Tag: RBI

Bank lending 50 per cent higher in October-February, BFSI News, ET BFSI

Banking & Finance

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Bank credit growth is accelerating with unlock trade gathering momentum as aggregate loans disbursed in the five months to February this year rose nearly 50 percent.

An analysis of RBI‘s credit data shows that banks lent Rs 5 lakh crore between end September and February of the current fiscal compared to Rs 3.3 lakh crore in the same period of FY’20.As of February 26, overall credit growth was higher at 6.6 per cent than 6.1 per cent a year ago. But loan growth in Septmber’20 was lower at 5.1 per cent compared to 8.8 per cent in the same period a year ago, indicating that the unlock phase has spurred credit demand.

Much of the growth in the post pandemic period has been due to various government initiative undertaken as a part of the stimulus package to help the MSME sector to revive the economy post COVID-19. ” ECLGS disbursements at Rs 1.6 lakh crore in the first nine months of this fiscal have lent support” Ratings firm Crisil said in a report.

Besides, the better monsoons this year also lifted prospects for agriculture even as the pandemic derailed the industry and services sector. This also reflected in growth of agri-loans have also risen at a higher pace this year at 9.9 per cent in January, compared to 6.5 per cent with fresh sanctions in absolute terms crossing the Rs one lakh crore mark so far this fiscal.

But the trends till January also show that since the pandemic, some new heads like loan against gold jewellery-132 per cent, bank lending to non-HFC NBFCs-150 per cent, social infrastructure-98 per cent and aviation-120 per cent has gone up by over 100 per cent-

As for loan against gold jewellery this can largely be attributed to focus of banks towards secured lending products post LTV relaxation, said a report by ICICI Securities. “NBFCs, after having consolidated for almost 2 years now, significantly deleveraging the balance sheet by running down high risk profile assets, are now more confident to pursue growth opportunities in a risk-calibrated manner” it said.

Besides lending opportunities arising out of general economic revival and pick up in consumption demand, banks will also have an edge over NBFCs because of their access to low cost funds. “Competition is intensifying. With low-cost funding access, banks will be aggressive in the retail segments, especially housing and new vehicle finance” Crisil said.



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Bank credit grows by 6.63 per cent

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Bank credit rose by 6.63 per cent to Rs 107.75 lakh crore and deposits grew by 12.06 per cent to Rs 149.34 lakh crore in the fortnight ended February 26, according to a report.

In the fortnight ended February 28, 2020, bank credit stood at Rs 101.05 lakh crore and deposits at Rs 133.26 lakh crore, the recent data released by the Reserve Bank of India (RBI) showed.

Bank credit increased by 6.58 per cent to Rs 107.04 lakh crore and deposits rose by 11.75 per cent to Rs 147.81 lakh crore in the previous fortnight ended February 12, 2021.

Care Ratings in a report said the bank credit growth in the fortnight ended February 26 stood stable compared to the last fortnight and returned to the levels observed in the early months of the pandemic, when the loan growth ranged between 6.5 per cent to 7.2 per cent during April 2020.

According to analysts, the growth in bank credit is driven by an increase in retail loans.

Emkay Global Financial Services in its March 5 report said it expects overall retail credit growth, which is currently at 9 per cent, to accelerate further, led by mortgages (contributing 51 per cent of retail loans) and back-end support by unsecured (cards/ personal loans) and vehicle loans.

“The current market conditions favour banks armed with lower funding rates, strong balance sheet, better asset quality and strong captive customer base,” Anand Dama, an analyst at Emkay Global, had said in the report. Large private banks such as HDFC Bank (despite suspension in new card acquisition) and ICICI Bank have been at the forefront of retail growth momentum, while Kotak Bank too is finally showing signs of much-needed growth and trying to raise the retail game, the report had said.

Among state-run banks, SBI and Bank of Baroda, which have been the key players in the mortgage market, are changing gears in the auto finance space as well, the research report said.

Care Ratings believe that the increase in the credit outstanding during the next fortnight is anticipated as year-end transactions are expected to push up bank credit as banks undertake the year-end closing activities. This trend can be witnessed for the last three-four years. In the first nine months of the current fiscal, while the growth in credit was 3.2 per cent, bank deposits saw a rise of 8.5 per cent.

“While bank credit growth had contracted 0.8 per cent in the first half of this fiscal, it recovered sharply in the third quarter by growing around 3 per cent sequentially. In the fourth quarter, too, it should clock near 3 per cent sequential growth,” Crisil Ratings Senior Director Krishnan Sitaraman had said in a report released earlier this month.

The rating agency expects bank credit to rise 4-5 per cent in the current fiscal despite the sharpest contraction the Indian economy has seen since independence.

In the financial year 2021-22, bank credit is seen growing 400-500 basis points (bps) higher at 9-10 per cent, as the country’s economy recovers, supported by budgetary stimulants and measures announced by the Reserve Bank of India (RBI), the Crisil report had said.

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Piyush Gupta, CEO, DBS, BFSI News, ET BFSI

Banking & Finance

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Digital currencies and tokenisation of assets are a reality and may be a dominant factor in the future, but that doesn’t necessarily mean that Bitcoin could replace fiat currency as a medium of exchange, said Piyush Gupta, CEO of DBS. “We launched the first bank-sponsored digital exchange in December, which lets you tokenise assets and securities,” said Gupta, ET’s Global Indian of the Year.

“So by our action we are creating capabilities for crypto, digital currencies and tokenisation for the future. But Bitcoin as a replacement for money is still challenging. Money is a medium of exchange, a unit of account and store of value.’’ The world is divided on the future of cryptocurrencies with regulators like the Reserve Bank of India (RBI) opposing them as a medium of exchange, while billionaire entrepreneurs like Elon Musk are backing them.

While cryptocurrencies have become a craze, the volatility of Bitcoin has made administrations nervous.

“Bitcoin is not a good medium of exchange because even though Elon Musk says he will take it for Tesla, it is very hard to do transactions because you can only do nine transactions per second while Visa and Mastercard can do hundreds of thousands,” said Gupta.

Gupta of DBS, which became the first international bank to acquire a domestic, troubled lender in recent memory, said that Lakshmi Vilas Bank fits into our strategy. He visualised the growth path a few years ago through the subsidiarisation of DBS in India to gain equal footing with domestic banks. “We were mentally prepared and had done some homework around a range of possibilities and that allowed us to respond very quickly,” he said. DBS India took over Lakshmi Vilas Bank last year



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Raghuram Rajan’s formula has led to over 50% recovery for ARCs, BFSI News, ET BFSI

Banking & Finance

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The recovery rate of asset reconstruction companies (ARCs) has been over 50% in the last five years since Raghuram Rajan brought in the ’15:85 structure’ for acquiring non-performing assets from banks.

“From FY16 onwards, recovery has been more than 50% in ARCs, which is much much better than even an IBC. In IBC resolution everyone talks of resolved cases, but 75% cases of IBC are going into liquidation, recovering less than 10 % of loans” says Siby Antony, chairman, ARC Association of India.

In FY2015 Raghuram Rajan brought in the 15:85 structure, under which the cash component ARCs would have to pay to a bank was raised to 15% while the rest was security receipts, from the earlier 5:95 split.

The 5:95 split

“The 5:95 (5% cash and rest SR) split was a very skewed structure in favour of ARCs. It was a blind game ARCs could play,” says Antony.

Under 5:95 structure, ARCs could earn a positive net return just on the basis of management fees, without any value addition by securitisation or asset reconstruction.

The increase of cash proportion to 15% pushed the ARCs to raise their returns through securitisation and asset reconstruction.

The 15:85 structure

“15:85 is an excellent structure. Unless the ARC recovers 130% of the acquisition value, it will not make its return. Even at 100%, ARC will make loss because the management fee of 1-2% doesn’t make any ARR for ARC. Recovery should be over 130% so that 100% of security rights will be redeemed,” Antony said.

Provisioning killed the goose

However, in September 2016, the Reserve Bank of India introduced new regulatory guidelines regarding provisioning. From April 2018 banks have to sell at 90% cash and 10% SRs. If a bank holds more than 10% SR, it had to continue provisioning for the loan which is not even on their books.

“So there was no incentive for them to transfer to ARCs. Now no banks transfer on 15:85 and all deals are on cash,” says Antony.

Cash deals

At such high levels of cash, the market becomes unviable for all but a few. Some ARCs such as Edelweiss, JM Financial that have raised money from Alternative Investment Funds (AIFs) do transactions on a cash basis, but other ARCs have deployed whatever capital they had, and now have none.

The holdings of such AIFs which have the capital to invest in newly-issued security receipts have risen sharply. These funds hunt for viable assets. Vulture funds and AIFs look for 25% plus returns while the ARCs look at 18-20%



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RBI pulls IDBI Bank out of the PCA framework, bank to resume normal lending, BFSI News, ET BFSI

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The Reserve Bank of India (RBI) on Wednesday said IDBI Bank has been taken out of the prompt corrective action (PCA) framework after it found the state-run lender was not in breach of its rules on regulatory capital, bad loans and leverage ratio.

The Life Insurance Corporation of India (LIC)-owned lender has given the regulator a written commitment that it shall comply with the norms of minimum regulatory capital, bad assets and leverage ratio on an ongoing basis. Coming out of the PCA framework would allow the bank to resume it’s normal lending operations including corporate loans.

IDBI Bank was placed under the so-called PCA framework in 2017 over its high bad loans and negative return on assets, at a time when Indian lenders battled record levels of soured assets, prompting the RBI to tighten thresholds.

The RBI said that the performance of IDBI Bank was reviewed by the board for financial supervision (BFS) in its meeting held on February 18. After taking everything into consideration, it was decided that the bank be taken out of the PCA framework.

“It was noted that as per published results for the quarter ending December 31, 2020, the bank is not in breach of the PCA parameters on regulatory capital, Net NPA and Leverage ratio. The bank has apprised the RBI of the structural and systemic improvements that it has put in place which would help the bank in continuing to meet these commitments,” the central bank said.

IDBI Bank posted a net profit of Rs 378 crore in the third quarter (Q3) ended December 2020-21 (Q3FY21), aided by a rise in net interest income. This is the fourth consecutive quarter of profit for the lender. It had booked a net loss of Rs 5,763 crore in Q3 of 2019-20.

IDBI Bank had met three out of four key criteria needed to exit the prompt corrective action framework. IDBI Bank’s gross bad loan ratio, which was among the highest, has also eased in recent quarters, standing at 23.52% as of end-December.

  • Technically classified as a private bank after its takeover by LIC, IDBI Bank continues to struggle with recoveries from stressed corporate NPAs. However, with aggressive positioning, Net NPA ratio has improved to 1.94% against 5.25%.
  • Provision Coverage Ratio, a key financial parameter, improved to 97.08% in the third quarter from 92.41% in the previous fiscal
  • Its leverage ratio has also surpassed the 4% threshold and currently stands at 5.71%.

Its capital to risk-weighted assets ratio (CRAR), including counter cyclical buffer (CCB) stood at 14.77%, against the regulatory minimum of 11.5%. It’s return on assets (RoA) for Q3 stood at 0.51%. Retail loans accounted for 60% of the total loan book, with the rest being corporate loans. IDBI Bank’s total deposits rose 2.85% y-o-y to Rs 2.24 lakh crore at the end of December 2020. The share of current accounts savings accounts (CASA) in total deposits was 48.97% as on December 31, 2020.

However, shares of IDBI Bank have lost more than 50% of their value since RBI brought it under the framework in 2017. They have surged sharply since the federal budget in February on expectations New Delhi intends to sell its stake in the bank to help India’s depleted coffers.



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IDBI Bank to be taken out of PCA framework

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Reserve Bank of India has decided to take IDBI Bank out of the Prompt Corrective Action (PCA) framework, subject to certain conditions and continuous monitoring.

This development comes in the backdrop of the Union Budget announcement that the Government is working towards strategic disinvestment of its stake in IDBI Bank in FY 2022.

RBI had invoked PCA against IDBI Bank in 2017 in view of high non-performing assets and negative return on assets.

Under PCA, usually expansion of a bank’s branch is restricted and lending is narrowed to relatively less risky segments to nurse it back to health.

 

The Board for Financial Supervision (BFS), which reviewed the performance of IDBI Bank in its meeting held on February 18, 2021, noted that in line with the published results for the quarter ending December 31, 2020, the bank is not in breach of PCA parameters on regulatory capital, net NPA (non-performing assets) and leverage ratio.

“The bank has provided a written commitment that it would comply with the norms of minimum regulatory capital, net NPA and leverage ratio on an ongoing basis and has apprised RBI of the structural and systemic improvements it has put in place, which would help it in continuing to meet these commitments,” RBI said in a statement.

Life Insurance Corporation of India (LIC) is the promoter of IDBI Bank holding 49.24 per cent shareholding and Government of India is the co-promoter (without management control) holding 45.48 per cent shareholding.

 

Meanwhile, the bank is planning to set off accumulated losses of about Rs 44,500 crore against the balance standing to the credit of the Securities Premium Account (SPA) after the declaration of its fourth quarter (Q4FY21) financial results.

According to the Draft Scheme for setting off accumulated losses as on April 1, 2021 against SPA, this balance sheet neutral exercise of re-arrangement of liabilities will enable the bank to represent its true financial position. It will also help the bank raise resources via AT (Additional Tier) 1 Bonds in the near future as it will become eligible to make coupon payments.

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Do not ban cryptocurrency, Internet and Mobile Association appeals to government

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The Internet and Mobile Association of India (IAMAI) on Wednesday appealed to the government not to ban cryptocurrency, and instead proposed that robust mechanisms should be developed to regulate the ecosystem.

“Cryptocurrency has been generating jobs across a variety of functions — legal, compliance, tech, marketing, business development, finance — in India and abroad. Given the scale and diversity, the good governance and regulation of the cryptocurrency ecosystem in India is critical and will give impetus to the government of India’s Digital India vision,” IAMAI said in a statement.

Digital assets

It also pointed out that the country is witnessing a considerable rise in digital assets.

“The crypto community consists of over one crore crypto holders holding over $1 billion worth crypto assets, over 300 start-ups generating tens of thousands of jobs and hundreds of millions of dollars in revenue and taxes. There’s a daily trading volume of $350-500 million,” IAMAI added.

The comments come in the wake of the government listing the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 for introduction, consideration and passing in the current session of Parliament.

Nishith Desai, Founder, Nishith Desai Associates, noted that countries such as the US, Japan and other developed countries have a positive outlook towards crypto and are considering setting up regulations for the currency.

Finance Minister Nirmala Sitharaman has said the government will take a “calibrated” approach to crypto trading and that “negotiations and discussions” are going on with the Reserve Bank of India on how to regulate cryptocurrency in India. IAMAI members welcomed the statement but have raised concerns against the proposed ban of cryptocurrency.

Naveen Surya, Chairman, Fintech Convergence Council, and Chairman Emeritus of Payments Council of India (PCI), said: “Through AML/CFT and KYC-related compliances, the government can ensure a safe and secure crypto market for investors.”

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PSU bank fundraising plans set for revival as bull-run lifts fortunes, BFSI News, ET BFSI

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With the markets on the upswing, public sector banks that struggled to raise funds in December are making hay in the market.

Banks are looking to raise funds to meet regulatory and provisioning requirements and to be ready for the opportunities that a likely boom in the economy may throw up in the coming months.

Bank of Baroda

State-owned Bank of Baroda has raised Rs 4,500 crore equity capital through qualified institutional placement (QIP) on Wednesday.

It allotted 55,07,95,593 equity shares to eligible qualified institutional buyers at an issue price of Rs 81.70 per share against the floor price of Rs 85.98 apiece.

Public sector banks (PSBs) are planning to raise about Rs 10,000 crore through a mix of equity and debt in the remaining two months of the current fiscal ending March to support credit pick up and meet regulatory requirements, the government had said last month.

Union Bank of India

Union Bank plans to raise between Rs 2,000 crore to Rs 3,000 crore through QIP.

The bank has shareholder permission to raise up to Rs 6,800 crore, but was planning to raise only Rs 3,000 crore as the risk appetite for public sector bank shares is still not the best. UBI plans to restrict its target to Rs 3,000 crore and possibly try another issue next fiscal year.

Private sector banks

A clutch of private sector banks also have plans to tap the market.

IDFC First IDFC First Bank’s board will meet on February 18, 2021 “to consider and approve the proposal for raising of funds by way of issue of equity shares/ other equity-linked securities. The bank sees strong strong upcoming growth opportunities.

YES Bank’s shareholders have approved a proposal for raising Rs 10,000 crore capital with the requisite majority.

December raising

Punjab National Bank raised Rs 3800 crore in December 2020 while IDBI Bank raised Rs 1400 crore in twin issues which were priced on the same day in the middle of December. Canara Bank had raised Rs 2000 crore earlier in the month.

PNB had targeted Rs 7,000 crore while IDBI Bank had aimed to raise Rs 2,000 crore. Both issues were short of their targets.

In the last few months, lenders including State Bank of India, Canara Bank and PNB have raised about Rs 50,000 crore from the market.

Bank stocks to shine?

Bank stocks were underperforming last year due to fears of a spike in non-performing assets and their annual returns were as low as 4%. However, they are recovering now.

According to analysts, the banking and finance sector seems to be the most probable candidate poised to outperform the broader markets as the pharma sector has run its course.

What RBI says

RBI Governor Shaktikanta Das has been advising banks to proactively raise capital and not wait for a difficult situation to arise due to the Covid crisis.

Besides, the government has allocated Rs 20,000 crore for capital infusion into PSBs in the current fiscal. Of this, the Finance Ministry has granted Rs 5,500 crore to Punjab & Sind Bank.

During 2019-20, the government made Rs 70,000 crore capital infusion into the PSBs to boost credit for a strong impetus to the economy.



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PMC Bank depositors may get higher payout as it turns into SFB, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India is looking to ensure that the depositors of Punjab and Maharashtra Coop (PMC) Bank get a higher payout than the Rs 5 lakh assured by the Deposit Insur­ance and Credit Guarantee Corporation.

The new promoters may have to infuse additional capital of nearly Rs 750 crore against the Rs 300 crore minimum capital requirement for a small finance bank (SFB), which the PMC Bank would be converted to, according to a report.

The issue is likely to be taken up in the board meeting of the Reserve Bank of India on March 19. The deadline for resolution is March 31, 2021.

The status

The 37-year-old multi-state co-operative bank, which has been under an administrator since 2019, has an outstanding of over Rs 10,368 crore to depositors. It posted a net loss of Rs 6,835 crore with a net worth of negative Rs 5,850.61 crore. About Rs 4,000 crore in deposits fall are under the Rs 5-lakh sum insured category.

In September 2019, RBI had placed PMC Bank under various restrictions after detection of financial irregularities in loans given to real estate developer HDIL. Its exposure to HDIL was over Rs 6,500 crore or 73 per cent of its total loan book size of Rs 8,880 crore as of September 19, 2019.

The suitors

A diverse set of investors — including a German firm marketing pharmaceutical products, two offshore investors based in Mauritius, and an overseas corporate entity in Dubai — are part of a consortium that has bid for the failed lender Punjab & Maharashtra Co-operative (PMC) Bank.

The consortium, led by Surinder Mohan Arora, an Indian businessman, submitted a plan on February 1, 2021, for revival and conversion of PMC Bank into a small finance bank (SFB.). The foreign investors are Alfa Pharma GmbH, Aegis Investment Fund (Mauritius), NexPact (Mauritius), Global Com Fin Investment LLC (Dubai).

These entities, along with Avtar Instalments, a Delhi-based closely-held company, will finalise their investments, which could add up to more than Rs 6,000 crore, after an in-principle approval from RBI.

According to Arora’s revival proposal, deposits up to Rs 5 lakh would be paid from the money released by Deposit Insurance & Credit Guarantee Corporation while the balance deposit would be converted into interest-bearing fixed deposits and Tier-2 bonds.

The other two bidders are financial services firm Centrum along with fintech platform BharatPe; and Liberty Group of UK.



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