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November post-Diwali was sluggish for banks, says Kotak Institutional Equities

December 2, 2021 root Banking & Finance

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The share price of lenders (banks) saw a decline in November, while non-lenders (insurance and capital markets) saw only a minor decline, Kotak Institutional Equities said in its report. Kotak further said that payment activity saw marginal month-on-month (m-o-m) decline after the festive (Diwali) season and the loan growth too continued to be sluggish with no sharp recovery in any specific segment barring SME despite a low interest rate environment.

Kotak believes that with the asset quality issues gradually receding, they see spreads decline but loan demand issues remain.

“November was a sluggish month for the BFSI sector as the Bank Nifty registered a decline of 9 per cent. Non-frontline private banks saw the sharpest decline of 14 per cent, while non-lenders (capital market players and insurance companies) resisted the downward momentum. Frontline private banks also saw a drawdown, with HDFC Bank performing relatively better. NBFCs outperformed the bank index. On a 12-month horizon, PSU banks have outperformed the Bank Nifty quite meaningfully. The emergence of a new Covid strain has put pressure on the market, but we wait to see if the spread could result in another set of mobility restrictions in India,” Kotak Institutional Equities said in its report.

Highlights from the report

Payments data continues to be strong, albeit with marginal m-o-m decline

Daily payments data for November from RBI indicates that strong trends in payments continued across payment systems, with marginal mom decline on the back of the festive season in October. In particular, a representative subset of card spends data indicates that spends in November were robust, although marginally lower mom. UPI transactions also saw a similar trend. Bank credit growth stood at ~7% levels with negligible growth from the corporate segment and a marginally better performance on the retail side. Loan growth has been sluggish, but seems to have bottomed out and we expect to see some strengthening in the trend.

NIM expansion unlikely

As per the latest data from RBI, deposit rates were flat m-o-m at around 5.1%. Both private and PSU banks have reduced their TD rates by around50 bps over the past 12 months. Wholesale deposit cost (as measured by CD rates) has seen a much sharper decline. It has been broadly stable in FY2022. The gap between repo and 1-year TD rate for SBI stands at 100 bps after declining from peak levels of around 130 bps. The premium of SBI TD rates over G-Sec yields has narrowed from its peak level.

Lending rates on fresh loans were flat m-o-m for banks overall, but declined nearly 30 bps m-o-m for private banks and increased 30 bps m-o-m for PSU banks. These rates have been volatile in recent months. The gap between fresh lending rates of private and PSU banks has declined to around 120 bps, which is in line with the average over the past 12 months. The gap between outstanding and fresh lending rates has been in the range of 110-140 bps since the onset of Covid. Steep decline in bond market rates till July 2020 had led to a narrowing of the spread between bank funding and bond rates, but bond yields seem to be trending upwards now. The lenders have been slow in passing the lower cost of funds. In recent months, the spreads are beginning to peak out and decline marginally suggesting that expansion of NIM on corporate books is a low probability event.

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Bank branch addition drops 82% in FY21; bankers bet on phygital model, BFSI News, ET BFSI

December 1, 2021 root Banking & Finance

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The branch addition by banks fell to a decade low in fiscal 2021, felled by digitisation, pandemic and growth of alternative channels such as business correspondents.

Banks added only 1,383 branches in FY2021 as against 7,728 branches in FY2020.

As of March-end 2021, the network of offices of scheduled commercial banks increased to 1,54,485 from 1,53,102 as against a year ago, as per RBI data.

The consolidation of banks into five large banks too led to a drop in the number of branches as banks went for right sizing of operations following the amalgamation of several PSBs.

Phygital model

Even as there is a surge in adoption of digital banking, physical branches will continue to be relevant as a large percentage of customers are more comfortable doing transactions at branches, according to bankers.

Banks should make efforts in educating customers about various aspects of digital banking so that they can conveniently use these channels.

“I think branches, as a mode or a channel, will not be totally discounted. There is still a significant population who will be more comfortable in one-to-one dealings rather than only digital.

“Therefore, this world of physical plus digital or phygital will be the way forward,” State Bank of India Managing Director Ashwini K Tiwari said at ETBFSI Converge.

City Union Bank Managing Director and CEO N Kamakodi said that though the older generations are much comfortable with the manual banking channel, many of them are now trying to use the digital channel also.

“Around 90 per cent of the banking transactions in India have now started moving into the non-branch channel such as internet banking, mobile banking or ATM. The number of transactions happening at the branches are in single digit,” he said.

Business correspondent growth

The business correspondent outlets of public sector banks in villages have shrunk during 2016 and 2020 while private banks have shown positive growth.

“PSBs dominated the number of BC outlets in villages, but during the review period, on account of consolidation, their BC outlets showed negative growth,” according to an RBI study said.

PSBs’ share in BC village outlets has dropped marginally to 57 per cent in 2020 from 60 per cent in 2016.

The growth in BC outlets in villages was also negative for regional rural banks.

The share of PSBs in BC outlets in rural areas has remained consistently above 60% over the years, being the highest among the bank groups.

Private banks shine

As PSBs continued to maintain their hold, PVBs too registered a higher growth in both access and usage indicators during the review period. There was a growth in BC outlets in villages for PVBs with the growth being significantly high for the north-eastern, eastern and central regions, surpassing the growth of PSBs and RRBs together.

PVBs also significantly improved their tally of urban BC outlets during the five years with their share growing from 77 per cent in 2016 to 97 per cent in 2020. On similar lines, contribution of PVBs in the total number of BC agents too grew exponentially from 37 per cent in 2016 to 80 per cent in 2020.

The BC model grows

“From being an alternate delivery model, the BC model is emerging as the predominant delivery model. While the growth in number of rural branches remained subdued during the review period, there was a significant growth in BC outlets in both villages and urban pockets providing formal financial services at the doorstep of large number of unserved/underserved population,” the study said.

The study noted that about 56 per cent of total Basic Savings Bank Deposit Accounts (BSBDAs) and 65 per cent of General Credit Cards (GCCs) were channelled through BCs. While BCs of public sector banks (PSBs) dominated the deposit space, private sector banks (PVBs) accounted for a major share in GCCs through BCs.

During the review period, the total transactions routed through BC outlets increased considerably both in terms of volume as well as value, it said.

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Raamdeo Agrawal | Stocks to buy: PSU banks or private sector banks or fintechs? Raamdeo Agrawal explains, BFSI News, ET BFSI

November 5, 2021 root Personal Finance

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PSU banks are good trade but if I want to buy and hold for 10 years, I would go for private sector and some big PSU banks. But the real finance sector game is going to be private sector banks and that too some of the newer private sector banks where book is very small say Rs 20,000, 30,000, 40,000 crore, says Raamdeo Agrawal, Chairman, Motilal Oswal Financial Services.

Where would you put the entire PSU pack? Is it going to be a pool which is going to give you parabolic returns, is it a pool which is going to give you low return or no returns? The government’s conviction about Air India privatisation and how quickly the disinvestment secretary corrected the convenience fee faux pas in IRCTC in less than 12 hours, what is your view on PSUs?
Yes, that is a positive aspect of that entire incident. PSUs are wonderful companies — mostly monopolistic or duopolistic. They are dominant players in the economy and their underlying value is very high if there is a bit of entrepreneurship and hands off approach to these companies.

The PSUs as a basket should give at least the market return. I do not think it will underperform the way it underperformed in the last 10 years and there is a good chance that it might even outperform because the valuations have been completely pessimistic even till date so as the economy recovers because they are mostly not export oriented. They are proxies to the Indian economy. I think they will do well if the policy remains encouraging and there is no interference in their affairs. I am quite sure eventually some optimism will come back in their counters. A little bit of rerating from 7-8 PE multiple to a 9-10 can take care of their market performance or even a bit of outperformance.

Also Read: Bull run is getting bigger! There are 70 million bulls in the market now

What should be the best way to participate in the financial space? Currently there are two very diverse views in the market. One view is supporting the comeback in PSU banks and one view is favouring technology and fintechs?
Fintech has a niche typically in unsecured lending and mass lending — 5,000, 10,000, 100,000 buy today pay tomorrow or buy now pay later. Basically it is unsecured. The moment you talk about security, you have to go on the ground and become non-digital; taking care of the collateral is a non-digital process mostly. So, that is a one small segment.

I do not think mainstream banking is yet threatened by fintech companies broadly. In mainstream banking there is a public sector, there is a private sector. In the next two-three years, when the economy recovers and the credit cycle changes and credit cost cycle goes in the reverse, public sector banks will also do well. But they are a trade in the sense they are good till the recovery process is complete. That may be the next two years-three years. When the credit cost is the lowest, they will show the highest profit but after that, they will keep losing the market share to private sector banks. But private sector banks are not as cheap as the public sector banks right now.

So if I want to buy and hold for 10 years, I would rather buy private sector and at the margin some public sector banks like the big ones one. They are trading at below one book and then after that, real finance sector game is going to be private sector banks and that too some of the newer private sector banks where book is very small say 20,000, 30,000, 40,000 crore. They can grow at a rapid pace in a given opportunity.

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Private banks’ net profit up 26% as economic revival kicks in, BFSI News, ET BFSI

November 1, 2021 root Banking & Finance

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The net profit of private banks rose 26 per cent year on year in the July-September 2021 quarter and 21.9 per cent sequentially over March-June 2021 (Q1), as the pandemic ebbed and economic recovery has taken hold.

The 12 private lenders posted a collective net profit of Rs 21,965 crore during the second quarter.

Provisions and contingencies of the lenders that have declared results fell both 22 per cent year on year and 30.2 per cent quarter on quarter to Rs 12,805 crore. The provisions include those for one time restructuring of loans announced by the RBI in May.

Net interest income was up 10.8 per cent y-o-y and 2.5 per cent sequentially. Other income rose 15.7 per cent to Rs 22,638 crore.

Gross non-performing assets grew 1.1% to Rs 1.73 lakh crore y-o-y, but fell 3.5 per cent sequentially from about Rs 1.8 lakh crore in the June quarter.

Net NPAs rose by 27.5 per cent y-o-y to Rs 42,895 crore, but fell sequentially by 7.3 per cent from Rs 46,280 crore in June 2021.

ICICI Bank

ICICI Bank posted a higher-than-expected 29.6% on-year rise in net profit to Rs 5510 crore in July-September, which was highest in the bank’s history. As the bank maintained 17% growth in advances, and further improved on net interest income and margins, asset quality ratios provided additional support to the bottomline by keeping provision costs low.

Axis Bank

Axis Bank reported an over 86% year-on-year rise in net profit to Rs 3130 crore for the September quarter, benefiting from an improvement in asset quality, which led to a fall in provisioning. The bank expects consumer and business confidence to continue to trend upward in Oct-Mar on the back of a rise in vaccination coverage and as the economy opens up, pent-up demand and spends materialise.

Federal Bank

Federal Bank posted a higher than expected net profit of Rs 460 crore in the September quarter, led by a fall in overall provisions as the lender reported improvements in asset quality. The bank’s net profit rose 49.6 per cent on year, and 25.3 per cent on quarter. This was supported by a faster-than-industry credit growth that fuelled a rise in core ratios such as net interest income and net interest margins.

YES Bank

Yes Bank’s net profit jumped 74 per cent year-on-year in the September quarter to Rs 230 crore on the back of a sharp fall in provisioning. Going ahead, a sharp reduction in overdue loans and sustained momentum in loan recoveries and upgrades augurs well for the overall asset quality of the bank.

RBL Bank

RBL Bank posted a 78.6 per cent on-year fall in net profit for the September quarter at Rs 30 crore due to higher provisions amid an increase in bad loans. For April-June, the private sector lender had reported a net loss of Rs 460 crore. Slippages, gross non-performing assets ratios, and provisions had peaked in the reporting quarter, and the lender was on track to see growth, the bank said.

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Axis Bank board OKs appointment of Rajiv Anand as Deputy Managing Director, BFSI News, ET BFSI

October 27, 2021 root Banking & Finance

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The board of Axis Bank today approved the appointment of Rajiv Anand, executive director– wholesale banking, as the deputy managing director of the bank.

The appointment is subject to further approvals from the Reserve Bank of India and shareholders of the bank. In addition to leading Wholesale Banking, Rajiv would work closely with the board in strengthening control and governance aspects, the bank said in a release.

Rajiv henceforth would also be leading the bank’s strategic digital banking agenda, impacting all parts of Axis franchise, along with wholesale banking, marketing and corporate communications, the release said.

“Rajiv has been instrumental in driving various key initiatives and has worked hand-in-hand with me to make the Bank a more robust, growth focused organization, as we drive transformation under our GPS strategy,” said Amitabh Chaudhry, managing director and chief executive officer.

Rajiv carries more than 30 years of experience in financial services across Indian and MNC banks. He has been with Axis group for more than 12 years, and has held multiple leadership positions such as managing director and chief executive officer of Axis AMC, ED – Retail Banking and the present role of ED – Wholesale Banking.

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ICRA, BFSI News, ET BFSI

October 21, 2021 root Banking & Finance

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Gross non-performing assets (NPAs) and net NPAs of banks are likely to decline to 6.9-7 per cent and 2.2-2.3 per cent, respectively, by the end of March 2022 as compared to 7.6 per cent and 2.5 per cent, respectively, as of March 31, 2021, according to a report by rating agency ICRA.

GNPAs and NNPAs stood at 8.6 per cent and three per cent, respectively, as on March 31, 2020. “The GNPAs and NNPAs are expected to further decline to 6.9-7 per cent and 2.2-2.3 per cent by March 2022, which will continue to be a relief for the bottom-line (profit) of lenders,” the credit rating agency said in the report.

The fresh NPA generation rate (or slippages) remained elevated during the second wave in absence of regulatory relief such as moratorium, it said.

The gross fresh slippages during the April-June 2021 quarter stood at Rs 1 lakh crore (annualised slippage rate of 4.1 per cent) compared with Rs 2.5 lakh crore or 2.7 per cent during FY2021.

Fresh bank NPAs to stay elevated in Q2, but fall in second half: ICRA

Fresh NPAs

The agency expects this to remain elevated at Rs 0.7-0.8 lakh crore (2.8-3.2 per cent) during Q2 FY2022 but moderate to Rs 1.1-1.2 lakh crore (2-2.4 per cent) during H2 of this fiscal as the impact of the second wave wanes.

Of the total restructured loan book of Rs 2 lakh crore for the banks as on June 30, 2021, the restructuring under the first coronavirus wave is estimated at 51 per cent of the total restructuring of Rs 1 lakh crore, while restructuring under the second wave is estimated at 31 per cent of the total restructuring or Rs 0.6 lakh crore, it said.

Considering that 30-40 per cent of the loan book was under moratorium during Q1 FY2020 across most banks, the loan restructuring at two per cent of advances after the second wave is a positive surprise and much lower than our earlier estimates.

Bank capitalisation

As per ICRA’s estimates, the public sector banks (PSBs) may not need the capital budgeted by the government for FY2022 even with enhanced capital requirements. However, it provisions for any unforeseen events and shall provide confidence to banks as well as investors and credit growth.

It said large private sector banks (PVBs) also remain well-capitalised though few mid-sized PVBs could need to raise capital.“We continue to maintain our credit growth estimate of 7.3-8.3 per cent for banks for FY2022 compared to 5.5 per cent for FY2021,” it said.

Despite expectations of moderation in gains on bond portfolios because of expectations of rising bond yields in FY2022, the return on equity for banks is likely to remain steady at 4.4-7.6 per cent for PSBs (5.1 per cent in FY2021) and 9.5-9.9 per cent for PVBs (10.5 per cent in FY2021), the report said.

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PSB business correspondent outlets in villages shrink as private banks grow biz, BFSI News, ET BFSI

September 24, 2021 root Banking & Finance

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The business correspondent outlets of public sector banks in villages have shrunk during 2016 and 2020 while private banks have shown positive growth.

“PSBs dominated the number of BC outlets in villages, but during the review period, on account of consolidation, their BC outlets showed negative growth,” according to an RBI study said.

PSBs’ share in BC village outlets has dropped marginally to 57 per cent in 2020 from 60 per cent in 2016.

The growth in BC outlets in villages was also negative for regional rural banks.

The share of PSBs in BC outlets in rural areas has remained consistently above 60% over the years, being the highest among the bank groups.

Western region

For both rural branches and BC outlets in villages, PSBs continue to account for maximum share in the western region. However, for BC outlets in villages, share of PSBs has dropped from 68% in 2016 to 45% in 2020. At the same time, PVBs have increased their share progressively across regions, with manifold increase in BC outlets in villages in NER, eastern and southern regions.

Private banks shine

The BC model grows

During the review period, the total transactions routed through BC outlets increased considerably both in terms of volume as well as value, it said.

Credit-related transactions

During 2016-20, credit-related transactions at BC outlets grew for PVBs and RRBs at a CAGR of 66.91 per cent and 31.81 per cent, respectively. This was in line with the trend of increment in the number of BC agents for PVBs over the five-year period. However, during the same period, the ICT-BC Credit/OD transactions for PSBs declined marginally by 1.86 per cent.

Similarly, share of PVBs in credit/ OD transactions at BC outlets rose progressively from 82 per cent in 2016 to 97 per cent in 2020, while the share of PSBs and RRBs reduced significantly.

The number of ICT-BC Credit/OD transactions through BCs recorded an overall CAGR of 60.27 per cent over the review period, with all regions registering a positive growth. The eastern region recorded the highest growth courtesy significantly higher numbers being reported by select PVBs.

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Private bank deposits grow at cost of PSBs, now 30.5% of total deposits, BFSI News, ET BFSI

September 24, 2021 root Banking & Finance

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Share of private sector banks in total bank deposits continued to rise at the cost of public sector banks and stood at 30.5 per cent (29.5 per cent a year ago), accounting for about half of the deposits of financial and non-financial corporations as well as the rest of the world sectors.

Bank deposits grew (y-o-y) by 11.9 per cent during the 2020-21 (8.8 per cent in the previous year) on the back of high growth in current account and savings account (CASA) deposits; the share of CASA deposits increased to 43.7 per cent in March 2021 (41.7 per cent a year ago), according to RBI data.

Private bank deposits grow at cost of PSBs, now 30.5% of total deposits

Households dominate

Among institutional categories, the household sector held 64.1 per cent share in total deposits; individuals, including Hindu Undivided Families (HUFs), were the major constituent of the household sector and contributed 55.8 per cent in aggregate deposits.

Bank deposits of non-financial corporations surged by 18.8 per cent during 2020-21 and their share in total deposits increased to 16.2 per cent in March-2021.

Metropolitan branches of banks, which account for over half of total deposits, accounted for 59.6 per cent of incremental deposits during 2020-21 (43.2 per cent last year).

Three major states (Maharashtra, UP and Karnataka) held one-third of total household sectors’ outstanding deposits and over 40 per cent of its incremental deposits during 2020-21, according to RBI.

Private bank deposits grow at cost of PSBs, now 30.5% of total deposits

Term deposits

With the downward shift in the interest rates on term deposits, the share of term deposits carrying less than 6 per cent interest rate surged to 69.0 per cent in March 2021 from 21.3 per cent a year ago; the interest rate bracket ‘5 to less than 6 per cent had highest concentration (36.8 per cent) of total term deposits.

The majority of term deposits were originally contracted for ‘one year to less than three years’ maturity.

The share of short-term deposits (original maturity of less than one-year) rose to 32.8 per cent (25.4 per cent a year ago); in terms of residual maturity, 75.7 per cent of the term deposits were due for maturity within one year.

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Indian shares end flat as private banks drag; media stocks surge, BFSI News, ET BFSI

September 22, 2021 root Personal Finance

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Indian shares ended flat on Wednesday as major private bank stocks slipped and offset sharp gains in Coal India, while media firms soared on news of Zee Entertainment merging with a rival.

The blue-chip NSE Nifty 50 index closed 0.09% lower at 17,546.65, while the S&P BSE Sensex fell 0.13% to 58,927.33.

Investors also awaited the results of a two-day U.S. Federal Reserve meeting later in the day, where the central bank is expected to give cues on a possible tapering of its bond buying program.

An indication of tapering would likely impact the market and “suck out some liquidity”, said K.K. Mittal, an investment advisor with Venus India.

Private banks fell 0.7%, erasing gains from the previous session, with Housing Development Finance Corp shedding more than 1% to be among the biggest losers on the Nifty 50.

Media stocks posted their best day ever as Zee Entertainment surged 39% on its board approval for a merger with Sony Group Corp‘s Indian unit, a week after the Indian media giant’s top shareholders had asked for a management reshuffle.

Real estate stocks jumped 8.5%, with Godrej Properties adding 13.2% to lead the charge in the sector.

Analysts have said signs of improving sales on easing COVID-19 restrictions is helping sentiment, with a rise in large asset purchases expected during the upcoming festive season.

Auto stocks ended 1.3% higher, as analysts pointed to similar factors aiding gains in the sector.

Consumer stocks fell, with Nestle India dropping nearly 1.5% to be the top loser on the Nifty 50. On Tuesday, the company’s chairman told https://economictimes.indiatimes.com/industry/cons-products/fmcg/unsure-if-demand-will-stay-inflation-a-concern-for-2022-nestle-india-chairman-suresh-narayanan/articleshow/86386070.cms local media there were no sure signs that sustained consumption is here to stay.

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