Tag: msmes

FIDC seeks refinance mechanism for NBFCs

Banking & Finance

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Finance Industry Development Council (FIDC) has sought a refinancing mechanism for non-banking finance companies and other measures to further credit flow to MSMEs through these shadow banks.

In a letter to SIDBI Chairman and Managing Director S Ramann, FIDC has said there is a dire need for an effective refinance mechanism on similar lines as the NHB refinance to ensure diversity and greater regularity in sources of funds to NBFCs.

“We believe that SIDBI is most suited as an institution to provide such a facility to NBFCs for onward lending to MSMEs and other appropriate sectors,” FIDC said, adding that it has also discussed the issue with the Reserve Bank of India and Finance Ministry.

It has also called for changes in the eligibility criteria used by SIDBI for funding NBFCs, apart from rating.

“While rating should be an important consideration for SIDBI to assess its credit risk, we submit that this may be seen as only one of the criteria, which could be counter-balanced with vintage of NBFC, the track record and experience of the key personnel, financial parameters, credit quality and capital adequacy,” it said, adding that rating should not be used as a qualifying criterion for a “go-no go” decision for lending to NBFCs.

FIDC is a representative body of asset and loan financing of RBI registered NBFCs.

It has sought extension of CGTMSE coverage to loans given to educational institutions. Currently, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) coverage is not available for loans provided by NBFCs to educational institutions.

FIDC pointed out that many educational institutions are now being opened, and there is a need to provide adequate financing for restoring normalcy and enabling their growth.

“Covering these loans under the CGTMSE scheme would facilitate greater flow of funds to this critical sector,” it said.

It also asked that CGTMSE coverage should be restored to 75 per cent of the non-performing asset. Further, FIDC has suggested that arbitration should be considered a valid legal step taken for debt recovery under the ECLGS scheme.

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HDFC Bank to double its rural reach to 2 lakh villages in two years, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: HDFC Bank aims to expand its reach to two lakh villages in the next 18-24 months. The bank plans this expansion through a combination of branch network, business correspondents, business facilitators, CSC partners, virtual relationship management and digital outreach platforms. This will increase the Bank’s rural outreach to about a third of the country’s villages.

HDFC Bank currently offers its products and services to MSMEs in over 550 districts. Its rural banking services extend to 100,000 Indian villages. It aims to double this to 2,00,000 villages. As a part of this plan it plans to hire 2,500 people more in the next 6 months.

Rahul Shukla, Group Head – Commercial and Rural Banking, HDFC Bank, said in a statement, “India’s rural and semi-urban markets are under-served in credit extension. They present sustainable long-term growth opportunities for the Indian banking system. HDFC Bank remains committed to extend credit, responsibly, in service of the nation. Going forward we dream of making ourselves accessible in every pin code.”

While offering its services the bank will offer its traditional products and services as well as new ones. It already offers customised offerings such as pre- and post-harvest crop loans, two-wheeler and auto loans, loans against gold jewellery, and other curated loan products in unbanked and under-banked geographies.



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Flipkart partners Davinta to offer credit facilities to MSMEs, kiranas, BFSI News, ET BFSI

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New Delhi, Sep 18 (PTI) Flipkart Wholesale, the digital B2B marketplace of Flipkart Group, on Saturday said it has partnered with SME lending platform Davinta to offer a ‘Buy Now Pay Later‘ (BNPL) credit facility to its retailers. Flipkart Wholesale Senior Vice-President and Head Adarsh Menon said access to affordable and transparent credit is one challenge the company aims to solve.

“Partnering with Davinta will give members on our platform access to credit with a single click. The experience for the retailers is seamless and completely digital and was only possible because both our organizations take a technology-first approach,” he said in a statement.

As this partnership is strengthened, this construct will allow more and more of Flipkart Wholesale’s Kirana and MSMEs members to enjoy the benefit of accessible and affordable credit in the pursuit of their growth on the platform, he added.

‘Buy Now Pay Later’ or BNPL has emerged as a credit innovation from new-age fintechs, who are offering this as an alternative to customers who struggle to be eligible for traditional credit constructs such as credit cards.

With more than 6 crore small businesses in India, a majority of whom struggle to get access to traditional credit, BNPL offers a massive opportunity to drive financial inclusion and provide the much needed affordable credit access to these small business owners.

“We are very excited with the opportunity to partner with Flipkart Wholesale and offer our BNPL product to the over 1.5 million members of Flipkart Wholesale,” Davinta CEO Ravi Garikipati said.

He added that with BNPL, the company is now allowing retailers across the country to unlock themselves from cash constraints while purchasing supplies and enjoy simple one-click credit access.

Bengaluru-based Davinta was founded by ex-Flipkart CTO Ravi Garikipati and US-based entrepreneur Raj Vattikuti. The two-year-old firm focuses on micro-enterprises and its flagship product Vyaapaar Shakti is a BNPL credit facility designed for small retailers. PTI SR MR MR



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Large corporates no longer borrowing engine for banks as retail borrowing rises, BFSI News, ET BFSI

Banking & Finance

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The dominance of large corporate accounts in banks’ loan portfolio that lasted until 2014 has shrunk, giving way for retail borrowing to rise, according to a study by the Reserve Bank of India.

An analysis of the sectoral composition of non-food credit by a team of RBI economists reveals that the share of the industrial sector in overall non-food credit offtake, which stood at over 45% in 2013-14, declined to around 30% by 2020-21.

Over the years, retail and services sector loans have gained more prominence.

Capital investment shrinking

Capital investment by private companies could slide this financial year as well, after shrinking in the previous year due to COVID-19 lockdowns, a central bank forecast shows.

A study of the phasing profile, i.e., stage wise implementation over three or four years, of planned capex of pipeline projects could shrink 27% on year to Rs 68,469 crore. The phasing profile of the capital expenditure based on the pipeline of sanctioned projects in the previous years indicates a decline from Rs 94,227 crore in 2020-21 to Rs 68,469 crore.

The pandemic impacted adversely appetite for new projects during 2020-21, and also posed impediments to timely completion of projects in the pipeline, the RBI said.

The regulator assessed that a total capex of Rs 1.60 lakh crore would be incurred by the private corporate sector in FY21, translating into a sharp dip of 30% from the previous year.

Retail going strong

The outstanding retail loans are higher at Rs 28.6 lakh crore against Rs 28.2 lakh crore for industry that includes MSMEs and large corporates at the end of July. The outstanding loans to the services sector stand at Rs 26 lakh crore.

The growth rate of the retail/personal loans segment stood at 11.2% in July 2021, higher by 220 basis points when compared with July 2020.

In absolute terms, credit outstanding has increased from Rs 25.7 lakh crore in July 2020 to Rs 28.6 lakh crore in July 2021.

The growth in retail loans has been driven by personal unsecured, vehicle loans and gold loan lending by some banks. The growth rate came in higher by 120 bps as compared with March 2021.

Industry loans

The industry segment witnessed a growth of 1% on a year-on-year basis in July 2021, after witnessing a de-growth in previous month. Large industries account for 80.5% share (83.8% share in July 2020) in the total outstanding credit to industries, and this segment reported a drop of 2.9% in July 2021 versus a growth of 1.4% in July 2020.

The growth movement is weak as corporates continue to de-leverage and select large corporates access to bond markets. MSME industries grew by 21.3% in July 2021, which partially offset the fall in large segments, compared with a drop of 1.8% in July 2020. The growth in lending to industry and services was almost entirely led by the MSME segment, which was driven by disbursements under ECLGS scheme, wherein Rs 2.14 lakh crore were disbursed up till date.

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MSMEs, retail loans to take bank NPAs to Rs 10 lakh crore by March 2022, BFSI News, ET BFSI

Banking & Finance

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Banks’ bad loans might cross Rs 10 lakh crore by the end of this fiscal, mainly on account of slippages in retail and MSME sectors, a study said.

“NPAs are expected to rise to 8.5-9 per cent by March 2022, driven by slippages in retail, Micro, Small and Medium Enterprise (MSME) accounts, besides some restructured assets,” the study by industry body Assocham and ratings firm Crisil said.

Reserve Bank of India (RBI) Governor Shaktikanta Das this month had said the current levels of non-performing assets (NPA) looks manageable.

At the end of June, the gross NPA level of the banking system was 7.5 per cent and the capital adequacy level was around 16 per cent, which gives an adequate cushion, Das said at an event.

MSME, retail hit

The current asset quality stress cycle will be different than that witnessed a few years back. NPAs then came primarily from bigger, chunkier accounts.

According to the study, this time, smaller accounts, especially the MSME and retail segments, are expected to be more vulnerable than large corporates, as the latter have consolidated and deleveraged their balance sheets considerably in the past few years.

Even though the restructuring scheme announced for MSMEs and small borrowers should prevent the NPAs from rising too much, there is an opportunity for stressed asset investors with expertise and interest in these asset classes, it added.

”The effectiveness of the Insolvency and Bankruptcy Code (IBC) will be tested by the potential spike in NPAs as the standstill on initiation of fresh insolvency cases for year ended in March 2021 and as most of the pandemic-induced policies or measures are unlikely to be continued”the study said.

IBC to rescue

The expected increase in GNPAs of both banks and non-banks this fiscal, because of the pandemic, will provide an opportunity for players in the stressed assets market through resolution via various routes, with IBC likely to be the most preferred.

However, the GNPAs of banks have declined from the peak seen in March 2018 and were lower as of March 2021 as against March 2020. Supportive measures, including the six-month debt moratorium, Emergency Credit Line Guarantee Scheme (ECLGS) loans and restructuring measures were among the main reasons.

According to the study, the risk management practices of Indian banks, especially public sector banks, have scope for improvement.

In the past, laws were not in favour of lenders and allowed erring promoters to exploit the tedious recovery procedure. This is borne out by the high number of wilful defaulters of banks, it noted.

”However, RBI has tightened norms for such defaulters and made stressed asset resolution norms more stringent. That, coupled with increased resolution of large-ticket NPAs under the IBC framework, have contributed to better recovery of NPAs,” the study said.

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Gross NPA of banks likely to cross ₹10 lakh crore by March 2022: Assocham-Crisil study

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Banks’ gross non-performing assets (GNPAs) are likely to exceed ₹10 lakh crore by March 2022, according to a recent Assocham-Crisil joint study released on Tuesday,

This study, “Reinforcing the Code,” conducted by The Associated Chambers of Commerce and Industry of India (Assocham) in collaboration with credit rating agency Crisil, highlighted that “NPAs are expected to rise to 8.5-9 per cent by March 2022, driven by slippages in retail, micro, small and medium enterprise (MSME) accounts, as well as some restructured assets.”

“The effectiveness of the Insolvency and Bankruptcy Code (IBC) will be tested by the probable surge in NPAs, as a year-long moratorium on the filing of new insolvency cases ended in March 2021, and most pandemic-related policies or initiatives are unlikely to be continued,” said the report.

Stressed assets

According to the Assocham-Crisil study, the expected increase in GNPAs of both banks and non-banks this fiscal year as a result of the pandemic will provide an opportunity for players in the stressed assets market to resolve their debts through a variety of routes, with IBC likely to be the most popular.

While the proposed restructuring scheme for MSMEs and small debtors should keep NPAs from rising too much, stressed asset investors with experience and interest in these asset classes have an opportunity, according to the report.

The study also found that Indian banks’ risk management policies, particularly those of public sector banks, might be improved. Previously, laws were not in favour of lenders, allowing unscrupulous promoters to take advantage of the time-consuming recovery process. A significant number of bank wilful defaulters attests to this.

The RBI, on the other hand, has tightened the rules for such defaulters and made the rules for stressed asset resolution harsher. This, together with the IBC framework’s greater resolution of large-ticket NPAs, has resulted in improved NPA recovery.

According to the report, bank GNPAs have decreased since their high in March 2018 and were lower in March 2021 than in March 2020 due to supportive measures such as the six-month debt moratorium, emergency credit line guarantee scheme (ECLGS) loans, and restructuring measures.

The present asset quality stress cycle, according to the report, will be different from that of a few years ago. “NPAs largely came from larger, chunkier accounts at the time. Smaller accounts, particularly in the MSME and retail segments are projected to be more vulnerable this time than large corporations, which have significantly consolidated and deleveraged their balance sheets in recent years.

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Banks may see stress rising in retail, MSME segments by March, BFSI News, ET BFSI

Banking & Finance

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Domestic rating agency India Ratings on Tuesday maintained a stable outlook on the banking sector for 2021-22 while it expects an increase in stressed assets in retail and MSME segments by end-March.

It estimates gross non-performing assets (GNPA) of the banking sector to be at 8.6 per cent and stressed assets at 10.3 per cent for fiscal 2021-22.

“We have maintained a stable outlook on the overall banking sector for the rest of FY22, supported by the continuing systemic support that has helped manage the system-wide COVID-19 linked stress,” the rating agency said in its mid-year banks outlook released on Tuesday.

Banks will continue to strengthen their financials by raising capital and adding to provision buffers which have already seen a sharp increase in the last three to four years, it said.

Private banks

The agency said its stable outlook on large private banks indicates their continued market share gains both in assets and liabilities, while competing intensely with public sector banks (PSBs). Most have strengthened their capital buffers and proactively managed their portfolio.

Outlook on PSBs takes into account continued government support through large capital infusions (Rs 2.8 lakh crore over FY18-FY21 and further Rs 0.2 lakh crore provisioned for FY22), it said.

The agency has a negative outlook on five banks (about 6.5 per cent of system deposits), driven primarily by weak capital buffers and continued pressure on franchise.

It estimates that the asset quality impact in the retail segment has been higher for private banks with a median rise of over 100 per cent in gross NPAs over Q1 FY21 to Q1 FY22 (about 45 per cent for PSBs).

“Banks have also undertaken restructuring in retail assets (including home loans), which could have postponed an immediate increase in slippages. Overall stressed assets (GNPA + restructured) in the segment is expected to increase to 5.8 per cent by end-FY22,” the report said.

It said the MSME sector has been under pressure with demonetisation, introduction of GST and RERA, slowing down of large corporates and now COVID-19.

ECLGS stress

However, the government has supported the segment by offering liquidity under the Emergency Credit Line Guarantee Scheme (ECLGS) and restructuring, it said adding that it expects that beginning Q3 FY22, a portion of such advances would start exiting moratoriums a part of which could slip.

GNPAs of MSMEs is expected to increase to 13.1 per cent by end-FY22 from 9.9 per cent in FY21. Stressed assets similarly would increase to 15.6 per cent from 11.7 per cent.

For corporate segment, the agency estimates GNPAs to increase to 10.2 per cent and stressed asset to increase to 11.3 per cent.

The rating agency has kept its FY22 credit growth estimates unchanged at 8.9 per cent for FY22, supported by a pick-up in economic activity post Q1 FY22, higher government spending especially on infrastructure and a revival in demand for retail loans.

Last week, the agency had changed the outlook to improving from stable for retail non-banking finance companies (NBFCs) and housing finance companies (HFCs) for the second half of FY22.

It said non-banks have adequate system liquidity (because of regulatory measures), sufficient capital buffers, stable margins due to low funding cost and on-balance sheet provisioning buffers.

These factors provide ‘enough cushion to navigate the challenges that may emanate from a subdued operating environment leading to an increase in asset quality challenges due to the second covid wave impacting disbursements and collections for non-banks’, it had said.



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Heightened stress in retail, MSME segments due to Covid could weigh down banks, cautions Ind-Ra

Banking & Finance

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India Ratings (Ind-Ra) has cautioned that heightened stress in retail and micro, small and medium enterprise (MSMEs) could push out the banking sector’s inflexion point.

The credit rating agency also said that upward movement in yield curve could weigh down banks’ profitability.

Ind-Ra observed that safe bastion retail lending has fallen as pandemic drives higher delinquencies.

Indian banks to feel the effect of Covid second wave long after infections fade: S&P Global

In the case of MSME, notwithstanding the support in the form of the emergency credit line guarantee scheme (ECLGS) and restructuring, slippages could reflect from 2HFY22.

The agency noted that the agriculture sector has seen limited impact of Covid. The incremental stress addition from corporate segment has been at low levels.

Continuing systemic support

Ind-Ra, however, has maintained a stable outlook on the overall banking sector for the rest of FY22, supported by the continuing systemic support that has helped manage the system-wide Covid-linked stress.

It observed that banks also continue to strengthen their financials by raising capital and adding to provision buffers, which have already seen a sharp increase in the last three to four years.

‘Significant impact on profitability of Indian banking system’

The agency, in its “Mid-Year Banks Outlook”, has kept its FY22 credit growth estimates unchanged at 8.9 per cent for FY22, supported by a pick-up in economic activity post 1QFY22, higher Government of India (GoI) spending, especially on infrastructure, and a revival in demand for retail loans.

For FY22, the agency estimates the banking sector’s gross non-performing assets (GNPAs) at 8.6 per cent (against 10.1 per cent forecast made in February 2021) and stressed assets at 10.3 per cent (11.7 per cent). It expects provisioning cost for FY22 to increase to 1.9 per cent from its earlier estimate of 1.5 per cent.

PvSBs: market share gains

“Ind-Ra’s Stable outlook on large private sector banks (PvSBs) indicates their continued market share gains, both in assets and liabilities, while competing intensely with public sector banks (PSBs).

“Most have strengthened their capital buffers and proactively managed their portfolio. As growth revives, large PvSBs are likely to benefit from credit migration due to their superior product and service proposition,”said Karan Gupta, Director.

The agency’s Stable outlook on PSBs takes into account continued government support through large capital infusions (₹2.8 lakh crore over FY18-FY21 and further ₹20,000 crore provisioned for FY22).

The government’s support to PSBs has resulted in a significant boost in their capital buffers over the minimum regulatory requirements, significant improvement in provision coverage to 68 per cent in FY21 (FY18: 49 per cent), overall systemic support resulting in lower-than-expected Covid stress and smooth amalgamation of PSBs, Gupta said.

As per Ind-Ra’s analysis of the impact of a reversal in the long-term yield curve on the investment portfolio of banks, it expects an adverse impact on the profitability with a 100 basis points upward shift in the yield curve.

This could impact the pre-provisioning operating profit of PSBs by 8 per cent and that of PvSBs by 3.2 per cent while for the overall banking system, the impact could be 5.8 per cent.

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HDFC Bank signs MoU with NSIC to offer credit support to MSMEs

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HDFC Bank signed a memorandum of understanding with National Small Industries Corporation (NSIC) to offer credit support to micro, small and medium enterprises (MSMEs) across the country.

“HDFC Bank will provide MSMEs with set of specially tailored schemes to enhance their competitiveness. Under this financing arrangement HDFC Bank branches will extend support to MSME projects in the areas they are located or other important industrial sectors across the country,” the private sector lender said in a statement on Tuesday.

It will also accept loan applications forwarded by NSIC and consider sanctioning loans on merit basis and as per its lending norms.

“We believe this partnership with NSIC will help expedite the MSME Sector growth which is the backbone of the country both in terms of economic development and job creation,” said Rahul Shukla, Group Head – Commercial and Rural Banking, HDFC Bank.

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Loans to large industries shrink for 11th month as corporates avoid banks, BFSI News, ET BFSI

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The total outstanding loans to large industries by the banking sector has shrunk for the 11th straight month in July 2021 as companies continue to deleverage and shift to cheaper options such as bonds.

Most of the bank credit is driven by the retail and agri segments as sanctioned limits of corporates remain unutilised to the extent of 25%.

The credit to large industries shrank 2.9% in July.

The credit growth in the last two months is being led by is led by MSMEs, agriculture and retail as corporate lending stays tepid.

Lending to MSMEs, agriculture and retail picked up sharply in July this year over previous year’s levels, data on sectoral deployment of bank credit released by the Reserve Bank of India showed.

Credit to agriculture and allied activities expanded 12.4% in July 2021 as compared with 5.4% in last July.

Deleveraging on

Corporates that are flush with cash on account of booking bumper profits are looking to deleverage their bank loans and prepaying them.

HDFC Bank received Rs 30,000 crore in prepayments through the Jue quarter, mainly from companies in the commodities and infrastructure sectors.

In the April-June quarter, AAA or AA-rated companies sought to deleverage as they recorded solid cash balances. Cash flows were robust at commodity companies because of record iron ore or aluminium prices, boosting net profits. Infrastructure companies, too, reported fatter bottom lines due to the government’s extensive highway-building programme.

With demand collapsing during pandemic and uncertainty rising, companies had put a pause on expansion and have focused on becoming debt-free.

PSU loan books shrink

The deleveraging has led to a drop in corporate loan demand for banks, especially PSU ones.

The domestic corporate loans by the State Bank of India fell 2.23 per cent to Rs 7,90,494 crore in the quarter ended June 30, 2021, compared to Rs 8,09,322 crore in the same quarter last year. In the first quarter of FY21, SBI reported 3.41 per cent growth in corporate advances.

Union Bank of India‘s share of industry exposure in domestic advances dropped to 38.12 per cent at Rs 2,40,237 crore from 39.4 per cent at Rs 2,47,986 crore in the same quarter a year ago. Corporate loans dropped 3% at Indian Bank during the last quarter. At PNB, corporate loans fell 0.57 per cent at Rs 3,264,66 crore in June quarter 2021 compared to Rs 3,28,350 crore a year ago.

Up to May, the gross loans to large industries declined by 1.7 per cent year­-on­year, according to RBI data.

However, HDFC Bank expanded its corporate loans by over 10% in the April-June quarter to about Rs 3.15 lakh crore.

Shift to bonds

The corporate world focused on deleveraging high-cost loans through fundraising via bond issuances despite interest rates at an all-time low. This has led to muted credit growth for banks.

Corporates raised Rs 2.1 lakh crore in the December quarter and Rs 3.1 lakh crore in the fourth quarter from the corporate bond markets. In contrast, the corresponding year-ago figures were Rs 1.5 lakh crore and Rs 1.9 lakh crore, respectively.

Bonds were mostly raised by top-rated companies at 150-200 basis points below bank loans. Most of the debt was raised by government companies as they have top-rated status.

For AAA-rated corporate bonds, the yield was 6.85 per cent in May 2020, which fell to 5.38 per cent in April 2021 and to 5.16 per cent in May 2021.



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