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Govt may cancel FY21’s last weekly G-Sec auction

March 18, 2021 root Banking & Finance

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The government may cancel the last weekly securities auction of FY2021 on rising expectations that the overall direct tax collection will exceed the revised target.

This, in turn, could soften Government Security (G-Sec) yields in the run up to the close of the fourth quarter and the financial year.

Market players expect the last weekly G-Sec auction for ₹20,000 crore to be cancelled as advance tax collections have turned positive at the end of the fourth instalment and the government has cash balances with the Reserve Bank of India.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, observed that there were reports that the government will weigh whether it needs money from the last weekly auction of FY2021.

“The government is having balances with the RBI. They could have ideally cancelled tomorrow’s auction (aggregating ₹29,000 crore) and next Friday’s auction (aggregating ₹20,000 crore). Given that we are close to the year end, cancellation of the last auction could help vis-a-vis valuation of banks’ treasury portfolio,” Irani said.

Yield inches up

The yield on the 10-year benchmark G-Sec (coupon rate: 5.85 per cent) inched up 2 basis points on Thursday to close at 6.2023, with its price declining about 12 paise to ₹97.45 over the previous close.

The yields in the secondary G-Sec market moved up on Thursday in sync with the US Treasury yields.

The yield differential between the 10-year benchmark G-Sec and the 15-year G-Sec (coupon rate: 6.22 per cent) is now about 63 basis points.

This differential shows that the RBI is intervening in the market, especially through special open market operations (OMOs), to keep the 10-year benchmark yield from rising, bond market dealers said.

The yield on the 10-year benchmark G-Sec has jumped about 30 basis points, with its price dropping about ₹2 since January-end.

Meanwhile, the RBI has announced that it will conduct special OMO, entailing simultaneous purchase and sale of G-Secs aggregating ₹10,000 crore each on March 25.

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Interest of bank employees will be protected, says FM

March 16, 2021 root Banking & Finance

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Finance Minister Nirmala Sitharaman on Tuesday said that every interest of the personnel in banks that are likely to be privatised will be fully protected. She also said that interests of those who put in decades of service in these banks will “absolutely be protected– whether it is their salaries, pension, etc”.

“Even in financial sector, we will still have the presence of public sector enterprise. This means not all of them (banks) are going to be privatised,” she said, after a Cabinet meeting that approved a new Development Financial Institution.

‘More equity’

“We want financial institutions to get more equity and make them more sustainable. We want their staff to perform duties which they have acquired as a skill over the decades and run the banks. So to quickly conclude that every bank is going to be sold off is not right,” she said. Besides IDBI Bank, the government is looking to privatise two public sector banks and a general insurance company.

‘Have serious discussions’

Responding to a media query on comments made, usually as two liners, by Opposition leader Rahul Gandhi, the Finance Minister said she would want him to engage in serious discussions rather than “throw these kind of two liners every now and then”.

She refuted his reported remarks that the current government was “privatising profits and nationalising loss” and highlighted that the erstwhile UPA regime were only resorting to “privatising taxpayers money”.

On the issue of allegations of nationalising losses, Sitharaman said that today public sector banks are loss making and prompt corrective actions are bringing them out because of the “telephone banking that happened during his time (UPA government)”.

“Nationalising corruption and privatising taxpayers money for the betterment of one family is what Rahul Gandhi should take as a reply for the tweet that some outsourced fellow in his team is feeding him with. He should be ready to stand for discussions and not throw allegations and go away,” she added.

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2 crore cheques stuck for clearance, BFSI News, ET BFSI

March 15, 2021 root Banking & Finance

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Finance Minister Nirmala Sitharaman while presenting Budget 2021-22 had announced the privatisation of Public Sector Banks (PSBs) as part of a disinvestment drive to garner Rs 1.75 lakh crore.

The United Forum of Bank Union (UFBU), an umbrella body of nine bank unions, called for a two-day nationwide strike starting today against the privatisation of Public Sector Banks and retrograde banking reforms.

C.H. Venkatachalam, General Secretary, All India Bank Employees’ Association (AIBEA) said to IANS, “On an average, about 2 crore cheques/instruments worth about Rs 16,500 crore are held up for clearance. Government treasury operations and all normal banking transactions have been affected.”

He added, “About 10 lakh bank employees struck work signalling their negation of the government’s decision to privatise its banks. As per reports reaching us from various states, banking operations have been affected and paralysed in all centres. Most of the Branches could not be opened. Clearing of cheques could happen since branches are not accepting cheques for clearance as branches are closed.”

Venkatachalam said, “the strike would continue on Tuesday to save the banks from being taken over by private vested interests. The strike to save the savings of our people. The strike is to ensure more loans to priority and weaker sections.”

He said the banks are making operational profits and they are showing net loss owing to provisions because the corporate borrower’s defaults, during 2019-20 the operating profits of government banks were Rs 1,74,336 crore, provision for doubtful debts Rs 2,00,352 crore and the net loss stood at Rs 26,016 crore.

(With Inputs from IANS)

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IDBI exits RBI’s list of lenders facing curbs, BFSI News, ET BFSI

March 11, 2021 root Banking & Finance

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Mumbai: IDBI Bank has finally managed to get out of the Reserve Bank of India’s (RBI’s) watchlist for troubled banks after four years. With this, the bank is no longer subject to the restriction on large loans, dividend payment, expansion of business or salary hikes. The move comes at a time when the government has announced its intent to divest stake in the bank as part of its privatisation programme.

The RBI had first placed IDBI Bank under its prompt corrective action (PCA) framework in May 2017 after it exceeded the limits set by the central bank for bad loans and its capital position weakened. Since then, the government sold its stake to LIC, which invested Rs 21,524 crore in the bank to pick up a 49.2% stake. The government retained45.5%.

LIC’s investment in the bank continues to be in the red even after an over 5% rise in the bank’s share price to over Rs 38 on Wednesday. IDBI Bank has a market valuation of Rs 41,128 crore. This values LIC’s stake at Rs 20,250 crore.

The bank has been held back because of the PCA framework as its expertise lay in its legacy business of project and corporate loans, which it was barred from under the restrictions.

According to the RBI, the performance of IDBI Bank was reviewed by the financial supervision board on February 18, 2021. The board considered the results for the quarter ended December 2020, where the bank had reported a net profit of Rs 378 crore and qualified to exit the RBI’s PCA framework.

IDBI Bank also provided a written commitment to the RBI, stating that it would ensure that its financial ratios are within the prescribed parameters. It also highlighted the structural changes that have been put in place to improve the performance of the bank.

“Taking all the above into consideration, it has been decided that IDBI Bank Limited be taken out of the PCA framework, subject to certain conditions and continuous monitoring,” the RBI said. Last month, finance ministry officials had indicated that they expected three more public sector banks — Indian Overseas Bank, Central Bank and UCO Bank — to exit the RBI’s PCA framework soon.

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No bank has been finalised for privatisation: Bank of Maharashtra MD

February 17, 2021 root Banking & Finance

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With a lot of buzz around the privatisation of Bank of Maharashtra and other public sector banks, a top official from the bank informed that they have not yet heard anything from the government on its privatisation.

“The government has not yet finalised any bank (for privatisation). This is a decision taken at the policy level. The process is going on and some of the banks are being considered for privatisation, but the modalities are yet to be decided. We don’t know how long it may take,” said AS Rajeev, Managing Director and CEO, Bank of Maharashtra.

Financial parameters

Rajeev further stated that the bank is in a comfortable position on financial parameters. Bank of Maharashtra has a loan book of ₹1.05-lakh crore, of which, the moratorium restructuring book is about ₹1,300 crore. “That is almost 1 per cent of the total loan book. We have already made provision of ₹1,500 crore to that. This is a floating provision under the covid impact. We are adequately covered for this,” he said, adding that the lender has already recovered around ₹850 crore for the nine months of the current fiscal.

“Additional ₹700 crore of recovery is in the pipeline for the remaining three months. So, total recovery for the current fiscal will be around ₹1,500 crore. In recoveries, and in the overall financial areas, we are in a comfortable position,” he said during his visit to Ahmedabad.

Agriculture, retail and MSME sectors account for about 61 per cent of the overall loan book, while 39 per cent is corporate loans.

“In the corporate sector, our exposure is about ₹40,000 crore, of which, one big account of ₹400-450 crore has chances of turning into NPA, but that is already classified and we have made provisioning for that. We don’t see any surprises in the remaining three months of the fiscal,” added Rajeev.

He informed that the bank’s gross NPA stood at 7.69 per cent and net NPAs at 2.59 per cent. “It is one of the best in the industry. We are expecting that this can be further brought down in March. Recovery measures are already in place,” he said.

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Government to bring amendments to two Acts to enable privatisation of PSU banks

February 16, 2021 root Banking & Finance

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To facilitate privatisation of public sector banks, the government is likely to bring amendments to two legislations later this year.

Amendments would be required in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 for privatisation, sources said.

These Acts led to nationalisation of banks in two phases and provisions of these laws have to be changed for privatisation of banks, they said.

As the government has already announced the list of legislative business for the Budget session, it is expected that these amendments may be introduced in the Monsoon session or later during the year, sources added.

The ongoing Budget session is scheduled to take up as many as 38 Bills including the Finance Bill 2021, Supplementary Demands for Grants for 2020-21 and related Appropriation Bill, National Bank for Financing Infrastructure and Development (NaBFID) Bill, 2021, and Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.

Also read: Will FM’s asset monetisation plan pay off?

Finance Minister Nirmala Sitharaman while presenting Budget 2021-22 earlier this month had announced privatisation of Public Sector Banks (PSBs) as part of disinvestment drive to garner ₹1.75 lakh crore.

“Other than IDBI Bank, we propose to take up the privatization of two Public Sector Banks and one General Insurance company in the year 2021-22,” she had said.

Later in one of the post Budget interactions, the Finance Minister had said the government will work with the Reserve Bank for execution of the bank privatisation plan announced in the Union Budget 2021-22.

“The details are being worked out. I have made the announcement but we are working together with the RBI,” she had said, when asked about the proposal.

The government last year consolidated 10 public sector banks into four and as a result the total number of PSBs came down to 12 from 27 in March 2017.

As per the amalgamation plan, United Bank of India and Oriental Bank of Commerce were merged with Punjab National Bank, making the proposed entity the second largest PSB. Syndicate Bank was merged with Canara Bank, while Allahabad Bank was subsumed in Indian Bank. Andhra Bank and Corporation Bank were amalgamated with Union Bank of India.

In a first three-way merger, Bank of Baroda merged Vijaya Bank and Dena Bank with itself in 2019. SBI had merged five of its associate banks – State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore and State Bank of Hyderabad- and also Bharatiya Mahila Bank effective April 2017.

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