Tag: federal bank

Indian banks facilitate cryptocurrency transactions amid a fresh boom, BFSI News, ET BFSI

Banking & Finance

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As Indians flock to the cryptocurrency market with renewed enthusiasm, banks are joining the party.

They are again allowing the purchase of Bitcoin and other cryptocurrencies through their channels, easing curbs that they had imposed on such services.

Lenders including HDFC Bank, ICICI Bank and Axis Bank are allowing transactions in virtual currencies through the UPI platform.

Crypto exchange WazirX has listed the net banking facilities of Punjab National Bank, Union Bank of India, IDBI, IDFC First Bank, Federal Bank and Deutsche Bank to make payments for crypto purchases.

According to crypto exchanges, more banks are now warming up to them and several channels are available for customers to buy crypto assets.

The change in stance happened after the Reserve Bank of India told banks that they no longer can use the regulator’s 2018 circular prohibiting dealings in virtual currencies, as the direction has been struck down by the Supreme Court, said people in the know.

Banks have also reopened accounts with crypto exchanges after conducting due diligence, in absence of any specific regulation. This comes at a time when Indians are flocking back to cryptocurrencies.

Reluctant banks

As early as June banks were sending official notices to many customers warning them of curbs, including permanent closure of accounts.

Lenders were asking customers to clarify the nature of transactions and warning credit card users that transactions of virtual currency will lead to suspension/cancellation of card.

While trading in cryptocurrency is not illegal as per existing Indian laws, individual institutions can enforce their terms based on their risk assessment.

A grey area

Despite the boom, cryptocurrencies are in a grey area in India, with the Reserve Bank hostile towards it and the government unsure about its prospects.

There is no legislation or regulatory code yet to govern the crypto ecosystem, leading to confusion among customers, businesses and financial institutions providing banking services.

In 2018, the Reserve Bank of India barred financial institutions from supporting crypto transactions, which the Supreme Court overturned in 2020. The government has circulated a draft bill outlawing all cryptocurrency activities, which has been under discussion since 2019.

Last month, the RBI asked banks not to cite its 2018 circular and clarified that banks can do their own KYC for crypto clients. With this, banks are now reassessing the situation, but several banks currently lack the technical expertise to make a supervisory assessment on these transactions.



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Indian banks facilitate cryptocurrency transactions amid a fresh boom, BFSI News, ET BFSI

Personal Finance

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As Indians flock to the cryptocurrency market with renewed enthusiasm, banks are joining the party.

They are again allowing the purchase of Bitcoin and other cryptocurrencies through their channels, easing curbs that they had imposed on such services.

Lenders including HDFC Bank, ICICI Bank and Axis Bank are allowing transactions in virtual currencies through the UPI platform.

Crypto exchange WazirX has listed the net banking facilities of Punjab National Bank, Union Bank of India, IDBI, IDFC First Bank, Federal Bank and Deutsche Bank to make payments for crypto purchases.

According to crypto exchanges, more banks are now warming up to them and several channels are available for customers to buy crypto assets.

The change in stance happened after the Reserve Bank of India told banks that they no longer can use the regulator’s 2018 circular prohibiting dealings in virtual currencies, as the direction has been struck down by the Supreme Court, said people in the know.

Banks have also reopened accounts with crypto exchanges after conducting due diligence, in absence of any specific regulation. This comes at a time when Indians are flocking back to cryptocurrencies.

Reluctant banks

As early as June banks were sending official notices to many customers warning them of curbs, including permanent closure of accounts.

Lenders were asking customers to clarify the nature of transactions and warning credit card users that transactions of virtual currency will lead to suspension/cancellation of card.

While trading in cryptocurrency is not illegal as per existing Indian laws, individual institutions can enforce their terms based on their risk assessment.

A grey area

Despite the boom, cryptocurrencies are in a grey area in India, with the Reserve Bank hostile towards it and the government unsure about its prospects.

There is no legislation or regulatory code yet to govern the crypto ecosystem, leading to confusion among customers, businesses and financial institutions providing banking services.

In 2018, the Reserve Bank of India barred financial institutions from supporting crypto transactions, which the Supreme Court overturned in 2020. The government has circulated a draft bill outlawing all cryptocurrency activities, which has been under discussion since 2019.

Last month, the RBI asked banks not to cite its 2018 circular and clarified that banks can do their own KYC for crypto clients. With this, banks are now reassessing the situation, but several banks currently lack the technical expertise to make a supervisory assessment on these transactions.



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Federal Bank plans to buy microfin co to expand biz, BFSI News, ET BFSI

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Mumbai: Federal Bank MD & CEO Shyam Srinivasan has said that the private bank sees an opportunity to grow both organically and through acquisition. The bank is interested in acquiring a microfinance business as part of its focus on growing the retail high-margin category.

Srinivasan said that Federal Bank is now on a par with any new-generation bank in terms of digital capability and operations and had sound asset quality due to its focus on retail. “Financially we have done very well. There are some metrics around return on asset (RoA) expansion that we are targeting. This essentially means a change in margin profile,” said Srinivasan.

Federal Bank had said that its RoA would grow from 0.76 to 1.25 in five years and were on course to achieve it, but Covid has delayed it by one year to FY23. The bank will also be launching its credit cards shortly and expanding personal loans.

According to Srinivasan, in the banking sector, half the market is concentrated among the top 7-8 lenders. The remaining 50% is highly fragmented with 17-18 banks having a 1% to 3% market share, which throws up consolidation opportunities. “In Kerala, we have a 17% share, but the state is only 3% of the market. Outside Kerala, we are 1%. In the long term, I see a huge opportunity for growth and consolidation,” he said.

Srinivasan said that Federal Bank has invested a lot in its platform and people, and now it was time to leverage the investment and capability. He said that to explore acquisition opportunities in microfinance, the bank would wait for a quarter as the current stand-still on the classification of loans as non-performing assets (NPAs) did not give a clear picture of asset quality. Srinivasan, who was hired from StanChart Bank in 2010, adopted a strategy of ‘digital at the fore, human at the core’, which meant upscaling technology, going slow on branch expansion but expanding their footprint by having more customer-facing employees. Federal Bank has also many fintech partnerships. It is about to launch two neobank partnerships that will enable it to get access to a new segment of customers for its personal loans and credit card products.

In the last decade, the bank has raised capital only once through a Rs 2,500-crore qualified institutional placement in 2017. “We have been meeting our capital adequacy largely through internal accruals. This has led to a level of trust in the bank and, if Federal Bank comes to the market, there is good reason to believe that we will be able to raise the money,” said Srinivasan.



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We will be back issuing cards by mid-September, huge potential to tap: Shalini Warrier, executive director, Federal Bank

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Shalini Warrier, executive director, Federal Bank

Federal Bank recently launched its credit card and has US-based Fiserv as its technology partner to enable digitisation of its end-to-end card issuance and processing cycle. Shalini Warrier, executive director of Federal Bank, speaks to Rajesh Ravi about cards and future plans. Excerpts:

What is the current status of the credit card launched by the bank?
We launched our credit card in May. We started with our staff and then in June, we started issuing them to our customers. It is a complete digital product with no paperwork involved. We had gone in with an exclusive partnership with Mastercard. Unfortunately, they had a restriction placed on them by the RBI and we stopped issuing cards in July. We are currently working with Rupay and Visa to certify ourselves. We will be back issuing cards by mid-September.

Do you have any target in numbers for the credit card ?
In numbers, currently, we are around 25,000 and geared to upscale. There is immense potential in our existing customer base itself. We have around 80 lakh debit cards, and the typical ratio in the market is that for every 10 debit cards, there is one credit card. Building card numbers is easy, but there are risks from both the credit and technology sides. We want to take it in a gradual manner.

Federal Bank is one of the few in India to enable tokenization with Google Pay.
The most important thing is that you can just tap and pay. You don’t have to take out your credit card or debit card. We are the first bank to enable tokenisation with both Visa and Mastercard. It is a safe and secure system for customers and you don’t have to store your card number. Literally, it anonymizes card numbers and reduces the risk of leak.

Buy now pay later (BNPL) is gaining acceptance across the world. Where does the bank stand regarding this?
We are one of the few banks that offer debit card EMI products. We now offer it to our existing customers. We have not gone to new-to bank customers, and will do that in near future.

Fiserve is your technology partner for credit card. Do we see new products from this tie-up?
We are working with them and their technology platform is very advanced. It is a long-term partnership. There are so many innovations in the credit card sector and they have a very agile technology. We are working with them on the credit card EMI facility, balance transfer facility, etc.

The bank is launching a credit card when youngsters are moving to fintech platforms.
Penetration of credit cards in the Indian market is still very low. According to research, customers reach out to credit cards when the ticket size is large. Youngsters use debit cards when the ticket size is small. That is a reason why we went for credit cards. This is true for even e-commerce platforms. Credit cards are here to stay.

Are you planning any new technology-based products for your customers?
We have a promising partnership with two neobanks – Fi and Jupiter. Youngsters who are digitally native, the salaried millennial who wants all the convenience of the banking and at the same time wants the safety and security of a bank are best served through collaboration with our fintech partners.

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5 small and midcaps that may give 50% upside in next 2 yrs, BFSI News, ET BFSI

Banking & Finance

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Stocks like JK Cement, Dalmia and Nuvoco Vistas may fall 10% in the near term but could give 50% upside over the next 2 year. Within the financial vertical, AU Bank and Federal Bank are the two names that we would be going with, says Hemang Jani, Equity Strategist & Senior Group VP, MOFSL.

What is your take on financials? Do you think that asset quality fears may come to haunt them a little later?
This space has gone through a lot of pain in the last one year. Initially, when we had the lockdown fears, the entire sector went down and within that sector, the smaller banks and NBFCs went through the maximum pain and after that we have seen a good amount of revival and by and large things are looking much better. What is important to note is that within the universe, there are a few pockets where the outperformance has been huge. Typically, HDFC, Kotak have underperformed and ICICI, Axis and SBI have done better.

My view is that some of the smaller banks like AU and a few other NBFCs seem to be doing well even in the most challenging environment where top notch banks are struggling to grow in terms of the NII and the overall franchise part. In a bull market, one typically tends to look out for some of the more exciting opportunities and within that, AU Bank or Federal Bank would definitely fit in. But a larger allocation of stocks should be in the likes of ICICI Bank, Axis Bank and State Bank of India.

Have you looked at Zomato’s numbers? There’s strong growth, strong revenue momentum and stronger contribution margins and all of this at the peak of the second Covid wave. Is that reason enough for the stock to push up even further?
The reason the Zomato IPO met with so much of success and excitement is definitely because there is a belief in the fact that there is a long runway of growth. The kind of app that they have created and the kind of business model that they are following would really deliver good performance over a period of time. When we look at the numbers, the fact remains that on the topline front, the average order value or the number of orders definitely has an element of momentum and traction and which also indicates that there is a good demand revival.

On the other hand, what really came as a big surprise was that the contribution margin has dropped by 170 bps and that is something that needs to be really checked as to what really is leading to this kind of a compression when there is a very strong growth on orders etc. What remains to be seen is that once offices open up and people go out more, are we going to see this momentum continuing or there is some sort of a cool off? That is something that we will have to watch. I do not think that we should form a view on Zomato by looking at the operating loss or the net loss. As long as the company is delivering on their top revenue and delivery transactions parameters with an eye on margin, the market may find this pretty exciting to get into it.

Give me the name of a small cap or two where you think a 10% downside for technical factors is possible but a 50% upside is also possible in the next two years?
I would be happy to share the midcap names or some of the smallcap names, but we have to be mindful of the fact that given the kind of runup that we have seen and the kind of valuation at which the broader market or midcap stocks are trading, they are almost at par with large caps. With this kind of runup, the volatility or the correction sometimes can surprise us. It may be 10%, it could be little more also and that is something that we will have to bear in mind when we are trying to dabble into the midcap and the small cap names.

So within the broader universe, we are comfortable in the cement sector. Given the kind of visibility that we have on the volume front, the companies on the north and east side of India are extremely well placed. One can look at names like JK Cement and to some extent Dalmia. Somewhere there is going to be a listing of Nuvoco Vistas and we will find that these existing companies are far better placed compared to the newly listed ones and that may create some sort of excitement.

Apart from that there are some of the smaller banks. Banks as a sector remained a bit muted for a long time and we are seeing an uptick and so AU Bank and Federal Bank are the two names within the financial vertical that we would be going with.

What about sugar stocks? After the runup in stock prices, do you believe they can be added afresh or added to the already existing holdings?
We have seen a very strong momentum in the global sugar prices maybe because of some crop failures in major continents like Brazil and some of the south-eastern regions. What remains to be seen when it comes to India is what are the inventory levels and the pricing that one can really expect from where we are right now.

Also we have to bear in mind that an important state like Uttar Pradesh is heading towards elections and the sugar policy and the stance that the government takes also plays an important role from election campaign perspective. It remains to be seen what happens in terms of fresh developments. Some of these commodities are in a strong up move and people may have some allocation for names like Balrampur Chini and some of the major north-based sugar companies. From a tactical point of view, it may make sense to participate in those names.



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Banks head towards recovery after challenging environment due to the second wave of covid-19, BFSI News, ET BFSI

Banking & Finance

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The second Covid-19 wave has impacted the recovery and lending activities of commercial banks. From tackling scattered lockdowns to managing recovery and collections, banks are expecting a recovery phase in the coming quarters.

Private lender Federal Bank recorded the highest ever operating profit of Rs.1135 Cr with 22% Y-o-Y growth in Q1FY22. The total business of the bank reached Rs. 299158.36 Cr registering Y-o-Y growth of 8.30% as of 30th June 2021.

Shyam Srinivasan, Managing Director, and CEO, Federal Bank said in a statement, “The external environment continues to be challenging however we have managed to keep our operating momentum intact by delivering our highest ever operating profit, for the quarter. Our CASA ratio is at an all-time high and we continue to build a granular liability franchise with more than 90% of our deposits being retail in nature. Our relationship with the NR diaspora continues to blossom with our share in personal inward remittances increasing to 18.20%. We have also managed to keep asset quality in check with only a marginal uptick in GNPA and NNPA.”

Shyam Srinivasan (File Pic)

On similar lines, IDFC FIRST Bank in its Q1FY22 financial results announced the highest ever core pre-provisioning operating profit at Rs. 601 Crore. Total Income grew by 36% YoY basis to reach Rs. 3,034 crore in Q1FY22.

V Vaidyanathan, Managing Director, and CEO, IDFC FIRST Bank, said in a statement, “Our CASA ratio is high at 50.86% despite reducing savings account interest rates by 200 bps recently. Because of our low-cost CASA, we can now participate in prime home loans business, which is a large business opportunity.”

“Regarding the loss during the quarter, we have made prudent provisions for COVID second wave, and expect provisions to reduce for the rest of the three quarters in FY 22. We guide for achieving pre- COVID level Gross and Net NPA, with targeted credit loss of only 2% on our retail book by Q4 FY 22 and onwards, assuming no further lockdowns.” Vaidyanathan added.
Banks head towards recovery after challenging environment due to the second wave of covid-19
South-based lender CSB Bank in its First Quarter results announced a profit after tax at Rs 61 Cr in Q1FY22 as against Rs 53.56 Cr in Q1FY21 and Rs 42.89 Cr for the sequential quarter. Net profit increased by 14% YoY. The operating profit of the bank is Rs 179.78 Cr with a Y-o-Y -growth of 39%.

CVR Rajendran, Managing Director & CEO at CSB Bank said in a statement, “COVID second wave coupled with the LTV management of gold loans did pose some challenges in the first quarter of FY 22. Lockdowns, alternate holidays, slowing down of economic activity, controlled movements due to strict social distancing norms, lack of transport, etc restricted the customer access to branches which in turn impacted both the fresh pledges and releases. Thankfully, the worst seems to be over now and recoveries are happening in full swing. The portfolio LTV that was at 83% has been brought down to 75%. The aggressive vaccination push and controlled localised lockdowns have helped in managing the second wave to a great extent and we are optimistic to catch up the business opportunities on a larger scale from this quarter.
Banks head towards recovery after challenging environment due to the second wave of covid-19
Bandhan Bank also announced its Q1FY22 results with pre-provision Operating Profit (PPOP) at 9.3%; up from 8.6% in the Q4FY21.

Chandra Shekhar Ghosh, Managing Director, and CEO of Bandhan Bank said in a statement, “Despite the challenging environment due to covid second wave, we have delivered the best-ever quarter in terms of operational performances. Collections continue to improve with covid restrictions getting relaxed. Typically, the second half of the financial year is always better for the bank in terms of growth and collections. With the easing of the covid second wave and upcoming festive season, we are confident of achieving better performance going forward.”
Banks head towards recovery after challenging environment due to the second wave of covid-19
While Axis Bank reported a 94 percent year-on-year rise in standalone net profit at Rs 2,160 crore as against Rs 1,112 crore reported in the same quarter of last year (Q1FY21).

Amitabh Chaudhry, MD & CEO, Axis Bank said, “Despite second wave headwinds, we made tremendous progress this quarter on our strategy of building a high-quality granular franchise, increasing our relevance in the lives of the customers and the communities we serve, and building the best digital bank in the country,”

“The journey we started two years back is gathering momentum with a strong balance sheet, conservative provisions, and a steady operating performance supporting our aspirations. We have also set a bold mandate for our long-term ESG goals. We continue to monitor the macroeconomic environment closely and we remain confident about our strategy and the road ahead,” Chaudhry said.

Amitabh Chaudhry (File Pic)
Amitabh Chaudhry (File Pic)

The country’s largest lender, The State Bank of India recorded its highest-ever quarterly profit at Rs 6,504 cr. in Q1FY21. This implied a 55-per cent year-on-year (YoY) rise in net profit compared to Rs 4,189.34 crore in the year-ago period.
Dinesh Khara, chairman of SBI said, “Around 50% of our home loan book is to non-salaried customers which belong to the SME segment,”
Banks head towards recovery after challenging environment due to the second wave of covid-19
“The slippages are largely because of the disruption in the SME segment.” He also said, “SBI is expecting a credit growth of 9% during this financial year. The under-utilization of credit lines by borrowers in our corporate clients group has dropped to 25%,” Khara said. “That’s a positive,” he added.

SBI says that the bank is gearing up on several fronts to mitigate all the challenges posed by the spread of the COVID-19 pandemic.



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IFC invests ₹916 crore in Federal Bank for 4.99% stake

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IFC, along with two investment funds managed by IFC Asset Management Company (IFC Financial Institutions Growth Fund and IFC Emerging Asia Fund) have picked up 4.99 per cent stake in Federal Bank for ₹916 crore.

“Increased financing for climate friendly projects as well as more financing for small businesses to help accelerate India’s economic recovery from Covid-19 are expected in the wake of a $126 million (₹916 crore) equity investment in Federal Bank,” the private sector lender said in a statement on Thursday.

The investment will also support Federal Bank’s commitment to environmental social and governance (ESG) standards, and also strengthen its Tier 1 capital adequacy ratio (CAR) and expand its micro, small and medium sized enterprises (MSME) and climate finance portfolios, it further said.

“After the bank’s board approved issuance of shares to the IFC group to an extent of 4.99 percent of the bank’s paid-up capital, IFC has become a significant shareholder of the bank,” said Shyam Srinivasan, Managing Director and CEO, Federal Bank.

The investment also marks IFC’s first in India aligned to the Greening Equity Approach, which will enable the Federal Bank to reduce its exposure to coal and increase its climate lending.

Roshika Singh, Acting Country Manager for IFC in India said the move is in line with IFC’s strategy to support green growth and will also help create jobs.

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IFC’s investment in Federal Bank to promote green recovery, improve access to finance for SMBs, BFSI News, ET BFSI

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IFC and two investment funds managed by IFC Asset Management Company, IFC Financial Institutions Growth Fund, LP, and IFC Emerging Asia Fund, LP have made an equity investment for a 4.99 percent stake in Federal Bank Limited.

The $126 million (₹916 crores) equity investment is expected to increase financing for climate-friendly projects as well as more financing for small businesses to help accelerate India’s economic recovery from COVID-19.

The investment is expected to support FBL’s commitment to environmental, social, and governance standards with increased green portfolio financing for projects including energy efficiency, renewable energy, climate-smart agriculture, green buildings, and waste management.

The investment also aims to strengthen its Tier 1 capital adequacy ratio (CAR) and expanding its micro, small, and medium-sized enterprises (MSME) and climate finance portfolios – key for growth opportunities as the country recover from the pandemic.

Shyam Srinivasan, MD & CEO of Federal Bank said, “After the Bank’s board approved the issuance of shares to the IFC group to an extent of 4.99 percent of the bank’s paid-up capital, IFC has become a significant shareholder of the bank. The addition of this marquee name to the list of our prominent shareholders reinforces the trust and confidence reposed by the IFC group in the bank and its management. The infusion of quality capital further strengthens Tier 1 and overall CAR of the bank.”

IFC will also consult with the bank on developing a new Environmental and Social Management System (ESMS) that will be applied to its entire portfolio. IFC will also implement an E&S technical advisory program.

Roshika Singh, Acting Country Manager for IFC in India, said, “This move is in line with IFC’s strategy to support green growth by spurring investments to build back better and greener, seizing the opportunities to help India meet its climate goals and build a greener, resilient future.”

Additionally, India’s MSMEs have faced increasing difficulty gaining access to the financing they need. Around 63 million MSMEs typically contribute nearly 30 percent to GDP, but about 11 million MSMEs remain fully or partially excluded from India’s formal financial system with an estimated financing gap of around $400 billion. The COVID-19 pandemic has further hampered the availability of funding for MSMEs.

India ranks third globally in terms of greenhouse gas (GHG) emissions, with the country needing substantial investments to meet its goals under the Paris Agreement to reduce GHG emissions by 2030. IFC estimates a total climate-smart investment opportunity of $3 trillion in India by the year 2030.



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Fast growing gold loans turn sour hit by lockdowns, BFSI News, ET BFSI

Banking & Finance

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High yielding advances against gold jewellery, once the hottest loan product for banks, have turned sour this year as collections are affected due to the lockdown in the first quarter. Kerala-based Federal Bank and CSB Bank, besides large private sector lenders such as ICICI Bank, have seen slippages increase from this portfolio.

Although lenders say the pain is transitory, the second quarter is crucial for this portfolio to not become a big source of NPAs.

Banks for which gold loans contribute substantial amount to their profits, were hit in the first quarter. Out of the Rs 640 crore slippages that Federal Bank saw during the quarter, Rs 86 crore was from gold loans or linked to the product as a result, the bank’s gross NPAs rose to 3.50% of advances, up from 2.96% a year.

Similarly, Federal Bank’s smaller peer CSB Bank’s gross NPAs rose to 4.88% in June 2021 from 3.51% a year earlier due to the rise in NPAs from the gold loan business. Out of the Rs 435 crore of new NPAs during the quarter, Rs 361 crore was from gold loans including reversal of interest for the bank where gold loan makes up 38% of its assets.

Gold loans were the pain point even for larger lenders like ICICI which reported fresh slippages of Rs 6773 crore from its retail book out of which Rs 1123 crore were from such loans.

Analysts said the rise in delinquencies reflects the challenges banks faced in loan collections and also the cash flows issues faced by gold loan borrowers most of whom are micro entrepreneurs.

“There is also the impact of the fall in gold prices since last year which has made lending a little more risky. The fall in gold prices means that the strong growth that we saw in this portfolio last fiscal may slow down this year as banks will be more cautious,” said Prakash Agarwal, head financial institutions at India Ratings & Research.

Gold prices have fallen from a peak of Rs 52,827 per 10 grams in August 2020 to Rs 47,640 per grams now, though it is higher than the Rs 44,739 per 10 grams reported in March 2021. The rise in gold prices had also prompted the Reserve Bank of India to increase the loan to value ratio (LTV) to 90% from 75% in August. The LTV has since been restored to 75% from April.

Bankers however said despite the recent hiccups gold loans continue to be a well performing portfolio which can be built over the long term.

“We still believe in this portfolio and will continue to build it. There is no need for any caution. We are confident that as things improve both demand for loans and recovery of will improve. Already we are seeing an increase in recovery and we continue to expect growth in this fiscal year,” said CVR Rajendran, CEO at CSB Bank.

The growth though is going to be slower than the 61% growth the bank recorded in the fiscal ended March 2021. The banking system itself had recorded a 82% growth in fiscal 2021.

Bankers said the high yields and low risk offered by gold loans make it a winning product. CSB Bank for got a 11.50% quarterly yield in March 2021.

“In good times or bad gold loans are always a good product to have. Out NPAs in the segment is 0.20% which is very low with average loan to value (LTV) of about 80%. The loans at LTV of 93% are in single digits; so it is a very small portion,” said Shyam Srinivasan, CEO at Federal Bank.



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Private banks hold on in second Covid wave in Q1, but retail stress grows, BFSI News, ET BFSI

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Private banks have posted first-quarter results that are in line with analyst expectations, less deterioration in asset quality, though they are seeing stress in retail and gold loans.

Axis Bank

Axis Bank’s net profit almost doubled to Rs 21.6b in 1QFY22, with a PPOP of Rs 6420 crore, up 10% YoY. Net interest income grew 11% YoY, while margin fell 10bp QoQ to 3.46% due to interest reversals on slippages, higher liquidity, and change in product mix.

The bank has delivered an in-line performance, even as slippages stood elevated, resulting in a slight deterioration in asset quality. On the business front, loan growth remains flat due to a muted business environment, while margin witnessed a sequential decline. On asset quality, total restructuring stood controlled at 0.44% of loans (including approved, but not implemented). Though slippages could remain elevated in the near term, healthy provision coverage ratio of 70%, coupled with additional provisions buffer of 2%, would likely protect the Balance Sheet against any potential stress.

Kotak Mahindra Bank

Kotak Mahindra Bank reported an in-line core operating performance in a challenging environment, despite muted loan growth across most segments.

Private banks hold on in second Covid wave in Q1, but retail stress grows

Asset quality deteriorated slightly led by the secured Retail segment. Standalone PAT grew 32% but consolidated PAT declined by 3% YoY on account of weaker performance from subsidiaries, mainly Kotak Life and Kotak Prime.

Loan book fell 3% QoQ (up 6.6% YoY) to Rs 2.2 lakh crore, led by a decline across most segments. On the liability front, CASA growth remains steady, driving CASA mix to 60.2% (highest in the industry).

On the asset quality front, slippages stood elevated at Rs 1500 crore (annualized 2.8% of loans) mainly from Tractors, CV/CE, and the Small Commercial segment. GNPA/NNPA ratio rose by 31bp/7bp QoQ to 3.56%/1.28%. The bank carries COVID-related provisions of Rs 1280 crore (0.6% of advances), which remains unchanged.

The bank continues to report steady progress in building a strong liability franchise, with a CASA ratio of an estimated 60% (highest in the industry). Asset quality was affected due to the second Covid wave, which hampered collections, thus driving elevated slippages. The restructured book remains under control ~0.25% of loans. The bank carries Covid-related provisions of Rs 1,280 crore (0.6% of advances).

ICICI Bank

ICICI Bank reported strong earnings performance, led by robust core PPOP, aided by healthy NII growth (5bp NIM expansion). Also, lower provisions drove the earnings. The bank is thus progressing well towards earnings normalization.

Fresh slippages stood elevated at Rs 7,230 crore (annualized 4% of loans), predominantly from the retail/business banking portfolio. However, this was partially compensated by higher recoveries and upgrades. The GNPA/NNPA ratio grew by 19bp/2bp QoQ to 5.15%/1.16%. PCR remains stable at 78.4%, the highest in the industry. Restructured loans stood controlled at 0.7% of loans versus 0.5% in FY21.

ICICI Bank holds Covid related provisions of Rs 6,425 crore (0.9% of loans), despite utilizing provisions of Rs 1050 crore in 1QFY22. It guided at improved asset quality trends mainly from 2HFY22.

Private banks hold on in second Covid wave in Q1, but retail stress grows

The steady mix of the high yielding portfolios such as retail/business banking portfolio, deployment of excess liquidity, and low-cost liability franchise is aiding margin expansion. Covid has disrupted collections, leading to elevated slippages in the retail/business banking portfolio. However, the management is confident of improved asset quality trends over FY22, mainly from 2H onwards. Restructured loans remain under control at 0.7% of loans. Provision coverage remains best in the industry and additional Covid provision buffer (0.9% of loans) provides comfort on normalization in credit cost. We expect RoA/RoE to improve to 1.8%/15.3% for FY23E.

Federal Bank

FB reported a net profit of Rs 370 crore in 1QFY22, led by strong other income (recovery from a written-off account and treasury gains of INR2.6b). It prudently deployed these gains towards provisions, which stood elevated at INR6.4b (63% YoY increase), to further strengthen its Balance Sheet.

The bank posted a moderation in business growth, with loans across most segments declining sequentially. Deposit growth was muted, while the CASA ratio touched ~35% (record high levels). The share of Retail deposits rose to 93% of total deposits. Around 60% of Retail slippages came from the Home loan portfolio, with the rest mainly from the LAP segment.FB expects slippages in FY22 to remain at a similar trajectory as the last two years.

Private banks hold on in second Covid wave in Q1, but retail stress grows
Its restructured book is fully secured. The bank expects LGDs to remain low. Most of its Retail restructured book constitutes Home loans, LAP, etc. Collections efficiency in this portfolio stands at 95%, which is in line with its other portfolio.

FB reported a slight moderation in business growth owing to a challenging environment and lockdowns across several states. However, the bank’s liability franchise remains strong, with Retail deposit mix ~93% and CASA ratio at a record high of 35%. On the asset quality front, slippages stood elevated from the Retail/Agri/SME segments as the second Covid wave has severely affected the Self-employed segment and impacted the rural economy as well. The bank prudently utilised higher treasury gains/one-off recovery from written-off accounts towards provisions to further strengthen its Balance Sheet and stabilise PCR.



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