Tag: PSBs

Private banks cut more rates than PSBs as overall rate transmission improves, BFSI News, ET BFSI

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Rate transmission, the pet peeve of the Reserve Bank of India has improved substantially following the introduction of external benchmarks with the private banks sniping more than public sector peers.

The overall lending rates have fallen as much as 100 basis points, with the weighted average lending rates for outstanding rupee loans of commercial banks fell 96 basis points between March 2020 and October 21, according to RBI data.

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 cut 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

Policy transmission has been at a 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 2020.

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 said 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.

External benchmarks

The share of external benchmark-linked loans in total outstanding floating rate loans increased from 2.4 per cent in September 2019 to 32 per cent in June 2021, contributing to a faster and fuller transmission.

There has been a concomitant fall in the share of MCLR-linked loans from 83.6 per cent to 60.2 per cent, over the same period, although these still have the largest share in outstanding floating rate loans.

As lending rates under the external benchmark regime undergo automatic adjustments with the changes in the benchmark rate, banks are incentivised to adjust their term as well as saving deposit rates to cushion their net interest margins and profitability, which then hastens the adjustment in banks’ marginal cost of funds, and MCLRs.

Earlier hurdles

While the Reserve Bank has periodically refined the process of interest rate setting by banks, transmission has hitherto been sluggish as banks relied on their own cost of funds, which is internal benchmarks.

“The systems were also characterised by opacity, especially regarding the interest rate resetting practices for existing borrowers,” the central bank said.

To address these rigidities, the RBI had decided to move to an external benchmark system – an interest rate outside the control of a bank and not necessarily linked to its internal costs – for select categories of loans (viz., 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 or 6-month T-bill rate or other specified benchmarks effective October 1, 2019, and for medium enterprises effective April 1, 2020).



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Bank unions threaten two-day nationwide strike against proposed privatisation of PSBs, BFSI News, ET BFSI

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The United Forum of Bank Unions (UFBU), an umbrella body of nine unions, has given a call for a two-day strike from December 16 to protest against the proposed privatisation of two state-owned lenders. In the Union Budget presented in February, Finance Minister Nirmala Sitharaman had announced the privatisation of two public sector banks (PSBs) as part of its disinvestment plan.

The government has already privatised IDBI Bank by selling its majority stake in the lender to LIC in 2019 and merged 14 public sector banks in the past four years.

The government has listed the Banking Laws (Amendment) Bill, 2021, for introduction and passage during the current session of Parliament.

In view of this, UFBU has decided to oppose the move for privatisation, All India Bank Employees Association (AIBEA) General Secretary C H Venkatachalam said in a statement.

Strike notice for December 16 and December 17, 2021, has been served by UFBU on the IBA, he said.

In a developing country like India, where banks deal with huge public savings and they have to play a leading role to ensure broad-based economic development, public sector banking with social orientation is the most appropriate and imperative need, he said.

Hence, he said, for the past 25 years, under the banner of UFBU “we have been opposing the policies of banking reforms which are aimed at weakening public sector banks”.

Members of UFBU include All India Bank Employees Association (AIBEA), All India Bank Officers’ Confederation (AIBOC), National Confederation of Bank Employees (NCBE), All India Bank Officers’ Association (AIBOA) and Bank Employees Confederation of India (BEFI).

Others are Indian National Bank Employees Federation (INBEF), Indian National Bank Officers Congress (INBOC), National Organisation of Bank Workers (NOBW) and National Organisation of Bank Officers (NOBO).



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Bank officers’ body to hold protest against govt’s privatisation plan, BFSI News, ET BFSI

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Kolkata, Nov 22 (PTI) All India Bank Officers Confederation (AIBOC) on Monday said it will hold a protest programme against the government’s move to privatise public sector banks (PSBs) in Delhi later this month during the winter session of Parliament. AIBOC general secretary Soumya Datta said the government is likely to introduce the bank privatisation Bill in the winter session of Parliament scheduled to commence from November 29.

The government’s move is not based on sound economic logic, but purely a political decision to hand over the banks to “crony capitalists”, Dutta claimed.

Privatising the PSBs will hurt priority sectors of the economy and credit flow to self-help groups (SHGs), he asserted.

Around 70 per cent of the country’s total deposits are with the PSBs, he said alleging that handing them over to private capital will put the common man’s money deposited with these banks into jeopardy.

To protest against this move of the government, AIBOC will start ‘Bharat Yatra’ on November 24, which will culminate at Jantar Mantar in New Delhi on November 29, Dutta said.

He claimed that selling of PSBs to private bodies will lead to financial exclusion and not inclusion.

Finance minister Nirmala Sitharaman in her budget speech had announced that the government will make strategic divestment in two PSBs this fiscal.



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PSBs line up local AT-1 bonds issues, but private-sector lenders stay away, BFSI News, ET BFSI

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Public sector banks have started issuing AT-1 bonds in the domestic market more than a year after wriding down of such bonds of Yes Bank spooked the market

However, private sector banks are still keeping away and raising money via the instrument overseas, where interest rates are low.

At present, nearly three-four state-owned including SBI, Union Bank, Canara Bank and Bank of Baroda are looking to raise funds through AT-1 bonds.

In March this year, prodded by the Finance Ministry, the Securities and Exchange Board of India (Sebi) had relaxations in valuation norms. However, the main issues that AT1 bonds will continue to be treated as 100-year bonds stayed. The deemed residual maturity of Basel-III AT-1 bonds would be 10-year until March 31, 2022. Sebi said from April to September 2022, it would be valid at 20 years, and from October 2022 to March 2023, it would have a life span of 30 years. From April 2023, the residual maturity will be 100 years from the date of issuance of the bond.

In September SBI Rs 4,000 crore via additional Tier 1 bonds at a coupon rate of 7.72%, the first such issuance in the domestic market after Sebi issued new rules.

The plan

SBI is weighing options to raise money either through local additional tier-1 securities for the third time in this financial year or rupee-denominated ‘masala’ bonds for overseas investors. Bank of Baroda has approved the issuance of AT1 and AT11 bonds worth Rs3000 crore. Capital Raising Committee of our Bank has today approved the issuance of Basel III Compliant Additional Tier 1 (AT1) / Tier II Bonds for an aggregate total issue size of Rs3000cr in single or multiple tranches,” the bank said earlier this month.

What are AT1 bonds?

These are unsecured bonds which have perpetual tenure — or no maturity date. They have a call option, which can be used by the banks to buy these bonds back from investors. AT1 bonds are subordinate to all other debt and only senior to common equity. Mutual funds are among the largest investors in perpetual debt instruments, and hold over Rs 35,000 crore of the outstanding additional tier-I bond issuances of Rs 90,000 crore.

The mutual fund position

Mutual funds, which once used to buy heavily in AT1 bonds, are lukewarm about this asset class after the banking regulator last year ordered that these instruments be written off in Yes Bank’s state-sponsored bailout. Also, on March 10, Sebi had ordered mutual funds to cap ownership of bonds with special features at 10% of the assets of a scheme and value them as 100-year instruments from next month, potentially triggering a redemption wave. Later, the capital markets regulator eased valuation rules but with some riders after the finance ministry asked it to withdraw the directive to mutual funds.

The muted response by MFs had prompted the lenders to tap the overseas market.

Perpetual bond sales by banks have nearly halved to Rs 18,772 crore in FY21 from Rs 34,860 crore three years earlier.



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ACC approves appointment of seven executive directors in various PSBs

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The Appointments Committee of the Cabinet (ACC) has given its nod for the elevation of seven chief general managers and general managers as Executive Directors (EDs) in various public sector banks (PSBs).

Rajneesh Karnatak, Chief General Manager, Punjab National Bank, has been appointed as Executive Director in Union Bank of India for a period of three years. Ashwani Kumar, Chief General Manager, Punjab National Bank, has been appointed as Executive Director in Indian Bank for a period of three years.

Also see: RBI approves appointment of Pradeep Kumar Panja as Chairman of Karnataka Bank

Meanwhile, Kalyan Kumar, Chief General Manager, Union Bank of India, has been appointed as Executive Director in Punjab National Bank for a period of three years. Asheesh Pandey, Chief General Manager, Union Bank of India as Executive Director in Bank of Maharashtra for a period of three years with effect from the date of assumption of office on or after December 31, 2021.

The ACC has also appointed Yadav Ramjass, Chief General Manager, Bank of Baroda, has been appointed as Executive Director in Punjab and Sind Bank. Roy Joydeep Datta, Chief General Manager, Bank of Baroda, has been appointed as Executive Director in Bank of Baroda for period of three years.

Nidhu Saxena, General Manager, UCO Bank, has been appointed as Executive Director in Union Bank of India for a period of three years from the date of assumption of office on or after February 1, 2022, an official order issued by the Department of Personnel & Training (DoPT) said.

All the seven appointees are eligible for extension of their term of office, after a review of their performance, by two years, according to the DoPT order.

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ICRA, BFSI News, ET BFSI

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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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Govt initiates process for filling posts of independent directors in PSBs, FIs, BFSI News, ET BFSI

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The government has initiated the process of filling about 100 vacancies of independent directors in public sector banks and financial institutions to meet regulatory norms of corporate governance. There have been vacancies at the independent director level across the public sector space leading to regulatory non-compliance, sources said.

As per the Companies Act 2013, every listed public company shall have at least one-third of the total number of directors as independent directors.

Since many listed public sector banks (PSBs) and some financial institutions (FIs) are short of mandated number of directors, it is in violation of Companies Act as well as listing norms of market regulator Securities and Exchange Board of India, sources said.

For example, some of the banks like Indian Overseas Bank, Indian Bank and UCO Bank are not compliant with independent director norms.

Except State Bank of India (SBI) and Bank of Baroda, the position of chairman in most of the state-owned banks is vacant. The posts of Workman Director and Officer Director, representing the employees and officers of the banks, respectively, have been vacant for the past 7 years.

According to a study, there were 72 public sector undertaking (PSU) companies as a part of the NIFTY 500 in both 2019 and 2020. PSUs forming part of NIFTY 500 had 133 fewer independent directors in 2020 compared to the earlier year.

There are 12 public sector banks, four public sector general insurance companies while one life insurance firm. Besides, there are some specialised insurance players like Agriculture Insurance Company of India Ltd.

In addition, there are state-owned financial institutions like IFCI, IIFCL, ECGC Ltd and EXIM Bank.

As many as 52 per cent of the director posts in the 11 nationalised banks were vacant, All India Bank Employees’ Association (AIBEA) said in a letter written to Finance Minister Nirmala Sitharaman recently.

Of the 175 board-level positions, 91 are lying vacant and there is urgent need to address the issue, AIBEA general secretary C H Venkatachalam said in the letter.

The posts of Workman Director and Officer Director have remained vacant in 11 nationalised banks for the last seven years, he said, adding, the board of each bank has 7-9 board level vacancies.

This defeats the very purpose for which these posts were envisaged and created to take care of the varied interests and fields of banking operations of the banks, he added.

The Boards of Directors of nationalised banks are guided by the provisions of Section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and Nationalised Banks (Management and Miscellaneous Provisions ) Scheme, 1970.



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RBI may screen bidders for bank privatisation at EoI stage, BFSI News, ET BFSI

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The government is set to start consultations with the Reserve Bank of India (RBI) to devise a new security clearance framework for screening potential bidders of public sector banks (PSBs), according to a report.

As potential buyers of IDBI Bank and two other PSBs will need to meet the RBI’s fit and proper criteria, the government is planning to bring the central bank on board to vet candidates in the first step itself.

The RBI will screen bidders as early as when expression of interest is placed and only then the process will move forward.

The RBI considers several factors, including the applicant’s integrity, reputation and track record in financial matters and compliance with tax laws, ongoing proceedings of serious disciplinary or criminal nature, financial misconduct for its ‘fit and proper’ tag.

On the radar

The NITI Aayog, which has been entrusted with the job of identifyng suitable candidates for the privatisation, has recommended names to a high-level panel headed by Cabinet Secretary Rajiv Gauba.

Central Bank of India, Indian Overseas Bank, Bank of Maharashtra and Bank of India are some of the names that may be considered for privatisation by the Core Group of Secretaries on Disinvestment.

The other members of the high-level panel are Economic Affairs Secretary, Revenue Secretary, Expenditure Secretary, Corporate Affairs Secretary, Secretary Legal Affairs, Secretary Department of Public Enterprises, Secretary Department of Investment and Public Asset Management (DIPAM) and the Secretary of administrative department.

Following clearance from the Core Group of Secretaries, the finalised names will go to the Alternative Mechanism (AM) for its approval and eventually to the Cabinet headed by Prime Minister Narendra Modi for the final nod.

IDBI Bank

The government has invited bids from transaction advisors and legal firms for assisting in the strategic sale of IDBI Bank.

The Union Cabinet had in May given in-principle approval for IDBI Bank’s strategic disinvestment along with transfer of management control.

The central government and LIC together own more than 94 per cent equity of IDBI Bank. LIC, currently having management control, has 49.24 per cent stake, while the government holds 45.48 per cent. Non-promoter shareholding stands at 5.29 per cent.



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What are NARCL and IDRCL? How do they work and what is the plan?, BFSI News, ET BFSI

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Finance Minister Nirmala Sitharaman on Thursday announced the formation of a government-backed bad bank, National Asset Reconstruction Company Ltd (NARCL). The Union Cabinet has approved up to Rs 30,600 crore of securities receipts.

What is NARCL?

The NARCL has been incorporated under the Companies Act and has applied to the Reserve Bank of India for license as an Asset Reconstruction Company (ARC). NARCL is basically a bad bank created by the government in the mould of an asset reconstruction company.

The NARCL will pick up bad loans above a certain threshold from banks and would aim to sell them to prospective buyers of distressed debt. The NARCL will also be responsible for valuing bad loans to determine at what price they would be sold. The bad bank would provide government receipts to banks as it takes on non-performing assets from their books.

State-owned banks will hold 51% stake, while FIs or debt management companies will hold 49%.

What is IDRCL?

Along with NARCL, the government will also set up the India Debt Resolution Company Ltd (IDRCL). The IDRCL is a service company or an operational entity, which will manage assets and loop in market professionals and turnaround experts. Public Sector Banks (PSBs) and Public FIs will hold a maximum of 49% stake and the rest will be with private sector lenders.

Background

Last year, The Indian Banks’ Association had proposed to create a bad bank for swift resolution of non-performing assets (NPAs). Following this, the finance minister in the 2021-22 Union Budget proposed the setting up of an ARC, along with an Asset Management Company (AMC), to take over the stressed debt of banks.

During the Union Budget 2021-22, Sitharaman said the bad bank will manage and dispose the assets to alternate investment funds and other potential investors for eventual value realisation.

In August, IBA moved an application to the RBI seeking licence to set up the over Rs 6,000-crore bad bank. The NARCL was incorporated last month in Mumbai, following the registration with the Registrar of Companies.

Also read: Finance Minister Sitharaman announces bad bank, Cabinet approves backing of up to Rs 30,600 crore on securities receipts

The Plan

The government will not have any direct equity contribution to NARCL. It will guarantee securities receipts issued by NARCL, which will buy the bad loans from banks.

These receipts will be valid for five years, and condition precedent for invocation of guarantee will be resolution or liquidation.

NARCL is intended to resolve stressed loan assets above Rs 500 crore each, amounting to about Rs 2 lakh crore. In phase I, fully provisioned assets of about Rs 90,000 crore are expected to be transferred to NARCL, while the remaining assets with lower provisions would be transferred in phase II.

As per industry practice, it will pay up to 15% of the agreed value for the loans in cash and the remaining 85% would be securities receipts.

The NARCL will acquire assets by making an offer to the lead bank. Once NARCL’s offer is accepted, IDRCL will be looped in for management and value addition.

How is NARCL different from existing ARCs?

The proposed bad bank will have a public sector character and majority ownership is likely to rest with state-owned banks.

At present, ARCs typically seek a steep discount on loans. With the NARCL, the valuation issue is unlikely to come up since this is a government initiative.

The government-backed ARC will have deep pockets to buy out big accounts, and thereby free up banks from carrying these accounts on their books.

Watch: Bad bank can be only a warehouse of bad assets, says Siby Antony

What benefit do banks get from this new structure?

It will incentivize quicker action on resolving stressed assets, and help in better value realisation. This approach will also permit freeing up banks personnel to focus on increasing business and credit growth.

As holders of these stressed assets and securities receipts, banks will receive the gains. Further, it aims to bring improvement in banks’ valuations and enhance their ability to raise market capital.

Watch: Bad bank to preserve value, timely sale of stressed assets: IBA CEO



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