New Delhi, Apr 23 () Private sector lender HDFC Bank on Friday said the Reserve Bank has approved appointment of former Economic Affairs Secretary Atanu Chakraborty as the part-time chairman of the bank. “The Reserve Bank of India (RBI) vide its communication dated April 22, 2021, has approved the appointment of Atanu Chakraborty as the part time chairman of the bank… for a period of three years with effect from May 5, 2021 or the date of his taking charge, whichever is later,” HDFC Bank said in a regulatory filing.
HDFC Bank said a meeting of the board of directors of the bank will be convened in due course inter‐alia to consider the appointment of Atanu Chakraborty as the part-time chairman and additional independent director of the bank.
Chakraborty, a 1985 batch IAS officer of Gujarat cadre, retired as Secretary of Department of Economic Affairs in April 2020. Prior to that, he was Secretary of Department of Investment and Public Asset Management (DIPAM). Both departments come under the finance ministry.
Once he is appointed as chairperson, HDFC Bank will be the second private sector lender to have a former bureaucrat at the post. ICICI Bank is chaired by former Petroleum Secretary and Additional Secretary in the finance ministry G C Chaturvedi. SVK ANS ANS
Banks slapped more borrowers with a wilful defaulter tag during April-December 2020 when the Insolvency and Bankruptcy Code was under suspension.
They classified loans of over Rs 28000 as wilful defaults during the first nine months of last fiscal as against around Rs 23,000 a year ago, according to a report.
A borrower is labelled wilful defaulter if the loans is not repaid despite having the means to repay or it is diverted for use other than the purpose.
A wilful defaulter tag borrower then faces a ban on bank funding the total outstanding wilful default as of December 31 at Rs 2.4 lakh crore with State Bank of India accounting for Rs 62,000 crore, of which Rs 18,000 crore were added in the first nine months of the last fiscal, according to data from credit bureau TransUnion Cibil.
The largest share of wilful defaulters is Maharashtra at over Rs 80,000 crore, followed by Delhi at Rs 32,000 crore and West Bengal at Rs 23,000 crore.
Fearing investigations, audit and vigilance inquiries, bankers generally do not want to opt for resolution and go for full recovery from the defaulter. Top borrowers
The country’s top 100 wilful defaulters owe Rs 84,632 crore to banks as of March 2020, with the top 10 including, Winsome Diamonds & Jewellery and accounting for 32% of it, data from the Reserve Bank of India shows.
Banks tag more borrowers as wilful defaulters during IBC suspension
While banks wrote off nearly three-fourth of it to clean their balance sheet and get tax benefits, the default borrowers continue to appear in RBI’s internal CRILC database till they clear the default. The total size of the top 100 wilful defaults rose 5.34% in FY20 from Rs 80,344 crore as of March 2019, according to data shared by RBI in response to an application under the Right to Information (RTI) Act.
Mehul Choksi-owned Gitanjali Gems topped the wilful defaulters’ list with Rs 5,693 crore dues, followed by Jhunjhunwala brothers’ REI Agro with Rs 4,403 crore and Jatin Mehta’s Winsome Diamonds & Jewellery with Rs 3,375 crore.
The top 10 wilful defaulters include another jewellery maker Forever Precious Jewellery, and Vijay Mallya’s Kingsher Airlines. The stack-up
Punjab National Bank had the highest exposure to Gitanjali Gems with Rs 4,644 crore of non-performing assets (NPA) as on March 2020.
PNB also had Rs 1,447 crore exposure to Gili India and Rs 1,109 crore to Nakshatra Brands.
State Bank of India had Rs 1,875 crore dues from top 10 wilful defaulter ABG Shipyard with the bank writing o the entire amount. Uco Bank had Rs 1,970 crore exposure to REI Agro with half of it being written off.
Write-offs are accounting entries for shifting NPAs from the active balance sheet to off-balance-sheet accounts. These are backed by 100% provision and therefore any recovery from these accounts adds to net profit.
RBI collects credit data from banks monthly, with data on defaults being collected on a weekly basis. The regulator has mandated banks to provide fully against NPAs older than four years and allowed to write these old NPAs.
Indian banks were gearing up for an upcoming credit boom in the second half, but they may have to look at the dire warning of RBI‘s fiscal stability report unveiled in January.
Most of the banks are set to report good fourth-quarter results, but the recovery may give way to despair in the coming months. An uncontrollable spike in Covid cases has raised the prospects of lockdowns and strict curbs being extended to May, at least. This may nip the nascent recovery and lead to the closure of many businesses, which are already reeling from revenue crunch. The lockdowns may also lead to unemployment, hit repayments and lead to defaults by companies and individuals out of job.
“In the first year we did not see any impact as 20% additional money was given. Guaranteed loans were given so no bank gave a second thought in giving the loans. In many cases, my customers went to other banks and got loans. Problems were not revealed on the first wave. In the second wave no such support is given so naturally, the impact of the second wave will be much larger on the bank,” a senior banker said on the condition of anonymity.
The unemployment rate in urban India is rising in the current months. From 7.21% on April 4, it jumped to 9.81% for the week ended April 11 and further to 10.72% for the week ended April 18, according to CMIE.
Early signs of rising stress are visible; HDFC Bank has reported a rise in cheque bounce cases in April. The rate is back to January level after improving in March.
Also, with lockdown in states like Maharashtra, which account for 24% of all loans, banks are in a double whammy. About 80 per cent of the new infections are being reported in six states which account for 45 per cent of banking sector loans.
Another banker said that credit growth is going to be muted. “Due to this unexpected wave, no investment is going to be placed right in any industry because of this uncertainty. Even though the government says there is not going to be a complete lockdown, like last time but still the impact can be easily known because of people’s fear,” the banker said.
“So those who want to invest, they’ll take a backseat that let’s wait and see. And the money circulation is going to be impacted. Moreover, the stay on NPA classification, which was lifted by Supreme Court, is going to add soon many NPAs to the banking sector. These things will definitely impact. Banks are kept out of the purview of this lockdown but people should come to banks you know and do their activity,” he added.
RBI stress test
Bank NPAs may rise to 13.5% under the baseline stress test scenario by September, the highest in more than 22 years, according to the RBI’ financial stability report in January this year.
The gross bad loan ratio of banks which stood at 7.5% as of 30 September, could almost double to 14.8% under a severe stress scenario, RBI warned. Under the severe stress scenario, RBI has assumed a 7.6% economic contraction in the six months to 31 March and a tepid 3.8% growth in the first half of the next fiscal. However, uncertainty over vaccines and the severity of the Covid wave hobbles the 3.8% growth projection.
The last time banks saw such stress was in 1996-97 when the bad loan ratio rose to 15.7%. No cover this time
Banks, which got protection and support by a swift moratorium on loans when the pandemic first struck, have no such cover this time.
As the second wave intensifies, most of the relief measures and schemes announced by the government and Reserve Bank of India have expired. On top of it, the central bank is non-committal on moratoriums.
In today’s conditions, there is no need for a moratorium,” RBI governor Shaktikanta Das said after the central bank’s monetary policy review.
Also, a spike in overdue loans after the lifting of the moratorium has been worrying analysts.
“The level of loans in overdue categories has increased after the moratorium has been lifted and the impact on asset quality will be spread over FY2021 and FY2022 as various interventions and relief measures have prevented a large one-time hit on profitability and capital of banks,” rating agency Icra had said in a report.
On top of it, banks may have to foot the bill for compound interest waiver relief to borrowers. HDFC Bank has already provisioned Rs 500 crore for the waiver.
After HDFC Bank, it may be the turn of other private sector banks including ICICI Bank, IndusInd Bank, Axis Bank and Yes Bank to skip dividends for the second year in a row.
HDFC Bank, the country’s most valuable lender, has already announced its stand that it will skip dividends.
As Covid cases surge and ravage the economy, cash conservation would be the foremost on the agenda of banks, which are likely to see huge defaults. Dividend payments
Last year the Reserve Bank of India had barred banks from paying dividends for the fiscal year ended March 2020 so that they conserve capital in view of the economic shock caused by the Covid-19 pandemic.
In his address, which included other policy measures, RBI governor Shaktikanta Das said the ban on dividend payment will help banks conserve capital.
Covid woes: Banks may skip dividend payments for the second year
“It is imperative that banks conserve capital to retain their capacity to support the economy and absorb losses in an environment of heightened uncertainty,” Das said.
“It has, therefore, been decided that in view of the Covid-19-related economic shock, scheduled commercial banks and cooperative banks shall not make any further dividend payouts from profits pertaining to the financial year ended March 31, 2020 until further instructions.” Though there is no RBI restriction yet on dividend payments, banks are likely to skip payments this year too to conserve cash.
In respect to dividend payments, Yes Bank, and HDFC Bank are ahead of other banks. Their dividend yields since FY2011 are in the range of 0.65-1.93%. Banks including Axis, IndusInd, ICICI come next in line in rewarding investors.
For HDFC Bank, this is the first time in the last one decade at least that the lender, of its own, did not offer any dividend. Even in FY20, it had offered an interim dividend before the RBI barred banks from announcing dividends.
Acute stress
Given the second Covid wave all over the country, non-performing assets (NPAs) or bad loans of public sector banks (PSBs) could cross 18 per cent if there is deterioration in economic activity due to the pandemic, former RBI deputy governor has H R Khan said.
As per the Financial Stability Report released by the Reserve Bank of India (RBI), the NPAs of the banking sector were projected to surge to 13.5 per cent of advances by September 2021, from 7.5 per cent in September 2020, under the baseline scenario.
The report had warned that if the macroeconomic environment worsens into a severe stress scenario, the NPA ratio may escalate to 14.8 per cent.
With regard to public sector banks, Khan said the latest Financial Stability Report indicates that NPAs can go up to 16 per cent in severe case scenario but extreme case scenario has not been portrayed this time. “Given the second wave all over the country, I think the extreme case scenario is something which one has to factor in. So, 18-20 per cent NPL (non-performing loan) is not ruled out for public sector banks.
“So, systemic risk is something which the government does not want to take upon its shoulder,” he said.
The Reserve Bank of India announced formation of a committee to conduct a comprehensive review of the functioning of ARCs in the financial sector ecosystem and to recommend suitable measures for enabling such entities to meet the financial sector’s growing needs.
Committee will submit its report within three months from the date of its first meeting. The Reserve Bank of India’s Department of Regulation will provide the committee with the necessary secretarial support.
The committee is headed by Sudarshan Sen former RBI executive director and other members comprises Vishakha Mulye, executive director, ICICI Bank, P N Prasad, former deputy managing director of State Bank of India, Rohit Prasad, professor of economics, Management Development Institute, Gurugram, Abizer Diwanji, partner, Ernst and Young, and chartered accountant R Anand.
The committee will review business models of the ARCs, examine the current legal and regulatory system, and make recommendations on ways to enhance ARC efficacy. It will also examine their role in stressed asset resolution under the Insolvency and Bankruptcy Code (IBC) and make recommendations to enhance security receipt liquidity and trading.
Amid the second COVID-19 wave, India’s largest private sector lender HDFC Bank reported on Saturday, an 18.2% y-o-y rise in net profit to Rs 8,186.51 crore for the quarter ended March. The Bank had posted a net profit of Rs 6,927.69 crore in the year-ago period. The Bank’s Net Interest Income also witnessed a 12.6% y-o-y rise to Rs 17,120 crore in the quarter under review, as compared to Rs 15,204 crore in the year-ago period.
HDFC Bank on Saturday also said that it has set aside ₹500 crore as provisions to cover the Supreme Court-directed compound interest refund to all borrowers during the March-August period.
Srinivasan Vaidyanathan, CFO of the bank, said that while the Indian Banks’ Association (IBA) is still working out the methodology of computing the refund, It is estimated that the waiver bill would be in the range of ₹7,000-7,500 crore. To be sure, the government has borne the waiver cost of ₹6,500 crore for borrowers of up to ₹2 crore in certain sectors announced last October.
In a regulatory Filing the private lender further added that the impact of COVID-19, including changes in customer behaviour and pandemic fears, as well as restrictions on business and individual activities, has led to significant volatility in global and Indian financial markets and a significant decrease in local economic activities.
The slowdown during the year has led to a decrease in loan originations, the sale of third party products, the use of credit and debit cards by customers and the efficiency in collection efforts.
“The extent to which the COVID-19 pandemic, including the current “second wave” that has significantly increased the number of cases in India, will continue to impact the Bank’s results will depend on ongoing as well as future developments, which are highly uncertain, including, any new information concerning the severity of the COVID-19 pandemic and any action to contain its spread or mitigate its impact whether government-mandated or elected by us.” HDFC Bank said in a statement, addressing the recent surge in covid cases in the country.
Lockdowns not only disrupt loan growth but also impact loan repayment collections. Banks are expected to give the true picture of their asset quality in the March quarter after the Supreme Court refused to extend the standstill on reporting of bad loans till August 31.
Early signs of asset quality impact are already visible for HDFC Bank. For the March quarter though, the lender reported gross bad loan ratio of 1.32%, which captures the true picture of asset quality given that judicial standstill on bad loan recognition has been lifted. Investors will now keenly monitor any changes in the lender’s asset quality and its commentary in the wake of the second wave of Covid-19 infections.
Another major aspect that investors will keenly watch is the impact of the Reserve Bank of India’s order on issuances of new credit cards on the lender’s credit card business. The Reserve Bank of India (RBI) had asked the lender to halt all new issuances of credit cards and digital services offerings till the time it sorts out its technological issues.
In view of increasing incidents of Man in the Middle (MiTM) attacks on ATMs, all banks have been asked to enhance their safety norms for ATMs through end-to-end encryption in the network, officials said.
In a recent communication to all banks, the central government has said the MiTM attacks have been increasing under which messages sent by ‘ATM Switch‘ to ‘ATM Host‘ are altered by attackers to withdraw cash fraudulently.
Investigations by security agencies have found that cyber fraud gangs have started adopting a new modus operandi to withdraw money from ATMs, a security official aware of such incidents said.
According to the investigators, the fraudsters first tamper with the network (LAN) cable of the ATM. Declined messages from ‘ATM Switch’ are altered to successful cash withdrawal transaction responses, and subsequently cash is withdrawn from the ATM.
The attacker first inserts a device between the ATM machine and the router or switch in the ATM premises.
This device has the capability to modify the responses back from authorisation host (ATM Switch) which is connected to ATM through network. The attacker then uses restricted cards (or blocked cards) to submit a withdrawal request.
When the ‘ATM Switch’ sends a declined message, the attacker in the middle alters the response to approve the transaction and subsequently withdraws cash, the official
In view of this modus operandi, the banks have been directed to ensure end-to-end encryption in the communication between the ‘ATM Terminal’ or PC and the ‘ATM Switch’, another official said.
Network cables, input/output port within the ATM premises should be concealed and physically secured or protected, the banks have been told.
As per the information reported to and tracked by the Indian Computer Emergency Response Team (CERT-In), altogether 1,59,761 cyber security incidents pertaining to digital banking were reported in 2018, a total of 2,46,514 incidents in 2019 and 2,90,445 incidents were reported in 2020.
These incidents include phishing attacks, network scanning and probing, viruses and website hacking.
There has been a 46 per cent rise in digital transactions in 2019-20 in comparison to 2018-19.
The Ministry of Home Affairs holds regular interactions with state governments and Union Territory administrations and advises them to expedite the disposal of cyber crime incidents, with a special emphasis on those relating to women and children, the official said.
The CERT-In is the national technology arm to combat cyberattacks and guard the Indian cyberspace.
New Delhi: In line with the Reserve Bank of India‘s (RBI) guidelines, Airtel Payments Bank on Sunday announced that it has become the first payments bank in the country to enable Rs 2 lakh day-end balance account limit.
The bank has increased the day-end balance limit to Rs 2 lakh from Rs 1 lakh.
“The RBI’s decision to increase the balance limit is an endorsement of the role Payments Banks have in furthering financial and digital inclusion in India. We are glad to enable this increased day-end balance limit for our customers,” Anubrata Biswas, MD and CEO, Airtel Payments Bank, said in a statement.
“At Airtel Payments Bank, we have always believed that higher balance limits would enhance consumer usage of payments banks, as well as enable large sections of informal India, such as small merchants and traders, to access formal banking easily,” Biswas added.
Airtel Payments Bank has 55 million engaged users and serves them through technology and a retail-based distribution network.
The bank has built a strong network of over 500,000 neighborhood banking points, which is bigger than the total number of bank branches and ATMs in India.
These neighbourhood banking points take services closer to the customer and have even reached deep rural pockets that never had access to banking services.
In a conversation with ETBFSI on its transition from an urban co-operative bank to a small finance bank. Shivali Mercantile Co-operative Bank’s Chief Executive Officer and Managing Director, Suveer Kumar Gupta talks about the reason behind the transition, how it’s relying and investing in digital capabilities and partnerships with FinTechs and MSMEs being a key focus customer base. Journey from UCB to SFB
Shivalik Mercantile Co-operative Bank started in Saharanpur District in Uttar Pradesh is the first urban co-operative bank to transition into a small finance Bank. It acquired Bhoj Nagarik Sahakari Bank Maryadit in Dhar and became a multi-state co-operative bank and further expanded in Indore after acquiring Malwa Commercial Cooperative Bank Limited.
Suveer Kumar Gupta, Managing Director & Chief Executive Officer, Shivalik Bank
The bank has 31 branches and business size around Rs 2050 crore with a deposit base of Rs 1225 crore and advance of Rs 825 crore as of March 31, 2021.
Suveer Kumar Gupta, MD & CEO, Shivalik Mercantile Co-operative Bank Ltd on the transition towards the small finance bank said, “Right from the very start we wanted to be a strong and well managed one of the larger co-operative banks in the country and had aspirations to grow and be professional. For the past few years we’ve been improving our systems, controlling measures, risk management practices and most of all working towards building a strong technology infrastructure. At the same time our focus was on financial inclusion and MSMEs.”
When the Reserve Bank of India in 2015 put forward the small finance bank vision the bank realised they’re in sync with the vision they had set for Shivalik Bank. Gupta said, “The synergies were significant towards a transition to SFB and then RBI came up with voluntary transition guidelines and we jumped to the opportunity and applied for the transition and got an in-principle approval in January 2020 and the final license was in January 2021 and are in the last leg of the journey and hope to go live very soon.”
While the SFB transition will bring in more regulatory oversight and compliance norms, the bank sees numerous benefits with the transition to SFB as existing SFB proven the business model of lending to priority sector with small ticket sizes is successful and as a co-operative bank they have been following for some time.
Gupta said, “We are clear and no two thoughts on how the business will progress. Becoming an SFB will allow us to raise capital for growth and becoming a commercial bank will make it easier to approach investors and infuse a greater trust among the customer base. Further as co-operative banks miss out on government and institutional business, becoming a scheduled commercial bank will help them to reach out for institutional business.”
The bank is eyeing MSMEs as the key are of the focus and 90% of its book is fully secured and about 10% of their portfolio is microfinance. Going forward they tend to retain the philosophy of secured lending and are not shy of unsecured lending as well and will be looking forward to introducing some products in the unsecured side but major focus will be on the secured part.
We are clear and no two thoughts on how the business will progress. Becoming an SFB will allow us to raise capital for growth and becoming a commercial bank will make it easier to approach investors and infuse a greater trust among the customer base. Further as co-operative banks miss out on government and institutional business, becoming a scheduled commercial bank will help them to reach out for institutional business.Suveer Kumar Gupta, MD & CEO, Shivalik Mercantile Co-operative Bank
Ecosystem Partnerships
Gupta says as a bank they realised that the thought process of ownership mindset will not work for them because they are not experts in everything. He said, “ and have partnered with India Gold providing gold loan to customers at doorstep, Airtel Payments Bank for digital sourcing of loans, we’ve tied up Atyati, a microfinance banking correspondent partner and we are in discussion with other few fintechs as well some on customer onboarding side and some on digital sourcing side and invoice financing side where they’re using blockchain.”
They are very much open to digital partnerships and believe having a pan India license the best way to is by not being asset heavy with physical branches but can be done digitally too. “Any customer sitting anywhere can open and operate a Shivalik bank account just using a mobile phone and that is the way we want to go forward.”
We are bankers and will stick to banking. As for technology and other services, let’s seek experts and partner with them. We’ve been looking forward to partner with FinTechsSuveer Kumar Gupta, MD & CEO, Shivalik Mercantile Co-operative Bank
Physical Expansion
On Physical expansion, they want to be a global local bank. He adds, we would do it in the northern region and by physical I would not only consider bank branches but also digital assisted channels like banking correspondents moving around with micro-ATMs. We also have micro-ATMs which are being used by banking correspondents and are connected to the core-banking system in real time.
He explained, customers can withdraw by swiping card or Aadhar and deposit money too among other banking services like bank-in-a-box kind of thing. This would eventually help us in expansion.
Digital Savvy
As the bank is heavily relying on digital partnership and capabilities they’re adequately focusing on cyber-security. He said, “We are focused on the safety aspects of digital exposure. From a customer point of view, we’ve put in all safeguards like two factor authentication, info-sec testing before release, customer education programmes, vulnerability testing, applications have biometric logins. From an organisation perspective, there’s an information-security (info-sec) team in place and internal policy on info-sec has been designed by one of the Big 4 and are one of the first co-operative banks to get cyber-insurance much ahead of the RBI mandate. “
Gupta also said, The bank has hosted its data in a tier-4 data center which is considered to be the best in Asia and its core banking system provided by Infosys is on a hosted model making Shivalik Bank as the first bank to do it.
The bank is ready for the transition and is waiting for the final go-ahead from the regulator, concluded Gupta.
The Reserve Bank of India has released the names of entities who have applied for universal bank license and small finance bank license under the on-tap licensing mechanism.
Another major aspect that investors will keenly watch is the impact of the