With its focus on small and medium enterprises, BharatPe on Friday announced the launch of a new lending product that would provide instant liquidity to distributors, wholesalers, traders and dealers.
Called Distributor to Retailer (D2R) Finance, it would offer collateral-free loans of up to ₹50 lakh for a period of seven days to 30 days.
“BharatPe has already facilitated D2R loans of ₹50 crore in the first month of launch and aims to facilitate disbursal of ₹2,500 crore via this new product in the next fiscal year 2021-22,” it said in a statement.
The facility is live in 10 cities and has close to 2,000 SME registrations in just one month of launch, it further said, adding that the loan is available at a low interest rate, with zero processing fees and involves minimal paperwork.
“We aim to provide this offering in all 100 cities where we are present,” said Suhail Sameer, Group President, BharatPe.
The credit growth of banks ranged between 6.5% to 7.2% in April 2020.
Banks gave out credit at a faster rate during the fortnight ending February 12, as compared to the same period last year, helped by an increase in retail loans. The bank credit growth was recorded at 6.6%, marginally higher from the 6.4% recorded last year, a report by CARE Ratings showed. With this, the credit growth is back in the range that was last seen during the early months of the pandemic. The credit growth of banks ranged between 6.5% to 7.2% in April 2020.
Bank credit growth strong
Bank credit during the fortnight ended February 12 stood at Rs 107 lakh crore, up from Rs 105 lakh crore at the end of December 2021 but at par with the previous fortnight ending January 29. “The retail, agriculture and allied segment have driven overall credit growth in January 2021 growing by 6.7% and 9.5% respectively,” the report showed. The retail segment accounted for 29% of the total credit, against the 28.1% share recorded in the year-ago period. Industrial segment, however, had the largest piece of the pie accounting for 29.6% of the total credit. The services sector accounted for 28% of the total.
“Trade and tourism, hotels and restaurant segment registered a (credit) growth of 15.7% and 8.9% respectively,” the report said. The professional services segment registered a de-growth of 25%, computer software segment too registered de-growth, making them the only two segment to slip.
Mutual fund redemptions aid deposit growth
Deposits with banks have also increased during the period under review. “Deposit growth increased during the fortnight ended February 12, 2021, compared with 11.1% growth registered during the fortnight ended January 29, 2021, and also as compared with the previous year,” CARE Ratings said. The report further added that the outflows in debt mutual fund and equity mutual fund could support the rise in bank deposits. Of these deposits, time deposits grew at 89% while demand deposits account for the remaining 11%.
With deposit growth outpacing credit growth in the banking system, liquidity remained in a surplus position. “The outstanding liquidity in the banking system as of February 26 aggregated Rs 6 lakh crore, higher than a month ago level of Rs 5.76 lakh crore,” the report said.
Rating agency ICRA on Wednesday said negative rating actions undertaken by it in the March to December 2020 period exceeded the historical five-year average.
About 13 per cent of the portfolio experienced a rating downgrade compared to the previous five-year average of 9 per cent, it said. Further, as many as 15 sectors, including aviation, hospitality, residential real estate, retail, and commercial vehicles, have a negative outlook in the near to medium term.
“The credit quality of India Inc has experienced rapid changes since the onset of the Covid-19 pandemic and the imposition of the nationwide lockdown in March 2020. Business health has been bruised in general and some entities in select sectors have been badly hurt, even though the effects have not been apocalyptic, and the worst-case scenarios have not played out,” ICRA said in a statement.
According to K Ravichandran, Deputy Chief Rating Officer, ICRA, another 9 per cent of the rated entities witnessed a change in outlook — from Stable to Negative or from Positive to Stable.
“Without the various fiscal and monetary interventions which provided a liquidity relief to the borrowers, the negative rating actions could have been higher,” he said, adding that textiles, real estate and construction were the top three sectors in terms of the count of downgrades.
Besides, aviation and hospitality sectors too witnessed a number of negative rating actions.
In terms of upgrades, only 3 per cent of the rated entities were upgraded in the past 10-month period, compared to the previous five-year average of 9 per cent.
The outlook on sectors including ferrous and non-ferrous metals and textiles has been revised from Negative to Stable following the uptrend in prices and expectations of healthy revenue and profit over the medium term, it said, adding that the outlook on cement, passenger vehicles and auto ancillaries has been revised from Negative to Stable.
“ICRA expects the credit quality pressures to remain elevated in general over the near to medium term; however, the intensity is likely to remain quite varied across sectors,” said Ravichandran.
The instances of defaults have been much lower in the past 10 months due to the benefit of the loan moratorium, the agency said, adding that there were only 30 defaults across the rating spectrum compared with 81 in the corresponding previous period.
It also noted that compared to its earlier expectations of about 6-8 per cent of the borrowers at the system-level to get their loans restructured, only a handful of entities in ICRA’s portfolio had applied for loan restructuring.
In the quarter-ended September 2020, the GNPA ratio of scheduled commercial banks improved to 7.7% against 9.3% in the year-ago period. India’s banking sector did see a decrease in its gross non-performing assets (GNPA) owing to the moratorium offered by the Reserve Bank of India (RBI) and due to recoveries and higher write-offs by the multiple banks.
Going forward, some believe the stressed asset formation outlook is anticipated to be more benign than what was earlier expected. “The biggest change in outlook has been the formation of stressed assets which, at the start of the pandemic, we had anticipated to be around 10-12% of banks’ loan books. However, based on our recent channel checks with rating agencies, corporate banking heads of banks, consultants and also feedback from KV Kamath Committee, we expect overall stressed asset formation to halve to 5-6%,” said a report by Macquarie Research.
One of the biggest reasons for this is lower restructuring in the corporate segment. Macquarie pointed out that many large corporates haven’t sought restructuring and only a dozen large companies (with exposures greater than Rs 15 billon) have opted for it restructuring. It, however, expects the retail NPLs to increase in the next few quarters and can touch a 10-year high. “We draw comfort from the fact that collection efficiencies (CE%) from September to December 2020 have been high in the mid-90s, despite 40% of the loan book under moratorium as of August 31, 2020. Hence, we have reduced the credit cost estimates cumulatively for FY21E-FY23E by 150bps for private sector and 120bps for PSU banks to 550bps and 650bps, respectively,” it added.
Meanwhile analysts at BofA Securities have also turned hopeful. Anand Swaminathan, Research Analyst, BofAS India, said, “Asset quality is no longer an existential risk in mid-2020, Indian banks’ asset quality has been surprisingly resilient. Our channel checks further support few risks of negative surprises near term. Moreover, new disbursals are already back to above pre COVID levels in most segments. After NPA recognitions are dealt with in 1H, we expect growth tailwinds to emerge in 2H.”
He also believes that capital and liquidity have never been better, and this should help cushion downside risks from asset quality and net interest margins and help further consolidate market share gains in 2021. Further, multiple government and regulatory measures have been a major help for asset quality in 2020 and this will support the growth revival in 2021, he added.
Swaminathan, however, noted new NPA formation could throw some surprises, and this may disturb the pace of growth recovery.
In fact, last week, RBI came out with its Financial Stability Report, in which it said banks’ GNPA may rise to 13.5% by September 2021, from 7.5% in September 2020 under the baseline scenario. The GNPA ratio of PSBs may increase from 9.7% in September 2020 to 16.2% by September 2021; that of PVBs (private banks) to 7.9% from 4.6% in 2020; and FBs’ (foreign banks) from 2.5% to 5.4%, over the same period. Under the baseline scenario, it would be a 23-year-high. The last time banks witnessed such NPAs was in 1996-97 at 15.7%, showed the RBI data.
And in case of severe stress scenario, the GNPA ratios of PSBs, PVBs and FBs may rise to 17.6%, 8.8% and 6.5%, respectively, by September 2021. The GNPA ratio of all SCBs may escalate to 14.8%. This highlights the need for proactive building up of adequate capital to withstand possible asset quality deterioration, said the report.
Most experts view the performance of financial sector will remain under pressure on account of lack of credit uptake, risk aversion, lower fee income and covid-related provisioning, but some banking analysts have predicted light at the end of the tunnel.
For years, regulators have quashed hopes of a Bitcoin exchange-traded fund, citing worries about everything from market volatility and industry manipulation to thin liquidity. Just like Bitcoin itself, issuers keep fighting back.
VanEck Associates Corp. has started a new push to launch an ETF tracking the world’s largest digital currency, according to a filing Wednesday to the U.S. Securities and Exchange Commission. The VanEck Bitcoin Trust would reflect the performance of the MVIS CryptoCompare Bitcoin Benchmark Rate.
It’s a bold move for the New York-based firm. There have been multiple applications for crypto-tracking ETFs over the years, and the SEC has denied them all.
VanEck may be betting that a change in SEC leadership — with Jay Clayton stepping down as chairman — combined with Bitcoin’s growing adoption on Wall Street have improved the odds of regulatory approval, according to analysts.
“All indications from the SEC are that a bitcoin ETF still faces an uphill battle,” said Nate Geraci, president of the ETF Store, an investment advisory firm. “That VanEck has the confidence to file for a Bitcoin ETF might indicate some shifting viewpoints within the SEC. Clearly, a key to watch as this drama continues unfolding is who President Biden taps as SEC chair.”
VanEck’s filing comes in a week when Bitcoin has continued to set record highs. The world’s largest digital asset has advanced about 300% this year, catching the attention of some of Wall Street’s most famous investors, including Paul Tudor Jones, as well as mainstay firms like PayPal Holdings Inc.
While crypto fans see its rally continuing, many are also aware its high-profile surge could attract greater scrutiny. The new SEC chair may take a softer line than Clayton, but President-elect Joe Biden has nominated Janet Yellen as Treasury secretary. In the past she has described Bitcoin as a “highly speculative asset” and “not a stable store of value.”
“By filing now, it will restart the clock for a review when there will be new SEC membership and leadership,” said Todd Rosenbluth, director of ETF research for CFRA Research. “However, I think the SEC has made it clear they have concerns that need to be overcome.”
According to the filing, VanEck’s ETF plans to hold Bitcoin and will value its shares based on prices contributed by exchanges that MV Index Solutions GmbH believes represent the top five exchanges for the cryptocurrency.
Bitcoin was trading 0.3% lower at around $28,800 as of 7:49 a.m. in New York.
Such an ETF “could be taken as bullish for Bitcoin because it does broaden the universe of investors who could be aware of Bitcoin,” said Everett Millman, finance expert with Gainesville Coins.
As the year draws to an end here’s a look at what shaped the BFSI sector in the year gone by:
RBI vs. Covid-19: The Reserve Bank of India came out with a slew of measures to safeguard the financial services sector and the overall economy against the virus triggered pandemic and the lockdowns.
Shaktikanta Das, RBI Governor, during one of his monetary policy announcements.
Since March, the RBI cut the repo rate by 115 basis points to 4%. It also purchased Rs 1.9 lakh crore of G-secs until September. These measures helped in reducing the interest rates in money and debt markets, and even got transmitted to bank lending rates. RBI also maintained an accommodative monetary policy stance, suggesting it could cut rates to inject money into the financial system whenever needed.
Moreover, the regulator provided instant relief to borrowers by wavering off EMIs on term loans for six months — March to August.
Bidding farewell: State Bank of India’s chairman Rajnish Kumar hung up his boots in 2020, after serving the bank in various capacities for almost 40 years, and the last three as its chairman. Kumar is credited with launching SBI’s digital platform YONO, whose valuation he’d estimated to be around $40 billion. Kumar’s vision for the bank was to transform it into a strong bank and at the top of the digital game. And he definitely succeeded at that. In October he was replaced by Dinesh Kumar Khara, previously a Managing Director at SBI.
Rajnish Kumar, Former Chairman, State Bank of India and Aditya Puri, Former MD & CEO, HDFC Bank
Aditya Puri, who was at the helm of HDFC Bank for 26 years, also retired in October to give way to Sashidhar Jagdishan. Puri was at Citi Bank when Deepak Parekh first offered him the job to pilot the newly formed HDFC Bank. Puri, a Chartered Accountant, became the first CEO of HDFC Bank in 1994. And in the past quarter century, he transformed the bank and made it the largest private sector lender of India. Puri is now a Senior Advisor at The Carlyle Group.
Failed banks: In March, RBI placed YES Bank under moratorium and restricted withdrawals to a maximum of Rs 50,000, sending its customers to a frenzy. Shares of the bank tanked to Rs 5.65 a piece, its lowest till date.
Yes Bank customers queue up to withdraw money when the bank was put under moratorium by the regulator
The bank ran into trouble following the RBI’s asset quality reviews in 2017 and 2018, which led to a sharp increase in its NPA ratio and significant governance lapses that led to a complete change of management. The bank subsequently struggled to address its capitalisation issues and get investors. Later, the bank was rescued by State Bank of India (SBI), six private sector banks, and a mortgage lender, who invested a total of Rs 10,000 crore the bank, helping it shore up its capital buffers after they dropped below the regulatory requirements. SBI’s then CFO Prashant Kumar was chosen to head the struggling lender.
Another bank that made headlines is Lakshmi Vilas Bank. In September, in an unprecedented move, shareholders voted against the seven out of a total of 11 members from the senior management including the interim MD & CEO, S, Sundar. According to reports the shareholders were unhappy with the rise in bad loans, value erosion and the future of the bank. The RBI then appointed three members to look after the daily affairs of the bank along with the remaining four senior officials of the bank.
The capital starved LVB was looking for potential mergers and began talks with IndiaBulls Housing Finance, but couldn’t get a nod from the RBI. Later this year, LVB announced merger talks with Clix Capital. But before anything could materialise, RBI put it under moratorium and later announced its merger with DBS Bank India.
Coronavirus health insurance policies : On the basis of guidelines issued by the Insurance Regulatory and Development Authority of India (IRDAI), most insurance companies rolled out their Corona Kavach and Corona Rakshak policies. These short-term policies will cover the treatment cost of the coronavirus disease and remain valid until March 31, 2021. The Corona Kavach policy will cover both individuals and families. The Corona Rakshak policy will only cover individuals.
IRDAI had asked insurers to roll out Covid-19 specific policies Corona Rakshak & Corona Kavach. Industry experts believe many first time buyers have purchased these policies and the sale of these policies has been good.
Above all, the industry accelerated digital adoption, leaving behind the face-to-face service, a dominant mode of distribution and business acquisition. Agents and distributors now interact with customers on video calls for selling products and customer engagement.
The awareness for insurance has gone up significantly towards the concept of protection, the primary reason why insurance exist. Industry experts believe this momentum is here to stay. Further, the industry is moving towards rolling out standardised insurance products like Aarogya Sanjeevani for health insurance, the regulator has also pushed for standardised term cover and travel insurance.
NBFC vs liquidity: NBFCs continued to struggle with liquidity and credit flow. They faced a dual challenge of growth and profitability. The percentage of customers availing the moratorium was relatively lower for NBFCs, while loans outstanding under moratorium were higher than those extended by banks, indicative of incipient stress, said a latest report by RBI. Moreover, the asset quality deteriorated as slippages rose in FY20. However, efforts were made by NBFCs to clean up their balance sheets, as reflected in their written-off and recovery ratios.
Meanwhile, amidst pervasive risk aversion, bank borrowings by NBFCs continued to grow at a robust pace as compared to market borrowings. As the RBI required NBFCs to adopt a Liquidity Risk Management Framework from December 2020, NBFCs gradually swapped their short-term borrowings for long-term borrowings with the aim of maintaining adequate liquidity.
RBI’s NUE: RBI took a leap towards establishing a new umbrella entity (NUE) for retail payments. This entity will set up, manage, and operate new payment systems in the retail space. It is tasked with operating payment systems such as ATMs, white-label PoS, Aadhaar-based payments, and remittance services. All NUEs will have to be interoperable with the National Payments Corporation of India (NPCI)— the umbrella entity that currently manages retail payments in India. However, they will be allowed to set themselves up as for-profit or not-for profit entities. Some big names are already in fray for licence.
Non-banking financial players have hurtled from one crisis to another. Rashesh Shah, chairman and CEO of Edelweiss Group, in an interview with Malini Bhupta, says the NBFC model will come back. Excerpts:
At a group level how do you see the pandemic impacting your liquidity and what about the balance-sheet strength to deal with the stress?
I think in the last five or six months, we have done a fair amount of balance-sheet strengthening. Our credit book took a big impairment and we took a markdown, which we front-loaded. We also beefed up liquidity and while it is hurting earnings, it is a source of comfort. Across our entities we are holding liquidity for two years. We have `7,000 crore of liquidity at group level. Our overall book is Rs 17,000 crore. We have improved equity in all businesses. We agreed to sell 50% of our wealth business. In our NBFC business, capital adequacy is 24%, in housing finance it is 28% and in ARC it is 38%. Our wealth business has grown at 94% a year and asset management business has doubled in two years. Our general insurance business has grown at 58% this year and the life insurance business has seen positive growth every month this year.
What about build up of stress in your lending businesses?
Our collection efficiency is back to 93-94% against 98% at pre-Covid levels. Out of our Rs 18,000-crore loan book, the share of retail and wholesale is equal. In retail, our collection efficiency is at 94% which is at par with the industry. We have taken a Rs 2000-crore markdown in the wholesale book. Wholesale housing has improved a lot and sales have been the best in 20 years.
NBFCs have been hurtling from one crisis to another. Your view.
IL&FS applied the brakes on the financial sector. It was a huge upheaval. If IL&FS had not happened, we would have been unprepared for Covid. IL&FS was a good break for the financial sector and because of that shock, banks and NBFCs are much stronger than they were two years ago.
Are NBFCs out of the woods?
There was a crisis five months ago and that is over, but the growth challenge remains. The government is doing its bit to increase the share of manufacturing through PLI scheme. We need 12-13% credit growth for the economy to return to growth. The good banks and good NBFCs have similar levels of profitability. The only difference is scale. While NBFCs account for 25% of the credit market, they account for 40% equity in the sector. We need both NBFCs and banks to grow, it is not an either-or situation.
What’s the road map for Edelweiss Group, which also has a non-banking finance company? Do you see Edelweiss becoming a bank?
We have an ambition to continue to build strength in the financial services space. There are three parts to that – one is insurance, then there is capital markets and credit. I do think digital disruption in banking is a big opportunity. At our size it would not make sense to become a bank with branches like it is in the old model because that model works at a scale. Our credit book is Rs 17,000-18,000 crore. We are not near the Rs 50,000-crore threshold. The RBI has also come out with norms for NBFCs to work with banks for origination and to sell loans. The NBFC model will come back. It will not be a balance-sheet model, but one where they occupy niches and specialise in select segments. It will have to be an asset-light model. The fact that the RBI feels NBFCs above a certain size should become a bank is a good thing because if you are Rs 50,000 crore in size, you have to roll over Rs 20,000 crore a year. At that stage, you become systematically important. Between Rs 25,000-50,000 crore, you can be both. But below Rs 25,000 crore, it might be beneficial to be an NBFC.
What’s in store for credit markets after all this turmoil of the last two years?
After the turmoil, there is a rethink on the entire credit ecosystem. Between 1995 and 2000 there were a lot of changes in equity markets. Credit markets will see similar changes. Credit markets will need to have multi-lane highway. We need to think of an infrastructure that is cohesive.
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