Tag: Private banks

In relief for private banks, RBI allows 15-year tenure for MD & CEO

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The Reserve Bank of India has given a breather to private sector banks’ managing director and CEO or Whole Time Director (WTD), who are also promoters, allowing them a tenure of up to 12 years instead of 10, proposed earlier. Also, in extraordinary circumstances, at the sole discretion of the RBI, such an MD and CEO or WTD may be allowed to continue up to 15 years.

The RBI’s discussion paper on governance in commercial banks in India (issued in June 2020) had indicated that 10 years is an adequate time limit for a promoter/major shareholder of a bank as WTD or CEO of the bank to stabilise its operations and transition the managerial leadership to a professional management. Besides the tenure, the central bank’s circular also underscored that the committees of boards of banks should either comprise only Non-Executive Directors or majority of NEDs.

Further, the RBI asked banks to ensure that the chair of the board is an independent director and at least half of the directors attending the meetings of the board should be independent directors. The RBI asked banks to comply with its instructions latest by October 1, 2021.

“The guidelines are in line with the discussion paper and markets have had time to prepare for it. In terms of norms for committee composition, the RBI had tried to align it with the Companies Act. However, on the issue of the tenure of the CEO and Managing Director, the RBI has not made a durable case on its approach. Our view has been that the RBI should exercise discretion rather than one size fits all,” said Amit Tandon, Founder and Managing Director of corporate governance and proxy advisory services, IiAS.

Tenure of MD & CEO

Overall, subject to statutory approvals required from time to time, the central bank said the post of the MD & CEO and WTD cannot be held by the same incumbent for more than 15 years. Thereafter, the individual will be eligible for re-appointment as MD & CEO or WTD in the same bank, if considered necessary and desirable by the board, after a minimum gap of three years, subject to meeting other conditions.

During this three-year cooling period, the individual shall not be appointed or associated with the bank or its group entities in any capacity, either directly or indirectly.

According to RBI’s instructions, while examining the matter of re-appointment of such MD & CEOs/WTDs within the 12/15- year period, the level of progress and adherence to the milestones for dilution of promoters’ shareholding in the bank shall also be factored in by the RBI.

The RBI said no person can continue as MD & CEO or WTD beyond the age of 70 years.

Independent markets commentator Srinath Sridharan said: “The new rule of tenure cap for CEO/WTDs (promoter or not) would be interesting to note from the perspective of younger individuals who are associated with the banks.

“Mathematically, looking at this rule in conjunction with 70 years being the max age limit for such roles, anyone lesser than 55 years of age and getting into these roles would have a long runway.”

Transition arrangement

The RBI has allowed a transition arrangement, whereby banks with MD & CEOs or WTDs who have already completed 12/15 years as MD & CEO or WTD, on the date these instructions coming to effect, will be allowed to complete their current term as already approved by the RBI.

Further, the chair of the board who is not an independent director on the date of issue of this circular will be allowed to complete the current term as Chair as already approved by the RBI.

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How government business will help private banks, BFSI News, ET BFSI

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The central government has allowed permission to new private banks for conducting government-related business will be given under the RBI guidelines. The government has indicated the RBI to allow other private banks to perform government-related business to ensure there is a level playing field.

The potential

With deposits of at over Rs 11 lakh crore, the government sector, both Central and states combined, business is very lucrative for the private sector banks. It is a source of bulk deposits, which gives them ‘float’ money that can be deployed in the overnight market. It helps get low-cost and stable deposits and customer acquisition with scores of government employees opening accounts.

It generates commission income, which though is falling, forms a substantial chunk.

How can private banks benefit

Private banks are more aggressive in marketing and technology savvy than PSBs. However, they do not have a branch network that rivals PSBs which are spread to the village levels. Private banks will find it tough to give competition to PSBs in the hinterland.

Also, private banks, with their sparse branch networks, will find the small value pension business unviable, which the PSBs with their vast manpower strength can serve. Also, shifting the pension account business would be cumbersome for many

What should the private banks do?

Experts say private banks should focus on garnering new government business, which will help them acquire new customers.

With the growing number of taxpayers and development programmes such as Jan Dhan, the government business remains lucrative for the private banks. However, it may be still some time they catch up with the PSB peers.

What the Finance Minister says

“Now, following the existing norms based on which several banks have been given permission to do the business. So, those rules as per the RBI guidelines be applied on newer banks and new private banks which approach the RBI,” finance minister Nirmala Sitharama said while giving permission to new private banks.

“Some customers are already benefiting from private banks from such services. The attempt now is to bring a level playing eld. Some private banks are already doing, all public sector banks are doing, why not extend to all private sector banks so that everybody gets an equal opportunity,” she explained.

This is being done because the business is growing and many more citizens are approaching the banks. As it was highlighted, the ease of doing business will have to be extended to all customers, she said.



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Private banks’ net advances grow in March quarter

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The largest private lender HDFC Bank has shown a 13.9% year-on-year (y-o-y) growth in the loan book.

Private lenders have reported an improvement in the net advances during the March quarter (Q4FY21), according to provisional data released by the banks. While the largest private lender HDFC Bank has shown a 13.9% year-on-year (y-o-y) growth in the loan book, Federal Bank reported over 9% y-o-y growth in the advances. Similarly, IndusInd Bank has shown a 3% y-o-y increase in the net advances during the March quarter.

Although, Yes Bank has registered a meagre 0.8% y-o-y loan growth, its retail disbursements more than doubled to Rs 7,828 crore during Q4FY21. The provisional data also suggests a robust deposit growth for private lenders.

While Yes Bank’s deposits grew 54.7% y-o-y, IndusInd Bank registered a 27% deposit growth during the March quarter.

Similarly, HDFC Bank has shown a 16.3% y-o-y growth and Federal Bank showed a 13% growth in its deposit base.

The growth was supported by a strong current account savings account (CASA) deposits rise of 51.8% in Yes Bank, 27% growth in HDFC Bank and 26% in Federal Bank. In early March, rating agency Crisil said that in FY21, bank credit was seen rising 4-5%. This was a revision of the rating agency’s projection from June 2020, when they had expected the bank credit growth to be 0-1%.

In FY22, Crisil expects the bank credit to bounce back to 9-10% levels, driven by a pick-up in corporate credit, the government’s infrastructure push and a likely revival in demand. According to RBI’s latest bulletin, private banks clocked a credit growth of 8.6% y-o-y till February, 2021. The bulletin also mentioned that credit growth of scheduled commercial banks (SCBs) appears to have bottomed out as it grew at 6.6% y-o-y in February, 2021. Later, the non-food credit grew at 6.44% y-o-y for the fortnight ended March 12, 2021.

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Customers stand to gain as private banks can now take up govt business

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Surabhi

The lifting of the embargo on granting government business to private banks will not only enable them get a greater share of government business, but will also benefit their customers, say experts.

“Customers of new private sector banks will be very happy, there will be a marginal change for old private banks and public sector banks may lose some ground,” said a former banker.

At present, apart from public sector banks, only a few large private sector banks are allowed to do government business.

Now, all private banks will be able to take up activities such as small savings schemes such as public provident fund and Sukanya Samriddhi accounts, and tax payments and pension payments, among other initiatives.

Customers with existing accounts in a private bank will not have to approach a public sector bank for these activities.

“It will be a gain to the customer as well as to the bank. Apart from the three large private sector banks, other private banks can also now serve customers for services such as tax payments, pensions and small saving scheme,” said Prashant Kumar, Managing Director and CEO, YES Bank, adding that private banks can also offer solutions to the government for payment of subsidies and direct benefit transfers through their strong focus on technology.

Tech advantage

Most private bankers believe that in terms of technology, they are much better positioned to serve customers.

Uday Kotak, Managing Director and CEO, Kotak Mahindra Bank, in a tweet said: “It will enable the banking sector to serve customers better. Private and public sector must both work towards sustainable development of India.”

Private banks are also hopeful of higher fee income and float from doing government business.

“Fee income will be a direct advantage to private banks as they will get commission for doing government business. Public sector banks will lose ground on this,” noted a former banker.

Meanwhile, float or the amount parked with banks by customers, is being seen as another big positive by private banks. Government business brings in float money to public sector banks, some of which will now be routed to private banks.

“The float and fee income that can be garnered on tax collections (₹11 trillion budgeted for 2021-22), duties, GST collections (₹11 trillion), payment facilities, Central/state pension plans (₹2 trilion), small savings schemes (₹13 trillion) can add significant delta to revenues,” said a note by ICICI Securities.

Unions unhappy

However, bank unions point out that public sector banks have been at the forefront of opening Jan Dhan accounts, financial inclusion through branch opening in rural areas, as well as giving out Mudra loans while private banks have lagged behind.

“The government is trying to bring a level-playing filed with a different set of guidelines for private banks. They should create the same rules for them and bring them under the ambit of CVC and other regulatory guidelines,” said Soumya Datta, General Secretary, All India Bank Officers’ Confederation.

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Fin Min lifts embargo on grant of government business to private banks, BFSI News, ET BFSI

Banking & Finance

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The Ministry of Finance on Wednesday said the embargo on allotment of government business to private banks has been lifted.

FM Nirmala Sitharaman‘s office in a tweet said, “Embargo lifted on grant of government business to private banks. All banks can now participate. Private banks can now be equal partners in development of the Indian economy, furthering government’s social sector initiatives, and enhancing customer convenience.”

The move got a swift response from the stock market with BSE Sensex rising over 1000 points and the NSE Nifty settled near the 15,000 mark.

DFS in a media brief said this move will enable private sector banks (only a few were permitted earlier) to conduct of centre-related banking transactions such as taxes and other revenue payment facilities, pension payments and small savings schemes.

It added, this step is expected to further enhance customer convenience, spur competition and higher efficiency in the standards of customer services.

“With the lifting of the embargo, there is now no bar on RBI for authorization of private sector banks (in addition to public sector banks) for government business, including government agency business. The government has conveyed its decision to RBI,” the brief further said.



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Private banks report healthy deposit accretions, sluggish advances growth in Q3, BFSI News, ET BFSI

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MUMBAI: Small and mid-sized private sector banks have reported a healthy deposit growth in the third quarter, even as they have struggled to grow their loan books, as per exchange filings by three lenders. Despite interest rates being the lowest in over a decade, the pandemic and the resultant economic impact has ensured that loan demand is very low and the system’s credit growth is stuttering at about 6 per cent.

Expending income on deposits which do not fetch income through lending is a cost on banks.

Microlender-turned-universal bank Bandhan Bank was the only one which showed a surge in loan book, which grew 23 per cent on an annual basis to Rs 80,255 crore, while in case of IndusInd Bank and IDFC First Bank, the growth has been marginal, separate exchange filings showed.

IndusInd Bank had seen a shrinking of the loan book in the nine months to September. It increased the loan book by over Rs 6,000 crore during the December quarter to end slightly above the year-ago period’s Rs 2.07 lakh crore, while IDFC First Bank’s book grew by over Rs 3,000 crore during the quarter ended December 2020.

However, from a deposits perspective — it was a dip in deposits during the Yes Bank crisis which led banks to disclose the performance ahead of the quarterly results — there has been growth across the three lenders.

Bandhan Bank reported a 30 per cent increase in deposits compared to the year-ago period, IDFC First Bank’s deposits grew 41 per cent and IndusInd Bank witnessed 11 per cent growth during the quarter.

The share of the low cost current and savings account (CASA) deposits as on December 31, 2020 for IndusInd Bank was at 40.5 per cent, almost at par with the year-ago period, while Bandhan Bank witnessed a healthy rise of 43 per cent.

IDFC First Bank said its retail deposits (including both CASA and term deposits) registered a growth of 100 per cent on a year-on-year basis.

The IDFC First Bank scrip gained 4.16 per cent, Bandhan Bank corrected by 1.46 per cent and IndusInd Bank ended the session almost flat on the BSE on Wednesday, as against a 0.54 per cent dip in the benchmark.



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Private banks in Karnataka lead in NPAs

Banking & Finance

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The non-performing assets (NPAs) of all banks, in Karnataka,from 28 lakh accounts was ₹57,070.02 crore as on September 30, 2020.

“Among the sectors with high NPAs was agriculture at ₹17,772.87 crore (from 12.20 lakh accounts), other priority sector advances was ₹11,470.07 crore (4.20 lakh accounts) and non-priority sector advances was ₹17,096.27 crore (7.73 lakh accounts),” a senior official at Karnataka State Level Bankers’ Committee (SLBC) said.

Among the private banks, NPAs in Lakshmi Vilas Bank was ₹2,979.10 crore from 15,190 accounts, while those from Yes Bank was₹4,675.23 crore from 946 accounts.

Among the lead banks category, Canara Bank’s total NPAs stood at ₹12,531.66 crore (with 3.41 lakh accounts), State Bank of India at ₹11,663.58 crore (7.37 lakh accounts). Punjab National Bank with ₹4,121.52 crore (12,735 accounts) and Bank of India ₹1,069.85 crore (19,477 accounts).

“SLBC has requested the Karnataka government to provide guidance and assistance for the recovery of bad loans,” the official said.

On the recovery front, banks in the State have recovered ₹460.87 crore so far under Sarfaesi, DRT and Lok Adalats Acts. The recoveries under Sarfaesi were ₹114.25 crore, Debts Recovery Tribunals (DRT) at ₹335.19 crore and Lok Adalat at ₹11.43 crore.

Poor loan disbursal

On September quarter, the banks have disbursed education loans of ₹650 crore, covering 30,102 students, as against the annual financial target of ₹7,725 crore under both priority and non-priority segments.

According to the official, “The performance of banks in lending under education loans, as the percentage of achievement v/s target, was 8.41 per cent. This poor loan disbursal was mainly due to the education sector getting affected due to the Covid-19 pandemic.”

“During the SLBC meet in December 2020, member banks were told to sanction more education loans to eligible students to achieve the target,” he added.

Due to record rains and flooding in the State, banks were asked to restructure loans in natural calamity-affected districts. After the revenue department submitted crop-wise loss data for September quarter, about 230 accounts amounting to ₹5.15 crore were re-structured.

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Private banks taking away share from PSBs in rural credit: RBI

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While PSBs dominate bank lending to non-banking financial companies (NBFCs), their share has declined since March 2020, with the space vacated being taken up by the private banks.

Rural credit growth gathered steam in FY20 and surpassed growth in other categories after a gap of four years. Private banks have begun to gain share in this segment even as public sector banks’ (PSB) footprint reduces, the Reserve Bank of India (RBI) said in its report on the trend and progress for the year.

Although the share of rural credit in aggregate credit has been hovering between 8-9%, it still did better than other categories in 2019-20. “While the share of PSBs in rural credit has gradually fallen, PVBs have been making inroads,” the report said.

The central bank said that the new branch authorisation policy of 2017 —which recognises business correspondents (BCs) that provide banking services for a minimum of four hours per day and for at least five days a week as banking outlets — coupled with emphasis on digitisation and modernisation of technological infrastructure has progressively obviated the need to set up brick and mortar branches. As has been observed for the last few years, including during FY20 also, branch expansion in rural areas remained subdued as the BC model made further inroads in villages with population more than 2,000.

Private banks are also taking away share from PSBs in other segments. While PSBs dominate bank lending to non-banking financial companies (NBFCs), their share has declined since March 2020, with the space vacated being taken up by the private banks.

“In line with the increasing share of PVBs in banking assets, their share in operating profits also increased to 43.4% in 2019-20 at the cost of PSBs,” the RBI said, adding that the gap between net interest margins (NIMs) of PVBs and PSBs enlarged as the former managed to lend at comparatively higher rates while reducing their deposit rates.

At the same time, the growth slowdown has not spared the private banking pack. Describing them as “the engine of credit growth during the last few years”, the report stated that in a reversal during FY20, however, their loan growth decelerated across sectors. “Lending to industry and agriculture sector by PVBs and PSBs also slowed down or declined,” it said.

The aggressive credit growth of private banks in the services and retail segments in the last few years — which surpassed the 30% mark in FY19 — came down sharply, even as PSBs managed to hold on to market shares in the retail segment.

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Private banks to have a good year in 2021: Analysts

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According to PRIME Database league tables, IIFL Securities has ranked number one for the period starting April 1, 2017 to December 31, 2020. (Representational image)

As the economy hobbles back to normalcy and interest rates continue to remain low, private banks stand to gain the most in 2021, analysts said. The strengthening of capital buffers, build-up of excess provisions and improved liquidity positions could help large private banks gain market share and usher them into their “golden age”, maintained some analysts.

In a recent report, Morgan Stanley Research said large private banks had emerged stronger out of the Covid crisis in terms of their capital positions. Moreover, they have been big beneficiaries of increased digital adoption. “A combination of these factors will help them gain rapid market share and materially lower cost to income ratios over the next few years. We see 25-40% return upside at large private banks,” the report said, adding that large private banks are entering a golden age.

Banks have conservatively raised capital and built aggressive provisions and Morgan Stanley believes the current stock of provisions at large private banks is enough, and will help them normalise on credit costs in H1FY22. Mid-sized private banks have followed a similar path, but have relatively lower excess provisions. However, given their strong balance sheets, they will keep credit costs elevated in H2FY21 and normalise on credit costs by H2FY22, the report said.

Credit Suisse has maintained its ‘overweight’ stance on banks, both for the private pack and State Bank of India (SBI). Their performance is likely to be driven by earnings delivery. “Banks, especially private banks, remain the best vehicle to gain exposure to the general economic uplift that we anticipate,” the investment bank said in a recent report.

Also, the significant downgrades seen by banks in FY21 suggest that there is room for gain next year. With banks now comfortable with their corporate non-performing assets (NPAs), and growth outlook improving, Credit Suisse said risks of substantial cuts to FY23 earnings were low.

Morgan Stanley pointed out that another challenge for Indian private banks was that of funding, as they were gaining market share in loans faster than deposits. Consequently, loan to deposit ratios were high, and private banks were paying a premium on term deposits relative to state-owned banks. This premium has now shrunk. “…we note that large private banks have significantly accelerated pace of deposit market share gains over past two years, and hence reduced the premium that they pay on term deposits,” Morgan Stanley said.

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