Tag: Maharashtra

HDFC Bank, ICICI, Axis retail loan recast thrice corporate ones, BFSI News, ET BFSI

Banking & Finance

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It was not corporates but retail borrowers who rushed to avail the debt recast scheme announced by the Reserve Bank of India to alleviate pandemic stress last year.

Retail loan restructuring by top three private banks, HDFC Bank, ICICI Bank and Axis Bank, at Rs 6,600 crore, was three times the Rs 2,100 crore restructured loans by corporates, according to a report.

However, while the retail loan restructuring ended by March 31, corporate loan recasts are allowed till June end.

Fresh concerns

With a fresh surge in Covid infections and subsequent lockdowns, lenders are staring at renewed stress in loan accounts.

Sameer Narang, Chief Economist of Bank of Baroda, recently told ETBFSI that the salaried segment is still alright but the informal sector will be impacted. “Banks may not be that impacted as banks do not cater the informal sector in a big way as NBFCs does. There will be an impact on NBFCs, and they would require some degree of support. It also depends upon the pace of the second wave. We should wait and see how things pan out. If it is a phenomenon for 6-8 weeks then most of the segments will ride it over. If it lasts longer then this might be an issue for segments. It is very difficult to create a policy in an uncertain environment.”

Asset quality

HDFC Bank, ICICI, Axis retail loan recast thrice corporate ones

Ratings agency Icra too had raised concerns over the asset quality of retail loans.

The rising Covid cases have again raised concerns on the asset quality of retail loans from non-banking financial companies (NBFCs) and housing finance companies (HFCs), according to investment information agency ICRA.

The restrictions on movement will have a bearing on the collection efforts of NBFCs especially for microfinance loans where cash collections still remain dominant, it said in a report.

Commercial vehicle loans can also face stress if the inter-state restrictions are re-imposed, though even the current restrictions put in place in key geographies like Maharashtra and Delhi where non-essential services are closed will lead to lower fleet utilisation for operators.

However, said ICRA, housing loans are expected to remain most resilient as was seen even last year given the secured nature of asset class and priority given by borrowers to repay them.

No relief measures

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 had said after the central bank’s monetary policy review.

Also, a spike in overdue loans after the lifting of the moratorium has been worrying analysts.

“The level of loans in overdue categories has increased after the moratorium has been lifted and the impact on asset quality will be spread over FY2021 and FY2022 as various interventions and relief measures have prevented a large one-time hit on profitability and capital of banks,” Icra said in a report.

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Banks tag more borrowers as wilful defaulters during IBC suspension, BFSI News, ET BFSI

Banking & Finance

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Banks slapped more borrowers with a wilful defaulter tag during April-December 2020 when the Insolvency and Bankruptcy Code was under suspension.

They classified loans of over Rs 28000 as wilful defaults during the first nine months of last fiscal as against around Rs 23,000 a year ago, according to a report.

A borrower is labelled wilful defaulter if the loans is not repaid despite having the means to repay or it is diverted for use other than the purpose.

A wilful defaulter tag borrower then faces a ban on bank funding the total outstanding wilful default as of December 31 at Rs 2.4 lakh crore with State Bank of India accounting for Rs 62,000 crore, of which Rs 18,000 crore were added in the first nine months of the last fiscal, according to data from credit bureau TransUnion Cibil.

The largest share of wilful defaulters is Maharashtra at over Rs 80,000 crore, followed by Delhi at Rs 32,000 crore and West Bengal at Rs 23,000 crore.

Fearing investigations, audit and vigilance inquiries, bankers generally do not want to opt for resolution and go for full recovery from the defaulter.

Top borrowers

The country’s top 100 wilful defaulters owe Rs 84,632 crore to banks as of March 2020, with the top 10 including, Winsome Diamonds & Jewellery and accounting for 32% of it, data from the Reserve Bank of India shows.

Banks tag more borrowers as wilful defaulters during IBC suspension

While banks wrote off nearly three-fourth of it to clean their balance sheet and get tax benefits, the default borrowers continue to appear in RBI’s internal CRILC database till they clear the default.
The total size of the top 100 wilful defaults rose 5.34% in FY20 from Rs 80,344 crore as of March 2019, according to data shared by RBI in response to an application under the Right to Information (RTI) Act.

Mehul Choksi-owned Gitanjali Gems topped the wilful defaulters’ list with Rs 5,693 crore dues, followed by Jhunjhunwala brothers’ REI Agro with Rs 4,403 crore and Jatin Mehta’s Winsome Diamonds & Jewellery with Rs 3,375 crore.

The top 10 wilful defaulters include another jewellery maker Forever Precious Jewellery, and Vijay Mallya’s Kingsher Airlines.

The stack-up

Punjab National Bank had the highest exposure to Gitanjali Gems with Rs 4,644 crore of non-performing assets (NPA) as on March 2020.

PNB also had Rs 1,447 crore exposure to Gili India and Rs 1,109 crore to Nakshatra Brands.

State Bank of India had Rs 1,875 crore dues from top 10 wilful defaulter ABG Shipyard with the bank writing o the entire amount. Uco Bank had Rs 1,970 crore exposure to REI Agro with half of it being written off.

Write-offs are accounting entries for shifting NPAs from the active balance sheet to off-balance-sheet accounts. These are backed by 100% provision and therefore any recovery from these accounts adds to net profit.

RBI collects credit data from banks monthly, with data on defaults being collected on a weekly basis. The regulator has mandated banks to provide fully against NPAs older than four years and allowed to write these old NPAs.

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Can banks weather the new second Covid wave?, BFSI News, ET BFSI

Banking & Finance

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Indian banks were gearing up for an upcoming credit boom in the second half, but they may have to look at the dire warning of RBI‘s fiscal stability report unveiled in January.

Most of the banks are set to report good fourth-quarter results, but the recovery may give way to despair in the coming months. An uncontrollable spike in Covid cases has raised the prospects of lockdowns and strict curbs being extended to May, at least. This may nip the nascent recovery and lead to the closure of many businesses, which are already reeling from revenue crunch. The lockdowns may also lead to unemployment, hit repayments and lead to defaults by companies and individuals out of job.

“In the first year we did not see any impact as 20% additional money was given. Guaranteed loans were given so no bank gave a second thought in giving the loans. In many cases, my customers went to other banks and got loans. Problems were not revealed on the first wave. In the second wave no such support is given so naturally, the impact of the second wave will be much larger on the bank,” a senior banker said on the condition of anonymity.

The unemployment rate in urban India is rising in the current months. From 7.21% on April 4, it jumped to 9.81% for the week ended April 11 and further to 10.72% for the week ended April 18, according to CMIE.

Early signs of rising stress are visible; HDFC Bank has reported a rise in cheque bounce cases in April. The rate is back to January level after improving in March.

Also, with lockdown in states like Maharashtra, which account for 24% of all loans, banks are in a double whammy. About 80 per cent of the new infections are being reported in six states which account for 45 per cent of banking sector loans.

Another banker said that credit growth is going to be muted. “Due to this unexpected wave, no investment is going to be placed right in any industry because of this uncertainty. Even though the government says there is not going to be a complete lockdown, like last time but still the impact can be easily known because of people’s fear,” the banker said.

“So those who want to invest, they’ll take a backseat that let’s wait and see. And the money circulation is going to be impacted. Moreover, the stay on NPA classification, which was lifted by Supreme Court, is going to add soon many NPAs to the banking sector. These things will definitely impact. Banks are kept out of the purview of this lockdown but people should come to banks you know and do their activity,” he added.

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%.

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.

Also, a spike in overdue loans after the lifting of the moratorium has been worrying analysts.

“The level of loans in overdue categories has increased after the moratorium has been lifted and the impact on asset quality will be spread over FY2021 and FY2022 as various interventions and relief measures have prevented a large one-time hit on profitability and capital of banks,” rating agency Icra had said in a report.

On top of it, banks may have to foot the bill for compound interest waiver relief to borrowers. HDFC Bank has already provisioned Rs 500 crore for the waiver.



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An informal economy is a biggest challenge for lockdown in India, say Experts, BFSI News, ET BFSI

Banking & Finance

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As many states in India seem to be heading for a total lockdown, the World Bank chief economist Carmen Reinhart has opined that less extreme forms of lockdown can work in a country like India, sparking a debate on their efficacy.

While some favour total lockdown because it can protect lives, others think that a lockdown would destroy livelihoods and thus lives.

A lockdown was necessary to help India develop its healthcare infrastructure to deal with the Covid-19 crisis. Now that is in place along with treatment protocols, there is no need for another lockdown, opine many.

World Bank view

“I think in countries like India, a very big challenge to the lockdown approach has been the informal sector, she told ET.

There are ways of addressing, perhaps less extreme forms of lockdown that allow for some flexibility. But vaccines alone have to still be supplemented with health emergency measures, she said, adding “I have no doubt that that is still the case. And I do think the big challenge remains the tension between needing to work for survival and the tension of containing the pandemic.”

“The informal economy has been and continues to be a big challenge for India but I would say vaccines alone, at this stage, don’t do it. You still need the other protection mechanisms of social distancing and the like,” she said.

Lancet Commission

The Lancet Covid-19 Commission India Task Force has not recommended a blanket national or state lockdown, as opposed to localized, phased restrictions or closures.

Its report said the experience of the past year has shown that economic closures are most disruptive to the poorest sections of the society. In urban areas, daily wage earners, informal sector workers, and low-skill workers are the most likely to be impoverished from disruptions in economic activities.

Yet, experience from other countries has shown that lockdowns do assist in bringing down transmission rates.

Middle approach

A middle ground approach will be needed in India. “We recommend that in areas of high infection rates, the focus is on breaking the chain of transmission through local actions. We recommend that advisories be issued that strongly encourage anyone that can to remain at home (white collar workers, for example, who can work from home) to do so”, the report said.

“We also recommend that venues that host large congregations should be closed, and activities that encourage large gatherings should be banned”, it added. But restrictions on the movement or work of the working urban and rural poor should be minimized and locally determined through the creation of micro-containment zones in high case-load areas.

Localised trends

Decisions on local lockdowns or curfews are best left to local authorities and must be based on localised trends in epidemiological data (transmission, test positivity rates, hospitalisation, and mortality rates). These decisions should be made after in-depth consultations with local businesses, community leaders, and workers associations.

More importantly, extra care needs to be taken in terms of testing and vaccinations to ensure that workers are protected and are safe during this current phase of the pandemic, the report said.

The central government take

Union Health Secretary Rajesh Bhushan had written to Maharashtra Chief Secretary Sitaram Kunte stating that the state’s focus should be on strict and effective containment, not the imposition of a lockdown.

“Measures such as night curfews, weekend lockdowns, have very limited impact on containing/ suppressing the transmission. Hence the district administration should focus on strict and effective containment strategy,” Bhushan wrote.



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Poor people rely more on post-offices for their savings: SBI report

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Post-Office savings deposits are negatively correlated to per capita income while bank deposits are positively correlated with per capita income, according to State Bank of India’s (SBI) economic research report “Ecowrap”.

This indicate that poor people are more reliant on post-offices for their savings and when the income increase they shift to bank deposits first and not to financial products,as per the report put together by SBI’s Economic Research Department.

“That’s why the proportion of post-office deposits in Maharashtra & Delhi, where per capita income is very high is only 60 per cent.

“In states with low per capita income like West Bengal, Uttar Pradesh, Rajasthan and Bihar, the elderly population of 60 plus has a clear preference to invest in post office saving deposits,”Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said.

Referring to the trend of last 20 years data on gross small savings collections, the report noted that there is a structural break in 2008-09. In particular, the share of different states in gross small saving collections were declining till the global financial crisis.

However, post the financial crisis in 2008, there has been a significant jump in preference for post office savings. This jump is maximum in low income states like West Bengal and even in high income states like Maharashtra, the report added.

India Post Payments Bank app: The good, the bad and the ugly

Lack of financial literacy

Ghosh observed that the huge post-office collections in states like West Bengal and Uttar Pradesh and the preponderance of Kisan Vikas Patras indicate the lack of financial literacy for the products such as mutual funds.

“Particularly in West Bengal, sometimes, the left of political ideology that everything that market does is bad in fact results in asymmetric results with poor people investing more in chit funds, the live example of this is the ₹20,000-30,000 crore Saradha scam.

“Most of the times these types of scams are also the product of political dispensation,” Ghosh said.

He emphasised that the Government has taken the best decision of not changing the rates on small saving schemes as the country is currently going through an unprecedented pandemic crisis.

Lock into the Post-Office Senior Citizens Savings Scheme

Protecting seniors interest

To further improve the economic condition of senior citizens, the report recommended giving full tax rebate on the interest amount up to a threshold level on the Senior Citizens Savings Scheme (SCSS). This will have nominal impact on the exchequer.

Under SCSS, a senior citizen can deposit ₹15 lakh and the current interest rate is 7.4 per cent. However, the interest on SCSS is fully taxable (the interest amount for ₹1 lakh deposit for 5 years is around ₹51,000 which is taxable). The February 2020 outstanding under SCSS was ₹73,725 crore.

The report suggested that an age-wise interest rate structure should be ushered in, with rates linked to long-term bank deposit rates till a certain age group, and offering a higher than market rate over that age group.

“This could, in one go, serve the multiple purposes of ensuring a lower lending rate structure, adequate returns for senior citizens, lower interest expenditure and an alternative to floating rate deposits,” Ghosh said.

As Small Savings Scheme (SSS) rates are adjusted in every quarter, the report said the Government should ideally remove the 15-year lock-in period for Public Provident Fund (PPF) and give the investors the option to withdraw their money within a stipulated time with some sort of disincentive

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Bank union calls for vaccination for all employees in Maha, BFSI News, ET BFSI

Banking & Finance

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With alarming rise in COVID-19 cases in Maharashtra, a bank union has written to Bank of Maharashtra, the State Level Bankers’ Committee (SLBC) convenor of the state, requesting a special vaccination drive for all bank employees. On Sunday, Maharashtra reported the highest single-day rise of 57,074 coronavirus positive cases, while 222 patients succumbed to the infection, according to the state health department.

“We request you to make special arrangements for vaccination of all bank employees who are frontline warriors in fighting Covid,” Maharashtra State Bank Employees Federation General Secretary Devidas Tuljapurkar wrote in the letter addressed to the general manager (SLBC), Bank of Maharashtra.

The union has requested to revisit the current situation and issue guidelines related to customers entry into bank branches through deployment of security guards, frequent sanitisation of branches, alternate day working and work from home for female bank employees and employees above 55 years.

The state government has announced a partial lockdown starting 8 pm today till April 30 and a complete shutdowns on weekends to curb the rapid spread of Covid-19.



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Beginning of the end? Covid cases in India may top 25 lakh in ongoing second wave, BFSI News, ET BFSI

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A total 25 lakh cases are expected pan India in the second Covid wave that began in India in February 2021 based on trends till March 23.

Considering the number of days from the current level of daily new cases to the peak level during the first wave, India might reach the peak in the second half of April, according to SBI Research.

The entire duration of the second wave might last up to 100 days counted from February 15.

Notably, Maharashtra alone accounts for the majority of the daily new cases currently.

Localised lockdowns/restrictions have not resulted in controlling the spread of infection, it said, adding, “This is visible in the case of many states including Maharashtra and Punjab.”

Vaccines

Though the global COVID-19 experience shows a second wave is much higher in intensity than the first wave, the presence of the vaccine makes the difference currently. Thus India will be able to manage the situation better, it said.

District wise analysis reveals that cases have again started increasing in top 15 districts, mostly urban, while the spread in rural districts is almost stable: Shift in rural penetration from Kerala in January 21 to Maharashtra in March 2021 cases are largely localised and concentrated, it said in a report, ‘Second wave of infections: The beginning of the end?’

The research house added it thought it will never have to put together slides documenting the second wave.

Certain states like Rajasthan, Gujarat, Kerala, Uttarakhand, Haryana have vaccinated more than 20% of their elderly
population (above 60 years)

Several states with a higher elderly population (>60 years) including Punjab, Tamil Nadu, Andhra Pradesh, Maharashtra and West Bengal have vaccinated less percentage of their elderly population and must increase their pace of inoculation, it said

If we assume more number of people are willing to take vaccines and the daily vaccine inoculation increases to 40-45 lakh from the current maximum level of 34 lakh, then with this capacity we can vaccinate our population above 45 years in four months from now.

There has also been a study in the past of the Great Pandemic flu of 1918-19 by Hatchett, Mecher and Lipsitch (2007) whose findings support the hypothesis that rapid implementation of multiple non-pharmaceutical interventions (NPIs) including the closure of schools, churches, and theatres can significantly reduce influenza transmission, but that viral spread will only be renewed upon relaxation of such measures, it said.

Other countries

Daily cases during the second wave peak witnessed in other countries has been multiple times the peak daily cases during the first wave: But at that time there was no vaccination. For instance, France witnessed peak daily cases of around 11.7 times the daily peak of new cases witnessed during its first wave.

But India might be able to handle well as vaccine is now available, it said.

“If we consider the days required to reach the current level from the lowest level of daily new cases witnessed in Feb’21, overall number of days that India took during the second wave is similar to what was during the first wave,” it said.

However, the difference lies in the speed of spread of infection in certain States like Gujarat, MP, Maharashtra, Punjab and Chhattisgarh, where the cases have increased at a much faster pace during the current second wave, it said.



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Federal Bank aims ‘mid-teen’ growth in credit for FY22, BFSI News, ET BFSI

Banking & Finance

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Private sector lender Federal Bank is aiming for an acceleration in credit growth into “mid-teen” figures in 2021-22 on the back of an economic recovery, a top official said on Tuesday. Its Managing Director and Chief Executive Officer Shyam Srinivasan said the increase in virus infections in states like Maharashtra needs to be watched, but exuded confidence that it will not affect the overall economic activity, terming it a “minor blip”.

“We are looking at a credit growth in the mid-teens levels for 2021-22. If you look at the growth in the third quarter of 2020-21, it will come at an annualised level of 10 per cent,” he said.

Srinivasan said a majority of the loan segments will grow at over 20 per cent levels and a few like corporate will also grow around 10 per cent to achieve the credit growth target next fiscal.

While more headroom exists for growth in share of gold loans in the overall book, the portfolio growth will moderate to 20-30 per cent levels from the current 60 per cent levels, he said.

There are early signs of a revival in private capital expenditure which will boost the corporate loan growth, and the same will be more visible by the second half of the current calendar year, he said.

The bank is “fairly close” to the objective of having a 55:45 split in the loan book between retail and wholesale loans, and would like to maintain it the same way going ahead as well.

From an asset quality perspective, Srinivasan said everybody is looking forward to the Supreme Court judgment on the standstill in asset recognition and hinted that a clarity will help in recovery efforts.

A non-classification as an NPA (non-performing asset) does not create the pressure on the borrower through poor credit scores and also restricts the bank from enforcing all the recovery efforts till the asset is a notional NPA, he said.

The bank has made provisions of over Rs 1,200 crore to increase its provision coverage ratio and maintains that it will be meeting its targets on return on assets by end of 2021-22, he said.

The overall collection efficiency is back to the pre-COVID-19 levels of over 90 per cent, Srinivasan said. He added that upcoming state elections in Kerala, Tamil Nadu, West Bengal and Assam have affected the collection intensity as governments ask banks to go slow.

The bank is set to launch its credit card offering by the next month to complete its product suite, Srinivasan said. After starting with its own staff, it will offer the card to existing customers starting in April and will go to new to bank customers by the end of the year, he said acknowledging the competition intensity in the segment.

For its non-bank lending subsidiary Fedfina, the bank will await clarity on rules expected later this year, and then decide whether to take the company public or let its private equity partner True North increase its stake in the company, Srinivasan said. The non-banking financial company has sufficient capital to last through the current year, he added.



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