Tag: Private sector banks

Private sector banks lower lending rates more than PSU Banks during the pandemic, BFSI News, ET BFSI

Banking & Finance

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Private sector banks have been leading the way in reducing cost of funds in the past year of pandemic even as state-run banks are not far behind. While the overall lending rates have fallen as much as 100 basis points, for private banks it has been more.

Weighted average lending rates for outstanding rupee loans of commercial banks fell 96 basis points- bps (one basis point is 0.01 per cent) between March 2020 and October 21, data released by the RBI indicates.

But these rates have fallen more sharply for private sector banks at 109 basis points compared to 85 bps dip for public sector banks and 187 bps for the foreign banks in the country.

The central bank has however lowered its benchmark repo rate much higher by 115 bps during the period and also introduced a number of measures to enhance liquidity of banks to deal with the pandemic induced crisis.

Policy transmission has been much faster pace since the pandemic. In the 19 month period prior to the onset of the pandemic, the benchmark policy 135 bps. But the banks lowered their lending rates only by 15 basis points between March 2019 and March 20 as reflected in the weighted average lending rates on outstanding loans of commercial banks.

A research paper by the Reserve Bank of India economist notes that the transmission of policy repo rate changes to deposit and lending rates of commercial banks (SCBs) has improved since the introduction of external benchmark-based pricing of loans.

The paper also adds that the transmission showed further improvement since March 2020 on account of sizeable policy rate cuts, and persisting surplus liquidity conditions resulting from various system level as well as targeted measures introduced by the Reserve Bank – cut in the cash reserve ratio (CRR) requirements, long-term repo operations (LTROs), TLTROs, refinancing window for All India Financial Institutions (AIFIs), sector/segment specific liquidity measures (Mutual Funds, Small Finance Banks, Micro Finance Institutions/Non-Bank Financial Companies), special open market operations and regular OMOs.



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Report, BFSI News, ET BFSI

Banking & Finance

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-By Ishwari Chavan

The Indian banking sector is likely to witness a fresh phase of consolidation over the medium term, between FY22 and FY24, primarily driven by large private sector banks, according to a report by Acuite Ratings and Research.

Given the current buoyancy in equity markets, there is now a significant opportunity for large Indian private banks for inorganic growth through acquisition of smaller private banks that continue to face headwinds or even public sector banks where the government is considering a disinvestment, the report said.

The banking sector saw its first phase of consolidation involving public sector banks over the period 2017-20, with an intent to enhance their competitiveness, capital position and operational efficiency. Post this, there are twelve PSBs, including seven large ones and five smaller ones against 27 in 2017.

Market share

While PSBs have been enjoying a dominant market share since nationalisation of banks in 1969, they have witnessed a steady drop in both credit and deposit market share over the last one decade, the report said.

This was further accelerated over the last five years, with the impact of the Asset Quality Review (AQR) and the subsequent spike in NPAs in the banking sector.


Share of Public Vs Private Sector Banks in Outstanding Credit
Source: Acuite Ratings and Research

Over the last five years, the market share of state-owned banks has dropped by around 10% in both deposits and advances due to asset quality, resultant profitability and capital challenges.

This market share has been largely taken over by private banks, who have cemented their market position through easier access to capital, along with technological initiatives.


Share of Public Vs Private Sector Banks in Outstanding Deposits
Source: Acuite Ratings and Research

Domination of large private banks

Given investors’ confidence, large as well as some select mid-sized private banks have been able to raise funds through capital markets.

Despite repercussions from COVID, larger and few mid-sized private banks have been able to raise capital through equity (QIP) snd Tier I/II bonds in FY21 and H1FY22.

Large banks have been reporting double-digit growth rates on an average over the last five years due to a comfortable capital cushion, which can shield them from any asset quality stress.

Despite some improvement in profitability during FY21, small-size private banks continue to have low return on assets, reflecting their vulnerability in a challenging environment. These banks have also been facing difficulties in raising capital.

Furthermore, their ability to bring about a structural improvement in their lending and deposit profile is uncertain due to limitations in their geographical franchise, the report said.


Size Wise ROAA Trend of PVBs
Source: Acuite Ratings and Research



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HDFC Bank’s additional masala bonds get listed on NSE IFSC’s platform, BFSI News, ET BFSI

Banking & Finance

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NSE International Exchange (NSE IFSC) on Friday said it has listed HDFC Bank‘s additional masala bonds on its debt securities market platform. NSE IFSC is a wholly-owned subsidiary of the National Stock Exchange (NSE).

The private lender’s additional Tier 1 (AT1) masala bonds got listed on the debt securities market platform.

“HDFC Bank has raised Rs 739 crores under USD 3 Billion Medium Term Note Programme,” NSE IFSC said in a release.

Since the launch of NSE IFSC Debt Securities Market (DSM), it has listed total aggregate medium-term notes worth over USD 31 billion and listed bonds worth more than USD 17 billion, it added.

This also includes USD 1.75 billion worth of green and sustainable bonds.

NSE IFSC launched DSM for listing and trading of debt securities in multiple foreign currency bonds, green bonds, masala bonds, notes, among others, on March 16, 2018. PTI SRS BAL BAL



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IndusInd Bank board approves appointment of Gobind Jain as CFO, BFSI News, ET BFSI

Banking & Finance

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The board of IndusInd Bank has approved the appointment of Gobind Jain as chief financial officer, the bank said i an exchange filing today.

SV Zaregaonkar will hand over charge of the CFO position, and take over other responsibilities until his date of superannuation, the filing said.

Jain is a chartered accountant, with 29 years of experience in accounting and finance management.

He was previously with a leading private sector bank, prior to which he had worked with foreign banks in India.

Details of Jain will be intimated upon his taking over as CFO of the bank, the filing said.

No other details were mentioned in the bank’s exchange filing to Bombay Stock Exchange.

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Over 28% of loans now linked to external benchmarks, BFSI News, ET BFSI

Banking & Finance

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The introduction of the external benchmark system for lending and deposit rates has helped in improving the monetary transmission by banks, an RBI article said.

The share of outstanding loans linked to external benchmarks has increased from as low as 2.4 per cent during September 2019 to 28.5 per cent during March 2021, said the article prepared by RBI officials.

“Over the years, the Reserve Bank‘s efforts in improving transmission to deposit and lending rates of banks have started to bear some fruits particularly with the introduction of the external benchmark system,” it said.

The external benchmark system, it added, has incentivised banks to adjust their term as well as saving deposit rates as lending rates undergo frequent adjustments in line with the benchmark rates, to protect their net interest margins thus broadening the scope of transmission across sectors that are not even linked to external benchmarks.

External benchmarks

The RBI had asked banks to link all new floating rate personal or retail loans and floating rate loans to micro and small enterprises (MSEs) to the policy repo rate or 3-month T-bill rate or 6-month T-bill rate or any other benchmark market interest rate published by the Financial Benchmarks India Private Limited (FBIL) from October 1, 2019.

Not just repo: Over 28% of loans now linked to external benchmarks
The adoption of external benchmark-based pricing of loans has strengthened market impulses for a quicker adjustment in deposit rates, the article said. Further, a combination of surplus liquidity conditions amidst weak credit demand conditions has enabled banks to lower their deposit rates.

The lowering of deposit rates has resulted in the decline in the cost of funds for banks, prompting them to reduce their MCLRs (Marginal Cost of Funds based Lending Rate), and in turn their lending rates.

As per the article, the transmission of policy repo rate changes to deposit and lending rates of commercial banks has improved since the introduction of external benchmark-based pricing of loans.

The transmission showed further improvement since March 2020 on account of sizeable policy rate cuts, and persisting surplus liquidity conditions resulting from various system levels as well as targeted measures introduced by the Reserve Bank.

The impact

In response to the cumulative reduction of policy repo rate by 250 basis points (bps), the 1-year median marginal cost of funds-based lending rate (MCLR) of banks declined by 155 bps from February 2019 to June 2021.

It further said the pass-through to deposit and lending rates is substantial for foreign banks during the external benchmark lending rate (EBLR) regime.

The public sector banks depend more on retail term deposits and face competition from alternative saving instruments like small savings, which constrains them from lowering deposit rates in sync with the policy repo rate.

Private sector banks have exhibited increased pass-through to lending and deposit rates compared to public sector banks.

“This uneven transmission across bank groups is partly explained by the fact that the share of outstanding loans linked to external benchmark is more for private banks as compared to PSBs,” the article said.



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Govt biz: private banks not to have it all easy

Banking & Finance

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Private sector banks better watch out as the recent government move to lift embargo on grant of government business to them comes with strings attached.

They now run the risk of permission — for undertaking government business — being withdrawn if they are found to lag the performance of public sector banks (PSBs) in implementing social sector government initiatives through banks, the Finance Ministry has cautioned.

Put simply, the government, in consultation with the RBI, would from time to time review the performance of private sector banks on a matrix of various government initiatives and schemes.

“In case it is found that there is adverse performance by any private sector bank in the future, then the permission to the concerned bank to undertake government business could be potentially withdrawn after giving due opportunity to the bank to correct the imbalance,” said a source in Department of Financial Services (DFS).

This stance of DFS should be music to the ears of PSBs, which have time and again been complaining that private sector banks are keen only on profitable initiatives and were not willing to do heavy lifting when it came to government social schemes that are to be implemented through banks.

Ease of doing business

The Finance Ministry on Wednesday decided to lift an embargo on allocation of government business (including government agency business) to private sector banks. The objective of this move is to boost the ease of doing business and ease of living for the public, including retail customers, small and medium enterprises as also larger corporates with regard to their government-related banking transactions such as taxes and other revenue payment facilities and many other transactions.

This decision has been taken to ensure a level playing field to all public sector and private sector banks, enhancement of customer convenience, enabling innovation and latest technology in the banking sector, and spurring of competition for higher efficiency and increase in standards of customer service, ultimately leading to all-round value creation.

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