Tag: RBI

Gold loans sparkle again after second COVID-19 wave blip, BFSI News, ET BFSI

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Gold that lost shine after the Reserve Bank of India took away the loan-to-value (LTV) benefit for banks amid COVID restrictions in the second wave are sparkling again.

Gold loans were up 1% month on month in August 2021 as restrictions during the pandemic eased and economic activities grew.

Loan demand has picked up from the beginning of July as COVID-19 cases started declining. Gold loan non-banking finance companies (NBFCs) had reported higher customer walk-ins.

FILE PHOTO: Gold bars and coins are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich, Germany, August 14, 2019. REUTERS/Michael Dalder/File Photo

LTV impact

However, gold loans have grown a mere 3.6% year to date, which is in contrast with the 54% CAGR seen in gold loan growths over the past two years. Gold loan portfolios are up 66% year on year in August.

RBI had raised the LTV of 90% on gold loans, which allowed banks to lend up to 90% of the value of the collateral.

However, it withdrew the special allowance for banks from April 2021, impacting loan growth.

The average ticket size of loans that customers are opting for is Rs 55,000-60,000, which are rising for many lenders, showed growing signs of distress.

Gold loan NBFCs saw higher competition in the gold loan business last fiscal as banks grew their portfolio taking advantage of the special LIV allowance given to them by the RBI.

The expansion

With growth returning gold financiers are ow gearing up to tap the expected surge in gold loans.

Muthoot FinCorp has expanded its physical network by more than 100 new branches, mainly in the north, east and west regions of India, most of which were in rural and semi-urban areas. The NBFC had opened 70 branches in FY20.

Muthoot’s gold asset under management (AUM) grew at a compound annual growth rate of 12% between FY15 and FY20. In FY21, the portfolio grew 27%.

Pune-based Bajaj Finance has increased its gold loan branches from 480 to 700 in the last financial year and plans to add 100 plus branches this fiscal.

Its loan book grew 52% last year to Rs 2,300 crore while it saw an increase in ticket sizes from Rs 75,000 to Rs 85,000 last year.

Bengaluru-based Rupeek Fintech Private Ltd’s disbursals grew 2.5 times during the calendar year 2020. It has added its presence in 17 more cities, from 10 at the end of 2019.

Shriram City Union Finance is also looking to ramp up its gold financing business this financial year, changing its strategy of focusing on other loan portfolios.



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Reserve Bank supersedes boards of Srei Infrastructure, Srei Equipment Finance, BFSI News, ET BFSI

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The Reserve Bank of India said on Monday it has superseded the board of directors of non-banking financial companies Srei Infrastructure Finance Ltd and Srei Equipment Finance Limited due to governance concerns and defaults, adding that it will initiate bankruptcy proceedings against them.

Rajneesh Sharma, the former Chief General Manager of the Bank of Baroda, has been appointed the administrator.

Last week, a consortium of lenders led by UCO Bank sought central bank directions on pursuing recovery of dues from the Srei Group after loans worth about Rs 30,000 crore to the Kolkata-based financier officially qualified to be moved to the list of non-performing assets (NPA) this quarter.

Srei Infrastructure, and its subsidiary Srei Equipment Finance, together owe lenders and debenture holders a total of Rs 30,000 crore. Kolkata-based UCO Bank is the lead lender, with more than Rs 2,000 crore of exposure. State Bank of India (SBI)’s exposure to the group is also more than Rs 2,000 crore.

The bank loans have turned non-performing assets after the end of the September quarter, two senior bank executives told ET.

The company had earlier announced that Arena Investors, Makara Capital and others had evinced interest to invest in the company to the tune of Rs 2,200 crore. The company had formed a strategic coordination committee to coordinate, negotiate and conclude discussions with the investors.

Till date, it received expressions of interest from 11 investors and has signed non-disclosure agreements with nine of them. Two Investors — Makara and Arena — had submitted non-binding term sheets indicating their intent for investment.

Srei Infrastructure, which is a listed entity, reported a net loss of Rs 971 crore in the June quarter as against Rs 23 crore net profit in the year ago period as provisions on loans rose nearly seven times to Rs 439 crore over the same period as repayment collections were hit due to the impact of the Covid 19 pandemic.

with inputs from Atmadip Ray



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SREI Infrastructure Finance Ltd stuck in 5% lower circuit as RBI supersedes co’s Board

Banking & Finance

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The shares of SREI Infrastructure Finance Limited (SIFL) were locked in the 5 per cent lower circuit during the morning trade on Tuesday after the Reserve Bank of India superseded the Board of Directors of SIFL and SREI Equipment Finance Limited.

The shares of SIFL opened at ₹8.17, down ₹0.43 or 5 per cent on the BSE as against the previous close of ₹8.60 and were locked in the 5 per cent lower circuit post opening.

It was trading at ₹8.20 on the NSE, down ₹0.40 or 4.65 per cent.

The Reserve Bank superseded the Board of Directors of SIFL and SEFL owing to governance concerns and defaults by the aforesaid companies in meeting their various payment obligations, as per a regulatory filing.

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

“The Reserve Bank also intends to shortly initiate the process of resolution of the above two NBFCs under the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 and would also apply to the NCLT for appointing the Administrator as the Insolvency Resolution Professional,” it said.

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RBI appoints advisory committee to assist administrator of 2 Srei group firms, BFSI News, ET BFSI

Banking & Finance

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After superseding the boards of Srei Infrastructure Finance Limited (SIFL) and Srei Equipment Finance Limited (SEFL) on Monday, the RBI has appointed a three-member Advisory Committee to assist the administrator of the two crisis-ridden firms. The Reserve Bank of India (RBI) superseded the board of directors of SIFL and SEFL and appointed Rajneesh Sharma, ex-chief general manager, Bank of Baroda, as the administrator.

“The Reserve Bank…has constituted a three-member Advisory Committee to assist the Administrator in discharge of his duties,” the central bank said in a statement.

The members of the Advisory Committee are — R Subramaniakumar (former MD and CEO, Indian Overseas Bank), T T Srinivasaraghavan (former managing director, Sundaram Finance Limited), and Farokh N Subedar (former chief operating officer and company secretary, Tata Sons Limited).

The Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 provide for the concerned financial sector regulator appointing a Committee of Advisors to advise the administrator in the operations of the financial service provider during the corporate insolvency resolution process.

Srei group, which mainly caters to the MSME and infrastructure sectors, owes around Rs 18,000 crore to around 15 lenders, including Axis Bank, UCO Bank and State Bank of India, and another nearly Rs 10,000 crore of external commercial borrowings and bonds. PTI NKD ABM ABM



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IBA CEO, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank on Monday gave licence to the Rs 6,000 crore National Asset Reconstruction Company Ltd (NARCL), a move that will help kickstart operations of the bad bank. NARCL was incorporated in July in Mumbai following registration with the Registrar of Companies (RoC).

“Happy to share #RBI has given License to #NARCL on 4.10.2021. The approval has been accorded under Section 3 of #SARFAESI Act 2002,” Indian Banks’ Association (IBA) CEO Sunil Mehta tweeted.

IBA, entrusted with the task of setting up the bad bank, has put a preliminary board for NARCL in place.

The company has hired P M Nair, a stressed assets expert from State Bank of India (SBI), as the managing director.

The other directors on the board are IBA CEO Mehta, SBI Deputy Managing Director S S Nair and Canara Bank’s Chief General Manager Ajit Krishnan Nair.

Finance Minister Nirmala Sitharaman had in Budget 2021-22 said that the high level of provisioning by public sector banks of their stressed assets calls for measures to clean up bank books.

“An Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt,” she had said in the Budget speech.

It will manage and dispose of the assets to alternative investment funds and other potential investors for eventual value realisation, she had said.

Last month, the Cabinet cleared a proposal to provide government guarantee worth Rs 30,600 crore to security receipts issued by NARCL.

NARCL will pay up to 15 per cent of the agreed value for the bad loans in cash and the remaining 85 per cent would be government-guaranteed security receipts.

It will be 51 per cent owned by PSBs and the remaining by private sector lenders.

Last week, SBI, Union Bank of India, Indian Bank picked up 13.27 per cent stake each in the NARCL, while Punjab National Bank acquired about 12 per cent stake.

NARCL will take over identified bad loans of lenders.

The lead bank with an offer in the hand of NARCL will go for a ‘Swiss Challenge’, wherein other asset reconstruction players will be invited to better the offer made by a chosen bidder for finding a higher valuation of a non-performing asset on sale.

The company will pick up those assets that are 100 per cent provided for by the lenders. Banks have identified around 22 bad loans worth Rs 90,000 crore to be transferred to NARCL in the initial phase.



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Reserve Bank supersedes boards of Srei Infrastructure, Srei Equipment Finance, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India said on Monday it has superseded the board of directors of non-banking financial companies Srei Infrastructure Finance Ltd and Srei Equipment Finance Limited due to governance concerns and defaults, adding that it will initiate bankruptcy proceedings against them.

Rajneesh Sharma, the former Chief General Manager of the Bank of Baroda, has been appointed the administrator.

Last week, a consortium of lenders led by UCO Bank sought central bank directions on pursuing recovery of dues from the Srei Group after loans worth about Rs 30,000 crore to the Kolkata-based financier officially qualified to be moved to the list of non-performing assets (NPA) this quarter.

Srei Infrastructure, and its subsidiary Srei Equipment Finance, together owe lenders and debenture holders a total of Rs 30,000 crore. Kolkata-based UCO Bank is the lead lender, with more than Rs 2,000 crore of exposure. State Bank of India (SBI)’s exposure to the group is also more than Rs 2,000 crore.

The bank loans have turned non-performing assets after the end of the September quarter, two senior bank executives told ET.

The company had earlier announced that Arena Investors, Makara Capital and others had evinced interest to invest in the company to the tune of Rs 2,200 crore. The company had formed a strategic coordination committee to coordinate, negotiate and conclude discussions with the investors.

Till date, it received expressions of interest from 11 investors and has signed non-disclosure agreements with nine of them. Two Investors — Makara and Arena — had submitted non-binding term sheets indicating their intent for investment.

Srei Infrastructure, which is a listed entity, reported a net loss of Rs 971 crore in the June quarter as against Rs 23 crore net profit in the year ago period as provisions on loans rose nearly seven times to Rs 439 crore over the same period as repayment collections were hit due to the impact of the Covid 19 pandemic.

with inputs from Atmadip Ray



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RBI supersedes boards of Srei Infrastructure Finance, Srei Equipment Finance

Banking & Finance

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The Reserve Bank of India has superseded the Board of Directors of Srei Infrastructure Finance Ltd (SIFL) and Srei Equipment Finance Ltd (SEFL), owing to governance concerns and defaults by the companies in meeting their payment obligations.

Rajneesh Sharma, Ex- Chief General Manager, Bank of Baroda, has been appointed the administrator of the companies under Section 45-IE (2) of the RBI Act.

“The Reserve Bank also intends to shortly initiate the process of resolution of the two NBFCs under the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 and would also apply to the NCLT for appointment of an administrator as the Insolvency Resolution Professional,” RBI said in a statement

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FIDC seeks refinance mechanism for NBFCs

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Finance Industry Development Council (FIDC) has sought a refinancing mechanism for non-banking finance companies and other measures to further credit flow to MSMEs through these shadow banks.

In a letter to SIDBI Chairman and Managing Director S Ramann, FIDC has said there is a dire need for an effective refinance mechanism on similar lines as the NHB refinance to ensure diversity and greater regularity in sources of funds to NBFCs.

“We believe that SIDBI is most suited as an institution to provide such a facility to NBFCs for onward lending to MSMEs and other appropriate sectors,” FIDC said, adding that it has also discussed the issue with the Reserve Bank of India and Finance Ministry.

It has also called for changes in the eligibility criteria used by SIDBI for funding NBFCs, apart from rating.

“While rating should be an important consideration for SIDBI to assess its credit risk, we submit that this may be seen as only one of the criteria, which could be counter-balanced with vintage of NBFC, the track record and experience of the key personnel, financial parameters, credit quality and capital adequacy,” it said, adding that rating should not be used as a qualifying criterion for a “go-no go” decision for lending to NBFCs.

FIDC is a representative body of asset and loan financing of RBI registered NBFCs.

It has sought extension of CGTMSE coverage to loans given to educational institutions. Currently, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) coverage is not available for loans provided by NBFCs to educational institutions.

FIDC pointed out that many educational institutions are now being opened, and there is a need to provide adequate financing for restoring normalcy and enabling their growth.

“Covering these loans under the CGTMSE scheme would facilitate greater flow of funds to this critical sector,” it said.

It also asked that CGTMSE coverage should be restored to 75 per cent of the non-performing asset. Further, FIDC has suggested that arbitration should be considered a valid legal step taken for debt recovery under the ECLGS scheme.

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IBC poised for a new set of changes, weeks after rap by parliamentary panel, BFSI News, ET BFSI

Banking & Finance

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The government is working on a new set of amendments to strengthen the Insolvency and Bankruptcy Code, which has come under criticism after over 90 per cent haircuts suffered by lenders in some hi-profile resolutions.

The amendments are being worked on by the finance ministry and IBBI officials to plug any loopholes in the system, according to a report.

finance and corporate affairs minister Nirmala Sitharaman had given directions to officials at the Financial Stability and Development Council meeting last month to finalise changes that would be required to strengthen the IBC.

A meeting of officials was held on September 21 and 28 over the issue, according to a report.

The Reserve Bank of India and Securities and Investment Board of India wants issues over IBC settled.

Rising haircuts

Almost half of the closed cases by lenders under IBC in FY21 ended in liquidation, according to IBBI, while only 13 per cent were resolved. In most of the cases under IBC, by the time they are resolved, their asset value depreciates leading to 90% haircuts, according to IBBI

In August, the parliamentary standing committee on finance cautioned that the IBC may have strayed from its original objectives, highlighting inordinate delays and large haircuts for lenders.

“Liquidation should not be a benchmark. And that is why we have to think carefully about what should be the benchmarks and a resolution process particularly for secured financial creditors,” Jayant Sinha, chairman of the parliamentary standing committee on Finance had said.

Panel suggestions

Sinha had suggested three steps to reduce litigation.

Firstly, fill the vacancies at NCLT as quickly as possible because then there is more time to adjudicate a case well and come up with a good resolution.

If judges don’t have enough time and rush through cases, they won’t give good judgments, and then things will end up in litigation. Therefore, adding capacity as soon as possible is one way in which we can deal with these endless litigation type issues.

Secondly, improve the quality of NCLT members. The parliamentary committee has recommended that the NCLT should at least have high court judges so that we can benefit from their experience and their wisdom. That’s another way to prevent litigation.

The third way of preventing litigation is to ensure when people submit the resolution plan as per the deadline, they do not have an opportunity to come in with another resolution plan after that. Because not doing so, will again rest in litigation, and a lot of contentions back and forth.

“So these are three very concrete steps that we have suggested to reduce litigation as it is one of the reasons a lot of these timelines are being extended,” he said.



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Study, BFSI News, ET BFSI

Banking & Finance

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An internal study by the central bank has revealed that borrower delinquency reduced after the RBI’s February 12, 2018 circular requiring banks to initiate insolvency within six months of default but deteriorated after the circular was struck down by the Supreme Court in April 2019.

The study was highlighted in an article by RBI executive director Saurav Sinha, which is part of an e-book published by the Insolvency and Bankruptcy Board of India. The article said that insolvency should not be the last resort, comparing a stressed asset to an ice cube with any delay in resolution melting away value. The article has said that a disquieting aspect for the RBI is the time taken for commencement of resolution from the time of filing application. In the article ‘IBC — A banking regulator’s perspective’, Sinha has pointed out that the study showed that notification of IBC alone did not result in any material change in behaviour of borrowers.

The article notes that the most positive impact on the credit culture was by the erstwhile February 12 circular, which resulted in increases in curing of defaults. The upgrades in the SMA-1 (special mention accounts or loans that are in default but not yet NPAs) improved to 18.6% from 5.8% before the circular.

Interestingly, the upgrades came down significantly after the Supreme Court declared that the erstwhile February 12 circular was ultra vires to the Banking Regulation Act, 1949 even though it recovered after the RBI issued rules incentivising early initiation of IBC.

Sinha has said that for the impact of IBC to be felt, the RBI needs to leverage the bankruptcy code in its resolution framework. While some commentators see bankruptcy as an extreme step, the article has said this is not the case.

“It is a disconcerting notion that IBC is seen as a last resort of resolution by many stakeholders including various banks — something that has to be thought about only after all other avenues have been extinguished. The RBI believes in the well-used analogy of a stressed borrower being similar to an ice cube taken out of the refrigerator — the longer it remains unprotected, the more ice melts into water and is lost,” the article said.

The article concludes with the expectation that the recently-introduced pre-packaged insolvency resolution process for small business is extended to all borrowers and is used in difficult resolution involving non-cooperative lenders.



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