Tag: lockdowns

Bandhan Bank’s collection efficiency improves sharply, BFSI News, ET BFSI

Banking & Finance

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Private sector lender Bandhan Bank said its collection efficiency improved to 90% at the end September from 80% three months back with the easing of lockdowns and fall in number of Covid-19 active cases that offered relief and room for economic recovery.

The bank’s repayment collection from microfinance vertical, which contributes about a third of its loan portfolio, also improved to 86% from 72% over the same period, the bank said in a regulatory filing to stock exchanges.

Bandhan’s loan asset rose 7% year-on-year to Rs 81668 crore at the end September. Deposit mobilisation jumped 24% to Rs 81898 crore, the provisional data for this quarter showed.

Loans data as on September 30, 2021 are before considering write-offs, if any, the bank said.

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Q1 GDP growth seen at new high on recovery, BFSI News, ET BFSI

Personal Finance

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NEW DELHI: The April-June GDP growth could turn out to be a record quarterly expansion as the economy recovers from the second wave of the pandemic and benefits from the low base of last year.

The country’s statistics office will release the quarterly GDP data on Tuesday and various estimates show that it could range from 10.5% to 31.6%, while the median forecasts of two polls show it at 20% and 21% in April-June, the first quarter in the 2021-22 fiscal year. The RBI had estimated the first quarter growth to be 21.4%. To put the numbers in perspective, the April-June quarter of last year had posted the sharpest contraction on record of 24.4% due to the impact of one of the strictest lockdowns imposed to prevent the spread of Covid.

“Essentially we are looking at a very strong doubledigit growth of 23% for this quarter and likely higher than RBI’s own assessment. A large part of this is because of a very favourable base from last year, when the nationwide lockdown had almost brought the economy to a standstill,” said Yuvika Singhal, economist at QuantEco Research.

“But nevertheless I think this double-digit growth is more of optics than anything else because we need to keep in mind that this was also the quarter when the second wave of the pandemic was extremely ferocious and April and May saw a large number of states getting into piecemeal restrictions, which by the end of May had almost become like a nationwide lockdown, though in a very staggered fashion at the state level,” said Singhal.

Since the April-June quarter of last year, the economy started scripting a robust recovery, but the second wave of the pandemic stalled the process. The unlocking and government spending has helped revive the recovery.

Economists say growth in the first quarter would be led by manufacturing, mining and construction sectors, while the agri segment will also lend strong support. The laggard will be the services sector, which has been hit hard by the two consecutive waves of the pandemic and is yet to recover from the bruising impact. The pace of vaccination, which has gathered momentum now, will also play a crucial role in determining the trajectory of growth in the quarters ahead.

“I think it would be a more broad-based story in the second half of the year unlike now where industry is leading the pack compared to services,” said Madhavi Arora, lead economist at Emkay Global Financial Services.



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Fast growing gold loans turn sour hit by lockdowns, BFSI News, ET BFSI

Banking & Finance

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High yielding advances against gold jewellery, once the hottest loan product for banks, have turned sour this year as collections are affected due to the lockdown in the first quarter. Kerala-based Federal Bank and CSB Bank, besides large private sector lenders such as ICICI Bank, have seen slippages increase from this portfolio.

Although lenders say the pain is transitory, the second quarter is crucial for this portfolio to not become a big source of NPAs.

Banks for which gold loans contribute substantial amount to their profits, were hit in the first quarter. Out of the Rs 640 crore slippages that Federal Bank saw during the quarter, Rs 86 crore was from gold loans or linked to the product as a result, the bank’s gross NPAs rose to 3.50% of advances, up from 2.96% a year.

Similarly, Federal Bank’s smaller peer CSB Bank’s gross NPAs rose to 4.88% in June 2021 from 3.51% a year earlier due to the rise in NPAs from the gold loan business. Out of the Rs 435 crore of new NPAs during the quarter, Rs 361 crore was from gold loans including reversal of interest for the bank where gold loan makes up 38% of its assets.

Gold loans were the pain point even for larger lenders like ICICI which reported fresh slippages of Rs 6773 crore from its retail book out of which Rs 1123 crore were from such loans.

Analysts said the rise in delinquencies reflects the challenges banks faced in loan collections and also the cash flows issues faced by gold loan borrowers most of whom are micro entrepreneurs.

“There is also the impact of the fall in gold prices since last year which has made lending a little more risky. The fall in gold prices means that the strong growth that we saw in this portfolio last fiscal may slow down this year as banks will be more cautious,” said Prakash Agarwal, head financial institutions at India Ratings & Research.

Gold prices have fallen from a peak of Rs 52,827 per 10 grams in August 2020 to Rs 47,640 per grams now, though it is higher than the Rs 44,739 per 10 grams reported in March 2021. The rise in gold prices had also prompted the Reserve Bank of India to increase the loan to value ratio (LTV) to 90% from 75% in August. The LTV has since been restored to 75% from April.

Bankers however said despite the recent hiccups gold loans continue to be a well performing portfolio which can be built over the long term.

“We still believe in this portfolio and will continue to build it. There is no need for any caution. We are confident that as things improve both demand for loans and recovery of will improve. Already we are seeing an increase in recovery and we continue to expect growth in this fiscal year,” said CVR Rajendran, CEO at CSB Bank.

The growth though is going to be slower than the 61% growth the bank recorded in the fiscal ended March 2021. The banking system itself had recorded a 82% growth in fiscal 2021.

Bankers said the high yields and low risk offered by gold loans make it a winning product. CSB Bank for got a 11.50% quarterly yield in March 2021.

“In good times or bad gold loans are always a good product to have. Out NPAs in the segment is 0.20% which is very low with average loan to value (LTV) of about 80%. The loans at LTV of 93% are in single digits; so it is a very small portion,” said Shyam Srinivasan, CEO at Federal Bank.



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Icra survey, BFSI News, ET BFSI

Personal Finance

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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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RBI to extend ₹16,000-cr special liquidity facility to SIDBI

Banking & Finance

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The Reserve Bank of India (RBI) has decided to extend a special liquidity facility of ₹16,000 crore to the Small Industries Development Bank of India (SIDBI) to support the funding requirements of micro, small and medium enterprises (MSMEs), particularly smaller MSMEs and other businesses, including those in credit-deficient and aspirational districts.

SIDBI can tap this facility for on-lending / refinancing through novel models and structures.

Also read: SIDBI launches quick credit delivery schemes to support Covid-19 preparedness

“This facility will be available at the prevailing policy repo rate for a period of up to one year, which may be further extended depending on its usage,” RBI Governor Shaktikanta Das said.

RBI had extended fresh support of ₹50,000 crore on April 7, 2021 to all-India financial institutions (AIFIs) for new lending in 2021-22. This included ₹15,000 crore to SIDBI.

With the new facility announced on Friday, the total liquidity support to SIDBI goes up to ₹31,000 crore.

Krishnan Sitaraman, Senior Director & Deputy Chief Ratings Officer, CRISIL Ratings, said: “The ₹16,000-crore special liquidity facility through SIDBI will provide some cash-flow relief to MSMEs and small borrowers through refinancing / on-lending.

“This will help beneficiaries recover and stabilise operations once the lockdowns start easing and the business environment improves.”

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Domestic remittances down 20%, may fall further on reverse migration, BFSI News, ET BFSI

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Domestic remittances, which are largely by the migrant workers to their families, have reduced drastically due to pandemic led lockdowns and resultant unemployment.

Money transfers have fallen 10-20% across the country, though the fall is not as sharp as last year during the national lockdown.

According to major remittances companies, the rapid spread of Covid in urban areas and concerns over a total lockdown have already prompted a section of the migrant workforce to leave the big cities. Also, night curfews have halted remittances after 8 pm.

Reverse migration

Fino Payments Bank which sees about Rs 3,000 crore remittances per month, sees further hit due to some reverse migration.

Several migrant workers are fleeing urban centres as they are concerned that a complete lockdown will leave them without jobs and no rents to pay.

Experts see remittances slowly recovering after lockdowns are lifted and may take about four to five months for normalcy to return.

Payment companies are hoping that the lockdowns are lifted in 15 days.

Remittances hub

There are six major corridors within India from where a large chunk of the remittances originates: Delhi, Mumbai, and Gujarat are among them. On the other hand, the states of Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh are among the biggest receivers of these flows.

Remittances had started picking up in January to March quarter but were impacted in the second half of April and May due to the lockdowns,

However, infrastructure and manufacturing projects, which have put in place an enabling ecosystem for the migrant staff at worksites, could mitigate the impact of reverse migration.

According to the Centre for Monitoring Indian Economy, the unemployment rate for the week of May 23 shot up to 14.73 per cent pan-India and was at 17.41 per cent for urban areas.



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Banks gear up for asset quality deterioration as stricter lockdowns loom, BFSI News, ET BFSI

Banking & Finance

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As India stares at lockdowns and curbs for the entire May, banks and NBFCs are Lenders are bracing for a further deterioration in asset quality metrics, cheque-bounce rates and collection ratios.

Collection levels had already dropped to 10% for lenders and cheque-bounce rates had increased in segments like small and medium enterprises, commercial vehicles and microfinance.

Analysts see cheque bounce levels rise by another 3-4% while collection ratios dropping by nearly 5% in May alone

Cheque bounces are back to January 2021 levels after improving in March with Maharashtra, Madhya Pradesh, Punjab, and Telangana are seeing higher check bounce rates, HDFC Bank said in its Q4 results.

Dishonoured cheques in April (half-way through the month) have risen slightly, possibly due to some panic caused by worsening medical conditions,” HDFC said after its Q4 results.

Till the first week of April, the worst affected state was Maharashtra but now many states have been severely impacted by the fresh pandemic surge. NBFCs and small finance banks face a bigger hit.

Axis Bank too has said collections are likely to get impacted in the coming weeks and it was watching the situation closely.

No cover this time

Banks, which got protection and support by a swift moratorium on loans when the pandemic first struck, have no such cover this time.

As the second wave intensifies, most of the relief measures and schemes announced by the government and Reserve Bank of India have expired. On top of it, the central bank is non-committal on moratoriums.

In today’s conditions, there is no need for a moratorium,” RBI governor Shaktikanta Das said after the central bank’s monetary policy review. However, that statement was before the second Covid wave worsened.

RBI stress test

Bank NPAs may rise to 13.5% under the baseline stress test scenario by September, the highest in more than 22 years, according to the RBI’ financial stability report in January this year.

The gross bad loan ratio of banks which stood at 7.5% as of 30 September, could almost double to 14.8% under a severe stress scenario, RBI warned. Under the severe stress scenario, RBI has assumed a 7.6% economic contraction in the six months to 31 March and a tepid 3.8% growth in the first half of the next fiscal. However, uncertainty over vaccines and the severity of the Covid wave hobbles the 3.8% growth projection.

The last time banks saw such stress was in 1996-97 when the bad loan ratio rose to 15.7%.



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