Tag: reserve bank of india

All you need to know about Suryoday SFB IPO, BFSI News, ET BFSI

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The Suryoday Small Finance Bank IPO is now open and live till March 19, with a price band of ₹303-305. Each lot consists of 49 shares. A total of 1.9 crore shares are available for subscription in the IPO. 50% of the issue is reserved for qualified institutional buyers (QIB), 15% for non-institutional bidders and the remaining 35% for retail investors. Employees of the bank will have 5 lakh shares reserved for them, issued at a discount of Rs 30 per share.

The bank is among the leading SFBs in India in terms of Net Interest Margins, Return on Assets, Yields and deposit growth and had the lowest Cost-to-Income ratio among SFBs in India in Fiscal 2020.

Suryoday SFB‘s purpose against launching its IPO
The proceeds of the IPO are proposed to be used for boosting the bank’s Tier-1 capital base to meet future capital requirements. Tier-1 capital refers to the core capital of a bank that consists of equity shares and retained earnings.

According to the bank’s red herring prospectus, the fund-raising will help Suryoday Small Finance Bank to augment its capital base. As of December 31, the bank’s capital adequacy ratio stood at 41.17%, where Tier-1 capital constituted 34.3% reported by The Quint.

Further, small finance banks are required to list within three years of reaching a net worth of Rs 500 crore, as per the Reserve Bank of India (RBI) guidelines governing these lenders. The bank had crossed the milestone in November 2017, making it necessary to list by November 2020.

The bank had applied to the RBI for an extension of timeline for listing till May 31, 2021. However, the RBI rejected the request and asked it to complete its listing at the earliest, according to the prospectus.

Business of Suryoday Small Finance Bank
SSFB received the small finance bank licence from the RBI in 2016. Prior to that SSFB operated as a NBFC and offered small ticket-size loans to women from weaker sections of the society. SSFB serves customers in the unbanked and underbanked categories. It has been serving these segments for over a decade now

SSFB currently provides a wide range of products and services, including housing loans, commercial vehicle loans, micro business loans, unsecured micro and small enterprise loans, among others.

As of December 31, 2020, SSFB’s customer base was 1.44 million and its employee base comprised 4,770 employees and it operated 554 Banking Outlets including 153 Unbanked Rural Centres.



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Moratorium likely to raise banks’ losses from unsecured loans, BFSI News, ET BFSI

Banking & Finance

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With deteriorating financial conditions of borrowers, the performance of unsecured assets classes, including microfinance loans and unsecured business loans, is worsening.

“The performance of unsecured asset classes, such as microfinance loans, unsecured business loans and consumer loans, is worsening, given the borrower’s depleted financial cushions and the nature of these loans,” according to a report by India Ratings and Research.

The Reserve Bank of India‘s moratorium on repayment of loans has delayed the stress in these segments where delinquencies have not yet stabilised and higher loan losses are expected to materialise in FY22, it said.

Secured asset classes

For secured asset classes, the agency said, it has a stable performance outlook given the recovery in the economy in FY22.

The agency noted that vehicle loans — including loans for commercial vehicles, passenger vehicles and two-wheelers — have a stable asset performance outlook, given the pickup in economic activities witnessed in the second half of FY21.

“Secured business loans (principally loans against property) also has a stable asset performance outlook, due to the borrower’s higher propensity to repay,” the report said.

Digitisation

As per the report, digitisation initiatives are also expected to help with better portfolio monitoring and in reducing soft delinquencies. “The focus has shifted to building quality secured loan portfolios, upping process efficiency and automating customer follow-ups”.

It noted that recovery momentum and continued policy support in FY22 will be key for loan performance.

Indian securitisation transactions predominantly involve asset classes where the borrowers are either small and micro enterprises/ businesses, or belonging to low and middle-income households, it said.

Varied behaviour

Small business loans are expected to witness differentiated performances depending on the loan type, it said.

The report also said the severity of the impact of the pandemic on their income as well as the impact of the moratorium and fiscal measures on their credit behaviour is varied.

“Thus, the effectiveness and inclusiveness of government support schemes to improve the financial position of the end-borrowers is crucial and is a key monitorable,” it said.



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Bond yields are soaring; Will banks focus on Corporate loans?, BFSI News, ET BFSI

Banking & Finance

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Corporates have been tapping the bond market and avoiding bank loans for the last few years as depressed yields kept borrowing costs lower as against the bank loan rates.

Banks were also wary to extend loans to the corporates but were happy to subscribe to highly rated corporate issuances.

Rising yields

However, after the rise in global bond yields and the government’s plan of borrowing a huge Rs 12 lakh crore, the yields on government bonds are rising for the last two months.

Since January, government bonds yields have surged by 35%. This is leading to a rise in yields of corporate bonds too with those on two-, three- and five-year bonds climbing 50-100 basis points.

With borrowing costs in the bond market rising, corporates are reducing the number of issuances. There has been an 18% month-on-month drop in issuances for February, according to Sebi data.

Banks shying away

Banks are also shying away from investing in bonds as rising yields spell mark-to-market losses as the bond prices go down as yields rise.

Banks have cut their investments in corporate bonds and debentures in the past two months by 3.5% with total investment in corporate bonds by banks down to Rs 5.64 lakh crore by February-end, according to RBI data.

Lower participation

On Tuesday, the corporate bond market saw lower participation with yields on bonds of 10-year maturity fell due to strong demand from long-term investors, mainly life insurance companies and a few pension and provident funds. However, yields on bonds maturing in three to five years remained steady as most investors were engaged in only requirement-based trade.

While it fell on year-on-year basis, the fundraising through a private placement of corporate bonds rose 12% month on month in February as some major public sector companies issued bonds to conclude their borrowings for the current fiscal. Also, some companies fearing a rise in yields stepped up their debt issuances.

Bank credit

Meanwhile, bank credit rose by 6.63 per cent to Rs 107.75 lakh crore in the fortnight ended February 26, according to RBI data.

In the fortnight ended February 28, 2020, bank credit stood at Rs 101.05 lakh crore, the recent data released by the Reserve Bank of India showed. Bank credit increased by 6.58 per cent to Rs 107.04 lakh crore in the previous fortnight ended February 12, 2021.

Thanks to RBI’s stance, banks are flush with liquidity and can offer home loans at low rates seen 15 years back.



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RBI imposes Rs 2 crore penalty on SBI, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India (RBI) has imposed a penalty of Rs 2 crore on the State Bank of India.

“This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers,” the central bank said in a release.

“The statutory inspection of SBI with reference to its financial position as on March 31, 2017, and March 31, 2018, and the Risk Assessment Reports pertaining thereto, and examination of the correspondence with the bank regarding payment of remuneration to its employees in the form of commission had revealed contravention of the provisions of the Act and specific directions issued by RBI.”

In furtherance to the same, notice was issued to SBI to explain why penalty should not be imposed on it for contravention of the provisions of the Act and directions issued by RBI.

“After considering the bank’s replies to the notice, oral submissions made in the personal hearing and examination of additional submissions made by it, RBI came to the conclusion that the aforesaid charges were substantiated and warranted imposition of monetary penalty,” the release said.



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RBI fines SBI for not following directions on employee pay

Banking & Finance

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The regulator also carried out an examination of the correspondence with the bank regarding payment of remuneration to its employees in the form of commission to arrive at its decision.

The Reserve Bank of India on Tuesday said that it has imposed a monetary penalty of Rs 2 crore on State Bank of India (SBI) for contravention of some provisions of the Banking Regulation Act, 1949, and specific directions of the RBI issued to the bank on payment of remuneration to employees in the form of commission.

“This action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transaction or agreement entered into by the bank with its customers,” the central bank said, without offering details of specific transactions.

The RBI said that the statutory inspection of the bank with reference to its financial position as on March 31, 2017, and March 31, 2018, and the risk assessment reports (RARs) pertaining to the same resulted in a discovery of the contravention. The regulator also carried out an examination of the correspondence with the bank regarding payment of remuneration to its employees in the form of commission to arrive at its decision.

After this, a notice was issued to the bank advising it to show cause as to why penalty should not be imposed for contravention of the provisions of the Act and specific directions issued by RBI. After considering the bank’s replies to the notice, oral submissions made in the personal hearing and examination of additional submissions made by it, the RBI came to the conclusion that the charges were substantiated and warranted imposition of monetary penalty.

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PSU banks NPAs drop Rs 1 lakh crore amid loan classification freeze, BFSI News, ET BFSI

Banking & Finance

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With banks not allowed to classify stressed assets as bad during the Covid pandemic period, non-performing assets (NPAs) of public sector banks fell by over Rs 1 lakh crore during the first nine months of the current fiscal to Rs 5,77,137 crore from Rs 6,78,317 crore.

According to the data, UCO Bank has seen the sharpest reduction of 40.7% in its NPA numbers in December 2020 from March 2020. This was followed by Bank of Maharashtra (33.6%), State Bank of India (21.4%) and Canara Bank (18.6%).

UCO Bank is under the stringent prompt corrective action framework of the Reserve Bank of India.

The government said that the reduction was due to its strategy of “recognition, resolution, recapitalisation and reforms”. The government said that its policy of transparent recognition of NPAs resulted in bad loans rising to a high of Rs 8,95,601 crore in FY18 from Rs 2,79,016 crore in FY15.

IBC approvals

Until September 2020, the Insolvency and Bankruptcy Code had led to the approval of 277 resolution plans with Rs 1.9 lakh crore of the realisable amount by financial creditors, it said in its response to the parliament.

The government has infused Rs 3.2 lakh crore in public sector banks in the last six years, with the banks themselves raising Rs 2.8 lakh crore through equity and bonds. Banks also raised an additional Rs 36,226 crore by selling non-core assets.

Future stress

On the projection in the Reserve Bank of India’s financial stability report that bank NPAs could rise to 13.5% by September 2021, the finance ministry said that according to the central bank, the numbers do not factor in the policy measures. These include RBI’s resolution framework for Covid-related stress and one-time restructuring of loans. In response to another query, the government said that 127 cases of fraud were assigned to the Serious Fraud Investigation Office. These pertained to 1,161 companies. Of these, 26 cases pertaining to 326 companies were reported in FY20. There were also 3,431 convictions and Rs 17.3-crore fine imposed during the last five years



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RBI dashes YES Bank’s plan to transfer Rs 50,000 cr NPAs to ARC, BFSI News, ET BFSI

Banking & Finance

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YES Bank‘s plan to get rid of its huge NPAs has come unstuck.

Its proposal to set up an asset reconstruction company (ARC) has been rejected by the Reserve Bank of India (RBI), according to reports.

The RBI cited a conflict of interest as many of the stressed loans of YES Bank are declared fraud cases that cannot be transferred to an ARC.

Its NPAs include Essel, Videocon, HDIL, DHFL which have been declared as cases of fraud, and under the rules such cases cannot be transferred to an ARC. An ARC would have taken huge NPAs off its books and helped in faster debt resolution.

Foreign interest in ARC

YES Bank had earlier said it was seeing interest from foreign firms keen to invest in the asset reconstruction company (ARC) it plans to launch to hive off soured loans worth Rs 50,000 crore.

“There has been a lot of interest from foreign investors for our ARC business. We are likely to put in initial capital of Rs 1,000 crore while the foreign investor will put in nearly Rs 2,500 crore,” Prashant Kumar, CEO of Yes Bank, had said.

YES Bank had applied to the Reserve Bank of India (RBI) for regulatory approvals in September to launch the ARC and Kumar said they believe they operationalize it within six months of securing clearances.

The lender, which was rescued last year after its financial health deteriorated significantly, had been placed under a moratorium by the central bank. The State Bank of India and several private lenders stepped in to infuse money into the lender and bail it out to address systemic risk concerns.

Precarious health

The bank’s gross NPAs reduced to 15.4% in the December quarter from 16.9% in September, NPAs could be close to 20%, taking into account the Rs 8,000 crore book the bank has restructured that could slip into NPAs. And that excludes another Rs 10,000 crore of loans that are stressed, but not classified yet as NPAs.

The total stressed loans and loans overdue for more than 30 days stand at Rs 28,000 crore, or about 16% of the loan book — in addition to the gross NPA of 15%. While all overdue loans of 30 dpd (days past due) and 60-90 dpd do not become NPLs, analysts remain concerned on the size of the loan book that is overdue.

The size of the net overdue loan book is Rs 25,500 crore (net of Covid provisions) and net worth of Yes Bank as of December 2020 is Rs 37,000 crore — roughly 70% of net worth.

The bank, however, is confident that further provisions can be made in the next few months. It has made a total of Rs 2,683 crore in provisions including a 15% provision on the SC mandated standstill accounts and a 10% provision on restructured loans.

Future plans

YES Bank intends to stay away from large corporate businesses as it looks to rebuild its loan book in the mid- and small-corporate segment.

The bank, like other lenders, saw increased stress in its retail segment, which had touched nearly 3% in this financial year compared with 1% during pre-coronavirus times, but feels things were improving.



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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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BFSI stock slips; Nifty and Sensex closes lower too, BFSI News, ET BFSI

Personal Finance

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The benchmark index Sensex fell over 600 points in intraday trade while Nifty touched 14,969 on the downside. Bank and financial stocks such as ICICI Bank, Kotak Mahindra Bank and SBI were among the top laggards in the 30-share pack Sensex.

At close, the Sensex was down 0.95% at 50,792.08, while Nifty was down 0.95% at 15,031. Nifty PSU Bank Index fell 1 percent dragged by the Bank of Baroda, Canara Bank, Indian Bank. BSE Bankex also ended lower at 39,995 losing 1.28%.

Nifty Bank Index ended at 34,496 down -1.23%. Amongst the top Losers were- ICICI Bank at Rs 612 ending below -2.04% followed by SBI at Rs 381 with -1.70%, Induslnd Bank at Rs 1,022 (-1.65%), Kotak Mahindra Bank at Rs 1,935 (-1.47%), Axis Bank at Rs 750 (-1.33%). While all the major indices traded in red, RBL Bank and IDFC First Bank managed to stay in the green.

Nifty Financial Services ended at 16,506 Lower by -1.10%. Amongst the biggest losers were Indiabulls Hsg Rs 224 by -2.67% followed by Cholamandalam at Rs 531 (-1.41%), HDFC at Rs 2,568 (-1.22%), Bajaj Finserv at Rs 9,934 (-0.57%).

Other key takeaways

RBI to conduct OMO for sale and purchase of govt securities
The Reserve Bank of India (RBI) on March 10 announced it will purchase and sell Government of India dated securities for Rs 10,000 crore each via an open market operation (OMO) on March 18.

“The Reserve Bank has decided to conduct simultaneous purchase and sale of Government securities under open market operations (OMO) for an aggregate amount of Rs 10,000 crore each on March 18, 2021,” the central bank said.

Suryoday Small Finance Bank to launch IPO on March 17
Suryoday Small Finance Bank will open its initial public offering of 1,90,93,070 equity shares on March 17 with a price band of Rs 303-305 per share. The issue will close on March 19.

The anchor book subscription (if any) will open for a day on March 16. The offer consists of a fresh issue of 81.50 lakh equity shares and an offer for sale of 1,09,43,070 equity shares by existing shareholders.

Rupee Updates
Indian rupee erased some of the intraday gains but ended higher by 13 paise at 72.81 per dollar, amid selling saw in the domestic equity market. It opened 25 paise higher at 72.66 per dollar against Wednesday’s close of 72.91 and traded in the range of 72.62-72.85.

On March 10, the domestic unit ended flat at 72.91 per dollar versus the previous close of 72.93. On Thursday the currency market was shut on account of Mahashivratri.

Wall Street closes on higher mark
The S&P 500 and the Dow closed at all-time highs on Thursday as worries about rising inflation subsided, while a bigger-than-expected fall in weekly jobless claims and the signing of a massive stimulus bill reinforced expectations of a strong economic recovery.

The Dow Jones Industrial Average rose 188.57 points, or 0.58%, to 32,485.59, the S&P 500 gained 40.53 points, or 1.04%, to 3,939.34 and the Nasdaq Composite added 329.84 points, or 2.52%, to 13,398.67



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Suryoday Small Finance Bank wants to raise Rs. 582 via IPO, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India had made it mandatory for the Small Finance Banks to hit the capital market within three years of operations. Pandemic slowdown the process for many of the SFBs, Just after Utkarsh Small Finance Bank filed for an IPO, Suryodaya too disclosed its plans.

Suryoday has decided to launch their initial public offer of equity shares of face value of ₹10 each on 17th March 2021. The Issue will close on 19th March 2021. The price band of the Offer has been fixed at ₹303 to ₹305 per Equity Share.

The Issue comprises of a fresh issue of up to 8,150,000 Equity Shares and an offer for sale of up to 10,943,070 Equity Shares. The Issue includes a reservation of up to 500,000 Equity Shares for subscription by eligible employees under the “Employee Reservation Portion” which is hereinafter referred to as “Net Issue”.

The Bank and the Selling Shareholders in consultation with the Book Running Lead Managers, may offer a discount of up to 10% (equivalent of ₹ 30 per equity share) of the issue price to eligible employees bidding in the Employee Reservation Portion (“Employee Discount”).

Suryoday Small Finance Bank said in a statement, “The bank has undertaken a Pre-IPO placement of 5,208,226 Equity Shares comprising (i) a private placement of 3,084,833 Equity Shares to SBI Life Insurance Company Ltd, 1,713,795 Equity Shares to Axis Flexi Cap Fund, 342,760 Equity Shares to Axis Equity Hybrid Fund, 66,838 Equity Shares to Kiran Vyapar Ltd.”

The Issue is being made through the Book Building Process, wherein not more than 50% of the Net Issue shall be allocated on a proportionate basis to Qualified Institutional Buyers, provided that the Bank and the Selling Shareholders may, in consultation with the Book Running Lead Managers, allocate up to 60% of the QIB Portion to Anchor Investors on a discretionary basis in accordance with the SEBI ICDR Regulations.

In the event of under-subscription, or non-allocation in the Anchor Investor Portion, the balance Equity Shares shall be added to the Net QIB Portion. Further, 5% of the Net QIB Portion shall be available for allocation on a proportionate basis only to Mutual Funds, and the remainder of the Net QIB Portion shall be available for allocation on a proportionate basis to all QIBs.

Further, not less than 15% of the Net Issue shall be available for allocation on a proportionate basis to Non-Institutional Bidders and not less than 35% of the Net Issue shall be available for allocation to Retail Individual Bidders in accordance with the SEBI ICDR Regulations, subject to valid Bids being received at or above the Issue Price.

All potential Bidders (except Anchor Investors) are required to mandatorily utilise the Application Supported by Blocked Amount (“ASBA”) process providing details of their respective ASBA accounts, and UPI ID in case of RIBs using the UPI Mechanism, if applicable, in which the corresponding Bid Amounts will be blocked by the SCSBs or under the UPI Mechanism.

Axis Capital Limited, ICICI Securities Limited, IIFL Securities Limited and SBI Capital Markets Limited are the Book Running Lead Managers to the Issue



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