Tag: india economy

S&P, BFSI News, ET BFSI

Banking & Finance

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Earnings of Indian banks will get a boost from easing non-performing loans and the nation’s economic recovery that will drive demand for credit.

Many large banks saw their nonperforming loan ratios decline “as new NPA formation was more than offset by recoveries on retail loans,” said Nikita Anand, an analyst at S&P Global Ratings, after both private-sector and government-owned banks reported an improvement in overall asset quality in the fiscal second quarter that ended Sept. 30. “[The banks’] earnings have improved with credit costs moderating,” he said.

As on September 30, the weak loan ratio peaked close to 10 per cent. Credit costs, which reflect provisioning on bad loans, will also likely hit their lowest level in 7 years. This in turn should boost earnings, according to S&P.

State Bank of India, the country’s largest bank by assets, reported total NPAs of Rs 1.25 lakh crore for the quarter ended September 30, down from Rs 1.36 lakh crore in the previous quarter and Rs 1.27 lakh crore in the same period a year ago. Bank of Baroda and Punjab National Bank also saw quarter-over-quarter falls in NPAs.

Meanwhile, the ratings agency said that it is sceptical of allowing corporate ownership in banks, given India’s weak corporate governance. Corporate ownership of banks raises risks of intergroup lending, diversion of funds and reputational exposure, it said. Currently, the Reserve Bank of India refrained from allowing corporate ownership in banks.

Better asset quality, economic rebound brighten Indian banks' earnings outlook: S&P

Economy on mend

India’s economy grew 20.1% year over year in the April-to-June quarter, recovering from a 24.4% contraction in the same period of 2020 when the COVID-19 pandemic forced a strict lockdown across the country. The Reserve Bank of India expects the economy to grow about 9.5% in the fiscal year to March 2022, and Governor Shaktikanta Das on November 16 underscored the “need for sustained impetus so that growth could return to, or better still, exceed the pre-pandemic trend.”

The rating agency said that the economy’s expansion is expected to outpace that of developing market peers in the coming few years. “In comparison, some tourism-dependent countries, such as Thailand, are likely to see long-term scarring as we expect only a gradual resumption of travel-related industries,” they agency said.

Ahead of the Diwali festive season, gross bank credit grew 6.7% year over year in both August and September, reversing a contraction earlier in the year, central bank data show.

“With cash flows improving for underlying borrowers due to easing of the pandemic and lockdowns, most banks have reported an improvement in asset quality and reduction in nonperforming assets,” said Krishnan Sitaraman, senior director at Crisil, a unit of S&P Global Inc.

“It is also a reflection of the clear improvement in economic fundamentals for the country” after the economy contracted 7.3% in the year that ended March 31, 2021, Sitaraman said.

Banks are likely to sustain their earnings improvement in 2022 if credit costs continue to moderate, though Sitaraman flagged the risk of a possible fresh wave of Covid infections and its potential impact on economic activity.

Better asset quality, economic rebound brighten Indian banks' earnings outlook: S&P

Better earnings

The net profit of State Bank of India in the second quarter rose to Rs 8,890 crore from Rs 5,246 crore in the prior-year period. ICICI Bank Ltd’s net profit increased to Rs 6,092 crore from Rs 4,882 crore in the prior-year period.

SBI’s credit cost and net interest margin profile were better than expectations, ICICI Securities said in a note after the lender reported its earnings. SBI’s management expects an opportunity to grow its corporate and small business portfolios as economic activity picks up, the merchant banking and retail broking arm of India’s second-biggest private-sector lender by assets said in a note. “SBI also has sufficient capital and liquidity on balance sheet to support growth.”

HDFC Bank, the country’s largest private-sector bank, saw its NPLs ease to Rs 21,000 crore from Rs 23,000 crore in the first quarter. The lender said its bad loans from small-and-medium scale businesses declined over the previous quarter and the corporate book is resilient, suggesting that a bigger part of incremental delinquency is flowing from the retail and agriculture segments, ICICI Securities said in a note after HDFC reported its earnings.

“Further curtailment of slippages, better recoveries and improved collections will support asset quality trends in coming quarters [for HDFC Bank],” according to ICICI Securities.



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From Nigeria to India, Gen Z taps apps to invest, BFSI News, ET BFSI

Personal Finance

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There’s a new generation of investors in town. They’re young, they get their tips on YouTube, and they’re armed with apps that make the stock markets more accessible than ever before.

US investment app Robinhood has made a splash in the West with its mission to open the markets to “everyday people”, but from Nigeria to India, Gen Z are flocking to homegrown equivalents.

“I don’t really care about my college, to be honest. It’s all market, market and market,” said Delhi student Ishan Srivastava, who started trading last December.

Srivastava uses a handful of Indian trading apps, including Zerodha and Upstox, and often gets his financial advice from YouTube. The ambitious 20-year-old hopes to build a diverse investment portfolio and then retire by 45.

In India in particular, the investment revolution has been aided by a boom in “demat” accounts — easy-to-open electronic accounts for holding financial securities, equity or debt.

But a similar app-led investment craze is also underway 8,000 kilometres (5,000 miles) away, in Nigeria.

– Banks ‘less attractive by the month’ – The country’s economic hub Lagos has long been known for its hustle and celebration of success, but the weakness of the naira currency has put extra pressure on youths to make cash as the cost of living has rocketed.

Nigerians have flocked to local apps such as Trove and Risevest which allow them to invest in US stocks, widely seen as a means of protecting wealth as the naira nightmare continues.

“I had the option of putting the money in the bank, but that is looking less attractive by the month,” said 23-year-old Dahunsi Oyedele.

“Sometimes I put my money in Risevest and get some returns in a week. Imagine getting one or two percent returns on 100,000 naira ($240) each week — that’s small, but it means a lot.”

For a few months after losing his job as a tech journalist due to the pandemic, Oyedele covered his rent by trading cryptocurrencies.

He is far from alone in turning to speculation during the Covid-19 crisis, as a combination of mass joblessness, stay-at-home orders and — for the fortunate — underused savings have encouraged people worldwide to dabble in trading for the first time.

In the US alone more than 10 million new investors entered the markets in the first half of 2021, according to JMP Securities, some of them drawn in by social media hype around “meme stocks” like GameStop.

Worldwide, the new arrivals are largely young. Robinhood’s median US customer age is 31; India’s Upstox says more than 80 percent of its users are 35 or under, a figure matched by Nigeria’s Bamboo (83 percent).

Trading apps have lowered the barriers to entry for youngsters in part by offering fractional trade.

A share in Amazon, for instance, is currently worth more than $3,000 — unaffordable for the average Gen Z or slightly older millennial. But a small fraction of that share might be within reach, particularly on an app that charges zero commission.

– Flirting with danger? – Trading apps may have been hailed as democratising access to the markets, but critics say they could also make it easier for inexperienced young investors to get into hot water.

In the US, the Securities and Exchange Commission is investigating whether apps are irresponsibly encouraging overtrading using excessive email alerts and by making investment feel like a game.

And Britain’s Financial Conduct Authority warned in March that the new cohort of young investors — who skew in the UK towards being women and from minority backgrounds — have more to lose.

Nearly two thirds of the new investors it surveyed said “a significant investment loss would have a fundamental impact on their current or future lifestyle”, the FCA found.

“This newer group of self-investors are more reliant on contemporary media (e.g. YouTube, social media) for tips and news,” the watchdog noted.

“This trend appears to be prompted by the accessibility offered by new investment apps.”

Some young investors have already been burned.

Mumbai-based product designer Ali Attarwala is giving trading a break after a bad experience with cryptocurrencies earlier this year.

“These apps make it easy to buy speculative assets like crypto, but there is still a lot of volatility in these new assets,” the 30-year-old told AFP.

Srivastava has also had ups and downs, but he sees his losses as part of the learning experience.

“When I started, I blew up almost 50 percent of the capital,” he said.

“I don’t treat them as my losses, but like education fees.”



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RBI has taken steps to smoothen impact of second COVID wave, says Deputy Governor Jain, BFSI News, ET BFSI

Banking & Finance

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Asserting that the second wave of COVID-19 has posed some challenges, RBI Deputy Governor M K Jain on Friday said both the central bank and the government have taken steps to mitigate its impact. He also said the domestic banking system is strong, as per the preliminary data for the quarter ended March 2021.

“I am happy to inform that the banking sector was in strong position when COVID-19 hit…the preliminary data suggest that in terms of CRAR that has been improved upon, the profitability has been improved upon, provision coverage ratio that has also been improved over the previous year, and the gross NPA as well as net NPA has come down,” he said.

Jain was addressing a virtual conference organised by the India International Centre (IIC) and Research & Information System for Developing Countries (RIS).

Observing that the COVID-19 second wave has some challenging aspects, he said both the RBI and the government are dealing with this and taking steps to smoothen the impact on the financial system.

The central bank has announced a slew of measures in the last two months to help flow of credit to the desired sectors and maintain adequate level of liquidity in the system.

Earlier this month, RBI kept its benchmark interest rate unchanged in view of elevated level of retail inflation.

Jain said the RBI strives to ensure financial resilience of banks and NBFCs by prescribing a set of micro prudential norms like minimum capital requirements.

To maintain resilience, he said, the RBI has asked financial entities to undertake stress tests at regular intervals and accordingly take risk mitigation measures.

Jain further said the financial system, both in India and overseas, is witnessing rapid shifts in the operating environment due to changing competitive landscape, automation and increasing regulatory supervisory expectations.

The Reserve Bank of India has put in place various regulations to improve the governance in banks and make them more resilient, he emphasised.

“In addition, banks have also made improvements in the risk management capacities. Yet, the changing operating and risk environment requires banks to be vigilant, strong and agile so as to identify risks early and absorb the shocks and be able to adapt to the newer ground realities.

“I am hopeful that banks and other financial institutions in India will rise to the challenge, continue to demonstrate the resilience and be able to contribute to a USD 5 trillion economy and beyond,” he said.

Talking about the link between financial system and climate resilience, Jain said while insurance companies directly face the climate risk, banks are also required to take into account such risks more seriously.

In addition to mitigating operational risk arising out of climate extremes, he said there is a need for the financial system to move towards green financing, keeping in mind the development requirement of the country.

“While as of now RBI has not come out with any regulatory prescriptions, but we are evaluating all those aspects and then at the appropriate time after evaluating all the things a call may be taken,” he said.



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Banks likely to transfer about 80 large NPA accounts to NARCL, BFSI News, ET BFSI

Banking & Finance

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Banks are likely to transfer about 80 large NPA accounts for the resolution to National Asset Reconstruction Company Ltd (NARCL), which is expected to be operational by next month.

NARCL is the name coined for the bad bank announced in the Budget 2021-22. A bad bank refers to a financial institution that takes over the bad assets of lenders and undertakes resolution.

The size of each of these NPAs accounts is over Rs 500 crore and the banks have identified about 70-80 such accounts to be transferred to the proposed bad bank, sources said.

It is expected that NPAs over Rs 2 lakh crore will move out of the books of the banks to the bad bank, they added.

The company will pick up those assets that are 100 per cent provided for by the lenders.

Finance Minister Nirmala Sitharaman in the Budget 2021-22 announced that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books.

“An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt,” she had said in the Budget speech.

It will then manage and dispose of the assets to alternate investment funds and other potential investors for eventual value realisation, she added.

Last year, the Indian Banks’ Association (IBA) had made a proposal for the creation of a bad bank for swift resolution of non-performing assets (NPAs). The government accepted the proposal and decided to go for asset reconstruction company (ARC) and asset management company (AMC) model for this.

NARCL will pay up to 15 per cent of the agreed value for the loans in cash and the remaining 85 per cent would be government-guaranteed security receipts.

The government guarantee would be invoked if there is a loss against the threshold value.

The Reserve Bank of India (RBI) has said that loans classified as fraud cannot be sold to NARCL. As per the annual report of the RBI, about 1.9 lakh crore of loans have been classified as fraud as of March 2020.

To facilitate the smooth functioning of asset reconstruction companies, the RBI last month decided to set up a panel to undertake a comprehensive review of the working of such institutions.

After enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act in 2002, regulatory guidelines for ARCs were issued in 2003 to enable the development of this sector and to facilitate the smooth functioning of these companies.

Since then, while ARCs have grown in number and size, their potential for resolving stressed assets is yet to be realised fully.



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India looks set to weather global bond rout with record reserves

Banking & Finance

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India’s record foreign-exchange reserves and a rare current-account surplus look set to cushion the nation’s currency and bonds from a global surge in interest rates.

While the Reserve Bank of India does have its hands full managing the government’s large debt issuance, strategists see the country in a much stronger financial position now than it was during previous bouts of turmoil in world markets. They cite the rupee, which has eked out a gain this year, defying the slump seen in most emerging-market currencies, and relative stability of India’s bonds.

With reserves closing in on $600 billion and a current-account surplus forecast to exceed 1 per cent of gross domestic product, talk of India as one of five fragile emerging markets has mostly faded away. When the description was coined during the taper tantrum in 2013, inflation in India was running at around 10 per cent.

Data due March 12 is projected to show consumer prices rising at less than half that level, and well below the 6.6 per cent average of last year. Meanwhile, benchmark 10-year bond yields have largely been capped since last year by the central bank and the nation’s stocks continue to see foreign inflows.

“India’s markets are likely to be relatively immune to higher U.S. yields in the weeks ahead,” said Mitul Kotecha, chief EM Asia and Europe strategist at TD Securities in Singapore. “India has been a key beneficiary of equity inflows into Asia and we do not see outflows persisting.”

Ahead of the CPI figures, here is a series of charts highlighting points of strength in India that have been cited by analysts.

Stock inflows

Indian stocks have attracted about $6 billion of foreign inflows this year, the highest in emerging Asia after China, and well above those of the country’s erstwhile ‘Fragile Five’ peers. The prospect of strong economic growth has been underpinned by an early start to India’s coronavirus inoculation campaign, aided by domestically produced vaccines.

FX reserves

The RBI has added $127 billion to its foreign-exchange kitty since the beginning of January last year, the biggest increase among major Asian economies. At the current rate of accumulation, India is on course to pass Russia and take fourth place in global rankings for reserves, behind China, Japan and Switzerland.

This large well of reserves should give authorities fire power to deal with any potential capital outflows driven by external shocks, according to Kaushik Das, Chief India Economist at Deutsche Bank in Mumbai.

Current account

India is expected to post a current-account surplus of 1.1 per cent of GDP in the current fiscal year, along with a balance-of-payments surplus of $96 billion, according to Emkay Global Financial Serviced.

While the current account may swing back to a small deficit next fiscal year, healthy capital flows may keep the balance of payments positive to the tune of $45-50 billion, helping to support the rupee, according to Madhavi Arora, lead economist at Emkay.

Bond returns

India’s sovereign bonds offer more stable returns than many others in emerging markets, as measured against annualised 60-day volatility in benchmark 10-year securities. The RBI has made over ₹3-lakh crore ($41 billion) of bond purchases this fiscal year and plans to buy at least that amount next year, according to RBI Governor Shaktikanta Das, which should help to curb gains in yields.

Economic growth

India’s economy is projected by the International Monetary Fund to grow 11.5 per cent in 2021, a pace that is likely to be the fastest of any major economy, which also augurs well for inflows and the rupee.

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Razorpay announces 3rd largest ESOP sale of $10 million for 750 current, former employees

Banking & Finance

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Fintech unicorn Razorpay, on Thursday, announced its third ESOP (Employee Stock Ownership Plan) buyback program worth $10 million (₹73 crore) for its 750 employees.

All existing and former employees of Razorpay who hold vested stocks will be eligible to sell up to 33 per cent of their vested ESOP shares. Sequoia Capital India and GIC, two of Razorpay’s key investors will be the buyers involved in this development.

ESOP buybacks in the start-up industry have been a source of significant wealth creation for employees but it is not something that companies usually offer as an annual event. Razorpay is one of India’s youngest start-ups to have facilitated the ESOP buyback program consequently for the last three years.

The share sale is expected to benefit employees across roles – from team leaders to support executives to administrative staff. Razorpay’s 1,350 people team raised their $100 million Series D funding in October last year and the ESOP buyback plan is a reflection of the faith that the company and its employees have instilled in each other.

Also read: India attracted $2.7 billion in fintech investment in 2020: KPMG

“We’ve always said and believed that our employees are the reason for every success that we have had. They turned an unprecedented year into one of the strongest years for Razorpay. And this ESOP Buyback is our little way of giving back to the employees for their contribution and a form of wealth creation for all, as it is important for us to ensure that our employees also grow along with the company. Our current and former employees, even as young as 23, will be eligible for this incentive, irrespective of rank. The compensation will be rolled out to all our employees, be it software engineers, product managers, customer experience agents, or administrative staff. I believe there’s no better time than now to recognise the team for all their efforts and having trusted us in this journey,” said Harshil Mathur, CEO and co-founder, Razorpay.

Razorpay’s first liquidity event through ESOP encashment occurred in November 2018 for its 140 employees then. The transaction was done at a 50 per cent premium to the valuation. The second ESOP sale event occurred in November 2019, during which approximately 400 employees were eligible. To date, the company has awarded ESOPs to 1,000 employees, with current employees holding a majority share.

Also read: Mastercard and Razorpay partner to make digital payments more accessible for MSMEs and startups

Currently powering online payments for more than 5 million small and large businesses such as Facebook, IRCTC, CRED, Zerodha, Indigo among others, Razorpay has clocked in a healthy growth rate of 40-45 per cent month-on-month and is geared to increase its merchant count to 10 million by next year.

Razorpay registered 3X growth in payment volume through SMBs that went online for the first time during Covid in 2020.

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10 lakh customers of other banks using ICICI Bank’s mobile app

Banking & Finance

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As many as 10 lakh customers of other banks are using ICICI Bank’s revamped mobile banking app – ‘iMobile Pay’ and the private sector lender expects the number to double over the next two months.

“The bank has achieved the feat in a shade over three months after it made ‘iMobile Pay’ open for all to use, including those who are not its customers. Going by the encouraging response received by this unique initiative that offers interoperability to bank customers, ICICI Bank anticipates that the number is likely to double in two months,” it said in a statement on Thursday.

While the app has registered a good response in large metro cities like Mumbai, Delhi, Bengaluru and Chennai, other like Pune, Hyderabad, Ahmedabad, Jaipur, Lucknow, Patna, Indore, Ludhiana, Bhubaneswar, Guwahati, Agra, Kochi and Chandigarh have also contributed significantly to the growth of the number of users, ICICI Bank further said.

Also read: Private banks gear up to undertake govt business

“The objective of this endeavor was to offer customers of any bank the benefits of seamless payments and digital banking services through our app. We made it possible by leveraging NPCI’s interoperable infrastructure,” said Bijith Bhaskar, Head- Digital Channels & Partnership, ICICI Bank.

Users have especially liked the functionality of Pay to Contacts, which enables users to send money either to a mobile number or a UPI ID of their friends and contacts, to any payment app or a digital wallet.

Other services such a ‘Scan to Pay’, ‘Check Balance’ and ‘Bill Payments’ have also seen the maximum usage.

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Time apposite for private investment to come alive: RBI Bulletin

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The time is apposite for private investment to come alive as fiscal policy, with the largest capital expenditure budget ever and emphasis on doing business better, has offered to crowd it in, according to an article in the Reserve Bank of India’s (RBI) monthly bulletin.

“All engines of aggregate demand are starting to fire; only private investment is missing in action…Will Indian industry and entrepreneurship pick up the gauntlet?” per the article “State of the Economy” put together by RBI Deputy Governor MD Patra and 19 other RBI officials.

The authors underscored that there is little doubt today that a recovery based on a revival of consumption is underway.

“The jury leans towards such recoveries being shallow and short-lived. The key is to whet the appetite for investment, to rekindle the animal spirits…,” they said.

GDP reclaims positive territory

Referring to real GDP in Q3 (October-December 2020) shrugging off the contraction of H1 (April-September 2020) and reclaimed positive territory, the article observed that with this emergence from recession as businesses reopen and consumers venture back to offices and shops, the Indian economy has turned a corner.

“These developments are all inflation positive. With pulses production 6 per cent higher than a year ago, inflationary pressures on the food front are set to ebb, but core inflation will warrant deft and dogged attention,” the article said.

Also read: Will the bad bank appeal to everybody’s palate?

While disproportionately high excise duties on petroleum products are hostage to the state of public finances, buoyancy in other heads of revenue could loosen this stranglehold, bring down pump prices of petrol, diesel and of cooking gas to more internationally comparable levels, improve the inflation outlook and expand consumer welfare, it added.

“From an internationally competitive perspective too, it is important for India to recover from being an inflation outlier and turn to structural reforms that reposition the economy to reap the gains of productivity and efficiency,” the authors said.

Rock and hard place dilemma

The article assessed that the evolution of financial conditions as 2020-21 draws to a close and the new financial year commences will pose a challenge.

The authors opined that fiscal policy authorities face the ‘rock’ of stimulating the economy and the ‘hard place’ of ensuring sustainable finances.

Monetary authorities encounter a similar dilemma of conflicting pulls – ensuring an orderly evolution of the interest rate structure in the face of still enlarged borrowing needs against the need to remain accommodative and support the recovery.

“While policy authorities exhibit resoluteness in their commitment, markets are assailed by uncertainty and sporadic shifts between hunts for returns and flights to safety.

“A shared understanding and common expectations will likely be the anchor in this turbulence,”the article said.

The authors feel the markets have to rely on the track record of authorities during the most trying year in a century – of keeping markets and institutions functioning; of easing borrowing costs and spreads; of keeping finance flowing – “in fact, there is very little else to hang a hat on.”

They emphasised that“An orderly evolution of the yield curve serves all. A vibrant and self-sustaining economy will lift all boats and markets can do no better than supporting policy authorities as they struggle to regain that stride.”

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

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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Economic Survey: Governance, key to end zombie lending

Banking & Finance

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The Economic Survey 2020-21 has raised the issue of zombie lending. It has noted that apart from from re-capitalising banks, it is important to enhance the quality of their governance.

“Ever-greening of loans by banks as well as zombie lending is symptomatic of poor governance, suggesting that bank boards are ‘asleep at the wheel’ and auditors are not performing their required role as the first line of defence,” it said, adding that to avoid ever-greening and zombie lending following the current round of forbearance banks should have fully empowered, capable boards.

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