Tag: FY22

How corporates gorged on RBI’s easy money, shunned banks?, BFSI News, ET BFSI

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Corporates took the advantage of liquidity offered by Reserve Bank‘s special liquidity windows to raise funds from the bond market, reducing their dependence on bank loans during the quarter

While the corporate bond market is still dominated by financial companies, non-financial companies have increased borrowing in the last one year.

The corporates tapped the long-term repo operations (LTRO) funds, and targeted LTRO offered by the RBi last year, raising funds for up to three years. Firms raised funds aggressively during the third and fourth quarters of the last year for deleveraging high-cost debt.

The fundraise

Corporates raised Rs 2.1 lakh crore in December ended quarter and Rs 3.1 lakh crore in the fourth quarter from the corporate bond markets. In contrast, the corresponding year-ago figures were Rs 1.5 lakh crore and Rs 1.9 lakh crore, respectively.

Bonds were mostly raised by top-rated companies at 150-200 basis points below bank loans. Most of the debt was raised by government companies as they have top-rated status.

For AAA-rated corporate bonds, the yield was 6.85 per cent in May 2020, which fell to 5.38 per cent in April 2021 and to 5.16 per cent in May 2021.

Debt reduction

The corporate world focused on deleveraging high-cost loans through fundraising via bond issuances despite interest rates at an all-time low. This has led to muted credit growth for banks.

According to data analysis by the SBI research wing, the top 15 sectors with more than 1,000 listed entities reported over Rs 1.7 lakh crore of debt reduction in 2000-21.

Refineries, steel, fertilizers, mining & mineral products, and textile alone reduced debt by more than Rs 1.5 lakh crore during FY21.

Fertilizers, mining and minerals, FMCG, cement products, consumer durables, and capital goods were among the sectors where loan reduction of 20 per cent or more was reported during FY21.

According to data from the Reserve Bank of India, loan growth fell to a 59-year low of 5.6% on year as of March 31. Credit was logging a 6.4% in the previous fiscal.

Low interest rates

As interest rates drop to an all-time low, corporates reduced their loan liabilities to facilitate a lower finance cost, which resulted in the primary issuance of bonds increasing by nine per cent.

The spread of AAA bonds for a 10-year tenor declined from 124 bps in April 2020 to 70 bps in April 2021.

Similarly, the spread for 5 year and 3-year bonds declined from 89 bps and 147 bps in April 2020 to 9 bps and 30 bps in April 2021 respectively.

This trend is continuing in FY22 also.

These companies not only reduced their loan liabilities at lower finance cost but also increased their cash and bank balance by around 35% in March, as compared to March 2020, suggesting a conservative approach to conserve cash during uncertain times.

Corporate willingness for new investments also remains tepid as the economy is still recovering from the second wave.



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ICICI Prudential Life Insurance optimistic about growth opportunities in FY22

Banking & Finance

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ICICI Prudential Life Insurance is optimistic about growth opportunities this fiscal despite the second wave of the Covid-19 pandemic that has impacted many lives and livelihood.

“Our aspiration of doubling the value of new business (VNB) growth by 2020-23 is guided by APE growth or overall topline premium growth. We need to typically grow at 25 per cent to 28 per cent on VNB annually for next two years,” said Amit Palta, Chief Distribution Officer, ICICI Prudential Life Insurance, adding that margin expansion now has limited scope for growth.

In an interaction with BusinessLine, Palta said the insurer registered its best ever month in March 2021, but growth was impacted from the second-half of April as the Covid-19 case load spread.

However, there has been improvement in the last few weeks of May.

Also read: Budget proposal has not affected ULIP segment of ICICI Pru Life: MD and CEO

According to IRDAI data, ICICI Prudential Life Insurance registered a 38.55 per cent growth in first year premium in the first two months of the fiscal upto May 31, 2021 though it declined by 3.93 per cent for the month of May 2021.

Palta said he expects growth to continue based on the additional width in distribution the insurer has set up, a positive environment and the momentum in insurance sales that was seen from the second half of 2020-21.

The insurer added over 100 partnerships last fiscal, which it believes will help distribution and spur growth.

Bancassurance partnerships

In terms of bancassurance partnerships, it tied up with IndusInd Bank, AU Small Finance Bank, IDFC First Bank, RBL Bank and NSDL Payments Bank. It also tied up with distributors including PhonePe and Wealth India Financial Services as well as insurance broking entities —BSE EBIX and Magnum Insurance Broking.

“These partnerships have enabled us to increase our distribution footprint. Specifically, our 23 bancassurance partnerships have enabled us to expand our reach to 16.2 crore bank customers with a footprint of about 12,000 branches,” Palta said.

Partnerships with IndusInd Bank, IDFC First Bank, AU Small Finance Bank and RBL Bank are significant for the insurer. “We got them operational towards the last quarter and we see them as contributing to our growth vision,” Palta said.

About 33 per cent of the business for ICICI Prudential Life Insurance comes from ICICI Bank and another 11 per cent from bancassurance tie-ups with other banks.

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India Inc cut Rs 1.7 lakh crore debt during pandemic, leave banks high and dry, BFSI News, ET BFSI

Banking & Finance

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Ignoring the government exhortations to unleash animal spirits and step up investments in the country, India Inc preferred to play safe during the pandemic.

The corporate world focused on deleveraging high-cost loans through fund raising via bond issuances despite interest rates at an all-time low. This has led to muted credit growth for banks.

According to data analysis SBI research wing, the top 15 sectors with more than 1,000 listed entities reported over Rs 1.7 lakh crore of debt reduction in 200-21.

Refineries, steel, fertilizers, mining & mineral products, and textile alone reduced debt by more than Rs 1.5 lakh crore during FY21.

Fertilizers, mining and minerals, FMCG, cement products, consumer durables, and capital goods were among the sectors where loan reduction of 20 per cent or more was reported during FY21.

According to data from the Reserve Bank of India, loan growth fell to a 59-year low of 5.6% on year as of March 31. Credit was logging a 6.4% in the previous fiscal.

Low interest rates

As interest rates drop to an all-time low, corporates are reducing their loan liabilities to facilitate a lower finance cost, which resulted in the primary issuance of bonds to increase by nine per cent.

The spread of AAA bonds for a 10-year tenor declined from 124 bps in April 2020 to 70 bps in April 2021.

Similarly, the spread for 5 year and 3-year bonds declined from 89 bps and 147 bps in April 2020 to 9 bps and 30 bps in April 2021 respectively.

“This trend is continuing in FY22 also,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

These companies not only reduced their loan liabilities at lower finance cost, but also increased their cash and bank balance by around 35% in March, as compared to March 2020, suggesting a conservative approach to conserve cash during uncertain times.

Corporate willingness for new investments also remains tepid as the economy is still recovering from the second wave.



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Bank of Baroda posts net loss of Rs 1,047 cr in Q4, BFSI News, ET BFSI

Banking & Finance

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State-run Bank of Baroda reported a standalone net loss of Rs 1,047 crore in the quarter ended March 2021, as it shifted to a new tax regime.

The lender had reported a standalone profit-after-tax of Rs 507 crore in the year-ago period.

For the full year, net profit grew 52 per cent to Rs 829 crore from Rs 546 crore in FY20.

The bank booked a profit before tax (PBT) of Rs 2,680 crore during the quarter against a loss of Rs 1,723 crore in the year-ago period. PBT stood at Rs 5,556 crore for FY21 against a loss of Rs 1,802 crore in FY20.

“Given the fact that we had a PBT of Rs 5,556 crore (in FY21), we thought this is the right time to transit to a lower tax rate regime. But the movement to the new tax regime means we have to make a DTA (Deferred Tax Assets) adjustment, which was of the order of Rs 3,500 crore for the full year. Because of that, we are reporting an accounting loss of around Rs 1,000 crore in Q4 FY21.

“But for the DTA impact, we would have a profit after tax of Rs 2,200 crore in the last quarter,” the bank’s managing director and CEO, Sanjiv Chadha, told reporters.

Net interest income (NII) rose by 4.54 per cent to Rs 7,107 crore compared to Rs 6,798 crore a year ago.

Global net interest margin (NIM) improved to 2.72 per cent from 2.63 per cent in Q4 FY20 led by margin expansion in international business to 1.57 per cent in Q4 FY21.

Domestic NIM declined to 2.73 per cent as against 2.76 per cent in the fourth quarter of FY20.

Gross NPA ratio fell to 8.87 per cent as against 9.40 per cent and net NPA ratio to 3.09 per cent from 3.13 per cent.

Fresh slippages during the quarter stood at Rs 11,656 crore in the fourth quarter of FY21.

The lender’s slippage ratio declined to 2.71 per cent in FY21 from 2.97 per cent in FY20. Credit cost decreased to 1.68 per cent in FY21 from 2.35 per cent in FY20.

“Slippages will come down very significantly during the current year (FY22) despite the second wave. I would believe that we should be trending towards 2 per cent or lower in FY22,” Chadha said.

He expects credit costs to be in the range of 1.5-2 per cent in FY22.

Total provisions and contingencies declined 46.03 per cent to Rs 3,586 crore in the fourth quarter of FY21 from Rs 6,645 crore in the year-ago period.

Domestic advances increased by 4.91 per cent year-on-year led by domestic organic retail and agriculture loans which grew by 14.35 per cent and 13.22 per cent respectively.

Within retail loans, auto loans increased by 27.79 per cent year-on-year and personal loans grew at 27.21 per cent year-on-year.

Chadha said collection efficiency of the bank improved to 93 per cent during the March quarter. He expects some impact on collections during the April-June quarter of FY22.

He said despite the impact of the second wave, the bank’s corporate book is likely to remain strong.

“Last year, we were not confident about what would happen to the corporate sector. This time we can say with confidence that the second wave has largely left the large corporate businesses untouched. Even in terms of accounts which were relatively weaker and had got restructured, I do not believe we would need to revisit restructuring in most cases,” Chadha noted.

He, however, said the area of concern for the bank remains the MSME sector and to a lesser extent, the retail sector.

“What we have experienced is people, particularly in the retail segment, may fall back on some instalments but ultimately they pull through. Our assessment is that a very large percentage of our retail borrowers will pull through and, for a minority, we may need to do some kind of restructuring. But when it comes to MSME, the impact is larger and restructuring will also be larger,” he added.

Chadha expects a credit growth of 7-10 per cent in FY22 for the bank, if the economy witnesses a double-digit growth.

On capital raising plans for the current fiscal, he said a major portion of the funding requirement will get done through internal accruals.

The bank’s capital to risk (weighted) assets ratio (CRAR) stood at 14.99 per cent in FY21 against 13.30 per cent.

Speaking about the RBI’s announcement on an on-tap liquidity window of Rs 50,000 crore to support healthcare infrastructure, he said the lender has received a board approval on this and it is engaging with the companies.

The bank is targeting a 50 per cent growth in its loans to the healthcare sector.

“Our current exposure to the sector is Rs 7,000-8,000 crore. I would believe we should be looking at targeting a growth between Rs 3,000-5,000 crore there,” Chadha said.



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RBI may not relent on ‘game-changing’ joint audit of banks, NBFCs, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India may not relent on its new norms that mandate joint audit of banks and NBFCs above a threshold and auditor rotation despite widespread opposition from banks, NBFCs and auditors.

The central bank sees it as a game-changing move, which will ensure the independence of auditors and increase opportunities for firms, according to a report.

According to RBI, the guidelines are compulsorily applicable to only 300 NBFCs, out of the 9,600 in India, and other NBFCs with asset size below Rs 1,000 crore can continue with the existing system.

The statutory auditors of public sector banks, financial institutions already have a tenure of three years, and RBI has reduced the tenure of private bank auditors from four years to three, according to the report.

The six-year rotation policy of auditors is in place for private and foreign banks which has been extended to NBFCs.

Audit firms at loggerheads

Top multinational auditing firms in the country are at loggerheads with their Indian peers once again, with the former lobbying to make the Reserve Bank of India reconsider its latest auditing regulations that open up new opportunities for smaller Indian firms.

The new guidelines will curtail growth opportunities for multinational firms and create substantial transitional issues, but Indian firms a chance to get more audit business from the lucrative financial sector currently dominated by the Big Four.

Multinational auditors have started reaching out to RBI, industry associations like CII and FDCI, and even larger financial companies to highlight transition problems and risks of joint audits.

Indian firms have launched a counter-offensive by supporting the central bank’s move and taking their case to the regulator and financial companies directly and through industry associations such as Assocham.

The RBI regulations

On April 27, the RBI released new guidelines for statutory auditors of financial entities to enhance the independence of auditors and tackle concentration issues. The guidelines require mandatory rotation of auditors after three years with a six-year cooling-off period, and appointment of joint auditors in entities having asset size of Rs 15,000 crore and above.

The opposition

The regulations ran into opposition from bankers and auditors who wanted it to be deferred citing less time to appoint auditors and crunch. “The new guidelines have come in at the end of April. We have to evaluate how we can sort of look at appointing new auditors so quickly.

Because the RBI guidelines say that existing auditors cannot continue (auditing) if they have done three years. I think in the case of most companies (non-bank lenders), the auditors would have already done more than three years, probably done four years… So, I hope that RBI defers this applicability by year or so because the year has already started, and a lot of them would have to start looking around for new audit firms,” Keki Mistry, MD and Vice Chairman Keki Mistry had told ETCFO.

“Many challenges here if implemented from FY22. Some bank auditors have already finished three years — they will only have weeks to make a new selection. The pool available to choose from will be limited for FY22 and many potential suitors would be conflicted under the new one-year cooling-off period having done such non-audit services in FY21,” Grant Thornton Bharat CEO Vishesh Chandiok had said.



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HDFC Bank sees stress emanating from loans restructured during Covid 1.0, BFSI News, ET BFSI

Banking & Finance

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HDFC Bank has warned of a rise in loan delinquencies as business and collection efficiencies have been hit by the Covid wave.

The second wave has accentuated problems for the people hit by the first wave and there will be stress emanating from borrowers who took the moratorium or restructuring, its chief executive Sashidhar Jagdishan said in an investor call.

“For the first time in as many years, we don’t have visibility on what is going to happen and, hence, near-term expectations are tepid,”Jagdishan said.

“There will be incremental slippages if this continues for a while longer.”The pace of vaccination is crucial for both clarity and visibility on likely delinquencies. he said.

He stressed that vaccinating more citizens, within the shortest period of time, was the only way of returning to normalcy.

“Unfortunately, the availability of vaccines is still a blind spot. A lot of people are struggling to get vaccinated, but as soon as this is smoothened, positivity should return to the future outlook,” he said. The bank has also asked its collection agents and door-to-door staff to function digitally.

Collections hit

“The impact of Covid 2.0 is much more than what we saw in the first wave, and the health of our staff is paramount,” he said. “So long as they are able to engage with customers digitally and secure business digitally, including collections, we will be alright.

Because we have also directed our collection agents not to step out, among the stressed borrowers we expect to see a higher amount of delinquency but these accounts should get resolved in the coming quarters.”

“As things stood in March, we would have had a very buoyant FY22, but as things stand now, our performance is on a best-effort basis,” he said. “But the platform is so good that we will be in a position to bounce back when things return to normalcy.”

Tech issues

Jagdishan also said the bank management was hard at work to solve the tech issues plaguing the lender in recent years. The bank faced three major digital outages in the last three years, prompting the central bank to direct curbs, including a standstill on launching new digital initiatives and onboarding credit card customers.

“A fair amount of work has happened though we still need some time before we can control the issues on resilience,” Jagdishan said. “We have done a fair amount of work on our IT systems, security, infrastructure, and our recovery timeline is something we are working on.

The strictures imposed by the RBI have given us a window to work faster. We are impacted, it is a blot on the bank that we are unable to source cards but I take this positively and build our technology that is better than that of anyone else in the system.”

HDFC Bank first saw a spurt in cheque bounce cases in April, coinciding with the second lethal Covid wave in the country.

Check bounce rates for HDFC Bank were improving up to March 2021. However, bounce rates increased in April, returning to January 2021 levels. Maharashtra, Madhya Pradesh, Punjab, and Telangana were seeing higher check bounce rates.



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Friction over newer compliances rising between auditors, regulators, firms, BFSI News, ET BFSI

Personal Finance

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After banks and auditors opposed the introduction of joint audit norms, it’s the turn of the Securities and Exchange Board of India‘s recent rules on due diligence by alternative investment funds that are causing consternation.

The market regulator’s recent rules require alternative investment funds to conduct in-depth due diligence of their portfolio companies. According to the Securities and Exchange Board of India (Alternative Investment Funds) (Second Amendment) Regulations, 2021, which came into effect on May 5, the regulator has mandated that fund managers conduct this due diligence to make sure their house is in order.

The regulations mainly impact the private equity and venture capital funds that are registered under the Alternative Investment Funds Categories 1 & 2 and hedge funds registered under the AIF Category 3 in India.

The fund managers and trustees will have to ensure that detailed policies and procedures are in place for investments and that provisions over confidentiality, conflict of interest, Prevention of Money Laundering Act (PMLA) and addressing investor complaints are complied with.

The PPM (private placement memorandum) will be required to check on the detailed policy and procedures as well as the compliance with the code of conduct prescribed under the newly added fourth schedule. The format for reporting requirements to Sebi and trustees could also undergo a change. The new regulations would likely require funds to share the report or the procedures with the auditors.

The due diligence will have to be undertaken at the fund level as well as the investment level.

Fund managers will also have to realign investments to comply with the new regulations, as Sebi has put a threshold on the money a fund can invest in a company or another investment vehicle.

The RBI regulations

On April 27, the RBI released new guidelines for statutory auditors of financial entities to enhance the independence of auditors and tackle concentration issues. The guidelines require mandatory rotation of auditors after three years with a six-year cooling-off period, and appointment of joint auditors in entities having asset size of Rs 15,000 crore and above.

The regulations ran into opposition from bankers and auditors who wanted it to be deferred citing less time to appoint auditors and crunch. The new guidelines have come in at the end of April. We have to evaluate how we can sort of look at appointing new auditors so quickly.

Because the RBI guidelines say that existing auditors cannot continue (auditing) if they have done three years. I think in the case of most companies (non-bank lenders), the auditors would have already done more than three years, probably done four years… So, I hope that RBI defers this applicability by year or so because the year has already started, and a lot of them would have to start looking around for new audit firms,” Keki Mistry, MD and Vice Chairman Keki Mistry had told ETCFO.

“Many challenges here if implemented from FY22. Some bank auditors have already finished three years — they will only have weeks to make a new selection. The pool available to choose from will be limited for FY22 and many potential suitors would be conflicted under the new one-year cooling-off period having done such non-audit services in FY21,” Grant Thornton Bharat CEO Vishesh Chandiok had said.

Audit trail software

Earlier this year, the Ministry of Corporate Affairs had to defer by a year amendments to the companies accounts rules requiring firms to use accounting software that include features that can record the audit trail of each transaction.

Companies and auditors had cited little time left for the fiscal to end for them to shift to another software.

The second amendment to the Companies Accounts Rules, 2014, made the previous changes effective from April 1, 2022, according to the notification. The ministry had made the changes, to be effective from the start of the current fiscal, with the objective of curbing backdated entries by firms in the books of accounts.

“…for the financial year commencing on or after the 1st day of April 2021, every company which uses accounting software for maintaining its books of account, shall use only such accounting software which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled,” the amendment made on March 25 had said.



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Bandhan Bank collections drop in April,asset quality pressure worsens, BFSI News, ET BFSI

Banking & Finance

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The end of Assam and West Bengal polls was expected to end Bandhan Bank worries, but a rise in Covid infections and hike in bad loan provisionings has cast a shadow.

The lender derives a major chunk of its business from the two states.

Collection trends improved to 98% in Mar’21, but declined 3–4% in Apr’21 due to the advent of the second Covid wave, though the drop in collections in West Bengal was less than 3%. Nearly 78% of customers were able to pay some instalments in March 2021 among the NPAs in the MFI portfolio.

The results

The bank missed the fourth-quarter profit estimates by a wide shot due to a jump in bad loans and high provisioning.

It reported an 80% dip in its March quarter net profit at Rs 103 crore, as it wrote off a huge portfolio of loans worth Rs 1,929 crore in the flagship microlending business by recognising stress upfront.

As a result of the accelerated write-off, the bank’s overall provisions shot up to Rs 1,594 crore in the reporting quarter from the year-ago period’s Rs 827 crore. It also made an additional provision of Rs 388 crore on standard advances in the microfinance segment.

Bandhan Bank reported a weak quarter, with net earnings sharply trailing estimates, affected by higher interest reversals of Rs 540 crore. Thus, net interest margins declined 150 bp quarter on quarter while elevated provisions of Rs 1,590 crore further impacted earnings. Total Covid-led provisions for FY21 comprise Rs 1930 crore toward write-offs and another Rs 2,900 crore toward loan loss provisions.

Bad loans

The GNPA ratio improved despite elevated slippages, primarily on account of higher write-offs during the quarter. However, Provision Coverage Ratio fell sharply to 50% (v/s 67% proforma in 3QFY21).

Total loans restructured stood at Rs 620 crore, predominantly in the Housing Finance portfolio, while ‘Nil’ restructuring was seen in the MFI portfolio.

On the business front, AUM grew 8% QoQ, led by strong disbursements in the MFI portfolio. Liability traction was robust at 37% YoY, with the CASA ratio improving 50 bps QoQ.

Management hopeful

Bandhan Bank MD & CEO Chandra Shekhar Ghosh is hopeful that the economy will rebound by the third and fourth quarters of the current fiscal, enabling the lender to meet its targets.

He said the bank had exercised caution amid the COVID-19 pandemic and made additional provisioning in the last quarter of 2020-21.

“We remain cautiously optimistic for the current fiscal as we have made additional provisioning as safeguard. The second wave of Covid pain is expected to subside in the next two-three months, and this time people are better geared than the first wave that took everyone by surprise.

“The worst seems to be over, and the economy will rebound by the time major lending business happens in Q3 and Q4, to meet our targets,” Ghosh said.

Overall, we expect asset quality trends to remain under pressure; thus, we estimate credit cost at 4.0% of loans for FY22, Motilal Oswal Securities said.



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HSBC remains bullish on India, to grow local biz, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: HSBC has retained its growth forecasts for India despite the second wave of Covid and has said that it intends to grow its business in the country. The bank, which has around 39,000 employees here, gets a big chunk of revenue from the country and sees it as the third-largest economy by 2030.

Speaking to TOI, HSBC India CEO Surendra Rosha said, “We do not see short-term challenges with regard to things related to Covid dislocating our strategy.” Even as multinational rivals like Citi have announced their exit from the consumer business in India amid the pandemic, HSBC has said that it is going the other way.

While the bank did rationalise its branch operations in India a few years earlier, which gave an impression of shrinking, the customer base in India has grown. This is because of the shift to digital channels. “A positive development is that adoption of digital has increased and the payoff for investment in digital is much better than it was a few years ago,” Rosha added.

Rosha pointed out that HSBC’s number of customers has increased 37% since December 2017 to 10.5 lakh in December 2020. The bank’s pre-tax profits from India have been over $1 billion for 2019 and 2020. He added that India was among the top three markets for HSBC in 2020 and has always been part of the top five.

HSBC has the advantage of having a strong presence in countries where the Indian diaspora is predominant. This includes the UK, Middle East, Southeast Asia, Australia, Canada and the US. As a result, it has been able to target persons of Indian origin as well as Indians looking to invest in these markets or move there for studies.

While the overall economy has shrunk due to Covid, for a multinational bank like HSBC the opportunities have increased in the last 18 months. This is because of some government measures, which include a reduction in the corporate tax rate, production-linked incentives and the disinvestment plan. All of these provide an opportunity to facilitate inward investment. “Covid is a damper, but India is not an unknown quantity to global corporations. It is about telling them the opportunity in the next few years. So, Covid is not going to be a showstopper for foreign investment,” said Rosha.

Despite the second wave, HSBC research has retained its growth forecast of 11.2% for FY22. “We feel that if there is an impact in the first half of the fiscal, it will be made up in the second half. While the situation is evolving, what we have seen is that with the decline in cases there was a strong pick-up in economic activity,” said Rosha. “So, while we feel that growth will be similar to what the projections are, there will be some adjustment between the first half and the second half,” he added.

As part of its strategy of targeting Indians with an international connection, HSBC provides borderless banking services that allow customers to have a consolidated view of accounts across countries and lets them move money across markets.



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Despite healthy Q4 result, HDFC Bank believes tough times have begun for FY22, BFSI News, ET BFSI

Banking & Finance

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Amid the second COVID-19 wave, India’s largest private sector lender HDFC Bank reported on Saturday, an 18.2% y-o-y rise in net profit to Rs 8,186.51 crore for the quarter ended March. The Bank had posted a net profit of Rs 6,927.69 crore in the year-ago period. The Bank’s Net Interest Income also witnessed a 12.6% y-o-y rise to Rs 17,120 crore in the quarter under review, as compared to Rs 15,204 crore in the year-ago period.

HDFC Bank on Saturday also said that it has set aside ₹500 crore as provisions to cover the Supreme Court-directed compound interest refund to all borrowers during the March-August period.

Srinivasan Vaidyanathan, CFO of the bank, said that while the Indian Banks’ Association (IBA) is still working out the methodology of computing the refund, It is estimated that the waiver bill would be in the range of ₹7,000-7,500 crore. To be sure, the government has borne the waiver cost of ₹6,500 crore for borrowers of up to ₹2 crore in certain sectors announced last October.

In a regulatory Filing the private lender further added that the impact of COVID-19, including changes in customer behaviour and pandemic fears, as well as restrictions on business and individual activities, has led to significant volatility in global and Indian financial markets and a significant decrease in local economic activities.

The slowdown during the year has led to a decrease in loan originations, the sale of third party products, the use of credit and debit cards by customers and the efficiency in collection efforts.

“The extent to which the COVID-19 pandemic, including the current “second wave” that has significantly increased the number of cases in India, will continue to impact the Bank’s results will depend on ongoing as well as future developments, which are highly uncertain, including, any new information concerning the severity of the COVID-19 pandemic and any action to contain its spread or mitigate its impact whether government-mandated or elected by us.” HDFC Bank said in a statement, addressing the recent surge in covid cases in the country.

Lockdowns not only disrupt loan growth but also impact loan repayment collections. Banks are expected to give the true picture of their asset quality in the March quarter after the Supreme Court refused to extend the standstill on reporting of bad loans till August 31.

Early signs of asset quality impact are already visible for HDFC Bank. For the March quarter though, the lender reported gross bad loan ratio of 1.32%, which captures the true picture of asset quality given that judicial standstill on bad loan recognition has been lifted. Investors will now keenly monitor any changes in the lender’s asset quality and its commentary in the wake of the second wave of Covid-19 infections.

Despite healthy Q4 result, HDFC Bank believes tough times have begun for FY22Another major aspect that investors will keenly watch is the impact of the Reserve Bank of India’s order on issuances of new credit cards on the lender’s credit card business. The Reserve Bank of India (RBI) had asked the lender to halt all new issuances of credit cards and digital services offerings till the time it sorts out its technological issues.



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