Tag: MSME

RBI, BFSI News, ET BFSI

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About 15.9% of loans less than Rs 25 crore to the MSME sector for public sector banks has turned bad as of March 2021, according to the Reserve Bank of India.

This was against an NPA ratio of 13.1% at the end of December 2020 and 18.2% at the end of March 2020. Loans due past zero days and 30 days also rose significantly to 60.7% and 10.6% respectively.

On the other hand private sector lenders recorded NPA ratio of 3.6% at the end of March 2021 against 2% at the end of December 2020 and 4.3% at the end of March. Loans due beyond zero days and 30 days also rose by 89.6% and 3.7% respectively.

As of February 2021, 80% of the MSME borrowers moved into high-risk category as per data released by the regulator.

MSMEs worst hit

The medium, Micro and Small Enterprises are among the worst hit and they face enormous stress in meeting their payment obligations, the Reserve Bank of India said in its latest edition of the Financial Stability Report.

“Despite the restructuring, however, stress in the MSME portfolio of PSBs remains high,” the regulator noted. “While PSBs have actively resorted to restructuring under all the schemes, participation by PVBs was significant only in the COVID-19 restructuring scheme offered in August 2020,” RBI said.

“Given the elevated level of debt of the stressed cohort, the implications of business disruptions following the resurgence of the pandemic could be significant,” the RBI said

The restructuring

Since 2019, weakness in the MSME portfolio of banks and NBFCs has drawn regulatory attention, with the Reserve Bank permitting restructuring of temporarily impaired MSME loans (of size up to Rs 25 crore) under three schemes.

As per data with the RBI, the banking industry together restructured loans worth Rs 36,000 crore under the August 2020 Covid loan restructuring scheme. Public sector banks held the lions share at Rs 24,816 crore while private banks recast MSME loans worth Rs 11,027 crore.

In contrast to this PSBs have been laggards in lending to this sector with aggregate MSME exposure growing at a paltry 0.89% in the last fiscal year ended March 2020. For private lenders this exposure grew 9.23% during the same time.

“Growth in credit to MSMEs during 2020-21 was aided by the ECLGS scheme, with aggregate sanctions at Rs 2.46 lakh crore at the end of February 2021,” RBI noted. “For Public sector banks credit to the sector remained flat and new disbursements turned negative, after adjusting for interest accretion on past loans; private banks on the other hand, showed relatively robust increase in exposure.”



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Mswipe looks to transform into a digital bank for small merchants

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Mswipe is looking to transform into a full digital bank for small merchants by offering them more focussed products.

“We should be looking at a digital bank focussed on small merchants and try to cover the merchant ecosystem to the best of our ability. We should be a one stop shop for whatever the merchant needs relating to payment and finance starting from a payment terminal, QR or terminal. We will also look at how to help them with their business with inventory management, lending, buy now pay later platform that is more focussed on the merchant’s requirement,” said Ketan Patel, CEO, Mswipe.

Mswipe, which is a financial services platform for MSMEs, had announced Patel’s appointment on July 1.

Also read: Digital India: Paytm sets aside ₹50 crore for reward program

Mswipe also aspires to be an NBFC and hopes to have its own license in the next three to six months. At present, it dispenses loans through partners. It has also created a hybrid credit score with Equifax for MSMEs.

“This is the first step to lending from our own books,” he said. Patel said payments will continue to be the core focus of Mswipe but it will also look at other engagement opportunities with merchants. The company is in talks to enable merchants to offer insurance to customers as well as micro ATMs.

“We want the terminal to create new revenue opportunities for the merchant. They can sell small ticket insurance such as two wheeler and health using the POS terminal. This will be an additional revenue item for them,” he said.

Also read:Indian crypto exchanges flounder as banks cut ties after RBI frown

Similarly, the merchant can offer micro ATMs to dispense cash and earn additional revenue, Patel said.

Mswipe has about 6 lakh merchants as of now and targets to have over 10 lakh merchants over the next three years. At present, it is the largest independent mobile POS merchant acquirer and network provider with 6.75 lakh POS and 11 lakh QR merchants across the country.

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MSME, retail NPAs may rise as relief measures get wound down

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The Reserve Bank of India on Thursday cautioned that banks face the prospect of a rise in non-performing loans, particularly in their small and medium enterprises (SME) and retail portfolios, especially as regulatory relief is wound down.

The RBI’s latest Financial Stability Report (FSR) noted that banks remained relatively unscathed by pandemic-induced disruptions, cushioned by regulatory, monetary and fiscal policies.

The report reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC-SC) on risks to financial stability.

“Within the domestic financial system, credit flow from banks and capital expenditure of corporates remain muted.

“While banks’ exposures to better rated large borrowers are declining, there are incipient signs of stress in the micro, small and medium enterprises (MSMEs) and retail segments,” the report said.

The FSR underscored that the demand for consumer credit across banks and non-banking financial companies (NBFCs) has dampened, with some deterioration in the risk profile of retail borrowers becoming evident. Subdued credit growth in a low-interest rate scenario could impact banks’ net interest income levels, it warned.

Stable NPA ratios

The gross and net NPA ratios of banks remained stable during the second half of 2020-21, at 7.5 per cent and 2.4 per cent, respectively, in March 2021. As at September-end 2020, the ratios had been 7.5 per cent and 2.1 per cent, respectively.

On the other hand, special mention account (SMA) ratios, which reflect incipient stress, deteriorated, the report said.

The report said banks must prepare contingency strategies to deal with segment-specific asset quality pressures, especially when regulatory reliefs get rolled back.

Per the FSR, macro-stress tests for credit risk show that scheduled commercial banks’ GNPA ratio may increase from 7.48 per cent in March 2021 to 9.80 per cent by March 2022 under the baseline scenario and to 11.22 per cent under a severe stress scenario.

Stress tests also indicate that SCBs have sufficient capital, both at the aggregate and individual level, even in the severe stress scenario.

Monitor MSME, retail loans

As banks and other financial institutions have resilient capital and liquidity buffers, balance-sheet stress remains moderate in spite of the pandemic, the report said. But it emphasised a close monitoring of MSME and retail credit portfolios. This calls for banks to shore up their capital position when favourable market conditions prevail, it added.

“The banking sector will be required to specifically guard against adverse selection bias while being alive to the credit demand from productive and viable sectors.

“In the most optimistic scenario, the impact of the second wave should be contained within the first quarter of the year, while frictional inflation pressures work their way out over the first half of the year,” the FSR said. The report said financial intermediaries need to internalise these expectations into their outlook while staying on guard against potential balance-sheet stress with sufficient capital and liquidity buffers and governance structures.

Govt borrowings

Referring to the surge in the government’s market borrowings, with a significant share of public debt being absorbed by banks, the FSR noted that going forward, however, their absorptive capacity may be circumscribed by the likely expansion of bank credit as economy recovers.

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Bank of Maharashtra plans to raise up to Rs 2,000 crore through QIP

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State-run Bank of Maharashtra is looking to raise up to Rs 2,000 crore through qualified institutional placement (QIP) route before July-end, its Managing Director and CEO A S Rajeev said.

In April this year, the Pune-based lender had received board approval to raise Rs 5,000 crore by way of QIP/rights issue/ preferential issue or by issuing Basel III bonds.

“We are planning to raise around Rs 2,000 crore equity through QIP immediately. The process has already started and we will raise it before July-end,” Rajeev told PTI in an interaction.

The base size of the issue is Rs 1,000 crore and it has a greenshoe option of another Rs 1,000 crore, he said.

Following this equity raise, the Government’s holding in the bank will reduce to below 85 per cent from 94 per cent currently, and the capital adequacy ratio will improve to 17-18 per cent from around 14.49 per cent as of March 31, 2021, Rajeev said.

This fund will be deployed for expansion of the loan book, which the bank is looking to grow by 16-18 per cent to around Rs 1.25 lakh crore in this fiscal from Rs 1.08 lakh crore as of March 31, 2021, he said.

Of the total loan book of the bank at present, the share of corporate loans is 37 per cent and of retail, agriculture and MSME (RAM) segment is 63 per cent, he said adding, “We want the ratio of RAM to the corporate segment to be 65:35 during the current fiscal.” The bank is envisaging a 20-25 per cent growth in the retail, agriculture and MSME (RAM) segment this year. The lender’s corporate loan size is close to Rs 40,000 crore and it is targeting to grow it by another Rs 10,000 crore in this financial year. It has a sanction pipeline of Rs 25,000 crore in the corporate and MSME segments for the current fiscal, he said.

“We have churned our portfolio with improvement in the share of lending to better-rated corporates. This will minimise the delinquencies and attract lower capital requirement,” Rajeev added.

In the corporate segment, the bank will continue lending to better-rated corporates, including sunrise sectors such as infrastructure, pharmaceuticals and FMCG, he said.

Under the government’s Emergency Credit Line Guarantee Scheme (ECLGS), the bank’s total disbursement, so far, is around Rs 2,100 crore, and it plans to lend another Rs 500 crore this year.

Rajeev said the bank’s exposure to the healthcare sector is Rs 2,000-2,400 crore, which is 2 per cent of the total advances portfolio. In April and May, it had already disbursed over Rs 225 crore to the sector.

“We intend to double our portfolio under the healthcare sector and make it 4 per cent of our total advances portfolio during the current fiscal. We have also come out with two to three products in tune with the RBI policy,” he said.

Last month, the RBI had announced an on-tap term liquidity facility of Rs 50,000 crore under which banks can provide fresh lending support to a wide range of entities from the healthcare segment. The government has also announced ECLGS 4.0, under which a 100 per cent guarantee cover to loans up to Rs 2 crore will be provided to hospitals, nursing homes, clinics, medical colleges for setting up on-site oxygen generation plants.

Rajeev further said since the exit from the RBI’s prompt corrective action (PCA) framework in January 2019, the lender has taken several steps to strengthen its balance sheet, which has resulted in a significant improvement in all its financial parameters.

“We have been successful in registering profits quarter on quarter since March 2019. Our net profit rose 41.39 per cent to Rs 550 crore during FY21 from Rs 389 crore in FY20. Operating profit also rose 39 per cent to Rs 3,958 crore in FY21 from Rs 2,847 crore last year,” he said.

The bank’s CASA (Current Account and Savings Account) improved to 54 per cent as of March 31, 2021, which according to Rajeev is one of the best in the banking industry.

The bank has also managed to bring its gross non-performing assets to 7.23 per cent as of March 31, 2021, from 18.64 per cent in September 2018, when it was under PCA. Net NPAs stood at 2.48 per cent as of March 31, 2021.

At present, market capitalisation of the bank stands at Rs 17,500 crore against Rs 3,948 crore as of March 2019, he said. In FY22, the bank is targeting to bring down gross NPA to below 6 per cent and net NPA to below 2 per cent. Net interest margins (NIM) will remain above 3 per cent in this fiscal, he said.

It has set a recovery and upgradation target of Rs 2,500-2,600 crore during the current year. The lender is also expecting Rs 500 crore recovery from written-off accounts in this fiscal, Rajeev said. The lender is looking at opening 200 banking outlets with a hub and spoke model in this fiscal, he added.

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RBL Bank aggressive on branch expansion, to add 75 branches in FY22, BFSI News, ET BFSI

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As digital adoption picks up across the board, RBL Bank continues to remain aggressive on its branch expansion to improve its presence across the country. RBL Bank’s head for branch banking, Surinder Chawla, talks about the strategy of branch expansion and business, user behaviour evolving across retail and MSMEs and the way forward. Edited Excerpts:

Surinder Chawla, Head – Branch Banking, RBL Bank

Q. How’s the shift in the branch banking business strategy taking into consideration the impact of the pandemic and lockdowns subsequently?

Multiple changes have happened before and after the lockdown.

The last 3-4 months have been very different from how we look and approach things. The first big change is digitisation. Customer adoption of digital technologies has been very high compared to earlier. That is a big change, and it is a good change from customers as well from the bank point of view. The second big change is that earlier you had to meet clients to get work done and all that is done digitally even from a product perspective. The third big factor is some products which were push based, because of the pandemic/ health concerns of the client, those have become very accepted by the clientele. The biggest jump that has happened is in health insurance. As a strategy what all is happening is our investment in digital has become digitally large. If you want to scale up, serve customers digitally, whether it is full Net banking or Whatsapp banking. We have put almost all of our products and services on the digital platform.

From the liabilities and CASA point of view, engagement has become so much more because digitally frequency is here. The strategy is digital, engaging and making sure that the client does most of the things on his own. We roughly have now 20-25,000 digital accounts being added per month and it was around 12,000 in January-February 2021. Last year this number would have been 5-7,000 before lockdown.

Q. How is the impact on SME and small business clientele? Is the same shift happening at the same speed or is it slow there?

If someone wants to trade in cash, then you have to connect with them physically. Apart from that, everything is digitally possible. We have a way of processing documents digitally. Most of the clients’ needs can be carried through digital channels. RBI last week allowed video KYC for sole proprietorship. Of course, cash will be an exception. There is also enablement happening for the business guys. That shift, which was slow so far, will become very fast paced now.

Q. How’s the user behaviour evolving in MSME clientele and how neo-bank platforms are targeting them?

That is working well. Let us not forget that an MSME business client has never done something digitally, he has done digitally but also done physically. All the neo-banks are providing a layer over the current account and other services like invoicing, billing, tax planning, etc. That demand was there earlier and still there. The changes were primarily on the account opening side. Physical interaction was required but now the video-KYC is available, it is a game-changer. More and more banks are taking trade documents digitally. More and more banks will move services digitally. So, that pace is bound to pick up. The problem will be for those banks who want to deal in cash.Q. What are the plans for RBL bank in the branch expansion model? Would you look at rationalising?

So talking about RBL in specific, we do not have a large network. We only have 429 branches as of March. For us, branch expansion plans continue to be aggressive as we must increase our coverage. Let us not forget that Indian consumers may do a lot of work digitally, having the branch closer will increase their confidence. Branch in my view will still play an important role. The difference will be that the number of branches will decrease compared to before. While engagement is digital, the Indian consumer may want to meet someone for confidence. We are planning to add 75 more branches compared to 40-45 branches last year as we have a small network.

Q. How is the impact of the second Covid wave panning out on customers acquisition, transactions etc?

I will divide the impact on the liabilities and asset sides. For the liabilities apart from the fact that people are not coming to the branches, we were able to do fairly well. We have ramped up our digital capabilities. The number of accounts opened was in the same range as what we were doing earlier. From that angle, there has not been a significant impact. In terms of transactions, only the cash transactions have taken a hit, our customers transacted digitally. The engagement rate was high, and customers did not really face a challenge.

Q. As unlocking of lockdowns has started, what’s the way forward?

On the liabilities side, I expect to be fairly good. We have been spending more time and effort in improving the quality of our liability profile as well. We look to make sure that our book is more granular, our cost of funds has come down, we are able to get more customers. We plan to open branches, we expect that CASA ratio improves.



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NCLT execution is frustrating; credit growth will remain a matter of concern, says Rajnish Kumar, BFSI News, ET BFSI

Banking & Finance

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Q. How are bankers mapping reality when everything is uncertain? How do you see credit growth this year?

Compared to the last year, the severity of lockdowns is not too much this year. If I look at the earnings of large corporations I can see that they are able to face the situation really well. Sectors like steel, cement and IT have shown some improvement. This year there is an impact on the rural economy, which was not there last year. Also, MSME is the most vulnerable and huge employment loss is a major concern. The key difference between 2020 and 2021 is that last year we had many measures from the government and RBI. My assessment is that the bank’s credit growth will remain a matter of concern this year too. Once vaccinations pick up and the third wave doesn’t strike, we can see a pick-up in the economy from the third quarter.

Q. Are the government and RBI initiatives generating the demand?

The government’s Emergency Credit Lending Guarantee Scheme (ECLGS) was very well received. RBI has kept the rates low and taken initiatives but the general belief is that monetary initiatives are not sufficient. We can’t do the heavy lifting which is required in the current situation. Right now the priority is to revive the demand and consumer confidence which can be done only by the government. Fiscal measures may be required. Given the constraints that the government has, the headroom is not unlimited. But this is an unusual situation and unusual steps are required.

Q. What should the government do to generate demand and consumption?

The government of Maharashtra reduced stamp duty from 6% to 2% and it generated a phenomenal business. This shows that such moves demonstrate the demand really well. It was an unprecedented move and it also improved the liquidity position of real estate developers. It is not necessary that only the central government should do all things; even state governments can take initiatives and offer incentives to encourage the demand.

Q. Has liquidation (at IBC) become a scam? Why are resolutions lesser than liquidations at IBC?

There are two things. First, generally for a better resolution what works is early detection. Here, many of the cases were really old and there was no chance of revival. Second, unfortunately, the weakest link in the whole IBC process is the execution. Many positions are lying vacant at NCLTs and many judges are going to retire soon. So how will the system work? We have thousands of cases. We are in a situation where the cases are piling up and resolution can’t happen. We have to make quick and immediate decisions. It’s a patient in the ICU and you can’t leave the patient unattended for months. There are cases where the resolution plan has been approved and voted on by the Committee of Creditors (COC) but there’s no decision from NCLT yet. It is a frustrating experience for the lenders. It is a frustrating experience for the resolution professionals. I don’t see any issue with the law, because a lot of amendments were carried out, but the execution is the weakest link. My view is if you can settle the cases without going to NCLT do that. You can think of a one-time settlement if you can. You may have a better recovery in certain cases there.

Q. Vijay Mallya is ready with the offer to settle the loans, are there legal challenges in accepting his offer?

There are no legal challenges, but till the time I was the chairman, there was no communication received from Vijay Mallya about any such offer. Also, lenders have security. Irrespective of what Vijay Mallya does, bankers have the security to recover their dues from his assets. And that security is very good and valuable. Recently the PMLA court has approved the sale of his assets. In Mallya’s case, whatever is the narrative, whatever be his mistakes, from lenders will recover better than many other stressed assets.

Q. With the emergence of digital and digital-only banks, where do you see SBI?

Today if technology is not the core of your business, then it will not survive. We were good at the back end. At SBI we have adopted digital heavily and the benefits are huge. Banking in 5-10 years will change beyond imagination. Large legacy banks also do not have a choice but to think like a tech company. Maybe it’s happening at different spaces at different banks, but SBI has its own advantage because of the customers and resources.

Q. What is the idea behind privatising two public sector banks?

The major issue is how long should the government capitalise the PSBs? And the government’s policy is also that they don’t want to have more than four entities in non-strategic sectors. There can be a question whether private banks perform better? But there is not an easy answer to this because there are failures in private banks as well. Also, the government wants to increase the governance of banks. So it’s a strategic decision. Because if the government wanted to only increase the governance they would have shifted the ownership of the PSBs to RBI, and the issue would have been resolved. RBI would have become the sole regulator and banks would have achieved similar results.



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Banks begin process of restructuring of loans up to Rs 25 crore, BFSI News, ET BFSI

Banking & Finance

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To provide support to small businesses hit by the second coronavirus wave, banks have initiated the process of restructuring of loans up to Rs 25 crore in line with the COVID-19 relief measures announced by the Reserve Bank earlier this month. Many lending institutions have got board approval for the resolution framework and eligible borrowers are being contacted.

For example, Bank of India has sent messages to its eligible customers to submit their willingness to debt recast online.

“In these trying times, we offer you a helping hand by extending relief as per RBI Resolution Framework 2.0 dated May 5, 2021. If you are under financial stress caused by the COVID second wave, you may opt for restructuring of your account,” the message said.

Another public sector lender Punjab & Sind Bank said its debt recast plan as specified by the RBI has been approved by the board.

“We will be reaching out to our customers including through BCs…we will get a fair idea about how many customers want to avail the restructuring in the next few days or so,” Punjab & Sind Bank managing director S Krishnan said.

SBI Chairman Dinesh Kumar Khara said for the resolution framework 2.0 announced by the RBI on May 5, all public sector banks have come out with a formulated templated approach for restructuring of loans to individuals, small businesses, MSMEs up to Rs 25 crore.

“The idea behind this is that those who are involved in the implementation of the resolution framework, they should not have any hardship in terms of any implementation,” Khara added.

When asked about the size of the restructuring pool banks are expecting this time, IBA Chairman and Union Bank of India‘s Managing Director and Chief Executive Officer Rajkiran Rai G said it was too early to put a number for potential recasts, as banks are only sending messages to eligible borrowers.

“Last time also we saw that the number of customers opting for this (restructuring) was not that high. So, we need to get some feedback and it is difficult to crystallise a number at this point in time,” he said.

The SBI chairman, Khara, said during the previous restructuring scheme, SBI had about 8.5 lakh SME customers who were eligible for restructuring but only 60,000 borrowers availed it.

The resurgence of the fresh COVID-19 wave has put many MSME, individuals and small businesses under stress. Taking cognisance of the prevailing situation, the RBI announced Resolution Framework 2.0 under which individuals and small businesses having exposure up to Rs 25 crore can opt for loan restructuring if they had not availed the earlier scheme.

In the case of those who had availed the loan restructuring under the earlier scheme, the RBI permitted the banks and lending institutions to modify the plans and increase the period of the moratorium to help alleviate the potential stress.

“In respect of small businesses and MSMEs restructured earlier, lending institutions are also being permitted as a one-time measure, to review the working capital sanctioned limits, based on a reassessment of the working capital cycle, margins, etc,” RBI Governor Shaktikanta Das had said while announcing steps to deal with the impact of the second wave of the COVID-19.

This is a one-time loan restructuring scheme under which the loan would remain standard despite recast and banks would not have to make additional provision in such cases.

This is the second restructuring scheme announced by the central bank in less than one year, with the first unveiled in August last year when the first COVID-19 wave had battered the Indian economy with a contraction of 8 per cent during the financial year ended March 2021.

Borrowers who were classified as “standard” as of March 31, 2021, will be eligible to be considered under Resolution Framework 2.0.

Restructuring under the proposed framework may be invoked up to September 30, 2021, and would have to be implemented within 90 days after invocation. DP MKJ MKJ



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Banks can lend about ₹46,000 crore to MSMEs, civil aviation sector

Banking & Finance

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Banks can lend about ₹46,000 crore to the micro, small and medium enterprises, civil aviation sector and for setting up oxygen generation plants in hospitals, nursing homes, clinics and medical colleges under the Emergency Credit Line Guarantee Scheme (ECLGS).

Last May, the Cabinet had approved additional funding of up to ₹3-lakh crore to eligible MSMEs and interested MUDRA borrowers through ECLGS.

Under the Scheme, 100 per cent guarantee coverage is provided by National Credit Guarantee Trustee Company Limited (NCGTC) for the additional funding.

Also read: Banks to extend unsecured personal loans for Covid treatment

Of the total approved ECLGS amount, loans aggregating ₹2.54-lakh crore have been sanctioned and ₹2.40-lakh crore have been disbursed so far, according to Sunil Mehta, Chief Executive, Indian Banks’ Association (IBA).

Under ECLGS 4.0, unveiled by the government on Sunday, 100 per cent guarantee coverage will be available for loans up to ₹2 crore to hospitals, nursing homes, clinics and medical colleges for setting on-site oxygen plants.

The interest rate on the aforementioned loans has been capped at 7.50 per cent.

ECLGS 3.0 has been modified, whereby the maximum ceiling on credit outstanding of ₹500 crore across all banks has been removed. This is subject to a maximum of 40 per cent or ₹200 crore, whichever is lower.

Under ECLGS 3.0, civil aviation sector has been included as an eligible sector. Earlier, hospitality, travel & tourism, leisure & sporting sectors were eligible.

Also read: FM yet to take a call on grant of fiscal stimulus to industry

Under ECLGS 1.0, additional assistance of up to 10 per cent of the outstanding as on February 29 (borrowers eligible for restructuring) will be offered.

The maximum tenure of the loan has been increased to five years (from four earlier), with repayment of interest only for the first 24 months (12 months earlier) with repayment of principal and interest in next 36 months

Also, the validity of ECLGS is extended to September-end or till guarantees of₹3-lakh crore are issued. Disbursement under the scheme is permitted up to December-end 2021.

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PSBs to follow templated approach to restructure loans

Banking & Finance

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Public Sector Banks (PSBs), under the aegis of the Indian Banks’ Association (IBA), have formulated a templated approach for seamless implementation of RBI’s Resolution Framework 2.0 for restructuring loans to individuals, small business and MSMEs up to ₹25 crore.

Banks have evolved a process flow for individual loans and a templated standardised approach for business and MSME loans up to ₹10 lakh.

Individual loans

The process flow envisaged for individual loans includes a) customer accessing the bank’s portal or manually submitting application for restructuring and b) processing of application and implementation in the system.

The resolution process has to be invoked within 30 days from the receipt of the application. The last date for invocation is September 30.

Invocation means that both the borrower and the bank agree to proceed with the Resolution Plan, which will include rescheduling of payments, granting of moratorium and extension of tenor. Decision in this regard will be communicated to the borrower in writing.

The Resolution Plan has to be implemented within 90 days from the date of invocation, but not later than December-end 2021.

The moratorium period granted will be for a maximum of two years, and it will start immediately after the implementation of the Resolution Plan.

Business, MSME loans

For implementation of resolution framework for business loans, banks have categorised loans into three categories – up to ₹10 lakh, ₹10 lakh and up to ₹10 crore, and above ₹10 crore

Under the templated standardised approach for restructuring Business and MSME loans up to ₹10 lakh, banks have sent bulk SMS to eligible customers including the already restructured accounts.

Offer-cum-acceptance letters, along with application, has been generated centrally. Customers have to provide consent in the offer letter itself. The application will then be processed.

Resolution invocation has to happen within 30 days of receipt of acceptance. Post-invocation, resolution plan has to be implemented within 90 days.

For loans above ₹10 lakh and up to ₹10 crore, and above ₹10 crore, banks will take a graded approach for restructuring. It will also include standard application and assessment formats, standard and simplified documentation, and common outreach approach

Sunil Mehta, Chief Executive, IBA, said a grievance redressal mechanism, comprising nodal officers, has been put in place to address customer complaints.

The Reserve Bank of India (RBI) announced a ‘Resolution Framework 2.0 for Covid-Related Stressed Assets of Individuals, Small Businesses and MSMEs’ on May 5.

Under the framework, borrowers – individuals, small businesses and MSMEs – having aggregate exposure of up to ₹25 crore and have not availed restructuring under any of the earlier restructuring frameworks and were classified as ‘standard’ as on March 31are eligible to be considered under Resolution Framework 2.0.

Restructuring under the framework can be invoked up to September 30, and has to be implemented within 90 days after invocation.

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Bank of Baroda posts net loss of Rs 1,047 cr in Q4, BFSI News, ET BFSI

Banking & Finance

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State-run Bank of Baroda reported a standalone net loss of Rs 1,047 crore in the quarter ended March 2021, as it shifted to a new tax regime.

The lender had reported a standalone profit-after-tax of Rs 507 crore in the year-ago period.

For the full year, net profit grew 52 per cent to Rs 829 crore from Rs 546 crore in FY20.

The bank booked a profit before tax (PBT) of Rs 2,680 crore during the quarter against a loss of Rs 1,723 crore in the year-ago period. PBT stood at Rs 5,556 crore for FY21 against a loss of Rs 1,802 crore in FY20.

“Given the fact that we had a PBT of Rs 5,556 crore (in FY21), we thought this is the right time to transit to a lower tax rate regime. But the movement to the new tax regime means we have to make a DTA (Deferred Tax Assets) adjustment, which was of the order of Rs 3,500 crore for the full year. Because of that, we are reporting an accounting loss of around Rs 1,000 crore in Q4 FY21.

“But for the DTA impact, we would have a profit after tax of Rs 2,200 crore in the last quarter,” the bank’s managing director and CEO, Sanjiv Chadha, told reporters.

Net interest income (NII) rose by 4.54 per cent to Rs 7,107 crore compared to Rs 6,798 crore a year ago.

Global net interest margin (NIM) improved to 2.72 per cent from 2.63 per cent in Q4 FY20 led by margin expansion in international business to 1.57 per cent in Q4 FY21.

Domestic NIM declined to 2.73 per cent as against 2.76 per cent in the fourth quarter of FY20.

Gross NPA ratio fell to 8.87 per cent as against 9.40 per cent and net NPA ratio to 3.09 per cent from 3.13 per cent.

Fresh slippages during the quarter stood at Rs 11,656 crore in the fourth quarter of FY21.

The lender’s slippage ratio declined to 2.71 per cent in FY21 from 2.97 per cent in FY20. Credit cost decreased to 1.68 per cent in FY21 from 2.35 per cent in FY20.

“Slippages will come down very significantly during the current year (FY22) despite the second wave. I would believe that we should be trending towards 2 per cent or lower in FY22,” Chadha said.

He expects credit costs to be in the range of 1.5-2 per cent in FY22.

Total provisions and contingencies declined 46.03 per cent to Rs 3,586 crore in the fourth quarter of FY21 from Rs 6,645 crore in the year-ago period.

Domestic advances increased by 4.91 per cent year-on-year led by domestic organic retail and agriculture loans which grew by 14.35 per cent and 13.22 per cent respectively.

Within retail loans, auto loans increased by 27.79 per cent year-on-year and personal loans grew at 27.21 per cent year-on-year.

Chadha said collection efficiency of the bank improved to 93 per cent during the March quarter. He expects some impact on collections during the April-June quarter of FY22.

He said despite the impact of the second wave, the bank’s corporate book is likely to remain strong.

“Last year, we were not confident about what would happen to the corporate sector. This time we can say with confidence that the second wave has largely left the large corporate businesses untouched. Even in terms of accounts which were relatively weaker and had got restructured, I do not believe we would need to revisit restructuring in most cases,” Chadha noted.

He, however, said the area of concern for the bank remains the MSME sector and to a lesser extent, the retail sector.

“What we have experienced is people, particularly in the retail segment, may fall back on some instalments but ultimately they pull through. Our assessment is that a very large percentage of our retail borrowers will pull through and, for a minority, we may need to do some kind of restructuring. But when it comes to MSME, the impact is larger and restructuring will also be larger,” he added.

Chadha expects a credit growth of 7-10 per cent in FY22 for the bank, if the economy witnesses a double-digit growth.

On capital raising plans for the current fiscal, he said a major portion of the funding requirement will get done through internal accruals.

The bank’s capital to risk (weighted) assets ratio (CRAR) stood at 14.99 per cent in FY21 against 13.30 per cent.

Speaking about the RBI’s announcement on an on-tap liquidity window of Rs 50,000 crore to support healthcare infrastructure, he said the lender has received a board approval on this and it is engaging with the companies.

The bank is targeting a 50 per cent growth in its loans to the healthcare sector.

“Our current exposure to the sector is Rs 7,000-8,000 crore. I would believe we should be looking at targeting a growth between Rs 3,000-5,000 crore there,” Chadha said.



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