Tag: Mahindra Finance

Bankers, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: Bankers on Wednesday welcomed the measures announced by RBI as a nuanced attempt to address not just economic concerns but public health issues as well.

SBI Chairman Dinesh Kumar Khara said the unscheduled statement from Governor Shaktikanta Das has targeted moves to alleviate the troubles faced by multiple sectors.

“…the series of measures announced today reflect a novel approach. The decision to create a dedicated Rs 50,000 crore fund for ramping up Covid related healthcare infrastructure reflects RBI’s commitment to transcend boundaries by addressing not only economic health but also public health,” he said in a statement.

He also appreciated the decision to augment the lending firepower of small finance banks (SFBs) through priority sector tag, restructuring framework for individuals and small businesses, cash reserve ratio flexibility for lending to SMEs and the measures to help the state governments through ways and means advances relaxations.

MFIN, a self-regulatory organisation of micro-lenders, was very appreciative of the attempt to infuse liquidity for small MFIs by classifying and recognising SFBs’ lending to smaller NBFC-MFIs as priority sector lending.

The body’s chief executive Alok Misra said Das had met sector representatives looking at the “severity of the situation” and followed it up with the steps on Wednesday.

From the non-bank lenders, Mahindra Finance‘s Managing Director and Vice Chairman Ramesh Iyer said the measures aimed at individuals, small businesses and micro borrowers are a timely move, and welcomed the restructuring proposals.

“It’s (restructuring) an important announcement looking at the present economic landscape, this will provide as an impetus for businesses to recover from COVID-19 pandemic blues,” he said, adding that the moves to rationalise certain components of the extant KYC (know your customer) norms will support financial institutions to operate in a more efficient way.

Paul K Thomas, who heads the ESAF Small Finance Bank, said the RBI’s core focus on small lending and the last-mile delivery of credit to individuals and small businesses and the schemes to boost the provision of immediate liquidity to SFBs will go a long way in expediting economic recovery.

SFBs will now be permitted to give fresh lending to smaller micro-finance institutions (MFIs) with asset size of up to Rs 500 crore for on-lending to individual borrowers as priority sector lending.

This will add impetus to the SFBs who have been consistently playing a prominent role by acting as a conduit for the last-mile delivery of credit to individuals and small businesses, he said.

Private sector lender Kotak Mahindra Bank’s Group President for Consumer Banking, Shanti Ekambaram said the RBI has announced some timely liquidity measures that will provide relief to the most vulnerable by ensuring credit flow to individuals and small businesses and also give them greater repayment flexibility.

Viral Sheth, finance controller at Moneyboxx Finance, said several states with a huge rural population like Uttar Pradesh, Bihar and West Bengal are witnessing sharp rise in new cases and it was imperative to provide a helping hand to vulnerable sections of individuals and small businesses.



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IBA fears precedent, wants govt to pay ‘interest on interest’, BFSI News, ET BFSI

Banking & Finance

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The Indian Banks’ Association (IBA) has sent a communication to the Finance Ministry to pay the compound interest charged to borrowers with loans above Rs 2 crore during the moratorium period of March 1 to August 31, 2020.

Though most private banks have provided for the compound interest waiver, bankers are of the view such a move will set a precedent and want the government to foot the bill. They are expecting a reversal benefit on the interest on interest payment, according to a report.

The Supreme Court order

The Supreme Court in its order last month had directed the government and the RBI to waive penal interest charges on all loans, while rejecting the demand of borrowers to extend the repayment moratorium beyond August 31 and for a complete interest waiver. The loan moratorium scheme was aimed at giving temporary relief to borrowers.

In November last, the government decided to waive interest-on-interest for borrowers below loan exposure of Rs 2 crore. It paid nearly Rs 6,000 crore to lenders to compensate them for the income loss.

Bank provisions

After waiting for the government to burden the compound interest on loan waivers, top banks have provided for payment in the fourth-quarter results.

HDFC Bank has provided Rs 500 crore for interest on interest while ICICI Bank said it has kept Rs 175 crore aside for it, according to the Q4 results announced by these banks. Axis Bank has provided Rs 160 crore while Mahindra Finance has made a provision of Rs 32 crore.

How much does it cost?

Waiving compound interest on loans above Rs 2 crore could cost nearly Rs 4,000 crore to public sector banks, Rs 2,500 crore to private banks and another Rs 1,000 crore to non-bank lenders.

While ICICI Securities had put the total compound interest burden on loans above Rs 2 crore at Rs 11,700 crore, other analysts have put it between Rs 7,000 crore and Rs 10,000 crore. 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 Indian Bank Association has recently finalised a methodology for the calculation of the interest on interest component.

Under the norms, borrower accounts which were standard as on February 29, 2020, including SMA­0, SMA­1 and SMA­2 will be eligible for the refund. All loans, working capital, trade products, outstanding during the moratorium period shall be considered for the compound interest waiver.

The government stand

The government had reimbursed banks for forgoing compound interest, or interest on interest, on loans up to Rs 2 crore outstanding during March-August last year, when borrowers had the option to seek a moratorium on repayments.

Lenders have been charging compound interest on larger amounts, but the Supreme Court order means they must now refund it to borrowers. Banks were hoping that the government will take on the burden by enhancing the scope of the ex-gratia scheme to cover the additional refund after the apex court order.



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Banks provide for ‘interest on interest’ in Q4 after no signal from govt, BFSI News, ET BFSI

Banking & Finance

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After waiting for the government to burden the compound interest on loan waivers, top banks have provided for payment in the fourth-quarter results.

HDFC Bank has provided Rs 500 crore for interest on interest while ICICI Bank said it has kept Rs 175 crore aside for it, according to the Q4 results announced by these banks. Axis Bank has provided Rs 160 crore while Mahindra Finance has made a provision of Rs 32 crore.

Interest on interest waiver

Waiving compound interest on loans above Rs 2 crore could cost nearly Rs 4,000 crore to public sector banks, Rs 2,500 crore to private banks and another Rs 1,000 crore to non-bank lenders.

While ICICI Securities had put the total compound interest burden on loans above Rs 2 crore at Rs 11,700 crore, other analysts have put it between Rs 7,000 crore and Rs 10,000 crore. 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 Indian Bank Association has recently finalised a methodology for the calculation of the interest on interest component.

Under the norms, borrower accounts which were standard as on February 29, 2020, including SMA­0, SMA­1 and SMA­2 will be eligible for the refund. All loans, working capital, trade products, outstanding during the moratorium period shall be considered for the compound interest waiver.

The government stand

The government has already reimbursed banks for forgoing compound interest, or interest on interest, on loans up to Rs 2 crore outstanding during March-August last year, when borrowers had the option to seek a moratorium on repayments.

Lenders have been charging compound interest on larger amounts, but the Supreme Court order means they must now refund it to borrowers. Banks were hoping that the government will take on the burden by enhancing the scope of the ex-gratia scheme to cover the additional refund after the apex court order.

The Supreme Court order

The Supreme Court in its order last month had directed the government and the RBI to waive penal interest charges on all loans, while rejecting the demand of borrowers to extend the repayment moratorium beyond August 31 and for a complete interest waiver. The loan moratorium scheme was aimed at giving temporary relief to borrowers.

In November last, the government decided to waive interest-on-interest for borrowers below loan exposure of Rs 2 crore. It paid nearly Rs 6,000 crore to lenders to compensate them for the income loss.



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‘Q1 is a cautious phase as customers are on wait-and-watch mode’

Banking & Finance

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The first quarter of the fiscal year 2021-22 will be a cautious phase with customers on a wait-and-watch mode amid localised lockdowns and surging Covid-19 cases, believes Ramesh Iyer, Vice-Chairman and Managing Director, Mahindra Finance.

“Customers have money but they want to wait for a month to see how things pan out. Up to mid-May one would be on the wait-and-watch situation and if things were to come under control, there would be a sudden spurt of demand. The pent-up demand will get capitalised. Customers are not averse to buying but they want to wait for some time,” he said.

In an interaction with BusinessLine, Iyer said he expects growth in segments like vehicle sales to revive in coming quarters.

“Going forward, trend will be a growth curve but it may not be the first quarter. At least April and May will not be so. Last one week has been tough. We will have to wait till May 15,” he said, adding that the festival season, post-monsoon, would see a substantial growth potential.

In terms of disbursements, Iyer said Mahindra Finance will focus on areas which are less impacted by Covid infections.

“We have mapped across the country pockets which are least, moderately and severely impacted. So, in the severely impacted pockets, we will focus on collection efficiency and asset quality while the least and moderately impacted ones will be an opportunity for us,” he said.

The NBFC has also added about 150 branches in the last quarter and it is mapped on the basis of new economic activity and agri support in the current scenario.

“We said it even last year that when there are unknowns around, it is better to be cautious and finance people who genuinely want to use the vehicle and not use it as an opportunity. In difficult times, they can’t survive. We need experienced operators,” Iyer said.

However, in terms of collection efficiency, the fourth quarter of 2020-21 was even better than the fourth quarter of 2019-20 for Mahindra Finance. Collection efficiency was at 110 per cent.

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