Tag: finance news

JP Morgan, BFSI News, ET BFSI

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A full-scale, multiple central bank digital currency (mCBDC) network could potentially save global corporations up to $100 billion in transaction costs annually, according to a joint research report from Oliver Wyman and JPMorgan.

The report estimates that of the nearly $24 trillion in wholesale payments that moved across borders via the correspondent banking network each year, global companies incur more than $120 billion in total transaction costs. This excludes potential hidden costs in trapped liquidity and delayed settlements. “The case for CBDCs to address pain points in cross-border payments is very compelling. The bulk of today’s wholesale cross-border payments process remains suboptimal due to multiple intermediaries between the sending and receiving banks, often resulting in high transaction costs, long settlement times, and lack of transparency on the status of the payments,” said Jason Ekberg, partner, corporate and institutional banking at Oliver Wyman.

Critical elements

The research specifically outlines four critical elements required for mCBDC implementation, which include (i) the building blocks, from minting and redeeming of CBDCs to FX conversion and settlement; (ii) the roles and responsibilities of central banks, commercial banks, and service providers; (iii) the key design considerations covering data, technology, privacy, and credit extension; and (iv) the governance framework.

Naveen Mallela, global head of coin systems at Onyx, said: “Central banks around the world who are at various stages of CBDC development are considering how to build an infrastructure where systems operate and work together with the necessary controls in place. In this report, we put forward robust design considerations for a successful mCBDC network and demonstrate how it can be practically implemented, using ASEAN corridors as an example.”

Opportunities for participants

Acknowledging that a mCBDC network challenges traditional correspondent banking systems, the report cites opportunities for participants – commercial banks, payment operators, market makers and liquidity providers – to add new capabilities, and welcomes new stakeholders like technology providers and other third-party service providers.

“The development of CBDCs brings new tangible opportunities such as subscription-based mCBDC corridor access or smart contract-enabled cash management services. The ability to pivot effectively and quickly is key, and ultimately we aspire for a cross-border payments system that is transparent, inclusive and efficient for all parties across central banks, corporates, and commercial banks,” Mallela said.



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Banks Board Bureau to soon start appointment process for MD, DMDs at NaBFID, BFSI News, ET BFSI

Banking & Finance

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The government had recently said that beginning October 2021, all pens would be taxed at 18%.

The finance ministry will soon start the process for the appointment of managing director (MD) and deputy managing directors (DMDs) of the newly set up Rs 20,000 crore development finance institution NaBFID, to catalyse investment in the fund-starved infrastructure sector.

Last month, the government appointed veteran banker KV Kamath as the chairperson of the National Bank for Financing Infrastructure and Development (NaBFID) for three years.

The finance ministry will soon intimate the Banks Board Bureau (BBB) about the appointment of MD and DMDs of NaBFID.The Bureau will issue advertisements and undertake a selection process, sources said.

The BBB is the headhunter for state-owned banks and financial institutions. The MD, DMDs and whole-time directors would not hold office after attaining the age of 65 years and 62 years respectively.

As per the National Bank for Financing Infrastructure and Development (NaBFID) Act, 2021, the institution would have one MD and not more than three DMDs.

The national infra bank

The government has committed a Rs 5,000-crore grant over and above Rs 20,000 crore equity capital. The central government will provide grants by the end of the first financial year. The government will also provide a guarantee at a concessional rate of up to 0.1 per cent for borrowing from multilateral institutions, sovereign wealth funds, and other foreign funds.

The development finance institution (DFI) has been established as a statutory body to address market failures that stem from the long-term, low margin and risky nature of infrastructure financing.

The DFI, therefore, has both developmental and financial objectives. To begin with, the institution will be 100 per cent government-owned.

It will help fund about 7,000 infra projects under the National Infrastructure Pipeline (NIP) which envisages an investment of Rs 111 lakh crore by 2024-25.

The DFI will remain outside the purview of CAG, CVC and CBI, a move aimed at enabling faster decision-making. The government expects the DFI to leverage this fund to raise up to Rs 3 lakh crore in the next few years.

Development finance institutions

During the pre-liberalised era, India had DFIs which were primarily engaged in the development of the industry. ICICI and IDBI, in their previous avatars, were DFIs. Even the country’s oldest financial institution IFCI Ltd functioned as a DFI.

In India, the first DFI was operationalised in 1948, with the setting up of the Industrial Finance Corporation of India (IFCI).

Subsequently, the Industrial Credit and Investment Corporation of India (ICICI) was set up with the backing of the World Bank in 1955. The Industrial Development Bank of India (IDBI) came into existence in 1964, to promote long-term financing for infrastructure projects and industry.



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Dhanlaxmi Bank Q2 net declines 74pc at Rs 3.66cr on soaring bad assets, BFSI News, ET BFSI

Banking & Finance

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Dhanlaxmi Bank on Friday reported a nearly 74 per cent plunge in its net profit to Rs 3.66 crore in quarter ended in September 2021 as provisions rose due to a spike in bad loans. The private sector bank had posted a net profit of Rs 14.01 crore in the corresponding period a year ago.

Total income of the bank during the July-September period of 2021-22, however, grew to Rs 266.59 crore from Rs 249.66 crore in the same period of 2020-21, Dhanlaxmi Bank said in a regulatory filing.

Interest income was down at Rs 229 crore in Q2FY22 from Rs 243.97 crore in Q1FY21, even as the other income was higher at Rs 37.58 crore, as against Rs 5.69 crore.

Provisions for the bad loans and contingencies for the reported quarter rose to Rs 22.40 crore from Rs 4.29 crore in September 2020.

The bank’s gross non-performing assets (NPAs) rose to 8.67 per cent of the gross advances as of September 30, 2021, from 6.36 per cent in the year-ago same period.

However, sequentially from gross NPAs were down compared to 9.27 per cent in June 2021 quarter. Value-wise, the gross NPAs were worth Rs 604.15 crore, up from Rs 448.72 crore.

Net NPAs too rose to 4.92 per cent (Rs 329.55 crore) from 1.66 per cent (Rs 111.45 crore).

“During the quarter ended September 30, 2021, NPA for which provision had already been made amounting to Rs 7,786 lakh has been technically written off,” the bank said.

Provision coverage ratio (including technical write off) as of September 30, 2021 is 74.18 per cent, it added.



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To spur lending, finance ministry pushes to ease fears of bankers, BFSI News, ET BFSI

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To protect the people taking bona fide business decisions, the finance ministry issued a uniform staff accountability framework for NPA accounts up to Rs 50 crore.

These guidelines shall be implemented with effect from April 1, 2022, for accounts turning non-performing assets (NPAs) beginning next financial year.

The Department of Financial Services (DFS), under the finance ministry, “vide its order dated October 29 advised broad guidelines to be adopted by all public sector banks (PSBs) on ‘Staff Accountability Framework for NPA Accounts up to Rs 50 crore’ (Other than Fraud Cases)”, the Indian Banks’ Association (IBA) said in a statement.

Banks have been advised to revise their staff accountability policies based on these broad guidelines and frame the procedures with approval of the respective boards, it said.

The IBA, being a key stakeholder of the framework, was involved in the process right from the beginning.

These guidelines will help quell apprehension that bankers could be hauled up for their bonafide commercial decision to go wrong. It will also help bankers to take credit decisions faster and help support the economy.

Stressing that the new guidelines will surely boost the morale of the PSBs employees immensely, it said banks will have to complete staff accountability exercises within six months from the date of classification of the account as NPA.

Further, it said that depending on the business size of the banks, threshold limits have been advised for scrutiny of the accountability by the chief vigilance officer (CVO).

Past track record

Past track record of the officials in appraisal or sanction/ monitoring will also be given due weightage, it added.

“At present, different banks are following different procedures for conducting staff accountability exercises. Also, staff accountability exercise is being carried out in respect of all accounts which turn into NPA. This approach not only adversely affects staff morale but also puts a huge strain on the bank’s resources,” it said.

Punitive measures

While punitive action needs to be taken against the officers having malafide intent/involvement, it is essential to ensure that bonafide mistakes are dealt with compassion, IBA said.

It added that there is a need to protect the people taking bonafide business decisions in this competitive environment.

Moreover, IBA said that at a time when the country is in need of an economic boost, slow credit delivery to industries due to the fear of implication is a matter of concern and needs urgent attention.

Banks with the approval of their board may decide on a threshold of Rs 10 lakh or Rs 20 lakh depending on their business size for the need of examining the aspect of staff accountability, it said.



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Jul-Sep clocks record 597 deals worth $30 billion, shows Grant Thornton data, BFSI News, ET BFSI

Personal Finance

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A total of 597 deals, amounting to $30 billion, were reported in Jul-Sep, reflecting the upbeat market sentiments, according to Grant Thornton Bharat Dealtracker.

The quarter also witnessed the highest number of IPO issues in over a decade, with 18 issues amounting to $5 billion. There has been an 86% increase in deals, compared with a year ago amid the subsiding COVID-19 and rise in daily inoculations.

The sustained economic growth is due to the rapid expansion in the services sector and accelerated manufacturing activities.

Mergers and acquisitions

M&A deals were valued at $12.8 billion for Jul-Sep, a 10% fall compared with a year ago. The dip in deal values was due to the absence of high-value deals.

The IT sector dominated the M&A deal values, followed by banking and financial services, of which two major deals accounted for over 52% of the total M&A values in Jul-Sep.

These were PayU‘s acquisition of Billdesk for $4.7 billion and Sumitomo Mitsui Financial Group‘s acquisition of Fullerton India Credit Company for an estimated $2 billion.

Private equity

PE deals witnessed a robust growth in Jul-Sep, with an all-time high deal activity in volumes and values at $17.1 billion, across 486 investment rounds. Startups claimed a major share in deal volumes at 64%, according to the report.

Both volumes and values saw twice the increase compared with Jul-Sep last year. Compared with the previous quarter, volumes were up by 44% and values saw a strong 24% growth.

Startups claimed a major share in deal volumes at 64%, while e-commerce led in deal values with 30% share, followed by IT, banking, telecom, and others.

IPOs and QIPs

Despite the impact of the COVID-19 pandemic, the country witnessed a record number of IPOs this year , with 42 issues amounting to $10.3 billion.

Jul-Sep recorded the highest number of issues in any given quarter, since 2011, with 18 issues amounting to $5 billion. The quarter saw only seven QIP fundraises, reflecting a trend reversal in 2021, compared with 2020 when QIPs dominated the market, the report said.



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Yes Bank Q2 profit jumps 74% to Rs 225 crore, BFSI News, ET BFSI

Banking & Finance

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New Delhi, Yes Bank on Friday reported a 74 per cent increase in standalone net profit to Rs 225 crore for the second quarter ended September. The private sector lender had earned a profit of Rs 129 crore in the corresponding quarter of previous fiscal.

Total income slipped to Rs 5,430.30 crore during the July-September period from Rs 5,842.81 crore in the same quarter last year, the bank said in regulatory filing.

Gross bad loans declined to 14.9 per cent of gross advances as on September 30. The same stood at 16.9 per cent in the year-ago period.

However, net Non-Performing Assets (NPAs) or bad loans rose to 5.55 per cent in the quarter under review from 4.71 per cent a year ago.

The bank has made prudent provisioning of Rs 336 crore on a single telecom exposure in the latest quarter. PTI DP RAM

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FPIs pull out Rs 19,000 cr from banking, financial stocks in H1; stay cautious in H2, BFSI News, ET BFSI

Personal Finance

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Amid the euphoria in the stock markets, the Foreign portfolio investors (FPIs) have pulled out close to Rs 19,000 crore from the banking and financial sectors in the first six months of the current fiscal.

On the other hand, they have raised their exposure on stocks in the defensive sectors such as consumer goods, IT, pharma and telecom.

According to sector-wise FPI flow data compiled from depositories, FPIs pulled out Rs 18,700 crore from the financial services sector between April and September. Of the total outflows, Rs 13,872 crore went from the banking sector while Rs 4,827 crore was pulled out from ‘other financial services’, which covers financial institutions, non-banking finance companies (NBFCs) and housing finance companies (HFCs).

Nifty Bank lagging far behind vis-a-vis Nifty 50 return on a YTD basis, while the leaders are Nifty Metals, Nifty Realty and Nifty IT.

Banking sector

Within the banking sector, the equity segment witnessed an outflow of Rs 12,964 crore during the April-September period while Rs 1,014 crore went out of the debt segment during H1. On the other hand, the other financial services category witnessed an inflow of Rs 1,159 crore in equities and outflow of Rs 5,797 crore from debt in the first six months of the current fiscal.

“A stand out feature of FPI flows in recent weeks is the outflows from banking and inflows into IT. Even though IT is highly valued, this segment is attracting increasing flows since earnings visibility is high in the segment while banking is struggling with poor credit growth and rising asset quality concerns, V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

Defensive sectors

FPIs have been investing in defensive sectors due to rising volatility with the ‘household & personal products’ sector witnessed the highest FPI inflows in the last six months at Rs 6,725 crore followed by consumer durables ( Rs 6,580 crore), retailing (Rs 6,340 crore), telecom (Rs 5,773 crore) and insurance ( Rs 2,881 crore).

Though the economy has recovered in the second half, the market participants are having a cautious outlook as there has been no big jump in loan growth and concerns on NPAs remain.

Going forward, volatility in the global markets as well as global slowdown may impact foreign flows moving into Indian shores.

Also, any direction by US Fed towards tapering of the stimulus measures would make FPI flows into emerging markets volatile and at the same time it would be crucial in dictating the direction of foreign flows into Indian equities.



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Finance Minister Sitharaman announces bad bank, Cabinet approves backing of up to Rs 30,600 crore on securities receipts, BFSI News, ET BFSI

Banking & Finance

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Finance Minister Nirmala Sitharaman today announced the much-awaited bad bank, and said that the Union Cabinet approved on Wednesday the sovereign backing of up to Rs 30,600 crore for the securities receipts.

The planned National Asset Reconstruction Company Ltd (NARCL) will issue securities receipts to banks as it takes on non-performing assets from their books. These securities receipts will be valid for five years.

“The idea behind it is to ensure value locked within assets is used making banking system robust. So limit provides an incentive for banks. If process delayed beyond 5 years, guarantee can’t be invoked,” Sitharaman said.

Read: What is a bad bank and why is it needed?

The NARCL will pay up to 15% of the agreed value for the loans in cash and the remaining 85% would be government-guaranteed security receipts, the finance minister announced. State-owned banks will hold 51% stake, while FIs or debt management companies will hold 49%.

Financial Services Secretary Debasish Panda said the government will not face any fiscal outgo for the guarantees it provides to banks. NPAs worth Rs 2 lakh crore will be sent to the NARCL, and of this Rs 90,000 crore will be transferred in the first phase.

Along with NARCL, the government will also set up an India Debt Resolution company. The service company will manage assets and loop in market professionals and turnaround experts. Public sector banks and public FIs will hold a maximum of 49% stake and the remaining will be held by private banks.

Watch: Bad bank can only be a warehouse of bad assets, says Siby Antony

The banks’ asset quality review had happened in 2015, which had revealed very high incidence of NPAs. After recognition, quantification of NPAs started in a planned manner and state owned banks, in the last six years, recovered Rs 5,01,479 crore, she said.

In 2018, just two out of 21 public sector banks were profitable. But in 2021, only two banks reported losses, Sitharaman added.

Watch: Bad bank to preserve value, timely sale of stressed assets: IBA CEO

During the Union Budget 2021-22, Sitharaman had announced the creation of NARCL or bad bank to resolve large cases of stress. The bad bank will manage and dispose the assets to alternate investment funds and other potential investors for eventual value realisation, she had said.

In August, the Indian Banks’ Association (IBA) moved an application to the Reserve Bank of India (RBI) seeking licence to set up a the Rs 6,000-crore bad bank. The NARCL was incorporated last month in Mumbai, following the registration with Registrar of Companies.



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‘CFOs should keep eye on long-term strategy, adapt to short-term situations’, BFSI News, ET BFSI

Personal Finance

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CFOs have to play a major role during the pandemic in their organisations and be ready from the technology and business perspectives.

All eyes are on the P&L projections and the growth expectations from the businesses. With various factors that have come out of the pandemic, I would imagine that CFOs are at the centre with all the strategies that organizations are playing right now, Sudeep Bhatia, Group CFO, Lendingkart, said at the panel discussion CFOs’ View: Building Pandemic-Proof Balance Sheet at ETBFSI Summit.

'CFOs should keep eye on long-term strategy, adapt to short-term situations'

“For CFOs, the major focus has moved more towards a strategist, acting as a catalyst. How you can adapt to every day. Making sure you are ready from a technology and business perspective,” Upma Goel, CFO, Ujjivan Small Finance Bank, said.

'CFOs should keep eye on long-term strategy, adapt to short-term situations'

Adapting to new normal

Niraj Shah, CFO, HDFC Life said in these times, flexibility and agility is something that comes to the fore, and that’s something that a CFO needs to prepare the organization for.

Investing ahead of the time, and being agile, to try and adapt to the changing customer preferences because of the changing environment, he said.

'CFOs should keep eye on long-term strategy, adapt to short-term situations'

The RBI and GOI have taken multiple steps and interventions with every step, and, therefore, all the financial institutions, and all other organizations as well, had to adapt to the situations very fast, Bhatia of Lendingkart said.

Every business will be affected in a different way. Given the situation, and we adjust to that, but just in principle it’s about keeping sights on your long-term strategy, at the same time, adapting, to the short-term situations, Shah said.

Emphasising the need to have a fine balance to make effective use of the liquid cash, Goel of Ujjivan SFB said, “We cannot afford at this point of time not to have the liquidity and wait for the real demand. Demand has started picking up”

The challenges

The Covid pandemic has been the most serious challenge to financial institutions in nearly a century and CFOs need to maintain our distribution and recovery channels open, despite the social distancing advice by the supervisory and compliance function, said G S Agarwal, CFO, Shriram Housing Finance.

'CFOs should keep eye on long-term strategy, adapt to short-term situations'

‘The struggle to manage between these things and keep your balance sheet and P&L intact has been the biggest challenge. Also, to do the compliances remotely sitting remotely without any paperwork, without any physical signatures has been quite challenging, he said.

Customer requests and expectations have grown multifold. “I haven’t seen this kind of customer engagement before even from the existing customer base. This is because they need support from the organization as well,” Bhatia of Lendingkart said.



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