Tag: public sector banks

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

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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 unions call for two-day nationwide bank strike on Dec 16-17

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The United Forum of Bank Unions (UFBU) has given a two-day nationwide strike call for banks on December 16-17 in opposition to the proposed privatisation of two public sector banks (PSBs).

“We have served Strike notice to both the IBA and the government,” CH Venkatachalam, General Secretary of All India Bank Employees Association (AIBEA) told BusinessLine.

The government is widely expected to introduce a Bill — the Banking Laws (amendment) Bill — in the Parliament’s ongoing winter session to pave the way for the privatisation of two public sector banks.

This Bill is yet to officially get Cabinet approval but sources say that this may have been discussed at today’s Cabinet meeting.

Also see: Just debate: Opposition needs to re-establish House scrutiny by debating laws, and not disrupting proceedings

UFBU, a representative body of nine bank unions, has been opposed to government’s privatisation attempts. In February this year — soon after the government announced in the Budget that two banks will be privatised — the UFBU gave a strike call for March 15–16, a success going by the expanded participation of bank employees and officers.

The UFBU, which met on November 29-30, has decided to unleash agitations including dharna in all State capitals up to December 4.

“On the day of the introduction of the Bill, there will be a demonstration/morcha before the Parliament,” said Venkatachalam. A Twitter campaign is planned for December 10. UFBU also plans to submit an online petition to the Prime Minister on December 14.

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

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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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Outlook for Indian banks is stable, says Moody’s, BFSI News, ET BFSI

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Outlook for Indian banks is stable as a likely pick up in lending growth in a supportive policy environment is expected to drive credit cost down, Moody’s Investors Service said.

“Pickup in activity levels will drive credit growth, with positive effects to asset risks,” the global rating company said in a report on banks in the emerging market.

The report lauded India’s rising vaccination rates and selective use of restrictions that helped recovery in economic activity.

“Stable asset quality supported by gradual improvement in the job market and better corporate risk will help reduce credit costs as economic activity normalizes,” it said, adding that policy support for borrowers would limit asset quality deterioration.

The report projected a stable outlook for banks in the entire emerging market space, supported by continued recovery in economic activity, as well as banks’ solid balance sheets, including high levels of loan loss reserve, high profitability, strong liquidity and capital position, which will help mitigate near-term risks.

The stable sector outlook reflects Moody’s view of credit fundamentals in the emerging markets banks sector over the next 12 to 18 months.

In India, continued government support for public sector banks would be positive for loan growth, supported by new equity injections in 2022.

“Despite maintaining lower reserve buffers compared to private banks, public sector banks can withstand problem loans growth without materially eroding their buffers,” the report observed.

The rating company however emphasized concerns over stressed assets for the country’s small & medium enterprises and retail loan segments. Corporate loan quality is likely to be stable with policy support for borrowers limiting asset quality deterioration.

Emerging markets banks will maintain loan loss reserve buffers built in 2020 that will mitigate risks of a moderate increase in nonperforming loans, following the expiration of support measures, recent inflationary pressures in the region and the weak job markets in some countries, Moody’s associate managing director Ceres Lisboa said.

“We expect the G20 emerging market economies will continue to present a solid recovery of 4.8% in 2022 and 4.3% in 2023, on average, with operating conditions reaching pre-pandemic levels in most countries,” Lisboa was quoted as saying.

Meanwhile, Moody’s expected tightening of monetary policy by the Reserve Bank of India and central banks in LatAm, Russia and Turkey given the rising pressure on inflation, despite downside risks to growth with pronounced negative real yields.



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Union Bank of India extends chief risk officer’s tenure by 3 months, BFSI News, ET BFSI

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New Delhi, Union Bank of India on Thursday said it has extended the tenure of its chief risk officer B S Venkatesha by three months from mid December. The decision was taken in a meeting of the board of directors, it said.

“The board of directors, at its meeting held on November 25, 2021, approved the extension of tenure of B S Venkatesha, General Manager and Chief Risk Officer of the bank for a further period of three months with effect from December 18, 2021,” Union Bank of India said in a regulatory filing.

Stock of the bank closed at Rs 45.80 apiece on BSE, down 1.29 per cent over previous close.

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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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Bankers must do proper due diligence before joining corporates, says Amarjit Chopra, BFSI News, ET BFSI

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The arrest of Former SBI Chair Pratip Chaudhuri sends a clear message to the bankers that they must lot of due diligence of companies particularly NBFCs whose boards they are joining post-retirement, says Amarjit Chopra, who has held several directorships in public sector banks, and was also a former president at the Institute of Chartered Accountants of India (ICAI).

“Firstly credentials of promoters and secondly past relationship of bankers in their various capacities in banks with such companies need to be kept in mind. Not following this gives rise to unnecessary suspicion and speculations,” Chopra said, as he reflected on the arrest of Chaudhari’s arrest by Enforcement Directorate earlier this month in connection with a loan scam case. Below are edited excerpts from the interaction:

Q: What is your initial impression on the arrest of Ex SBI Chair Pratip Chaudhuri in a loan scam case?

Amarjit Chopra: It is extremely unfortunate that a person of his stature with an impeccable track record has been arrested without an appreciation of facts. His reputation has been tarnished for no reason. And to me his arrest is a big setback to the morale of banking personnel particularly when the economy needs a boost in credit expansion

Q: SBI Chair Dinesh Kumar Khara has said Chaudhuri has not been given an opportunity to be heard, Also, many bankers have described this as high handedness by enforcement agencies/ police. What is your view?

Amarjit Chopra: From the reports it appears that Pratip Chaudhuri was not given any opportunity to be heard before his arrest. Prima facie his arrest reflects high handedness on the part of enforcement agencies and police.

One needs to understand the facts to appreciate the wrong done to Pratip Chaudhuri. The promoters of the Jaisalmer hotel project, Garh Rajwada, approached SBI for a loan to construct a hotel. The loan of Rs 24 crore would have been sanctioned following a process. Going by the amount and the fact that the bank involved was SBI the case would not have gone to the level of MD/Chairman of that period..

Loan proposal along with technical and financial feasibility report of the project, valuation report of the land and other documents etc would have been obtained and appraised before any recommendation for sanction of loan by any official/ committee.

The loan was disbursed in the year 2008. The borrower did not complete the project. A key promoter passed away in 2010. Needless to say that as per banking norms opportunities would have been given to the borrower to settle the amount or to complete the project which the promoters failed to do. Consequently, the loan was classified as NPA.

Going by my experience in all such cases the banks do try to persuade the borrowers in such cases to settle the matter before resorting to other measures. This case would have been no exception to the same. In this case as the promoters neither settled the account nor completed the project the bank was left with no alternative but to follow the process of selling the NPA to ARC Alchemist in 2014 and ARC stepped into the shoes of the lender bank. This was done four years after the death of the key promoter.

Q: What according to you could have prompted the enforcement agencies to arrest Chaudhuri in the first place?

Amarjit Chopra:

It may be interesting to note that Pratip Chaudhuri became Chairman in April 2011 i.e. after sanction and disbursal of loan and rather after the account had turned NPA and retired in September 2013 i.e. before the sale of the asset to ARC Alchemist..

Pratip Chaudhuri joined Alchemist Board in October 2014 after completing a mandatory cooling period of one year after his retirement from SBI. Alchemist had stepped into the shoes of the lender by acquiring the asset. To my mind, ARC would have tried to negotiate it with borrowers but later on sold the asset to another party, an NBFC in 2017.

So far as I understand the process clearly, the bank before selling the asset to ARC Alchemist would have obtained a valuation report and would have advertised the sale in newspapers. In case promoters had any objection they should have filed the objection at that time rather than filing any complaint later after the sale of the asset. They had an opportunity to settle the account presale with the bank and postsale with ARC. So, there appears to be no justification in their filing a protest petition with Chief Judicial Magistrate later and alleging sale of the asset at lower price.

It is surprising that the court has taken cognisance of a complaint by a defaulter who failed to execute the project and later on refused to settle the account. Enforcement agencies having taken cognisance of such complaints would only encourage more financial indiscipline on the part of defaulters..

It is crystal clear that Pratip Chaudhuri was not even Chairman of SBI when the sale to ARC happened. So the allegation against him cannot be in his capacity as a banker. A protest petition has been filed against ARC Alchemist and all of its directors without making SBI a party. It is shocking that Alok Dhir, the promoter of ARC Alchemist, has evaded arrest. It may not be wrong to presume that the action that Chaudhuri faces is not because of being Chairman of SBI. Rather he faces this action being on the Board of ARC Alchemist as this company was involved in the purchase and sale of the asset.

Q: Does Enforcement Directorate seem to have jumped the gun in this case?

Amarjit Chopra: Probably yes! The Supreme Court in a recent judgement in case of Ravindranatha Bajpe versus Mangalore Special Economic Zone Ltd and others has clearly held that no vicarious liability would come on any director for any criminal offences of the company till the time it is proved that he had consented or had knowledge of a fraud.

In the given case based on protest petition even if enforcement agencies/police had to proceed, the same could have been based on investigations into conduct of various parties including the borrowers and the findings thereof. An action like arrest cannot be based upon surmises and conjectures..

Q: What does Chaudhuri’s arrest imply for the banking industry?

Amarjit Chopra: In recent years after the arrest of certain top functionaries of Bank of Maharashtra, IDBI etc bankers had become risk-averse and the same affected credit expansion adversely. The slowdown in credit expansion also resulted in economic sluggishness in the country.

It may be worthwhile to point out that Bank of Maharashtra officials were later exonerated of all charges but the damage was done to the morale of banking staff.

A couple of days back the government issued instructions to ensure that enforcement agencies need to distinguish between genuine banking business decisions and actions taken with an intent to defraud. It was done primarily with a view to infuse confidence in bankers that a protection cover is being provided to them for their genuine business decisions.

But this one case has nullified the impact of those instructions. It is despite the fact that apparently, this action against Chaudhuri has nothing to do with his role as a banker as stated earlier.

In my opinion, going by human psychology it would certainly affect credit expansion as well as cleaning up of the balance sheets of banks particularly through sales of bad loans to ARCs. Here I will certainly like to add that all these years the role of various ARCs has not been free from controversy and needs to be looked into. The government and RBI would do well to constitute a group to suggest some measures to improve the functioning of ARCs..

Q: What is the signal reflected by the enforcement agencies here?

Amarjit Chopra: It is difficult to answer. But one message is loud and clear that top functionaries in banks need to do a lot of due diligence of companies, particularly NBFCs whose boards they are joining post-retirement. Firstly credentials of promoters and secondly past relationship of bankers in their various capacities in banks with such companies need to be kept in mind. Not following this gives rise to unnecessary suspicion and speculations.

Motives can be imputed and at times certain genuine business decisions may be looked at with a different mindset by public and enforcement agencies. Keeping oneself engaged post-retirement is fine but joining the boards of companies with which one has dealt with in various capacities as banker may not be a healthy trend..

Unfortunately in the recent past, there has been an increasing trend amongst bankers and bureaucrats joining the boards of such companies that they dealt with as senior functionaries. One may be honest but it is equally important to appear as honest.

It may not be an exaggeration to say that enforcement agencies in the given case probably acted upon the surmise that Chaudhuri happens to be a director on the board of Alchemist and earlier he and the company had a business relationship. So, better avoid such conflicted appearing positions.

Q: Do you have any suggestions for the government/ RBI?

Amarjit Chopra: The government and RBI would do well to review the extent of mandatory cooling period that officials of banks and bureaucrats may have to observe post-retirement before taking up an assignment with private entities, particularly whose files they have dealt with in the last three years of their official position.



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DHFL recovery lifts PSU banks’ Q2 net profits, offsets Srei group account slip, BFSI News, ET BFSI

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Most top public sector banks have reported steady second-quarter earnings, with lower slippages as the economy opened up and COVID-19 cases fell.

State Bank of India reported a robust performance as it bravely fought off the COVID-19 impact and displayed remarkable resilience in asset quality performance.

India’s largest bank reported a steady quarter, with net earnings growing 67% YoY to Rs 7630 crore, aided by controlled provisions, as asset quality showed remarkable strength, despite the impact of the second Covid wave.

The bank has been reporting continued traction in earnings, led by controlled provisions. However, business trends remain modest, impacted by continued deleveraging by corporates. The bank has been able to maintain a strong control on restructured assets at 1.2% of loans, while the special mention account (SMA) pool declined sharply.

It created a family pension provision of Rs 7,420 crore, instead of amortizing it over five years, thus prudently deploying one-off gains from the DHFL recovery and tax refund. The bank has fully provided for its exposure towards the SREI group.

GNPA/NNPA ratios improved by 42 basis points /25bp quarter on quarter (QoQ) to 4.9%/1.5% as fresh slippage subsided to Rs 4180 crore. Restructured book remained in check at 1.2% of loans, while the SMA pool declined sharply to Rs 6,690 crore (27bp of loans).

According to analysts, the slippage trajectory of the bank is likely to moderate further assuming there is no third Covid wave, while credit cost may undershoot the normal cyclical trends. The bank has a healthy PCR of 70% and holds unutilized Covid-related provisions of Rs 6200 crore.

Canara Bank

State-run Canara Bank reported a three-fold jump in its standalone net profit at Rs 1,333 crore in the quarter ended September, aided by lower bad loan provisioning, rise in non-interest income, and recovery from DHFL resolution. The lender had reported Rs 444 crore profit in the year-ago quarter.

“Despite moderate credit growth of 6% YoY and soft NIMs (Net interest margin), Canara Bank reported a strong beat on PAT versus our estimate, mainly helped by higher treasury income, contained provisions and cash recovery from DHFL,” said Emkay in a note.

Union Bank

Union Bank of India reported healthy earnings, supported by recovery from the DHFL resolution.

The bank reported a PAT of Rs 1530 crore, up 195% year on year, supported by higher recoveries from written-off accounts of Rs 1760 crore, including recovery of

Rs 1,650 crore from the resolution of the DHFL account.

Furthermore, fee income trends improved, while domestic margins declined; muted loan growth affected net interest income growth. On the other hand, asset quality performance was stable despite elevated slippage, largely led by Corporate – this includes slippage from SREI Infra (Rs 2,600 crore). However, higher write-offs and upgrades aided improvement in asset quality on a sequential basis. Moreover, it now carries provisions of 65% on SREI Infra (higher versus peers).

The SMA-2 book declined to 2.3% of loans (versus 3.7% of loans in first quarter of FY22). Thus, slippage would moderate from fiscal 2023 onwards, and credit costs are expected to come in at 2.2%/1.9% for FY22/FY23, according to analysts.

Punjab National Bank

Punjab National Bank (PNB) delivered a weak operating performance in the second quarter as the bank was impacted by a decline in net interest income with domestic margins contracting sharply by 36 basis points quarter on quarter, while net earnings grew 78% year on year, aided mainly by tax reversals. The total recovery from the DHFL resolution was Rs 1,270 crore and was predominantly utilised for making provisions for one large corporate account (SREI Infra). On the business front, loans/deposits grew 2% sequentially.

PNB reported a 78% YoY and 8% QoQ increase in PAT at Rs 1,110 crore aided mainly by tax reversals (Rs 340 crore) and controlled provisions (34% QoQ decline). However, PNB’s operating performance was weak with the PPoP declining 27% YoY due to a decline of 25% YoY in net interest income and domestic margins declining sharply by 36 bps QoQ to 2.45%.

On the asset quality front, slippages were elevated (~5.4% annualised) due to two large corporate accounts (Rs 3600 crore) which included slippage of Rs 2,800 crore from Srei Infra. However, higher recoveries and upgradations supported the bank’s asset quality with its GNPA/NNPA ratio declining by 70bp/35bp sequentially. PNB’s total restructured book (earlier Covid schemes) stood at 3.1% of loans, while total SMA overdue (Rs 5 crore) amounted to Rs 25,000 crore.

UCO Bank

UCO Bank’s net profit for July-September jumped 581.9% on year to Rs 210 crore on improvement in asset quality, lower overall provisions, and growth in other income. Sequentially, the net profit increased 101.7%. In the quarter ended September, provisions and contingencies excluding current tax, stood at Rs 1,020 crore, down 21.7% on year and largely unchanged on quarter. Provisions for tax were at Rs 100 crore, against a Rs 260 crore write-back last year. Provisions for non-performing assets stood at Rs 1,590 crore, up 54.6% on year and 88.9% on quarter.

The bank said it had identified two Kolkata-based accounts of the same group as non-performing assets during the quarter, post lifting of a legal stay on identifying them as bad loans. While UCO Bank didn’t name the account or group, it possibly referred to Srei Infrastructure Finance and Srei Equipment Finance.

The Srei twins are under the scanner after the Reserve Bank of India superseded their boards, citing corporate governance issues. UCO Bank said it had provided for these two stressed accounts as per regulatory norms. Despite this, UCO Bank’s gross non-performing asset ratio eased to 8.98% as on September 30 from 9.37% on Jun 30, and 11.62% a year ago.

The net non-performing asset ratio fell to 3.37% as on Sep 30 from 3.85% a quarter ago and 3.63% a year ago. The bank said that to guard against the impact of any future waves of Covid on its books, it was making an ad hoc provision of 2.5 bln rupees in July-September, taking the total provisions linked to Covid to Rs 750 crore as on September 30.



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Banks make higher-than-required provisions for Srei Group exposure

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Large public sector banks (PSBs) have proactively made substantially higher provisions, ranging from 40-100 per cent, towards their exposure to the Kolkata-based Srei Group against the usual regulatory requirement of 15 per cent.

Forensic audit

This is due to the uncertainty over what a forensic audit of the account may reveal and the haircut lenders may have to take under the corporate insolvency resolution process (CIRP) initiated against the group.

The Reserve Bank of India’s norms require banks to make a general provision of 15 per cent on their total outstanding exposure to a substandard asset. Unsecured substandard assets attract an additional provision of 10 per cent.

Bankers say they don’t want any surprises on the provisioning front in the coming quarters vis-a-vis the Srei account, which comprises Srei Infrastructure Finance Ltd (SIFL) and its wholly owned subsidiary Srei Equipment Finance Ltd (SEFL).

Moreover, recovery from the resolution of DHFL and healthy profit in the second quarter have given them the elbow room to increase the provisions.

The banks that have made higher upfront provisions towards their exposure to the Srei Group include State Bank of India (SBI, 100 per cent), Union Bank of India (UBI, 65 per cent), Bank of India and Central Bank of India (BoI, CBoI 50 per cent each), and Punjab National Bank (PNB, 40 per cent). PNB has an exposure of ₹2,600 crore to the Srei group, UBI ₹2,558 crore, BoI ₹1,024 crore in direct exposure and ₹970 crore via pooled route, and CBoI ₹1,149 crore. SBI’s exposure is believed to be over ₹2,000 crore.

₹26,476-crore borrowings

As at March-end 2021, the consolidated borrowings of the Srei Group stood at ₹26,476 crore. This includes term loans, working capital facilities, collateral borrowings and unsecured loans. Liabilities in the form of debt securities and subordinated liabilities stood at ₹2,441 crore and ₹2,785 crore respectively.

Governance concerns

RBI had, on October 4, 2021, superseded the Board of Directors of SIFL and SEFL. The central bank, in a statement, said it took this action owing to governance concerns and defaults by these companies in meeting their various payment obligations.

It appointed Rajneesh Sharma, Ex- Chief General Manager, Bank of Baroda, as the Administrator of the aforesaid companies.

The central bank’s applications for initiation of CIRP against SIFL and SEFL under the Insolvency and Bankruptcy Code (IBC), 2016, read with Financial Service Providers Insolvency Rules were admitted by the Kolkata Bench of the National Company Law Tribunal on October 8.

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