been 5-7,000 before lockdown.

Q. How is the impact on SME and small business clientele? Is the same shift happening at the same speed or is it slow there?

If someone wants to trade in cash, then you have to connect with them physically. Apart from that, everything is digitally possible. We have a way of processing documents digitally. Most of the clients’ needs can be carried through digital channels. RBI last week allowed video KYC for sole proprietorship. Of course, cash will be an exception. There is also enablement happening for the business guys. That shift, which was slow so far, will become very fast paced now.

Q. How’s the user behaviour evolving in MSME clientele and how neo-bank platforms are targeting them?

That is working well. Let us not forget that an MSME business client has never done something digitally, he has done digitally but also done physically. All the neo-banks are providing a layer over the current account and other services like invoicing, billing, tax planning, etc. That demand was there earlier and still there. The changes were primarily on the account opening side. Physical interaction was required but now the video-KYC is available, it is a game-changer. More and more banks are taking trade documents digitally. More and more banks will move services digitally. So, that pace is bound to pick up. The problem will be for those banks who want to deal in cash.Q. What are the plans for RBL bank in the branch expansion model? Would you look at rationalising?

So talking about RBL in specific, we do not have a large network. We only have 429 branches as of March. For us, branch expansion plans continue to be aggressive as we must increase our coverage. Let us not forget that Indian consumers may do a lot of work digitally, having the branch closer will increase their confidence. Branch in my view will still play an important role. The difference will be that the number of branches will decrease compared to before. While engagement is digital, the Indian consumer may want to meet someone for confidence. We are planning to add 75 more branches compared to 40-45 branches last year as we have a small network.

Q. How is the impact of the second Covid wave panning out on customers acquisition, transactions etc?

I will divide the impact on the liabilities and asset sides. For the liabilities apart from the fact that people are not coming to the branches, we were able to do fairly well. We have ramped up our digital capabilities. The number of accounts opened was in the same range as what we were doing earlier. From that angle, there has not been a significant impact. In terms of transactions, only the cash transactions have taken a hit, our customers transacted digitally. The engagement rate was high, and customers did not really face a challenge.

Q. As unlocking of lockdowns has started, what’s the way forward?

On the liabilities side, I expect to be fairly good. We have been spending more time and effort in improving the quality of our liability profile as well. We look to make sure that our book is more granular, our cost of funds has come down, we are able to get more customers. We plan to open branches, we expect that CASA ratio improves.



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NCLT execution is frustrating; credit growth will remain a matter of concern, says Rajnish Kumar, BFSI News, ET BFSI

Banking & Finance

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Q. How are bankers mapping reality when everything is uncertain? How do you see credit growth this year?

Compared to the last year, the severity of lockdowns is not too much this year. If I look at the earnings of large corporations I can see that they are able to face the situation really well. Sectors like steel, cement and IT have shown some improvement. This year there is an impact on the rural economy, which was not there last year. Also, MSME is the most vulnerable and huge employment loss is a major concern. The key difference between 2020 and 2021 is that last year we had many measures from the government and RBI. My assessment is that the bank’s credit growth will remain a matter of concern this year too. Once vaccinations pick up and the third wave doesn’t strike, we can see a pick-up in the economy from the third quarter.

Q. Are the government and RBI initiatives generating the demand?

The government’s Emergency Credit Lending Guarantee Scheme (ECLGS) was very well received. RBI has kept the rates low and taken initiatives but the general belief is that monetary initiatives are not sufficient. We can’t do the heavy lifting which is required in the current situation. Right now the priority is to revive the demand and consumer confidence which can be done only by the government. Fiscal measures may be required. Given the constraints that the government has, the headroom is not unlimited. But this is an unusual situation and unusual steps are required.

Q. What should the government do to generate demand and consumption?

The government of Maharashtra reduced stamp duty from 6% to 2% and it generated a phenomenal business. This shows that such moves demonstrate the demand really well. It was an unprecedented move and it also improved the liquidity position of real estate developers. It is not necessary that only the central government should do all things; even state governments can take initiatives and offer incentives to encourage the demand.

Q. Has liquidation (at IBC) become a scam? Why are resolutions lesser than liquidations at IBC?

There are two things. First, generally for a better resolution what works is early detection. Here, many of the cases were really old and there was no chance of revival. Second, unfortunately, the weakest link in the whole IBC process is the execution. Many positions are lying vacant at NCLTs and many judges are going to retire soon. So how will the system work? We have thousands of cases. We are in a situation where the cases are piling up and resolution can’t happen. We have to make quick and immediate decisions. It’s a patient in the ICU and you can’t leave the patient unattended for months. There are cases where the resolution plan has been approved and voted on by the Committee of Creditors (COC) but there’s no decision from NCLT yet. It is a frustrating experience for the lenders. It is a frustrating experience for the resolution professionals. I don’t see any issue with the law, because a lot of amendments were carried out, but the execution is the weakest link. My view is if you can settle the cases without going to NCLT do that. You can think of a one-time settlement if you can. You may have a better recovery in certain cases there.

Q. Vijay Mallya is ready with the offer to settle the loans, are there legal challenges in accepting his offer?

There are no legal challenges, but till the time I was the chairman, there was no communication received from Vijay Mallya about any such offer. Also, lenders have security. Irrespective of what Vijay Mallya does, bankers have the security to recover their dues from his assets. And that security is very good and valuable. Recently the PMLA court has approved the sale of his assets. In Mallya’s case, whatever is the narrative, whatever be his mistakes, from lenders will recover better than many other stressed assets.

Q. With the emergence of digital and digital-only banks, where do you see SBI?

Today if technology is not the core of your business, then it will not survive. We were good at the back end. At SBI we have adopted digital heavily and the benefits are huge. Banking in 5-10 years will change beyond imagination. Large legacy banks also do not have a choice but to think like a tech company. Maybe it’s happening at different spaces at different banks, but SBI has its own advantage because of the customers and resources.

Q. What is the idea behind privatising two public sector banks?

The major issue is how long should the government capitalise the PSBs? And the government’s policy is also that they don’t want to have more than four entities in non-strategic sectors. There can be a question whether private banks perform better? But there is not an easy answer to this because there are failures in private banks as well. Also, the government wants to increase the governance of banks. So it’s a strategic decision. Because if the government wanted to only increase the governance they would have shifted the ownership of the PSBs to RBI, and the issue would have been resolved. RBI would have become the sole regulator and banks would have achieved similar results.



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Sanjiv Bajaj, Bajaj Capital, BFSI News, ET BFSI

Personal Finance

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Q. Thoughts on digital proliferation bringing changes in the financial services space?

Earlier there was a clear distinction, there used to be offline players and online players trying to disrupt. The Covid-19 pandemic induced lockdown made everyone shift to digital which was no longer a choice but a necessity and survival tool. Regulators have been supportive of these digital advancements and all companies have put their best in improving digital capabilities and subsequently the IT related hiring has also gone up.

Today, even for an offline player like us (Bajaj Capital) our 60% of business is happening online and there’s no difference between us and the offline player. This is going very very fast. Those who couldn’t shift online are probably already out of business, now we are much more efficient.

Most businesses are at 90% of normalcy and most have exceeded the normalcy times as well as many are focusing on investments and insurances. Insurance has become a pull product.

The demand for online services has gone up and we have to put customers on waiting lists at times.

Q. How are your Phygital services shaping up?

Phygital is the future. For e.g. For Insurance, People have realised the level of services he/she wants without a physical presence, today service is very important. People are actually moving from pure digital services to phygital service where they know they can do their transactions online but they are aware that there is somebody to depend on for any other services like claims, etc. and it is becoming a part of it.

We are seeing a migration of people towards Bajaj Capital as we do have an offline presence too. Mass Affluent and HNI is moving to phygital unless it’s something like trading which they would do on their own but other segments are preferring that they know somebody to support.

Q. How do you leverage new emerging technologies?

It is important to have the process of onboarding completely online, earlier there used to be processes with physical signatures and these have been removed by the regulators. Digital experience depends on specific products. For e.g. Stock broking is completely digital, the other extreme end where customers require handholding and don’t want to do it completely online is investments, where they think it’s their hard-earned money and realise the importance of it and seek wealth manager and have become risk averse.

Customers have the capability to do everything online but they need a person to guide along with advice as market changes keep happening. Insurance is also witnessing a similar shift: few products and segments in non-life like car insurance have gone completely online, health & life – people are seeking phygital support and quality services.

Mass-affluent customers are demanding a premium experience with hand holding at the same time even if they’re capable of doing it completely online.



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Banks should bring social media experience to customers, says Taimur Baig of DBS Bank, BFSI News, ET BFSI

Banking & Finance

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Banks and financial institutions must take a leaf out of social media companies’ book to provide digital and seamless experience beyond the core banking facilities, said Taimur Baig, MD & Chief Economist, DBS Bank Singapore.

“It is no longer about bank branch, site, doing certain transactions is not enough. Customer demand and want more. banks can introduce robo-advisory, that does not require face to face interaction and is a simple model to use,” Baig said while delivering the keynote address at the ETBSI Virtual Summit, Baig spoke about the four pillars which can hold banks and the financial sector in a good state.

Taimur Baig, Chief Economist and MD, DBS Bank (Singapore)

Listing augmented, open, cognitive and automation banking as the four pillars that can hold banks in a good state, he said, “New ways of interacting with customers will provide value to customers and bring them joy, hence they will continue to come back.”

Augmented banking

Under augmented banking, banks can introduce robo-advisory, that does not require face to face interaction and is a simple model to use.

“They can eliminate handmade signatures and enable biometric signatures. They can enable digital onboarding allowing customers to upload PDFS and do digitally and seamlessly. They can provide intelligence services like newsletters, articles through apps, websites etc,” he said.

Open banking

Open Banking is allowing banks within the banking system as well as the broader financial sector to come with pipes, so that the information, payment instructions can move freely and cheaply across the financial sector. “Combine the services you offer as a bank with other vendors, banks. For example, bank tying up with food service, taxi service company as a result payment services, information can move freely providing value and convenience to customers which translates into higher revenues for banks,” he said.
Citing marketplace for api, credit, reserve management, cross border payments as other areas for open banking, he said, “Having marketplaces where other participants can come and work as a peer providing better services to customers, institutional customers across retail and wholesale will be critical.” No discussion of open banking is not complete is without blockchain.

Underscoring the importance of blockchain in open banking, Baig said, “Normally when we have cross border transactions, we have many parties, companies, Banks, many payments companies in the middle, all of those can be brought into transparent context.”

Cognitive banking

Cognitive banking as the name suggests is about the intelligent ways of coming up with customer solutions for clients. “It is like the way when you surf tTik Tok, Facebook or Instagram. The algorithm of particular apps will know about your usage history and will provide you with set of content made just for you,” he said.

“Why cannot we do it as banks. We have a lot of data with us. Why don’t we make use of these data and develop tailor-made solutions for them?Cannot we create a recommendation engine for our clients based on that, Baig asked.

Automated banking

Automated banking is about automating bank’s services such as organisational resources, fraud analysis, anti-money laundering aml-cft type work, AI, audit tracing, loans approval. “All of those things should not be subject to many days of process, many human interaction, lot of errors in decision making. This should be a part of seamless process done automatically, very very cheaply but using data, using cutting edge machine learning and AI,” he said.

Learnings from the pandemic

Fifteen months into the pandemic we could confidently say that banks all over the world have held themselves well, Baig said. “The Indian bank system has had a tough time in last 5-6 years in terms of bad loans, they themselves did not fall into a significantly deeper hole because of pandemic happening last year or so, he said.

Even though it looks very bleak right now, this will pass, he said.

“We know better it is also about the economic dimension. We know how to help people in need, we know how to bring assistance to them, and it was fairly successful. We know how to keep factories growing, agriculture growing even if there is an outbreak. Because given last one year experience we know how to keep this activity going even if the statistics show alarming numbers of outbreak.”

It will be tough going this quarter and perhaps also next quarter, but this time there are certain factors different from the last time.

The call for the wholesale downfall is premature, downfall risk has increased but still there are know-how protocols which will allow to rise through this storm, he said.

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China asks banks to stamp down on loan growth, BFSI News, ET BFSI

Banking & Finance

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China’s central bank has asked major lenders, including the foreign ones, to curtail loan growth for the rest of this year after a surge in the first two months stoked bubble risks.

At a meeting with the People’s Bank of China, banks were told to keep new advances in 2021 at roughly the same level as last year. Some foreign banks were also urged to rein in additional lending through so-called window guidance recently after ramping up their balance sheets in 2020.

China, which keeps tight control over money flows in and out of the country, may be worried that a surge of funds into the country could lead to nasty surprises like inflation.

“On the one hand, there will be a slowdown in loan growth, and on the other hand, the slowdown is quite moderate,” said Lu Ting, chief China economist at Nomura Holdings Inc., adding that the pace is in line with the PBOC’s stance of making no sharp policy turns.

With the coronavirus largely contained and the economy rebounding, Chinese policymakers have renewed a campaign to curb risks, especially in the financial and real estate sectors. Even if credit growth eases, the prospect of higher interest rates and fewer soured assets may boost the profitability of banks, which saw earnings slump after they were enlisted to help borrowers obtain cheap financing during the pandemic.

Foreign banks

Chinese rules have sharply limited the ability of foreign banks to do business in the country, making them less competitive against local rivals. Rules enacted in December and January restricts how much money foreign banks can transfer into China from overseas. Those enacted last month required many foreign banks to make fewer loans and sell off bonds and other investments.

The new rules have caused a stir among the global bank executives and foreign companies in China that depend on those lenders for money. They worry that the rules could make foreign-owned businesses more dependent on China’s state-run banking system for the money they need to grow. That dependence could give Beijing another potential pressure point to use as it squares off against the US and others over trade, human rights, geopolitics and other sticky issues.

Record credit, inflows

In 2020, banks doled out a record 19.6 trillion yuan ($3 trillion) of credit. Lending the same amount this year would bring the outstanding balance to about 192 trillion yuan.

Foreign investors last year increased their holdings of Chinese bonds by about $150 billion. China also surpassed the US last year by taking in $163 billion worth of direct investments in factories, office buildings, companies and other assets.

China’s currency, the renminbi, rose sharply in value against the U.S. dollar in the second half of last year. In May, $1 was worth about 7.15 renminbi. By year’s end, $1 bought about 6.5 renminbi.



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IBC is less of resolution and more of liquidation, BFSI News, ET BFSI

Banking & Finance

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Bankers feel that they are not getting a good price under the Insolvency and Bankruptcy Code, which has seen dismal recoveries in many cases.

“IBC is not the right solution. It is a resolution tool. If there is no resolution, automatically it goes to liquidation. That is a big problem. Resolution can be made if the underlying business is robust, says Siby Antony, chairman of the ARC Association of India.

He says banks feel that they are not getting the right price in IBC.

“Alok Industries was thought to be a very good asset but went for 17%. Binani Cement, Essar Steel were robust businesses and saw interest from strategic investors. But there are hundreds of assets where there is no interest from investors. These are smaller assets,” he said.

The status of IBC cases

Out of the total 3,774 cases or corporate insolvency resolution processes (CIRPs) filed since the Insolvency and Bankruptcy Code (IBC) came into existence in 2016, 1,604 cases, or 43 percent have closed, by way of resolution, liquidation or other means. The rest 57 percent are ongoing with many overshooting the 330-day maximum time limit.

Of the 1,604 closed cases, only 14 percent have found a resolution, whereas 57 percent have ended in the liquidation of the companies.

Interestingly, the 72% cases of CIRPs ending in liquidation were already defunct and under the Board for Industrial and Financial Reconstruction.

About 312 cases have been closed on appeal or review or settled, 157 have been withdrawn; 914 ordered for liquidation and 221, saw approval of resolution plans.

The recovery rate for resolved cases under IBC is 44% with Rs 1.84 lakh crore recovered so far of the Rs 4.13 lakh crore admitted claims.

In case of the 12 large defaulters identified by RBI, the creditors recovered Rs 1.36 lakh crore from eight cases that have been resolved so far, with recoveries ranging from as low as 17 percent of claims in the case of Alok Industries, to almost 100 percent for Jaypee Infratech.

N Kamakodi, MD & CEO of Citi Union Bank said he preferred the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act (SARFESI) over IBC.

“Since our focus is more on SME lending, we have control over the assets of the borrower. Hence, most of our resolution plans are through SARFAESI action more than the IBC.”

He added, “What is more important is whether the borrower has the skin in the game. When you want to sell it as a going concern and when there is a sufficient value, then IBC is preferable. But if the borrowers’ skin in the game is less, then the SARFAESI is a better option.”

The delays in NCLT

The 221 CIRPs that saw resolutions took an average of 375 days for the conclusion, exceeding the maximum 330 days permitted. The 914 cases under liquidation took on an average 309 days for the conclusion.

As on September 30, 2021, out of the 1,942 ongoing insolvency resolution cases, as many as 1,442 have been stretched beyond 270 days, while 349 such cases have been pending for periods of more than 180 days but less than 270 days.
As on September 30, 2021, out of the 1,942 ongoing insolvency resolution cases, as many as 1,442 have been stretched beyond 270 days, while 349 such cases have been pending for periods of more than 180 days but less than 270 days.

As on September 30, 2021, out of the 1,942 ongoing insolvency resolution cases, as many as 1,442 have been stretched beyond 270 days, while 349 such cases have been pending for periods of more than 180 days but less than 270 days.

Recently, the National Company Law Appellate Tribunal (NCLAT) directed to initiate the liquidation process of edible oil company K S Oils Ltd and set aside an NCLT order passed against it. Terming it “unfortunate”, the appellate tribunal observed that even after the lapse of 981 days and repeated compliance by the Resolution Professional to initiate the liquidation process, the NCLT had not considered it.

Leading bank State Bank of India, one of the Committee of Credit (CoC) Member, on behalf of joint lenders forum who collectively holds 76.53 per cent had moved NCLAT based on which the appellate tribunal had on November 18, 2019, directed lenders to consider revised plans if any within two weeks and directed NCLT to pass appropriate order in accordance with the law.

Bad bank challenge

The government is planning to set up a bad bank and an asset management company (AMC). Loans greater than Rs 500 crore which have not been declared fraudulent will be transferred to the bad bank. It is likely that the assets would not be subjected to IBC in the first instance, and the AMC will first try and revive these companies or package the loans to an investor.

Bad Bank
Bad Bank

Also, creditors of several companies had signed the Inter Creditor Agreements (ICA) and may continue negotiation under the framework roping in distressed asset investors. Also, most of the ICA cases will have loans greater than Rs 500 crore, which will be transferred to the bad bank. MSME will be outside the scope of IBC pending notification of the designated framework.



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Bad bank can be only a warehouse of bad assets, says Siby Antony, BFSI News, ET BFSI

Banking & Finance

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Antony has been working in the ARC sector for the last two decades. He was heading Edelweiss ARC and now is the Chairman, ARC Association of India. In an interview with ETBFSI he explained different aspects of the bad bank…

He believes “Bad bank will be a warehouse of bad assets. If the objective of a bad bank will be to aggregate the debt and hand it over to ARC and AIF it will work. Because debt aggregating is still a problem in ARC the reasons being different banks have different provision coverage and many more such issues.” he said.

Antony also narrated the crux of the issues pertaining to asset reconstruction companies (ARCs). Such as why are banks unable to find resolution despite there being 28 ARCs? What are the major challenges that ARCs face? What has the Association of ARCs asked the RBI?

Antony also sees a surge in cases in the National Company Law Tribunals after March once the Insolvency and Bankruptcy Code suspension is revoked.

Also read: Raghuram Rajan’s formula has led to over 50% recovery for ARCs

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