Mumbai, Reserve Bank of India (RBI) Governor Shaktikanta Das on Tuesday asked heads of select private sector banks to boost credit flows to retail and small business borrowers and quickly implement all the measures announced by the apex bank on May 5 as part of Covid-relief measures.
Das met met the MD & CEOs of select Private Sector Banks through video conference in a meeting that was also attended by Deputy Governors M. K. Jain, M. Rajeshwar Rao, Michael D. Patra and T. Rabi Sankar.
In his opening remarks, the Governor recognised the crucial role played by the private sector banks as important stakeholders in the Indian banking sector.
He impressed upon the banks to quickly and swiftly implement the measures announced by RBI on May 5, 2021 in right earnest. He also advised the banks to ensure continuity in provision of various financial services including credit facilities to individuals and businesses in the face of challenges brought on by the pandemic.
On May 5, the RBI governor had announced a slew of measures to counter the impact of the second wave of the Covid-19 pandemic on banks and financial institutions as also their borrowers.
During the meeting, the RBI governor urged bankers to continue focusing on efforts to further strengthen their balance sheets proactively.
The meeting also took time to make an assessment of current economic situation and the state of the banking sector. It also focused on credit flows to different segments of the economy, particularly to small borrowers, MSMEs.
Das also heard the banks over their progress in the implementation of Covid Resolution Framework 1.0, Monetary policy transmission and liquidity scenario; and Implementation of various Covid-related policy measures taken by RBI.
Banks have sought an extension of one-time debt recast scheme as the curbs after fresh Covid wave are likely to increase defaults and affect asset quality.
The bank chiefs have petitioned RBI to extend the scheme introduced last year in a meeting with the governor earlier this week, according to reports. No relief measures
Banks, which got protection and support by a swift moratorium on loans when the pandemic first struck, have no such cover this time.
As the second wave intensifies, most of the relief measures and schemes announced by the government and Reserve Bank of India have expired. On top of it, the central bank is non-committal on moratoriums.
In today’s conditions, there is no need for a moratoriumRBI governor Shaktikanta Das
Also, a spike in overdue loans after the lifting of the moratorium has been worrying analysts.
“The level of loans in overdue categories has increased after the moratorium has been lifted and the impact on asset quality will be spread over FY2021 and FY2022 as various interventions and relief measures have prevented a large one-time hit on profitability and capital of banks,” ratings agency Icra said in a report. What Fitch says
Banks want debt recast scheme back as Covid wave intensifies
India’s second wave of Covid infections poses increased risks for India’s fragile economic recovery and its banks, says Fitch Ratings. It already expects a moderately worse environment for the Indian banking sector in 2021, but headwinds would intensify should rising infections and follow-up measures to contain the virus further affect business and economic activity.
Fitch forecasts India’s real GDP growth at 12.8% for the financial year ending March 2022 (FY22). This incorporates expectations of a slowdown in 2Q21 due to the flareup in new coronavirus cases but the rising pace of infections poses renewed risks to the forecast. Over 80% of the new infections are in six prominent states, which combined account for roughly 45% of total banking sector loans. Any further disruption in economic activity in these states would pose a setback for fragile business sentiment, even though a stringent pan-India lockdown like the one in 2020 is unlikely. Challenging environment
The operating environment for banks will most likely remain challenging against this backdrop. This second wave could dent the sluggish recovery in consumer and corporate confidence, and further suppress banks’ prospects for new business (9MFY21 credit growth: +4.5% as per Fitch’s estimate), it said. There are also asset quality concerns since banks’ financial results are yet to fully factor in the first wave’s impact and the stringent 2020 lockdown due to the forbearances in place. We consider the micro, small and medium enterprises (MSME) and retail loans to be most at risk, the rating agency said.
Retail loans have been performing better than our expectations but might see increased stress if renewed restrictions impinge further on individual incomes and savings. MSMEs, however, benefited from state-guaranteed refinancing schemes that prevented stressed exposures from souring.
U GRO Capital on Thursday announced its partnership with SBM Bank India for the launch of GRO Smart Business credit card.
Powered by RuPay, along with EnKash, these are a range of secured credit cards specially designed for under-banked micro, small and medium enterprises, it said in a statement.
These can be availed by U GRO Capital borrowers against a fixed deposit (FD) with SBM Bank India.
MSMEs eligible for the business loans from U GRO Capital would be extended incremental funds to open an FD account with SBM Bank and the credit card would be offered against the security of an FD maintained by the applicant in his name, it further said.
A S Rajeev, MD & CEO of BoM, said they were looking at offering a fully digital financing experience to MSME customers, suppliers and distributors of leading corporates.
Bank of Maharashtra on Thursday entered into a strategic partnership with fintech company Vayana Network to offer channel financing service for MSMEs. Vayana is India’s largest supply chain financing platform offering financial support to MSMEs. Through this partnership, BoM has launched the Mahabank Channel Financing Scheme to provide short-term credit to meet funding requirement of dealers and vendors of corporates.
A S Rajeev, MD & CEO of BoM, said they were looking at offering a fully digital financing experience to MSME customers, suppliers and distributors of leading corporates. “We believe in the power of partnerships, and hence have tied up with leading fintechs to launch innovative digital offerings.” Ram Iyer, founder and CEO, Vayana Network said, supply chain finance or trade finance has become a critical vehicle for affordable MSME loans. SCF has gained more traction in the post-COVID era as both corporates and their MSME supply chains aiming at streamlining their working capital cycles and liquidity.
Indian Bank has entered into an MoU with Society for Innovation and Development (SID), an initiative of Indian Institute of Science, Bengaluru, for extending exclusive credit facility to start-ups and MSMEs.
SID is the forerunner in setting up joint R&D with industries and supporting start-up incubation and it provides support to the MSME sector by providing joint research and development arrangements, technical and financial support for incubation, acceleration of high-end technology products under its department named “TIME2.” (Technology Innovation for Midsized Enterprises).
Under the MoU, SID will identify the start-ups and MSMEs based on their credentials and past experience and will refer to the list of such members who require financial assistance to the Bank.
The initiative is a part of the bank’s scheme “Ind Spring Board for financing Start-ups” and will empower start-ups and MSMEs to realise their research efforts powered by financial support from the bank and backed by incubation facilities offered by SID.
The bank will extend loans of up to ₹50 crore to these start-ups for their working capital requirements or for purchase of machinery, equipment, etc. This initiative, which is mutually beneficial for the bank and IISc, will be the springboard for start-ups to realise their ambitions.
Indian Bank had also recently launched “MSME Prerana” programme to empower MSME entrepreneurs through skill development and capacity building workshops in local languages.
The MoU was signed by Sudhakar Rao (GM, MSME, Indian Bank) and Prof B Gurumoorthy, Chief Executive, SID. Representatives of Indian Bank. Rohit Rishi (FGM, Bengaluru), and P Lakshmi Narayana (ZM, Bengaluru) along with representatives of SID, Yatishwar Dravid (Head of TIME2) and Prathap Murthy (Manager, TIME2) was also present.
State-owned Bank of Maharashtra on Monday said it has entered into a co-lending agreement with the Pune-based non-banking financial company LoanTap Credit Products, for MSME loans. Under the co-lending model, the bank will have an exposure of up to 80 per cent while the rest will be borne by the LoanTap, the bank said in a release.
“Co-lending is the system introduced by RBI in the wake of the liquidity crisis at non-banking finance companies to enhance the credit flow to the unserved and underserved sector and make available funds to the ultimate beneficiary at an affordable cost,” the bank’s managing director and CEO A S Rajeev said.
In September 2018, RBI had come out with a co-origination model between banks and NBFCs for providing credit to the priority sector. Last year in November, RBI rechristened the scheme as Co-Lending Model (CLM), and revised the terms to provide greater operational flexibility to the lending institutions.
BoM’s executive director Hemant Tamta said the co-lending model shall help the bank to meet the priority sector lending target. It will be beneficial for all NBFCs having wider outreach and customers, who will be facilitated with low cost credit from banks.
The co-lending model provides ease of loan sanctions at borrower’s convenience through digital lending platforms, which cover end-to-end loan processing cycle without manual intervention, from on-boarding of customers to loan disbursement and monitoring.
Banks have improved the granularity of their loan books by focusing more on retail asset classes and reducing potential asset-quality shocks due to defaults by large entities. The share of medium and large industries in non-food credit of banks fell from ~40% in fiscal 2012 to ~27% in fiscal 2020, while that of personal loans rose from 18% to 28%.
While granular loans to retail borrowers and micro, small and medium enterprises (MSMEs) can result in elevated stress during the pandemic, given the unprecedented impact on household incomes and small businesses, policy mitigations announced would limit the impact to some extent.
Rama Patel, Director, CRISIL Ratings
Crucially, measures such as moratorium on loans, relief in interest on interest, one-time debt restructuring, and emergency credit line guarantee schemes have thrown many a lifeline to businesses and households. They also helped banks, especially those with diversified portfolios, thwart significant slippages.
The other major reason for systemic resilience is capital infusion. Public sector banks (PSBs) have raised ~Rs 3.4 lakh crore of equity in the past five years, bulk of it from the government.
That has shored up systemic capital adequacy ratio to 14.7% last fiscal and further to 15.8% as of September 2020 – almost on a par with advanced economies such as the US (15.9%) and South Korea (15.3%). Private sector banks are in a better position, reflected in their capital adequacy ratio of 16.7%, compared with 13.1% for PSBs as of March 2020.
To be sure, NPAs would rise in the pandemic aftermath and necessitate high capitalisation levels.
Robust capitalisation facilitates timely recognition and quick resolution of pandemic-related stress and faster recovery of credit growth. The different trajectories of banking systems in the US and the euro area after the GFC demonstrate this. Higher recapitalisation of US banks compared with the euro area enabled faster resolution of stress and facilitated quicker recovery of credit growth after the GFC in the US.
While it is natural for credit growth to be muted during a crisis due to lower demand and risk aversion, it is important that the pace improves once uncertainty abates and demand returns.
There are two reasons for this. One, bank credit growth significantly influences the growth trajectory of a developing country like India where credit to the private non-financial sector is underpenetrated at ~58% of GDP, compared with over 150% in the US, euro area, South Korea or even China.
Two, it is an essential condition for banking system resilience. Banks need to grow and diversify their loan books to enhance profitability that, in turn, is the key to building capital buffers against future risks and growth. Profitability can be sustained only through credit growth, backed by robust risk management and appropriate pricing.
As the pandemic-related stress continues to unfold, the improved resilience of Indian banks will be tested. A continued focus on shoring up capital to withstand asset-quality pressures will pave the way for credit growth as recovery gathers pace.
DISCLAIMER: The views expressed are solely of the author and ETBFSI.com does not necessarily subscribe to it. ETBFSI.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.
Bank of Baroda (BoB) has signed a memorandum of understanding (MOU) with the Small Industries Development Bank of India (SIDBI) to enable MSMEs (micro, small and medium enterprises) apply online for one-time restructuring (OTR).
The public sector bank’s MSME customers can now access the web-based portal, ‘Asset Restructuring Module for MSMEs (ARM-MSME)’. To support viable MSME entities (with credit exposure up to ₹25 crore), which are under financial stress due to the fallout of the Covid-19 pandemic, the central bank has allowed banks to consider OTR proposals from MSMEs, whereby the restructuring of the borrower account has to be implemented by March 31, 2021.
ARM-MSME is an automated / Do-It-Yourself (DIY) web-portal for MSMEs to self-create their restructuring proposal with financial viability projections by iteration of multiple scenarios and relief options, the bank said in a statement.
Existing MSME borrowers of the bank can avail the online facility of submitting the application for restructuring of loan accounts from the comfort of their home/office free of cost, it added.
BoB said borrowers can also modify the online application or re-submit a new online application, as per their convenience. This will help MSMEs prepare their restructuring proposals by keying in only the most essential data of their past and projected financials, the bank said.
Ram Jass Yadav, Chief General Manager – MSME & Retail Business, BoB, said: “Through this partnership, we will hopefully assist numerous MSMEs who are in need of guidance and currently seeking advisory for the one-time restructuring application from external sources as of today.”
Banks have weathered the shock to their balance sheets due to the Covid-19 pandemic well so far. In an interview with BusinessLine, Bank of Maharashtra (BoM) MD and CEO, AS Rajeev, attributed this to a host of factors including timely measures such as the partial credit guarantee scheme and the government guaranteed collateral-free loans; rate cuts, provision of adequate liquidity, and loan moratorium announced by the Reserve Bank of India (RBI). Excerpts:
How tough was 2020 in terms of business?
Banks played a crucial part in stabilising the financial sector and transmitting government stimulus and relief programmes to kick-start the economy. We (BoM) registered year-on-year (YoY) credit growth of 11.60 per cent till Q2 (July-September) end and year-to-date (YTD) credit growth of 9 per cent. Our credit growth was mainly on account of growth in RAM (retail, agriculture and MSME) advances which stood at 25.12 per cent on YoY basis.
Did the pandemic-related measures announced by the government and RBI benefit borrowers and credit off-take?
The government as well as RBI took several steps to improve credit growth with special focus on micro, small and medium enterprise (MSME) sector and NBFC (non-banking finance company) sector (for onward lending). The special schemes – Adhoc Line of Credit and Guaranteed Emergency Credit Line (GECL) scheme have given timely relief to MSME sector/business community by providing them much needed liquidity during the crisis period. Similarly, for the NBFC sector, the partial credit guarantee scheme helped them to tide over liquidity crisis.
Are stressed corporates warming up to restructuring based on the Kamath committee’s criteria?
Initially, when the resolution framework for Covid-19 related stress was announced (on August 6), very few borrowers sought restructuring of credit facilities. We firmly believe that with revival in business activity and availability of additional credit facilities through various other schemes of the government, borrowers are unlikely to go for further restructuring.
What has been your experience on the loan recovery front?
Our recovery during the current fiscal stands at ₹870 crore which is almost 80 per cent of the recovery in the previous year. The pandemic did impact the recovery in Q1 of the FY21, but thereafter it has improved significantly. We are further expecting an additional recovery of ₹500 crore by end FY21.
To aid recovery, our bank launched two new OTS schemes to cover the small borrowers, particularly MSME, taking the present economic conditions in to consideration. The OTS schemes are not only helping the bank to reduce the NPA but also the borrowers to become debt free. With the help of these two new schemes, we are expecting a recovery of ₹400 crore in the current fiscal.
Private insurer ICICI Lombard General Insurance has launched an online platform for small and medium enterprises to buy or renew insurance.
“The new interface will serve as a convenient platform for SME owners to buy or renew insurance products, endorse their insurance policies, and register claims. Through this platform, business owners can opt for different insurance options such as marine insurance, workmen compensation,” it said in a statement.
“The SME segment is relatively more vulnerable to multiple risks and has been significantly impacted by the pandemic. With this one of its kind online platform for business insurance, we are empowering SMEs to avail our business insurance solutions conveniently at any time and from anywhere in a contactless manner,” said Sanjeev Mantri, Executive Director at ICICI Lombard.
Leveraging the growing internet penetration and resultant increased digital adoption, the insurer, through this platform, intends to reach over 6.33 crore MSMEs across the country.
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