Tag: icra

GDP to grow by deceptively high 20% in Q1, says Icra, BFSI News, ET BFSI

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Mumbai: The GDP growth is estimated to come at the “deceptively high” level of 20% for the April-June 2021 quarter but is far below the same in the pre-Covid times, rating agency Icra said on Wednesday. Icra said the low base of the last year, when the GDP had contracted by close to 24%, “conceals” the impact of the second wave of Covid-19 infections.

Economic activity is boosted by robust government capital expenditure, merchandise exports and demand from the farm sector, it said, estimating the GDP to grow by 20% and the gross value added (GVA) will register a growth of 17% for the June quarter. The GVA is estimated to contract 15% when compared to the preceding March quarter, which shows the impact of the second wave.

“The double-digit expansion expected in YoY terms in Q1FY22 is deceptively high, as it benefits inordinately from last year’s contracted base. We forecast GVA and the GDP to have shrunk by around 9% each in Q1FY22, relative to the pre-Covid level of Q1FY20, highlighting the tangible distress being experienced by economic agents in the less formal and contact-intensive sectors,” its chief economist Aditi Nayar said.

The RBI expects the GDP to expand by 21.4% in the quarter as per its revised estimates released earlier this month. The official data on economic activity from the central statistics office is expected by end of the month. Nayar said based on its assessment of volumes and available earnings, it is forecasting a GVA expansion in industry at a considerable 37.5%. agencies



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RBI says stress in retail, MSME loans is not alarming, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India (RBI) has said there is stress visibility in retail and MSME loan segments but the situation is not alarming.

“With regard to the moment of any kind of stress in the retail segment and MSME segment, we are very closely monitoring, yes there is a visibility of little bit stress from the past data, but definitely it’s not alarming and constantly we are engaged with the regulated entities, particularly the outlier banks and the outlier NBFCs,” RBI Deputy Governor M K Jain said in the post-policy press conference.

He said RBI had advised all regulated entities post Covid to improve their provisions to which they have responded and implemented the parameters tied to the capital adequacy ratio.

“There is a reduction in gross and net NPA as well as slippage ratio, there is an improvement in the provision coverage ratio, and there is also an improvement in the profitability. So the sector isin a better position today than what it was before the Covid pandemic, he said.

Rising stress

Banks and NBFCs have seen stress rising during the last April-June quarter in the retail and MSME segment.

State Bank of India has reported GNPAs rising to 5.32 per cent in April-June quarter compared with 4.98 per cent in the previous quarter. During the quarter the bank reported fresh slippages of Rs 15,666 crore compared with Rs 21,934 crore in the preceding quarter.

Kotak Mahindra Bank reported the gross NPAs at 3.56 per cent in the last quarter against 3.25 per cent in the previous one.

The gross non-performing assets (GNPAs) ratio of banks may rise to 9.8 per cent by March 2022, under a baseline scenario, from 7.48 per cent in March 2021, according to the Financial Stability Report (FSR) released by the RBI early last month.

Under a severe stress scenario, GNPA of banks may increase to 11.22 per cent, the report said.

The asset quality of non-banking finance companies will see elevated stress levels in the near term due to the second wave of the pandemic, but the stress will subside subsequently with improvement in collection efficiencies and rise in restructuring, according to rating agency Icra.



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As loan growth slows, other income comes to banks’ rescue, BFSI News, ET BFSI

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Other income has come to the rescue for banks even as they grapple with weak loan growth, in the first quarter of the fiscal year, bank results show.

All banks have seen a year on year growth in other income led by fees and recovery in large written off accounts like the defunct Kingfisher Airlines as a result of which the contribution of other income to total income has increased.

The trend is the same for both large and small banks. For example, State Bank of India (SBI) reported a 24% rise other income to Rs 11,803 crore led by a 21% rise in fees and a Rs 1,692 crore recovery from the written off Kingfisher Airlines’ account which has increased the proportion of other income to 15% of total income from 11% last year.

The story is similar in the large private sector bank’s as well which traditional have a larger proportion of fee income. HDFC Bank‘s other income grew 54% led by fees and commission and income from foreign exchange and derivative transactions, increasing the share of other income to total revenues to 17% from 12% a year earlier. HDFC’s peer ICICI Bank also reported a 53% rise in other income led by fees despite a fall in treasury income.

Analysts say higher proportion of other income though legitimate is driven mostly by lumpy income streams which are not sustainable. However, they expect banking core incomes to rise as loan growth picks up later this year.

“Other income has increased through two main heads namely income from treasury and income from written off accounts. Both of these are very volatile and depend on market conditions and can be called one offs. Banks are sitting on excess SLR and have booked profits this quarter which is reflected in treasury gains. Having said that they are both legitimate income streams and there need not be a concern though for the quality of earnings to be sustainable revival of credit growth is important,” said Asutosh Mishra, head of research at Ashika Stock Broking.

Other income has risen for even smaller lenders as banks dug deep for new income streams faced with twin challenges of depressed loans demand and slow recovery of loans in light of the second wave of the pandemic.

RBL Bank’s other income doubled to Rs 695 crore led by a 137% growth in retail fee income even as total advances fell marginally to Rs 56,527 crore from Rs 56,683 crore a year earlier. Even public sector Bank of India reported a 39% rise in other income due to recovery from a written off aviation account and foreign exchange income even as loan book fell 0.18%.

“This quarter there also has been a increase in forex trading income as forward premiums came down during the quarter, allowing banks to book profits.
Along with the repricing the bond investments this has helped other income,” said Anil Gupta, vice president financial ratings at ICRA.

Gupta expects credit growth to revive later this fiscal as corporate working capital requirements will increase due to higher commodity prices. “We expect credit growth of 8% next fiscal which will bring higher core income and also fees so there is no reason to worry on the outlook,” he said.



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Banks, NBFCs see home loan delinquencies rise as pandemic hits borrowers, BFSI News, ET BFSI

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It’s not just retail, non-collateralised loans that are seeing delinquencies. Home loans that are mortgage-backed are seeing stress due to the pandemic.

Home loans of many banks have seen signs of stress with data from IMGC, a leading guarantor of such advances pointing to

an increase of nearly three times in the mortgage delinquency pool over the past 15 months.

IMGC guarantees home loans for about 20 lenders, including the State Bank of India, Housing Development Finance Corp, ICICI Bank and Axis Bank.

The number of claims paid by IMGC has gone up three times in June since March 2020, but it feels that the worst is over for the segment and the situation will stabilise in the next six months.

LIC Housing Finance

LIC Housing Finance has said there has been an increase in delinquencies, mostly due to economic activities being impacted in Q1. With improvement in economic activities and our increased and focused efforts in recovery, it was confident of controlling the same.

For LIC Housing Finance, on the asset quality, the stage-3 exposure at default worsened to 5.93%, from 4.12% a quarter ago and 2.83% a year ago.

There was a sharp deterioration in asset quality across product segments. Developer/Project GNPA deteriorated to 24.4% (down 640 bps quarter on quarter). According to brokerage estimates, in addition GS3, its Developer/Project book has at least 25% of restructured advances and ~16% in Stage 2.

Total restructured advances of LIC Housing Finance stood at Rs 5,350 crore (of which an estimated 88% were loans to corporate/developers). Against this, LICHF has made additional provisions of Rs 5,000 crore. Around Rs 1,500 crore of Covid-related provisions were booked in the First quarter

Housing finance companies

Non-bank lenders have restructured loans worth 1.6% of their overall book. Out of this while housing finance companies restructured about 1.0% of their AUM, other NBFCs restructured about 2.2%.

According to the rating agency Icra, the restructured book for non-bank lenders is expected to move up to 4.1-4.3% by March 2022 while the same for housing finance companies is estimated to go up to 2.0-2.2%.

The second wave of the Covid pandemic significantly impacted the collection efforts of non-bank lenders especially those in the business segments of vehicle finance, business loans and micro finance, who witnessed their collection efforts decline by about 20-25% in May 2021 versus March 2021. The efficiency improved by 3-5% in June 2021.

TThe loans due beyond 90 days, in March 2021 increased by only 30-40 bps over March 2020 levels, as the collections had improved steadily. Several institutions resorted to high quantum of loan write-offs in the fiscal year gone by which was estimated to be about 1.6% of the total assets under management, which is higher by about 60 basis points over the last fiscal.



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Govt seeks Parliament nod for Rs 1.87 lakh crore supplementary demands for this fiscal, BFSI News, ET BFSI

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The government sought approval for additional expenditure of Rs 1.87 lakh crore from Lok Sabha, as part of the first batch of supplementary demand for grants for FY22.

Finance minister Nirmala Sitharaman laid a statement of the demands in the lower House, which amounted to a net additional cash outgo of Rs 23,675 crore, on Tuesday.

The remaining Rs 1.63 lakh crore came from savings of the various ministries and departments and through enhanced receipts and recoveries, the statement said.

The single largest demand came from the finance ministry for Rs 1.59 lakh crore as transfer to states in the form of back-to-back loans as goods and services tax (GST) compensation shortfall.

The GST compensation shortfall would not affect the central government’s fiscal deficit, making the net outgo quite modest, said Aditi Nayar, chief economist at ICRA.

Further, the additional outgo of Rs 90,000 crore for the free foodgrain provision in May-November was being absorbed by the cushion created in this year’s budget on account of the prepayment of the Food Corporation of India’s loans in FY21, according to Nayar.

“With healthy revenues amid only a modest increase in the expenditure outlay, the cash flow position of the government of India does appear to be quite comfortable, which allowed the release of the Rs. 75,000 crore of GST compensation loans from the Central Government’s own borrowings raised so far,” she said.

The department of health and family welfare which sought Rs 10,727 crore Covid-19 emergency response and health system preparedness.

The finance ministry also raised a demand for Rs 1,750 crore as compound interest support to lending institutions in relation to the loan moratorium.

The list of demands also included Rs 1,872 crore sought for loans and advances to Air India by the civil aviation ministry.



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About 96% of Rs 2.45 lakh crore recovered under IBC resolutions came from top 100 accounts, BFSI News, ET BFSI

Banking & Finance

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Amid the rising furore over huge haircuts taken by lenders in high-value resolutions under the Insolvency and Bankruptcy Code, the government has said that financial creditors, including banks, realised Rs 2.45 lakh crore from approved resolution plans for 394 corporate insolvency resolution cases under the Insolvency and Bankruptcy Code as on June 30.

Of which Rs 2.37 lakh crore came through approved resolution plans of top 100 CIRPs, which is over 36 per cent of the admitted claims.

About 4,540 cases were admitted for the corporate insolvency resolution process under IBC until June 30, 2021.

About 240 companies liquidated till December 2020 had outstanding claims of Rs 33,086 crore, while their assets were valued at Rs 1,099 crore.
Overall, banks recovered Rs 14.18 lakh crore during the last three fiscals, raising the percentage of recovery to their gross NPA from 13.1 per cent in FY18 to 15.1 per cent in FY19. However, the recovery ratio has dropped 12.8 per cent in FY21 from 15.8 per cent in FY20 in the backdrop of the pandemic.

Recovery rate

The recovery rate of IBC has fallen to 39.3% as of March 2021 from 46% as of March 2020. Of the total outstanding amount of Rs 1.32 lakh crore, only around Rs 25,944 crore was recovered in fiscal 2021, or a rate of 19.7%.

There has been a delay in the liquidation of companies. As of December 2020, around 69% of the liquidations were going on for more than one year, while in the case of 26% of companies the process was on for more than two years.

Economic downturn

With huge capacity unutilised in the economy, companies are not looking to add more capacity, which is impacting the sale process at IBC. Barring sectors like steel where the product cycle has seen a turnaround, assets in other sectors such as textiles are not seeing much interest. While steel assets such as Essar Steel and Bhushan Steel were snapped up, those such as Alok Textiles were sold for much less.

The pandemic has increased operational challenges for the various parties involved in a CIRP, which resulted in limited cases yielding a resolution plan. The suspension of new proceedings under the IBC for the entire FY21 resulted in a sharp slowdown in the resolution process.

The slow judicial process in India allows the resolution processes to drag on, this was the same reason for slow recovery under SICA or RBBD.

Litigations by promoters not wanting to let the company out of their hands is also delaying the IBC process.

Lenders wanting to avoid delay in the recovery process and erosion of value are striking settlement deals with promoters, which defeats the purpose of the legislation.

Fiscal 2022 hopes

Financial creditors could realise about Rs 55,000 crore to Rs 60,000 crore in FY2022 through successful resolution plans from the IBC, estimates rating agency Icra. The higher realisation by the financial creditors would depend on the successful resolution of 8-9 big-ticket accounts, with more than 20% of estimated realisation for the year could be from these alone.



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Icra survey, BFSI News, ET BFSI

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Around 42 per cent of non-banking financial companies (NBFCs) expect a growth of more than 15 per cent in their asset under management (AUM) in fiscal 2021-22, says an Icra Ratings survey. The findings are based on a survey of 65 non-banks, constituting around 60 per cent of the industry AUM.

The agency conducted the survey to understand the impact of the second wave of COVID-19 on these entities and their expectations going forward.

It said NBFCs growth expectations have moderated vis-a-vis the expectations six months earlier. This follows the possible impact of Covid 2.0 on business in Q1 FY2022.

“While 42 per cent of the issuers (NBFCs by number) are expecting a more than 15 per cent growth in AUM in FY2022, the proportion based on AUM weights is much lower at 8 per cent, indicating that larger players in the segment expect a relatively moderate growth in FY2022,” the agency’s Vice President (Financial Sector Ratings) Manushree Saggar said.

With most of the lenders (74 per cent in AUM terms) indicating an up to 10 per cent AUM growth, the agency expects the growth for the overall industry to be about 7-9 per cent for FY2022.

Within the non-bank finance sector, segments like MFIs, SME-focussed NBFCs and affordable housing finance would continue to record much higher growth than the overall industry averages, supported by good demand and lower base, she said.

The survey said with gradual easing of lockdowns and moderation in fresh cases of Covid and with increased vaccination coverage, the lenders are optimistic on growth pick-up in balance part of FY2022 and expect it to be higher than the growth seen in FY2021.

However, the non-bank finance companies are expecting the asset quality related pain to persist in the current fiscal as well, it showed.

“Overall, 87 per cent of issuers (by AUM) expect reported gross stage 3/ NPAs to be either same or higher than March 2021 levels, which in turn will keep the credit costs elevated,” it said.

Over 90 per cent of lenders (by AUM) expects the credit costs to remain stable or increase further over FY2021 levels.

On the restructuring front, while lenders are expecting marginally higher numbers as compared to the last fiscal, the overall numbers are expected to be low, the agency said.

Saggar said with no blanket moratorium and reflecting the stress on the cash flows of the underlying borrowers, mid-sized lenders (AUM between Rs 5,000-Rs 20,000 crore) are expecting a higher share of restructuring under Restructuring 2.0.

“Overall, the restructured book of non-bank finance entities is expected to double to 3.1-3.3 per cent in March 2022 from 1.6 per cent in March 2021,” Saggar added.

The agency said a significantly higher number of issuers (56 per cent) are expecting to raise capital in FY2022 as compared to the earlier survey, wherein only 28 per cent of the issuers were expected capital raise in FY2022.

It expects the pre-tax profitability for non-bank finance companies in FY2022 would remain similar to the last fiscal which was around 30 per cent lower than the pre-Covid levels.



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Fresh NPAs may see a spike, but overall bad loans may decline to 7.1% in FY22, BFSI News, ET BFSI

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Notwithstanding the Reserve Bank of India projections of gross non-performing assets rising to 9.8% of total loans this fiscal, the bad loans may decline to at least 7.1 percent by March 2022, as against 7.6 percent at FY21-end.

The NPAs will go lower on higher recoveries and upgrades, and also faster credit growth, ratings agency Icra said, adding that the fresh accretion to the NPAs will be higher in FY22 due to the absence of any regulatory dispensations like moratoriums.

The GNPAs and NNPAs (net NPAs) are expected to decline to 6.9-7.1 percent and 1.9-2.0 percent respectively by March 31, 2022, it said.

What RBI said

The Reserve Bank’s financial stability report had said the GNPAs at March 2021 had come at 7.6 percent and estimated it to rise to 9.8 percent in FY22-end under its base-case assumptions. RBI Governor Shaktikanta Das had said the dent on balance sheets and performance of financial institutions in India has been much less than projected earlier, but a clearer picture will emerge as the effects of regulatory reliefs fully work their way through.

The new math

The rating agency said the fresh NPA generation declined to Rs 2.6 lakh crore or 2.7 percent of advances in FY21 compared to Rs 3.7 lakh crore or 4.2 percent in FY20 and added that the same will be higher in FY22. The headline asset quality numbers of banks do not reflect the underlying stress on the income and cash-flows of the borrowers impacted because of COVID-19 and various regulatory and policy measures such as the moratorium on loan repayment, standstill on asset classification and liquidity extended to borrowers under Emergency Credit Line Guarantee Scheme (ECLGS) had a positive impact on the reported asset quality of lenders.

In the absence of standstill on asset classification, we expect the fresh NPAs generation to be higher, however, we also expect the recoveries and upgrades to improve in FY22, it said, adding that the first half of the ongoing fiscal can see higher accretions due to the second wave of the pandemic. The credit provisions for the banks moderated to 2.5 percent of advances in FY21 compared to 3.7 percent in FY20, even as the core operating profits improved with the cost curtailment measures.

PSB turnaround

Within the sector, the turnaround was remarkable for public sector banks, which reported profits after five consecutive years of losses and with NNPAs at the lowest levels seen over the last six years (3.1 percent as of March 31, 2021), ICRA expects the public sector banks (PSB) to remain profitable going forward. After the capital raising exercises, the improved capital positions coupled with lower NNPAs mean a better solvency profile as well as an improved outlook on the ability to support growth and better future profitability.

“We believe that the banks are relatively better placed to handle the stress from the second wave and hence we continue to maintain a stable outlook on the sector.” the rating agency said.



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Why IBC process has slowed down during pandemic, BFSI News, ET BFSI

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The Insolvency and Bankruptcy Code (IBC) is a vast improvement over the n the two earlier laws legislated to recover bad loans —the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB) and Sarfaesi.

Before IBC, resolution processes took an average of 4-6 years, after the enactment of IBC, they came down to 317 days.

However during the pandemic, the IBC process has been hit, with recovery rate dropping, and anxious lenders selling off assets at close to liquidation value or striking settlement deals with promoters.

Recovery rate

The recovery rate of IBC has fallen to 39.3% as of March 2021 from 46% as of March 2020. Of the total outstanding amount of Rs 1.32 lakh crore, only around Rs 25,944 crore was recovered in fiscal 2021, or a rate of 19.7%.

There has been a delay in the liquidation of companies. As of December 2020, around 69% of the liquidations were going on for more than one year, while in the case of 26% companies the process was on for more than two years.

Economic downturn

With huge capacity unutilised in the economy, companies are not looking to add more capacity, which is impacting the sale process at IBC. Barring sectors like steel where the product cycle has seen a turnaround, assets in other sectors such as textiles are not seeing much interest. While steel assets such as Essar Steel and Bhushan Steel were snapped up, those such as Alok Textiles were sold for much less.

The pandemic has increased operational challenges for the various parties involved in a CIRP, which resulted in limited cases yielding a resolution plan. The suspension of new proceedings under the IBC for the entire FY21 resulted in a sharp slowdown in the resolution process.

The slow judicial process in India allows the resolution processes to drag on, this was the same reason for slow recovery under SICA or RBBD.

Litigations by promoters not wanting to let the company out of their hands is also delaying the IBC process.

Lenders wanting to avoid delay in the recovery process and erosion of value are striking settlement deals with promoters, which defeats the purpose of the legislation.

Fiscal 2022 hopes

Financial creditors could realise about Rs 55,000 crore to Rs 60,000 crore in FY2022 through successful resolution plans from the IBC, estimates rating agency Icra. The higher realisation by the financial creditors would depend on the successful resolution of 8-9 big-ticket accounts, with more than 20% of estimated realisation for the year could be from these alone.



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Share of upgraded listed debt issues at a three-year high for ICRA and Crisil in Q4 FY21: FSR

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The share of upgraded listed debt issues was at a three-year high for two rating agencies while the share of downgraded listed debt issues in total outstanding ratings fell in the fourth quarter of 2020-21 as against previous quarters.

This was revealed by the Financial Stability Report, July 2021 of the Reserve Bank of India.

“On an aggregate basis, the share of downgraded listed debt issues in total outstanding ratings declined significantly during the fourth quarter of 2020-21 vis-à-vis earlier quarters, while the share of upgraded listed debt issues was at a three-year high for both ICRA and CRISIL,” the FSR said.

For ICRA, upgraded and re-affirmed listed debt issues was 99.8 per cent in the fourth quarter of last fiscal while downgraded and suspended issues were 0.2 per cent. This is in contrast to just 88 per cent upgraded and re-affirmed listed debt issues in the fourth quarter of 2019-20.

Similarly, in the case of Crisil upgraded and re-affirmed listed debt issues was 99.9 per cent in the March 2021 quarter versus 91.2 per cent in the fourth quarter of 2019-20.

For Care Ratings too, upgraded and re-affirmed listed debt issues had risen to 95.2 per cent in the fourth quarter of 2020-21 as against 78 per cent in the same period in the previous fiscal.

“Out of the rating downgrades during the fourth quarter of 2020- 21, the share of the NBFC and housing finance company sectors as well as banks and financial services went down significantly as compared to the preceding quarter,” the FSR further noted.

In the quarter ended March 31, 2021, the rating downgrades for NBFCs accounted for 11.1 per cent of the overall downgrades in the quarter as against 28.6 per cent in the December 2020 quarter.

The share of banks, financial services in rating downgrades was nil in the March 2021 quarter versus 11.9 per cent in the previous quarter.

The power sector had the largest share of rating downgrades in the March 2021 quarter at 38.9 per cent as against 38.1 per cent in the previous quarter.

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