Tag: RBI

Rate of decline in fresh lending and deposit rates slows down: Report

Banking & Finance

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The rate of decline in fresh lending and deposit rates has started to slow down, according to an analysis of the latest Reserve Bank of India (RBI) data by Kotak Securities.

Deposits rates were flat month-on-month (mom) at about 5.6 per cent in November 2020. Fresh lending rates were down about 5 basis points (bps) mom to about 8.3 per cent in the month, the stock broking firm said in a report.

Referring to the spread between average lending rate on outstanding and fresh loans staying around110 bps, the report said: “High spreads do not augur well as it still shows reluctance to lend, in our view.” One basis point is equal to one-hundredth of a percentage point. “While the overall lending rates have declined when we look at the headline rates, the transmission is probably slower when we look at various products or risk segments.”

“In a relatively low growth and heightened risk environment, especially after Covid, we note that the spreads have continued to remain high,”according to authors MB Mahesh, Nischint Chawathe, Abhijeet Sakhare, Ashlesh Sonje and Dipanjan Ghosh.

The spread over G-Sec (government security) with deposits and loan rates has widened, implying banks are seeing lower spreads on investments and better spreads on loan yields, they added. “While we are witnessing some positive trends on recovery in loan enquiries, we still believe that there is still some time before it reflects in loan growth,” the authors opined.

Term deposit rates flat

The report observed that weighted average TD (term deposit) rates were flat mom, for both private and PSU (public sector undertaking) banks. Private and PSU banks have reduced their TD rates by about 110 bps and about 90 bps respectively over the past twelve months.

Wholesale deposit cost (as measured by Certificate of Deposit rates) has seen a much sharper decline of about 320 bps in FY2020, followed by a further decline of about 180 bps in YTD (year-to-date)FY2021, the report noted.

“We have started to see banks, especially private banks, cutting headline TD rates in the past few quarters. The gap between repo and 1-year TD rate for SBI (State Bank of India) has been flat about 90 bps after declining from peak levels of about 130 bps,” the authors said.

Fresh lending rates down marginally

The report observed that private sector banks saw a decline of about 10 bps mom in lending rates on fresh loans to about 8.9 per cent, while PSU banks showed about 10 bps decline.

The authors assessed that the gap between fresh lending rates of private and PSU banks now stands around the 100 bps average level seen over the past twelve months.

Lending rates on outstanding loans were marginally down mom to about 9.4 per cent in November 2020, having declined about 80 bps since November 2019, they added.

“Banks have been cutting their MCLR (marginal cost of funds based lending rate) over the past few months. Private banks and PSU banks have cut their MCLR by an average of about 90-100 bps in the past 12 months,” the report said.

The gap between outstanding and fresh lending rates has been in the range of 110-140 bps for the past nine months.

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UPI ends 2020 on high note, scales past Rs 4-lakh-cr milestone in December; volume up 70% from year-ago

Personal Finance

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UPI is currently the biggest among the NPCI operated systems including NACH, IMPS, AEPS, BBPS, RuPay, etc.

UPI transactions ended 2020 on a high note. The value for digital transactions done via UPI stormed past the Rs 4-lakh-crore mark in December, according to the latest UPI data from the National Payments Corporation of India (NPCI). 2.23 billion transactions worth Rs 4.16 lakh crore were recorded in December, up from 2.21 billion transactions involving Rs 3.91 lakh crore in November. The year-on-year growth in volume stood at 70 per cent from 1.30 billion transactions while the value of UPI transactions increased 105 per cent from 2.02 lakh crore in December 2019. Moreover, the number of banks live on the UPI platform increased from 143 to 207 during the 12-month period.

Among the leading UPI players, Google Pay and PhonePe had together cornered over 82 per cent of the market by volume and over 86 per cent by value in November. While Google Pay processed 960.02 million transactions involving Rs 1.61 lakh crore, PhonePe, saw 868.4 million transactions worth Rs 1.75 lakh crore. Paytm had processed 260 million payments.

The transaction volume and value have apparently scaled up faster during the Covid and lockdown phases as people switched to digital mode to avoid cash usage. The volume jumped by 908.47 million transactions during the 10-month period from 1.32 billion transactions in February 2020, according to the analysis of NPCI data. However, in comparison, similar volume growth of 908.47 million transactions, before Covid, took 17 months (from September 2018) to reach the February 2020 level.

Also read: Expectations 2021: With Covid fallout in rearview mirror, fintech startups set to make up for 2020 losses

UPI is currently the biggest among the NPCI operated systems including NACH, IMPS, AEPS, BBPS, RuPay, etc. As of October FY21, out of 3.39 billion retail transactions on all NPCI platforms, 2.07 billion transactions were recorded on UPI followed by 340.03 million transactions with respect to NFS inter-bank ATM cash withdrawals, 318.97 million transactions on the instant payment inter-bank electronic funds transfer system — Immediate Payment Service (IMPS), and 245.55 million transactions on the National Automated Clearing House (NACH), according to the NPCI data.

Importantly, the Reserve Bank of India had on Friday launched a ‘composite Digital Payments Index (DPI)’ to measure the extent of digitisation of payments in India based on parameters including payment enablers, payment infrastructure – demand-side and supply-side factors, payment performance, and consumer centricity, according to the RBI.

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RBI comes up with Digital Payments Index

Banking & Finance

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The RBI on Friday said it has constructed a composite Digital Payments Index (DPI) with March 2018 as the base period to capture the extent of digitisation of payments across the country.

“The DPI for March 2019 and March 2020 work out to 153.47 and 207.84, respectively, indicating (an) appreciable growth,” it said in a statement.

Going forward, RBI-DPI will be published on the central bank’s website on a semi-annual basis from March 2021 onwards with a lag of four months.

The RBI-DPI comprises of five broad parameters that enable measurement of deepening and penetration of digital payments in the country over different time periods.

The parameters are payment enablers (weight 25 per cent), payment infrastructure–demand-side factors (10 per cent), payment infrastructure – supply-side factors (15 per cent), payment performance (45 per cent) and consumer centricity (5 per cent).

Each of these parameters have sub-parameters which, in turn, consist of various measurable indicators, RBI said.

The RBI-DPI has been constructed with March 2018 as the base period, meaning DPI score for March 2018 is set at 100.

Digital payments in India have been growing rapidly.

Earlier in February, RBI had announced it will construct and periodically publish a composite DPI to capture the extent of digitisation of payments effectively.

The objective of DPI is to reflect accurately the penetration and deepening of various digital payment modes.

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‘RBI’s special schemes helped MSMEs, NBFCs tide over liquidity crisis’

Banking & Finance

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Banks have weathered the shock to their balance sheets due to the Covid-19 pandemic well so far. In an interview with BusinessLine, Bank of Maharashtra (BoM) MD and CEO, AS Rajeev, attributed this to a host of factors including timely measures such as the partial credit guarantee scheme and the government guaranteed collateral-free loans; rate cuts, provision of adequate liquidity, and loan moratorium announced by the Reserve Bank of India (RBI). Excerpts:

How tough was 2020 in terms of business?

Banks played a crucial part in stabilising the financial sector and transmitting government stimulus and relief programmes to kick-start the economy. We (BoM) registered year-on-year (YoY) credit growth of 11.60 per cent till Q2 (July-September) end and year-to-date (YTD) credit growth of 9 per cent. Our credit growth was mainly on account of growth in RAM (retail, agriculture and MSME) advances which stood at 25.12 per cent on YoY basis.

Did the pandemic-related measures announced by the government and RBI benefit borrowers and credit off-take?

The government as well as RBI took several steps to improve credit growth with special focus on micro, small and medium enterprise (MSME) sector and NBFC (non-banking finance company) sector (for onward lending). The special schemes – Adhoc Line of Credit and Guaranteed Emergency Credit Line (GECL) scheme have given timely relief to MSME sector/business community by providing them much needed liquidity during the crisis period. Similarly, for the NBFC sector, the partial credit guarantee scheme helped them to tide over liquidity crisis.

Are stressed corporates warming up to restructuring based on the Kamath committee’s criteria?

Initially, when the resolution framework for Covid-19 related stress was announced (on August 6), very few borrowers sought restructuring of credit facilities. We firmly believe that with revival in business activity and availability of additional credit facilities through various other schemes of the government, borrowers are unlikely to go for further restructuring.

What has been your experience on the loan recovery front?

Our recovery during the current fiscal stands at ₹870 crore which is almost 80 per cent of the recovery in the previous year. The pandemic did impact the recovery in Q1 of the FY21, but thereafter it has improved significantly. We are further expecting an additional recovery of ₹500 crore by end FY21.

To aid recovery, our bank launched two new OTS schemes to cover the small borrowers, particularly MSME, taking the present economic conditions in to consideration. The OTS schemes are not only helping the bank to reduce the NPA but also the borrowers to become debt free. With the help of these two new schemes, we are expecting a recovery of ₹400 crore in the current fiscal.

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SFBs should focus on bottomlines to withstand adverse shocks: RBI

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Small Finance Banks (SFBs) may need to focus on their bottomlines as and when financial conditions tighten, according to a Reserve Bank of India (RBI) report.

The “Report on Trend and Progress of Banking in India 2019-20” observed that the prevailing easy liquidity conditions facilitate borrowings and refinance on which SFBs rely. Currently, there are 10 SFBs in the country.

The central bank said the risk absorption cushions in the form of provision coverage ratio (PCR) is low in some SFBs, impacting their ability to withstand adverse shocks.

The report said those SFBs, which were earlier NBFC micro finance institutions (NBFC-MFIs), continue to have significant exposure to unsecured advances even as they strive to diversify their portfolio.

Green shoots in the form of revival of agriculture and allied activities may augur well for financials of these banks, it added.

The RBI noted that collection efficiency of these banks had dropped substantially during the strict lockdown period but since then there is a strong improvement on a month-to-month basis and a catch-up with pre-pandemic levels may, in fact, be under way.

In FY20, SFBs deposits jumped 48.1 per cent year-on-year (y-o-y) to ₹82,488 crore. Their loans and advances rose 29.7 per cent y-o-y to ₹90,576 crore. Investments were up 40 per cent y-o-y to ₹24,203 crore.

The RBI observed that these banks have smaller low-cost current and saving account (CASA) deposit bases.

SFBs were set up in 2016 to provide basic banking services such as accepting deposits and lending to the unserved and the under-served sections of society, including small businesses, marginal farmers, micro and small industries, and the unorganised sector.

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Jana SFB expands its branch network to 601

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Jana Small Finance Bank digitally inaugurated 18 bank branches in Maharashtra.

With the conversion of its asset centres to bank branches, Jana Bank’s presence in Maharashtra will reach 70 and 601 all India.

Maharashtra is the second highest of the 22 States where the bank has a presence. Staying true to their promise of paise ki kadar, Jana Bank is all set to increase its footprint across rural India.

Jana Small Finance Bank started its journey in Maharashtra in 2010 and have served over 15 lakh customers in the State who are mainly women. The bank offers unsecured loans to women under the group loan model as well as individual loans for small businesses.

The average loan size for the group loan model is ₹34,900 and individual loan for small businesses ₹60,000. The bank also offers agriculture loan, MSME loans, gold loan, affordable home loan & home improvement loan. With the conversion of asset centres into bank branches our customers will now be able to avail of banking products like savings account, current account, fixed deposits, recurring deposits, OD account.

Ajay Kanwal, MD & CEO, Jana Small Finance Bank said, “All our new branches across Maharashtra have digitised environment with best in class offerings”.

M Rajeshwar Rao, Deputy Governor, Reserve Bank of India said “Credit expansion is an important ingredient of growth and prosperity. There are enormous opportunities to bridge the financial inclusion gap in the country and I am happy to note that Jana Small Finance Bank is committed to do so.”

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Krazybee Services appoints Gopalakrishna as Independent Director

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Krazybee Services Private Limited, a non-deposit taking non-banking financial company (NBFC-ND-SI), has appointed G Gopalakrishna, former Executive Director (ED) of Reserve Bank of India (RBI) as an Independent Director on its Board.

Gopalakrishna has been a career Central Banker with RBI for over 33 years in various capacities and retired as Executive Director (ED) in 2014. During his stint as ED RBI, he was overseeing the Department of Banking Supervision, Dept of Non-Banking Supervision and Foreign Exchange Department, among others.

He was later appointed as Director, Centre for Advanced Financial Research and Learning (CAFRAL) promoted by RBI (2014-17). Presently, he is also on boards of a few other financial institutions and companies.

The other members on NBFC Board include Adesh Kumar Gupta (Non-executive), Abhishek Singhvi (Non-executive), and Madhusudan E (Executive).

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RBI, BFSI News, ET BFSI

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India’s financial sector should brace for challenging times ahead with an increased risk of deterioration in asset quality and lower demand for loans, the Reserve Bank of India (RBI) said in a report on Tuesday.

The central bank has introduced various measures to support the banking sector including a relaxation in recognition and provisions for bad loans to protect lenders and creditors during the coronavirus pandemic.

The roll back of these measures could now hit the books of banks.

“The challenge is to rewind various relaxations in a timely manner, reining in loan impairment and adequate capital infusion for a healthy banking sector,” the central bank said it in its annual report on Trends and Progress of Banking in India.

Non-banking financial companies (NBFCs) or shadow banks may see a hit on their profitability going forward due to asset quality concerns, lower credit demand and the tendency to preserve cash, the report said.

Toxic loans on the books of Indian banks have eased with gross bad loan ratios falling to 7.5% at the end of September 2020 from 9.1% in March, but it said that going forward such loans could rise again following relaxations being lifted.

The six-month loan moratorium on repayments provided by central banks and the supreme court judgment prohibiting recognition of bad loans since September may have also provided some respite to the banks on asset quality.

Concerns still remain on non-performing assets, particularly on credit card loans which does not augur well for the risk-profile of Indian banks.

“Given the uncertainty induced by COVID-19 and its real economic impact, the asset quality of the banking system may deteriorate sharply going forward,” the RBI said.

The report also said Indian banks had written-off loans worth 2.38 trillion rupees ($32.46 billion) in the financial year 2020 that ended on March 31.

The overall outlook for the Indian economy in 2021 continues to remain uncertain, the report said.

“The high debt overhang of households, non-financial corporates and the (national and sub-national) governments remains a serious concern,” the central bank said.

($1 = 73.3270 Indian rupees) (Reporting by Nupur Anand and Aftab Ahmed; Editing by David Evans)



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Given uncertainty induced by Covid-19 and its real economic impact, asset quality set to worsen sharply: RBI

Banking & Finance

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Fresh slippages remained the highest among PSBs.

Reserve Bank of India (RBI) on Tuesday cautioned the modest bad loan ratio of 7.5% at end-September 2020 end “veils the strong undercurrent of slippage” warning of a sharp decline in asset quality. The central bank pointed out the financial performance of the banking sector in H1FY21 had been shored up by the moratorium and the standstill in asset classification. “Going forward, although the risks to the banking sector remain tilted upwards, much hinges around the pace and spread of the economic recovery that is gradually gaining traction in H2: 2020:21,” RBI noted.

The accretion to NPAs, as per the RBI’s income recognition and asset classification (IRAC) norms, would have been higher in the absence of the asset quality standstill provided as a Covid-19 relief measure. “Given the uncertainty induced by Covid-19 and its real economic impact, the asset quality of the banking system may deteriorate sharply, going forward,” it said.

The moderation in the gross non performing asset (GNPA) ratio, which started after the peak in March 2018, continued through FY20 and FY21 so far, to reach 7.5% by end-September 2020. The improvement was driven by lower slippages which declined to 0.74% in September 2020 and resolution of a few large accounts through the Insolvency and Bankruptcy Code (IBC).

Fresh slippages remained the highest among PSBs.

Going forward, with gradual rollback of policy measures, deterioration in asset quality may pose challenges, although build-up of buffers like Covid-19 provisions and capital raising from market may help alleviate the stress, the central bank observed.

After a gap of two consecutive years, the loan growth at SCBs decelerated in 2019-20, reflecting both risk aversion and tepid demand. During the current financial year so far, this was accentuated by the Covid-19 pandemic.

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