Tag: loans

Bajaj Finance acquires more customers after HDFC Bank’s halt on credit card, BFSI News, ET BFSI

Banking & Finance

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Bajaj Finance, the behemoth in consumer lending, posted a slight drop in new consumer loans at 5.5 million in January March quarter against 6 million a year ago. However, the company acquired 2.3 million new customers in Q4 FY21 as compared to 1.9 million in the fourth quarter of fiscal 2020.

As it kept the customer accretion rate healthy Bajaj Finance seems to have benefited from the setback to HDFC Bank, which was penalised by the Reserve Bank of India over digital lapses and has been unable to issue new credit cards.

According to analysts, the asset under management growth of Bajaj Finance exceeded expectations at 4% year on year and 6% sequentially as it acquired more customers.

Bajaj Finance’s Q4 performance

Bajaj Finance’s deposits rose 21% on year to Rs 25,800 crore as on March 31. The consolidated deposit book was at Rs 23,777 crore as on December 31. Assets increased by Rs 9,500 crore in the March quarter, taking the financier’s total assets under management to Rs 1.53 lakh crore as on March 31. The company’s customer franchise rose 14.1% on year to 48.6 million as on March 31.

The company is well capitalised and its liquidity position remains strong, as its consolidated liquidity surplus was Rs 16000 crore as on March 31. Bajaj Finance had a consolidated liquidity surplus of Rs 14347 crore as on December 31, representing 11.6% of its total borrowing. The capital adequacy ratio was 28.4% as of March 31, which is an improvement over 28.18% as on December 31, according to the provisional figures for the January March quarter.

Analysts expect the company to show healthy traction in consumer B2B (business to business) loans and commercial loans. They also see a gradual uptick in mortgage loans and consumer B2C (business to consumer).

Covid impact on Bajaj Finance.

However, with the surge in Covid cases, asset quality remains a worry as they may increase provisioning and credit costs for Bajaj Finance in upcoming quarters. In the third quarter, the company provided Rs 1,352 crore for loan losses and provisions, which was significantly higher than Rs 831 crore it provided in the same quarter last year. During the third quarter, the company has done a one-time write-off of principal outstanding amount of Rs 1,970 crore and interest outstanding of Rs 365 crore on account of Covid-19 related stress.

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SBI hikes home loan rate to 6.95 pc, BFSI News, ET BFSI

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New Delhi, Apr 5 () Country’s largest lender State Bank of India (SBI) has revised its home loan rate to 6.95 per cent effective April 1. With the revision, the lowest rate of 6.70 per cent regime for limited period ended in March 31.

During the limited period, the bank offered home loan starting from 6.70 per cent for loans up to Rs 75 lakh and 6.75 per cent for loans in the range of Rs 75 lakh-Rs 5 crore.

As per information posted on its website, the new rate effective April 1 is 6.95 per cent.

Compared to teaser rate for the limited period, the new rate is 25 basis points higher at 6.95 per cent.

The hike in minimum home loan rate by SBI is likely to prompt other lenders to follow suit.

The bank will also levy a consolidated processing fee on home loans. This will be 0.40 per cent of the loan amount and goods and services tax (GST) subject to a minimum of Rs 10,000 and maximum of Rs 30,000 plus GST.

Last month, SBI had in waived off home loan processing fees till March 31 to cash in on festive fervour. DP ANS ANS



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SBI hikes home loan rate to 6.95%

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Country’s largest lender State Bank of India (SBI) has revised its home loan rate to 6.95 per cent effective April 1.

With the revision, the lowest rate of 6.70 per cent regime for limited period ended in March 31.

During the limited period, the bank offered home loan starting from 6.70 per cent for loans up to ₹75 lakh and 6.75 per cent for loans in the range of ₹75 lakh-₹5 crore.

As per information posted on its website, the new rate effective April 1 is 6.95 per cent.

Compared to teaser rate for the limited period, the new rate is 25 basis points higher at 6.95 per cent.

The hike in minimum home loan rate by SBI is likely to prompt other lenders to follow suit.

The bank will also levy a consolidated processing fee on home loans. This will be 0.40 per cent of the loan amount and goods and services tax (GST) subject to a minimum of ₹10,000 and maximum of ₹30,000 plus GST.

Last month, SBI had in waived off home loan processing fees till March 31 to cash in on festive fervour.

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Punjab & Sind Bank declares loans worth Rs 150 cr to IL&FS Transportation as fraud, BFSI News, ET BFSI

Banking & Finance

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Public sector lender Punjab & Sind Bank on Tuesday said it has declared the account of IL&FS Transportation Network Ltd (ITNL) with total dues of Rs 149.98 crore as fraud.

The said account has been reported to the RBI.

It is informed that an NPA Account, viz IL&FS Transportation Network Limited (ITNL) with outstanding dues of Rs 149.98 crore has been declared as fraud and reported to the RBI as per regulatory requirement, Punjab & Sind Bank said in a filing.

Further, it said, the account has been fully provided for as per the existing RBI norms.

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Compound interest relief may cost banks 2% of their operational profits, BFSI News, ET BFSI

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The Supreme Court has allowed compound interest relief for borrowers with loans over Rs 2 crore. While the government has picked the tab for such payment for small borrowers, banks may have to pony for relief to larger ones.

Banks may have to take a hit of Rs 7,500 crore after the Supreme court extended the compound interest relief to loans above Rs 2 crore.

“All the borrowers irrespective of moratorium status and loan size will be eligible for compounded interest benefit for six-month moratorium period.

No compound or penal interest will be charged during the six-month loan moratorium period announced last year amid the COVID-19 pandemic and the amount already charged shall be refunded, credited or adjusted, SC said in its order.

The math

As per rating firm ICRA, compound interest for six months of moratorium across all lenders is estimated at Rs 13,500-14,000 crore.

The government had already announced relief for borrowers having loan up to Rs 2 crore which was estimated to cost about Rs 6,500 crore to the exchequer.

SC said compound interest should be charged on deliberate or wilful defaulters, in the nature of penal interest. The government’s March 27, 2020 notification had provided for deferment of installments due and payable during the moratorium period.

“Once the payment of installment is deferred…non-payment of installment during the moratorium period cannot be said to be willful and therefore there is no justification to charge interest on interest/compound interest/penal interest for the period during moratorium.

“Therefore, we are of the opinion that there shall not be any charge of interest on interest/compound interest/penal interest for the period during the moratorium from any of the borrowers and whatever the amount is recovered by way of interest on interest/compound interest/penal interest for the period during the moratorium, the same shall be refunded,” the apex court said.

It said there was no rationale to restrict such relief to loans up to Rs 2 crore only.

“As a result, borrowers excluded earlier may get additional relief of Rs 7,000-7,500 crore in the form of compound interest benefit,” Anil Gupta, Vice President – Financial Sector Ratings, ICRA Ltd said.

Who will pick the tab?

On who will bear the additional burden of refunding compound interest or penal interest already collected during the moratorium period, Gupta said it is premature to assume the hit will be on the government.

On whether the banks should pay from their pocket, he said, “We don’t know”, adding the amount is not very large.

To give a perspective, Gupta said the banks, accounting for 70 per cent of the loan market, have operating profits of over Rs 3 lakh crore.

“So, that way Rs 7,000 crore on Rs 3 lakh crore will be like 2 per cent of their operating profits,” he added.

Clarity to banks

Finance minister Nirmala Sitharaman said the judgement brings much-needed clarity to lenders on these issues, adding that it also clears the way for lenders to recognise non-performing assets, which they had not been able to do since the end of the moratorium period in August 2020. Reported gross non-performing assets of the banking system are estimated to be around 7% as of Dec 31. These would have been 100 basis points higher at 8%, if not for the apex court’s standstill order on recognition of such loans. “Standstill on recognition of NPAs had tied the hand of lenders and consequently impacted the credit discipline of borrowers. Withdrawal of the same will enable lenders to enforce various legal measures and support their recovery efforts,” Sitaraman said.



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ICICI Bank launches instant EMI facility on net banking for high value transactions

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Private sector lender ICICI Bank has launched an instant EMI facility on its internet banking platform.

Called ‘EMI @ Internet Banking’, the facility would allow pre-approved customers to convert high-value transactions up to ₹5 lakh into easy monthly instalments (EMIs).

“With this, customers can now purchase their favourite gadget or pay for their insurance premium or school fees in easy EMIs from their savings account using the internet banking platform,” ICICI Bank said in a statement, adding that the EMI would be instant and fully digital.

The bank has tied up with BillDesk and Razorpay to offer the facility. It has been enabled for over 1,000 merchants in categories like online shopping portals, insurance, travel, education- school fees and electronic chains.

“The bank endeavours to partner with more payment gateway companies, merchants and add categories under this facility in the near future,” it further said.

Customers can make purchases for amounts between ₹50,000 to ₹5 lakh and select the tenure of their choice three months, six months, nine months and 12 months.

Sudipta Roy, Head- Unsecured Assets, ICICI Bank said, “We have observed that many of our customers undertake high-value transactions for payments of insurance premiums, school fees, purchasing electronics, or paying for vacations through the bank’s internet banking platform.”

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No compound interest on loan, irrespective of amount, during moratorium, rules SC

Banking & Finance

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The Supreme Court on Tuesday stopped banks from charging compound interest (interest on interest) or penal interest on any loan, irrespective of the amount, during the moratorium period.

A three-judge Bench of Justices Ashok Bhushan, Subhash Reddy and M R Shah said the amounts taken as compound interest or penal interest should be adjusted in future loan payments.

However, the court agreed with the Rserve Bank of India (RBI) that extending the date of the loan moratorium was “not viable”.

The court said judicial review over fiscal policies was limited. The court cannot order specific financial reliefs.

The court questioned the rationale of limiting compound interest waiver to loan up to just ₹ 2 crore.

The government had introduced a pay-back scheme on October 23 last year. The scheme payments waived the difference in the compound interest and simple interest charged between March 1 and August 31 (moratorium period) for eight categories of loans worth up to ₹ two crore.

The eight categories were MSME, education, housing, consumer durables, credit card, auto, personal and consumption loans. The lending institutions included banking companies, public sector banks, cooperative banks, regional rural banks, all India financial institutions, non-banking financial companies, housing finance companies registered with RBI and national housing banks.

In November last year, the court had directed the Centre to implement the pay-back scheme.

However, borrowers had continued to press for an extension of the moratorium and also argued that the entire interest for the moratorium period should be scrapped. The petitioners also said the ₹ 2 -crore pay-back scheme did not bring any relief to big borrowers reeling under the impact of the pandemic.

While reserving the case for judgment on December 17 last year, the Indian Banks Association had said the pleas made by the petitioners extended beyond the financial stress they supposedly suffered during the pandemic.

The Centre had said a complete waiver of interest would cripple the economy and banking sector.

The State Bank of India had pleaded in support of the small depositors who form the “backbone” of the banking system.

“Small depositors are faceless in these proceedings. It is not a case of borrowers versus bank. They are the backbone of the financial system. Banks have to give interest to these depositors. How can we leave them?

For every loan account there are about 8.5 deposit accounts in the Indian banking system,” senior advocate Mukul Rohatgi had asked in court on the last date of hearing.

The RBI had referred to clause 3 of its August 6 circular for ‘Resolution Framework for COVID-19-related Stress’ to point out that lending institutions, guided by their respective Board-approved policy, would prepare viable resolution plans for eligible borrowers. However, the benefits would only be provided for borrowers stressed on account of COVID-19.

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Transfer assets at book value, BFSI News, ET BFSI

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A parliamentary panel has recommended the transfer of stressed loans of banks to the proposed bad bank at book value amid the calls for an asset quality review.

The panel feels that the more time such assets are left on the lenders’ balance sheet the more is the chances of their value eroding.

“RBI can play an instrumental role in the success of Bad Bank if they issue an order or notification which makes the entire process crystal clear, defining each step of the procedure, thus removing any ambiguity or discretion from the bank’s side,” said the Parliamentary Standing Committee on Finance.

The move will help in saving time and avoiding delays in resolving soured loans through consolidated decision making, the panel said

It also asked the Reserve Bank of India to clearly define every step of the procedure to remove any ambiguity or discretion from the banks’ side. “The RBI needs to demonstrate why their proposed rules for loss transfer to the ARC-AMC is in fact the best approach,” the panel said, adding that their rules should reflect both administrative clarity as well as economic logic,..

The RBI should intervene as soon as possible to unlock value from non-performing assets, it said.

Economic survey

Earlier, the Economic Survey 2021 had called for another round of asset quality review when the Covid related forbearance is lifted, the latest edition of the economic survey argued. The survey stated that it was important for the Reserve Bank of India to do a complete clean-up exercise of bank balance sheets after granting every regulatory forbearance.

Information asymmetry

“A clean-up of bank balance sheets is necessary when the forbearance is discontinued,” the economic survey suggested. “Note that while the 2016 AQR exacerbated the problems in the banking sector, the lesson from the same is not that an AQR should not be conducted. Given the problem of asymmetric information between the regulator and the banks, which gets accentuated during the forbearance regime, an AQR exercise must be conducted immediately after the forbearance is withdrawn.”

The survey had also suggested that the banking regulator should strengthen its early warning signal systems to figure out cracks in bank balance sheets early on. “The asset quality review must account for all the creative ways in which banks can evergreen their loans,” the economic survey noted.

“In this context, it must be emphasized that advance warning signals that do not serve their purpose of ageing concerns may create a false sense of security. The banking regulator needs to be more equipped in the early detection of fault lines and must expand the toolkit of ex-ante remedial measures.”

Why fresh AQR?

After the debt binge of 2008-10, the banks had piled up huge NPAs but were not revealing them while resorting to ever-greening of loans. This led to the RBI ordering an AQR in 2015, which brought out the massive pile of bad loans. This time too due to moratorium and subsequent SC order to not tag bad loans as NPAs has led to a situation that banks may be hiding similar stress in the book.



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HDFC Bank’s MSME book grows 30% to cross ₹2-lakh cr

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HDFC Bank’s MSME book grew 30 per cent year-on-year to cross the ₹2-lakh-crore-mark as of December-end, mainly boosted by the pandemic-induced ECLG scheme under which it disbursed over ₹23,000 crore.

The growth is also driven by a renewed push towards customers in semi-urban and rural areas, the bank said.

In December 2019, the bank’s MSME book stood at ₹1.4-lakh crore. This grew by over 60,000 crore, or 30 per cent, to ₹2,01,758 crore by the December 2020 quarter, giving it a 10.6 per cent share system-wide MSME lending, becoming the second-largest lender in this segment after State Bank of India, the bank added.

“Our MSME lending is back to pre-pandemic levels, with loan book growing at 30 per cent year-on to ₹2,01,758 crore as of December 2020 quarter,” said Sumant Rampal, Senior Executive Vice-President, Business Banking and Healthcare Finance.

“While the ECLG scheme was the biggest driver, boosting the loan book by ₹23,000 crore disbursed to around 1,10,000 MSME customers, our own renewed push towards customers in semi-urban and rural areas also helped us during the pandemic, leading to an incremental loan growth of over ₹60,000 crore,” he said, adding most of the ECLG disbursals took place only in the past three to four months.

At 30 per cent loan growth, the MSME book is the fastest-growing vertical for the bank.

“This is a testimony to our commitment to strengthen the MSME sector that accounts for about 30 per cent of GDP and the largest employer,” said Rampal.

ECLGS scheme

The government launched the third version of the ₹3-lakh crore emergency credit line guarantee scheme (ECLGS) last November for MSMEs, following the KV Kamath committee report.

On Thursday, Union MSME Minister Nitin Gadkari told Lok Sabha that banks and other financial institutions have cumulatively sanctioned ₹2.46-lakh crore of the ₹3-lakh crore scheme, while disbursal stood at a low ₹1.81-lakh crore as of February 28, according to the data from the National Credit Guarantee Trustee Company, which is the implementing agency of the ECLGS.

The scheme comes with a 2 per cent interest subvention and is of five-year tenor, of which, the first year gets a payment moratorium.

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Seven private banks see big rise in stressed retail loans during pandemic; PSBs escape, BFSI News, ET BFSI

Banking & Finance

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Seven private banks, including the top ones, saw an increase in their ratio of stressed retail loans rise during March and December 2020 as borrowers battled the pandemic-led slowdown.

The highest rise was of Karur Vysya Bank, which saw its stressed retail assets rato rise 280 bps to 5% in the March-December 2020 period while DCB Bank’s stressed assets grew 180 bps to 3.7% from 1.9%.

The retail stressed asset ratio at HDFC Bank rose 70 bps to 1.4% from 0.7%, IDBI Bank 120 bps to 2.5% from 1.3%, IndusInd Bank 170 bps to 4.2% from 2.5%, IDFC First Bank 50 bps to 2.3% from 1.8%, and at Kotak Mahindra Bank 60 bps to 2.6% from 2%. The stressed advances include gross non-performing assets and restructured standard advances.

On the other hand, most public sector banks saw their stressed retail advances ratio either falling or remaining flat during the period under review.

Among the public sector banks, only Punjab & Sind Bank saw the ratio shoot up 380 bps, higher than the private banks, and Bank of Baroda saw it rising 50 bps.

Private banks typically lend to salaried class and self-employed people, who have been hit hardest during the pandemic.

Unsecured loans

The Reserve Bank of India‘s moratorium on repayment of loans has delayed the stress in the segment where delinquencies have not yet stabilised and higher loan losses are expected to materialise in FY22, India Ratings has said.

“The performance of unsecured asset classes, such as microfinance loans, unsecured business loans and consumer loans, is worsening, given the borrower’s depleted financial cushions and the nature of these loans,” according to a report by India Ratings and Research.

Moratorium aid

The Reserve Bank of India’s moratorium on repayment of loans has delayed the stress in these segments where delinquencies have not yet stabilised and higher loan losses are expected to materialise in FY22, it said.

The report also said the severity of the impact of the pandemic on their income as well as the impact of the moratorium and fiscal measures on their credit behaviour is varied.

“Thus, the effectiveness and inclusiveness of government support schemes to improve the financial position of the end-borrowers is crucial and is a key monitorable,” it said.



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