Tag: MSME

SFBs avoid special liquidity window as MSME credit demand dries up, BFSI News, ET BFSI

Banking & Finance

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Small finance banks (SFBs) that got a push from the Reserve Bank of India in terms of special liquidity window have been slow to tap into it.

Under the Rs 10,000-crore liquidity facility announced by the Reserve Bank of India (RBI) in May as part of its pandemic relief measures, SFBs get funds at 4% for three years, which is significantly lower than their average cost of funds, for fresh lending to micro, small and medium enterprises (MSMEs). The new facility helps them to get about 1-1.5% positive carry on the borrowed funds, even after investing the same amount into government securities as mandated by the central bank.

However, in the Special Long-Term Repo Operations (SLTRO) conducted by the Reserve Bank of India in May, June and July, SFBs cumulatively borrowed only Rs 1,640 crore against the notified amount of Rs 10,000 crore. They can still borrow the unutilised amount of Rs 8,360 crore till October.

Experts says ample liquidity and muted credit demand from the micro, small and medium enterprise (MSME) segment.

SLTRO boost

Announcing the SLTRO in May, RBI governor Shaktikanta Das had said, “Small finance banks (SFBs) have been playing a prominent role by acting as a conduit for the last-mile supply of credit to individuals and small businesses.”.

“To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic, it has been decided to conduct special three-year long-term repo operations of Rs 10,000 crore at repo rate for the SFBs, to be deployed for fresh lending of up to Rs 10 lakh per borrower,” Das had said, adding that the facility will remain open till October 31, 2021.

Priority loans

The RBI had also allowed the classification of priority sector lending for loans given by small finance banks (SFB) to micro-finance institutions (MFI) for on-lending to individuals.

The decision has been taken to address the liquidity issues of MFIs amid the severe Covid crisis.

RBI Governor Shaktikanta Das said: “In view of the fresh challenges brought on by the pandemic and to address the emergent liquidity position of smaller MFIs, SFBs are now being permitted to reckon fresh lending to smaller MFIs (with asset size of up to Rs 500 crore) for on-lending to individual borrowers as priority sector lending.” This facility will be available up to March 31, 2022.



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Net profit zooms to Rs 1,181 cr, BFSI News, ET BFSI

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Mumbai: Union Bank of India on Thursday reported over three-fold jump in standalone net profit at Rs 1,181 crore for June quarter 2021-22, helped by higher net interest income and improvement in asset quality.

The lender had reported a standalone profit after tax of Rs 333 crore in the year-ago period.

The consolidated profit in the quarter jumped over three folds to Rs 1,120.15 crore.

“The bank’s performance has stabilised and we have seen substantial improvement. After almost three to four quarters, we have seen a normal quarter on the business side.

“Even though we have lost the first two months (of Q1), by June it stabilised. If you look at the numbers, they are very stable except for some heightened NPAs, particularly coming from the MSME side,” bank’s Managing Director and CEO Rajkiran Rai G told reporters.

Net interest income grew 9.53 per cent to Rs 7,013 crore from Rs 6,403 crore in the year-ago quarter.

Net interest margins (NIM) improved by 30 basis points (bps) to 3.08 per cent as against 2.78 per cent.

Gross non-performing assets (GNPAs) of the lender reduced by 135 bps to 13.60 per cent from 14.95 per cent and net NPA was down 28 bps to 4.69 per cent from 4.97 per cent.

Fresh slippages during the quarter stood at Rs 7,049 crore. Around 45 per cent of slippages came in from the MSME sector as it was mostly affected during COVID wave, Rai said.

He said with restructuring and the Emergency Credit Line Guarantee Scheme (ECLGS) facilities, the stress is likely to reduce going ahead.

Under RBI’s Resolution Framework 1.0, the bank restructured Rs 11,965 crore and under Resolution Framework 2.0, total recast during the first quarter was Rs 3,962 crore till June 30.

“We expect another Rs 2,000 crore of restructuring in retail and MSME segments put together in the second quarter,” Rai said.

During the quarter, recovery and upgradation stood at Rs 4,341 crore. It recovered Rs 250 crore of dues related to Kingfisher Airlines. The bank has a recovery target of Rs 13,000 crore for the full year.

Capital to risky asset ratio (CRAR) improved to 13.32 per cent from 11.62 per cent. Common Equity Tier 1 (CET1) ratio improved to 9.77 per cent from 8.40 per cent.

The bank’s deposits grew 1.79 per cent to Rs 9,08,528 crore as of June 30, 2021. Domestic advances rose 0.16 per cent to Rs 6,30,237 crore as at end-June.

It registered 10.61 per cent growth in retail, 12.70 per cent growth in agriculture and 3.33 per cent growth in MSME advances on year-on-year basis. Rai attributed flat growth in advances to large corporate book not growing. He, however, said the bank has a large sanction pipeline and unutilized working capital limits.

“We hope by second and third quarter, the utilisation of limits will go up and expect a credit growth of 8 to 10 per cent by the end of the year,” he said.

On the amalgamation of Andhra Bank and Corporation Bank, Rai said the bank expects a synergy benefit of Rs 3,600 crore over a period of three years. The amalgamation came into effect from April 1, 2020.

In 2020-21, the bank got a synergy benefit of Rs 2,400 crore and it expects Rs 900 crore of benefits in this fiscal year, he said.

The bank’s scrip closed at Rs 37.95, up 6.90 per cent on BSE.



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IFC’s investment in Federal Bank to promote green recovery, improve access to finance for SMBs, BFSI News, ET BFSI

Banking & Finance

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IFC and two investment funds managed by IFC Asset Management Company, IFC Financial Institutions Growth Fund, LP, and IFC Emerging Asia Fund, LP have made an equity investment for a 4.99 percent stake in Federal Bank Limited.

The $126 million (₹916 crores) equity investment is expected to increase financing for climate-friendly projects as well as more financing for small businesses to help accelerate India’s economic recovery from COVID-19.

The investment is expected to support FBL’s commitment to environmental, social, and governance standards with increased green portfolio financing for projects including energy efficiency, renewable energy, climate-smart agriculture, green buildings, and waste management.

The investment also aims to strengthen its Tier 1 capital adequacy ratio (CAR) and expanding its micro, small, and medium-sized enterprises (MSME) and climate finance portfolios – key for growth opportunities as the country recover from the pandemic.

Shyam Srinivasan, MD & CEO of Federal Bank said, “After the Bank’s board approved the issuance of shares to the IFC group to an extent of 4.99 percent of the bank’s paid-up capital, IFC has become a significant shareholder of the bank. The addition of this marquee name to the list of our prominent shareholders reinforces the trust and confidence reposed by the IFC group in the bank and its management. The infusion of quality capital further strengthens Tier 1 and overall CAR of the bank.”

IFC will also consult with the bank on developing a new Environmental and Social Management System (ESMS) that will be applied to its entire portfolio. IFC will also implement an E&S technical advisory program.

Roshika Singh, Acting Country Manager for IFC in India, said, “This move is in line with IFC’s strategy to support green growth by spurring investments to build back better and greener, seizing the opportunities to help India meet its climate goals and build a greener, resilient future.”

Additionally, India’s MSMEs have faced increasing difficulty gaining access to the financing they need. Around 63 million MSMEs typically contribute nearly 30 percent to GDP, but about 11 million MSMEs remain fully or partially excluded from India’s formal financial system with an estimated financing gap of around $400 billion. The COVID-19 pandemic has further hampered the availability of funding for MSMEs.

India ranks third globally in terms of greenhouse gas (GHG) emissions, with the country needing substantial investments to meet its goals under the Paris Agreement to reduce GHG emissions by 2030. IFC estimates a total climate-smart investment opportunity of $3 trillion in India by the year 2030.



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SIDBI Report, BFSI News, ET BFSI

Banking & Finance

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Findings from the latest edition of the SIDBI – TransUnion CIBIL MSME Pulse Report indicate that in FY 2021, loans worth 9.5 lakh crores were disbursed to MSMEs. This amount is much higher than the preceding year- FY 2020, when loans amounting to ₹6.8 lakh crores were disbursed. Government interventions like Emergency Credit Line Guarantee Scheme (ECLGS) under the AtmaNirbhar Bharat program was the major factor in driving this significant surge in credit disbursement to MSMEs MSME segment’s credit exposure stood at ₹20.21 lakh crores as of March ’21, showing YOY growth rate of 6.6%. This credit growth is observed across all the sub segments of MSME lending.

The insights on the key shift in MSME lending, this edition of MSME Pulse covers an analysis1 of borrower profiles of entities getting funded post-COVID wave-1 compared to entities getting funded pre-COVID wave-1. The analysis captures the payment behavior of MSMEs across their outstanding obligations. The analysis reveals that of the MSME that were given loans in the period of Jan to Mar ’21, 29% had missed more than one payment in the last three months and the MSMEs that were given loans during Jan to Mar’ 20, 21% had missed more than 1 payment in the preceding 3 months

MD & CEO of TransUnion CIBIL, Shri Rajesh Kumar said, “The belief in India’s growth story is reasserted with the significant surge in MSME credit demand post unlocks. This growth story has been supported from the supply side by credit institutions who have astutely implemented the government’s pro-growth initiatives like ECLGS and restructuring by using data analytics and solutions from financial intermediaries like TransUnion CIBIL. This commendable resilience and promising prospects of our country’s MSME sector signals strong resurgence potential and stands testimony to the stability and strength of our economy,”.

Shri Sivasubramanian Ramann, Chairman and Managing Director of SIDBI said, “The MSME credit data speaks volumes of the success of ECLGS scheme. The scheme has played a major role in 40% Y-o-Y growth in disbursements to the sector, thereby reviving the business sentiments among the MSMEs. The key highlight which signals the revival is credit to new-to-bank (NTB) which has returned back to pre-COVID levels, while credit to existing-to-bank (ETB) remains buoyant. The recent additional relief measures by the Government, especially in healthcare, travel and tourism, are expected to improve credit offtake in the MSME sector. Going forward, the lenders need to continuously monitor the health of credit portfolios, while sustaining credit growth to MSMEs.”



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Canara Bank restructures loans worth Rs 13,000 crore, MSME, retail worst hit, BFSI News, ET BFSI

Banking & Finance

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Public sector lender Canara Bank has restructured loans of over Rs 13,000 crore as MSME and retail loans took a beating due to the second Covid wave. Fresh slippages came at Rs 4,253 crore which fell sharply on a sequential basis, 19% of the slippages came from the retail segment and 56% came from MSMEs. The bank also restructured loans worth Rs 13,234 crore under the Covid 2.0 recast scheme, out of this Rs 7,610 crore worth of loans were recast from the retail sector while Rs 3,331 crore came from MSMEs. Special mention category loans or which are due beyond 0-90 days stood at Rs 23,985 crore.

“For the retail and MSMEs borrowers who we have assisted with the Covid recast scheme a part of them have started to pre-pay and we are hopeful that as business momentum recovers a large part of these accounts will normalise,” said L.V. Prabhakar, MD, Canara Bank. “As of June 30, our collection efficiency is 91%, which means instalments are coming. There was stress which was duly addressed by giving them recast benefit.”

Profits nearly tripled to Rs 1,177 crore at the end of the June quarter as fee income and treasury gains grew sharply. The lender had reported profits of Rs 406 crore in the corresponding period last year. Though it’s net interest income was flat at Rs 6,147 crore from Rs 6,096 crore in Q1FY21.

Non-Interest Income which includes fees and treasury gains was up by 67.47% to Rs 4,438 crore in the June quarter versus Rs 2,650 crore a year ago.

The bank reported improvement in asset quality metrics. It’s GNPA ratio came at 8.50% for the quarter under review from 8.84% a year ago. Net NPA ratio was at 3.46%.

Total provisions rose nearly 18% to Rs 4574 crore at the end of the June quarter versus Rs 3880 crore a year ago. This included a one time income tax provision of Rs 845 crores. The bank also holds Covid related provisions of Rs 842 crore.

It’s total loans grew by 5.94% to Rs 6.6 lakh crore, out of which retail loans grew at 9.57% while agriculture loans rose 17.03%. The bank said it is targeting an annual credit growth rate of 7-8%.

Net Interest Margin for the reporting quarter fell to 2.71 per cent for Q1FY22 as against 2.84 per cent for Q1FY21.

The bank’s asset quality profile improved with gross non-performing assets down to 8.5 per cent in June 2021 from 8.84 percent during Q1FY21. The net NPA also dipped to 3.46 per cent during the quarter from 3.95 per cent in June 2020.



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To strengthen TReDS, Factoring Amendment Bill passed by Lok Sabha, BFSI News, ET BFSI

Banking & Finance

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The Factoring Amendment Bill which was introduced in the Lok Sabha last year was passed on Monday. The Bill seeks to amend the Act of 2011 and widen the scope of entities which can engage in factoring business.

This Bill is aimed at increasing the traction on the Trade Receivables Discounting System (TReDS) platform introduced by the Reserve Bank of India in 2014.

The Bill will also help the micro, small and medium enterprises (MSME) which are plagued by the issues of delayed payments. Finance minister Nirmala Sitharaman said that the government had also accepted the recommendations by the Standing Committee which had looked into the Bill last year.

Commenting about the Bill, Ram Iyer, Founder & CEO, Vayana Network, said, “This has been a much-needed intervention. Allowing non-NBFC factors and other entities to undertake factoring is expected to increase the supply of funds available to SMEs. This may result in bringing down the cost of funds and enable greater access to the credit-starved small businesses, ensuring timely payments against their receivables. The recommendations of the Standing Committee are expected to increase the traction of TReDS platforms. Steps like integration with GSTN, mandatory listing of the government dues and direct filing of charges will improve the operational efficiency and acceptability of the platforms among the financiers.”

TReDS, which was introduced to improve liquidity with small businesses, has not been able to take off properly. According to the data accessed by ET, of the total transaction volume of about Rs 36,000 crore conducted by the three TReDS exchanges in India so far, only Rs 2,700 crore was from central public-sector enterprises (CPSEs).

TReDS works as an exchange between lenders, buyers and MSMEs. Lenders bid to settle the claims of an MSME supplier upon the acknowledgment of the invoice by the buyer. The buyer then repays the lender, which is usually a bank, after a predetermined period.

There is no collateral involved, and lenders consider the buyer’s credit rating while paying the supplier. RXIL, Invoicemart and M1Xchange are the three TReDS platforms.

(With inputs from ET Bureau)



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MSME bankruptcies involving less than Rs 1 crore put on fast-track with pre-pack law, BFSI News, ET BFSI

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The government has introduced a bill in the Lok Sabha to amend the insolvency law and provide for a pre-packaged resolution process for stressed MSMEs.

The proposed amendments would enable the government to notify the threshold of a default not exceeding Rs 1 crore for initiation of pre-packaged resolution process. The government has already prescribed the threshold of Rs 10 lakh for this purpose.

The Insolvency and Bankruptcy Code (Amendment) Bill, 2021 will replace the ordinance that was promulgated on April 4 as part of efforts to provide relief for MSMEs adversely impacted by the pandemic.

The bill seeks to have a new chapter in the Code to facilitate pre-packaged insolvency resolution process for corporate persons that are Micro, Small and Medium Enterprises (MSMEs).

The process

Generally, under a pre-packaged process, main stakeholders such as creditors and shareholders come together to identify a prospective buyer and negotiate a resolution plan before approaching the National Company Law Tribunal (NCLT). All resolution plans under IBC need to be approved by NCLT.

The bill seeks to specify a minimum threshold of not more than Rs 1 crore for initiating pre-packaged insolvency resolution process as well as provisions for disposal of simultaneous applications for initiation of insolvency resolution process and pre-packaged insolvency resolution process, pending against the same corporate debtor.

There would be a penalty for fraudulent or malicious initiation of pre-packaged insolvency resolution process or with intent to defraud persons, and for fraudulent management of the corporate debtor during the process.

Further, punishment would be meted out for offences related to pre-packaged insolvency resolution process.

“Unlike the CIR Process where the control is transferred to the Interim Resolution Professional, in this process, the control remains with the existing management and only in case of fraud, the NCLT may shift control to Resolution Professional. The process is intended to be swift and efficient.

The timeline for completion of the pre-packaged insolvency resolution process is shorter than the normal Corporate Insolvency Resolution (CIR) period.

What experts say

Rajiv Chandak, Partner at Deloitte India, said the bill covers provisions pertaining to pre-packaged insolvency process for MSME units.

“Lenders are awaiting similar provisions for larger corporates. Pre-packaged insolvency can help in resolving stress early and cut resolution time for corporates staring at default,” he added.

Anoop Rawat, Partner, Insolvency & Bankruptcy at Shardul Amarchand Mangaldas & Co said the amendments are in line with the IBC ordinance that was promulgated on April 4, 2021.

“It gives better visibility of resolution as compared to a normal CIR process since a base resolution process need to be in place prior to initiation of the process at NCLT,” Rawat noted.

Government measures

In the wake of the pandemic, the government has taken various steps including increasing the minimum amount of default to Rs 1 crore for initiating a corporate insolvency resolution process.

Besides, the government had suspended fresh filing of corporate insolvency resolution applications in respect of defaults arising during the period between March 25, 2020, and March 24, 2021.

To deal with emerging market realities, the Code has been amended on earlier occasions also.

The Code, which came into force in 2016, was enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals.



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Magma Fincorp Limited changes name to Poonawalla Fincorp Limited

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Magma Fincorp Limited, an RBI-registered Non-Banking Finance Company (NBFC), has been rechristened as Poonawalla Fincorp Limited and has initiated rebranding activity, following the acquisition of controlling stake by Adar Poonawalla-led Rising Sun Holdings Private Limited on May 21 this year.

Along with this, its fully-owned housing finance subsidiary Magma Housing Finance Limited is also renamed as Poonawalla Housing Finance Limited.

A press statement issued by Poonawalla Fincorp said that in its new avatar under the Poonawalla brand, the group will be focusing on the consumer and MSME segment. As a part of the new strategy, the company will expand its product range to include personal loans, loans to professionals, merchant cash advance, loan against property, consumer finance, and machinery loans along with existing products of business loans, pre-owned car loans, and home loans.

Co-branded credit card

Earlier this month, the board had approved a proposal to enter a co-branded credit card arrangement for issuance of co-branded credit card, subject to obtaining necessary approvals from the regulatory authorities.

Adar Poonawalla, Chairman, Poonawalla Fincorp Limited, said in the statement, “This marks the beginning of not only a change of brand but the fundamental way in which we will do business. From new products to new geographic locations across India; we hope to serve every citizen, helping them in fulfilling their personal and professional aspirations.”

Poonawalla Fincorp Limited started operations nearly three decades back and is listed on the BSE Limited and the National Stock Exchange in India. Consequent to the capital raise of ₹3,456 crore in May, the company is now part of Poonawalla Group with a majority stake owned by Rising Sun Holdings Private Limited, a company owned and controlled by Adar Poonawalla.

The company is present across 21 States with 297 branches and the customer base stands at approximately 5.4 million with a loan book of more than ₹14,000 crore. Poonawalla Fincorp offers a bouquet of financial products including SME finance, mortgage finance, unsecured loans, and general insurance.

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Rane, BFSI News, ET BFSI

Banking & Finance

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NEW DELHI: As many as 13.06 lakh MSME loan accounts with an aggregate amount of Rs 55,333 crore have been restructured by public sector banks till June 25 this year, Parliament was informed on Thursday. MSME minister Narayan Rane also said that till July 2, Rs 2.73 lakh crore have been sanctioned under the Emergency Credit Line Guarantee Scheme.

The scheme was launched for an emergency credit line of up to Rs 4.5 lakh crore to businesses including micro, small and medium enterprises (MSMEs) and the same is backed by 100 per cent central government guarantee.

Till June 25 this year, “13.06 lakh MSME loan accounts with an aggregate amount of Rs 55,333 crore have been restructured by public sector banks,” he said in a written reply to the Lok Sabha.

In a separate reply, he said since the inception of the Prime Minister’s Employment Generation Programme, till July 9, 6,97,612 units have been set up (including those by farmers) with MM (margin money) subsidy of Rs 16,688.17 crore.



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Borrowers fear bank watch list, avoid govt guaranteed loans, BFSI News, ET BFSI

Banking & Finance

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The emergency credit line guarantee scheme (ECLGS ), which was a major driver of loan uptake in the first phase of the pandemic, is seeing a lacklustre response from borrowers.

The scope of the scheme which was increased to Rs 4.5 lakh crore, has seen Rs 2.7 lakh crore sanctioned as of July 2. Of this, Rs 2.1 lakh crore has been disbursed.

The ECLGS aimed to provide and government-guaranteed loans to mitigate the economic distress faced by micro, small and medium enterprises ( MSMEs) and other entities due to the Covid-induced lockdowns. The government has extended the scope of

Why tepid response

According to bankers, borrowers eligible and in need of additional have already availed of the loans in the first two rounds. Borrowers do not want to be under a watchlist for stressed loans.

The number of applicants has been dropping with the new version and bankers see fresh demand of loans during the festive season.

ECLGS 4.0

In June Finance Minister Nirmala Sitharaman on Monday announced a slew of measures, including Rs 1.1 lakh crore (Rs 1.1 trillion) credit guarantee scheme for improving health infrastructure, and enhancing the limit under the ECLGS by 50 per cent to Rs 4.5 lakh crore for the MSME sector facing a liquidity crunch.

Sharing the details of the stimulus package, the finance minister said this comprises eight relief measures and other eight measures to support the economic growth.

She announced Rs 1.1 lakh crore loan guarantee scheme for Covid-affected sectors, including the health sector, which includes guarantee cover for expansion or for new projects.

Besides, she said, additional Rs 1.5 lakh crore limit enhancement has been done for ECLGS.

Besides, the validity of the scheme was extended by three months to September 30 and or till guarantees for an amount of Rs 3 lakh crore are issued.

The last date of disbursement under the scheme has been extended to December 31.

Under the ECLGS 4.0, 100 per cent guarantee cover was given to loans up to Rs 2 crore to hospitals, nursing homes, clinics, medical colleges for setting up on-site oxygen generation plants.

The interest rate on these loans has been capped at 7.5 per cent, which means the banks can offer loans less than this ceiling.



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