Tag: second wave

Life insurance sees good growth, claims fall post second wave

Banking & Finance

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The life insurance industry is slowly coming back to normal after facing a high claim burden in the first five months of the current fiscal following the second wave of the Covid-19 pandemic.

“The industry is doing well. With every passing month, business is improving. Private sector life insurance companies are doing well and public sector bank-led banca companies are doing especially well,” said Rushabh Gandhi, Deputy CEO, IndiaFirst Life Insurance.

In an interaction with BusinessLine, Gandhi said there are green shoots across the industry as well as for the insurers and there continues to be strong demand amongst consumers for life insurance.

“A large part of our portfolio is non-participating products; the contribution of protection business is growing. Quotations for term life are increasing. It is a visible and sustainable trend,” he noted. Claims, which shot up by nearly two to three times in the second wave of the pandemic compared to the first wave, have also come down for life insurers, he further said.

“In the first five months of the year, claims have been very high. Peak deaths happened in May and intimations came in June and July; now it seems to be easing,” he added.

Burdened by high claims, a number of life insurers have reported losses for the first quarter of the fiscal and have also been increasing premium rates.

According to IRDAI data, life insurance companies registered a 22.21 per cent growth in first year premium in September on a year on year basis. Of this, private sector companies registered a growth of 42.42 per cent while LIC recorded a growth of 11.55 per cent last month on an annual basis. IndiaFirst Life Insurance grew by 71.05 per cent in September.

Comeback

Analysts too expect the life insurance sector to continue to stage a full comeback in the second half of the fiscal.

“We have seen a healthy pick-up in growth in the past few months, with September 2021 witnessing healthy trends across most players. We believe premium growth would see strong traction over FY22, with continued focus on non-participating, annuity, while ULIP would see gradual recovery,” said Motilal Oswal in a recent report.

Care Ratings said that while Covid claims are likely to remain elevated in the second quarter, the impact should be minimised compared to the first quarter.

“In the first quarter of the fiscal, the growth in premiums, albeit muted, was driven by unit-linked products and protection plans. However, the life insurance sector witnessed significant claims in the first quarter due to the second wave of the pandemic and profitability suffered as companies made provisions and reserves to alleviate the impact of the claims,” it said.

Growth strategies

Commenting on growth strategies for IndiaFirst Life Insurance, Gandhi said the insurer has been focussing on credit life insurance and expects premium of about ₹300 crore from the segment this year.

“We have managed in our partnership with Bank of Baroda to get attachment rates of over 70 per cent and have started doing covers for all loan products,” he said, adding that the insurer is working on tie ups with a number of other lenders as well.

“Our strategy remains intact. We will remain a multi-channel distribution company with bancassurance as our main focus and contributing 80-85 per cent of premium. On agency, our focus will be on quality not quantity, while on banca our focus will remain on penetration,” he further said.

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Moody’s, BFSI News, ET BFSI

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The asset recovery Indian banks is set to get delayed as the second wave has crippled economic activity, says Moody’s Investor Services.

“For India (Baa3 negative), Moody’s projects the economy will return to growth in the fiscal year ending March 2022,” the global rating company said in a note. “But the severe second coronavirus outbreak will delay improvements in asset quality.”

Some of the Southeast Asian countries including Singapore, Vietnam and Malaysia appear to be better off with economic activities resuming.

The global economic activity will likely boost trade growth in Vietnam (Ba3 positive), Malaysia (A3 stable) and Singapore (Aaa stable).

“This will help offset domestic economic disruptions from the pandemic, although slow deployment of vaccines is a risk for Vietnam,” Moody’s said.

The asset quality risk is still looming large amid resurgence of coronavirus infections. The slower pace of vaccinating citizens will add to the woes.

Slow vaccination rates will hinder economic recovery, though to varying degrees, Moody’s said.

Unemployment rates have risen across the country going by the June quarter. This contributes to any jump in bad loans.

The growing young populations in economies such as India, Indonesia, Malaysia and Philippines could help accelerate economic expansion and boost overall wealth, which will lead more people to engage banking services, said the rating company.

“This, however, will depend highly on the governments’ ability to support domestic labour markets.”

However, extended support by central banks and governments can help fix any further dent in the economy.

“Continued policy support for borrowers from governments and central banks will prevent sharp increases in defaults on bank loans,” Moody’s said.

The financial impact of the prolonged pandemic for now is concentrated on a few economic segments, which will limit the deterioration of banks’ overall asset quality.

Moody’s expects non-performing loan ratios across ASEAN and Indian banks to remain broadly stable at 2020 levels over the next 12-18 months.



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Corporate lending by major PSBs declines

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In what could be a matter of concern in rekindling the Covid-hit economy, corporate lending by major public sector banks has been on the wane.

The Q1 data of banks show a significant decline of corporate advances compared to the year-ago period.

For instance, State Bank of India’s domestic corporate advances decreased 2.23 per cent at ₹7,90,494 crore in the quarter ended June 30, 2021, compared to ₹8,09,322 crore in the same quarter last year. However, in the first quarter of FY21, SBI reported 3.41 per cent growth in corporate advances.

According to SS Mallikarjuna Rao, Managing Director and CEO, Punjab National Bank: “Corporate growth was almost muted or negative” during the quarter. For PNB, corporate advances marginally decreased by 0.57 per cent at ₹3,264,66 crore in June 2021 compared to ₹3,28,350 crore in the year-ago period.

For Union Bank of India, the share of industry exposure in domestic advances fell to 38.12 per cent at ₹2,40,237 crore from 39.4 per cent at ₹2,47,986 crore in the year-ago period. The same is the case with Indian Bank which saw a 3 per cent dip in the corporate loans during the period under review.

According to a senior SBI official, the last one year saw the complete ‘impact’ of the pandemic on some key investment decisions of the industry.

“In fact, banks, including SBI, have been proactively supporting the industry wherever possible. Assuming that there will be no third wave, we can see greenshoots, going forward,” he added.

As per RBI data, up to May, the gross loans to large industries declined by 1.7 per cent on a year-on-year basis.

Demand low

There has also been lower demand from corporates in general as many adopt a wait-and-watch approach on investments, say bankers. Obviously, there has been a more rigorous due diligence on the part of the banks.

However, banks are optimistic about the future as far as corporate lending is concerned. Even though the corporate lending growth was muted in the first quarter, PNB is bullish. “We are looking at a good amount of growth, whereas corporate growth was almost muted or negative. But we are looking at a good amount of growth that will to be disbursed over a period of time,” said Mallikarjuna Rao in a recent earnings call.

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HDFC Bank cautious on retail biz, BFSI News, ET BFSI

Banking & Finance

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Mumbai: The second wave of the pandemic has turned HDFC Bank cautious with respect to retail loans. The bank’s overall retail loan book shrank from Rs 5.27 lakh crore at the end-March 2021 to Rs 5.23 lakh crore at the end-June. Retail loans fell with a drop in credit card outstandings, auto loans, two-wheeler loans and loans against securities.

According to HDFC Bank’s chief financial officer Srinivasan Vaidyanathan, credit card outstanding shrank to Rs 60,429 crore in end-June from Rs 64,674 crore in end-March because of a drop in revolving credit. He said that the focus was on the quality of credit and around three-fourths of the bank’s credit card customers have deposits that are on average five times the credit card outstanding. He was addressing analysts in a conference call after the bank’s results for the first quarter of the current fiscal.

Speaking in the same call, head (retail assets) Arvind Kapil said that the bank was now seeing buoyancy returning to the personal loan segment and expects good growth in future.

The bank, which is facing a freeze on issuing new cards, has completed an audit of its IT systems as required by the RBI and is now waiting to hear from the central bank. Even as it awaits the RBI’s nod for resuming card issuance, the bank is rapidly growing its card-acceptance business. Vaidyanathan said that the bank already has 2.3 million merchant-acceptance points and it has a 50% market share of merchants being on-boarded for card acceptance as against 40% last year.

HDFC Bank’s chief credit officer Jimmy Tata said that, during the quarter, things had not been the most orderly because of the second wave. “We were pretty much back to pre-Covid level until March, till the second wave hit us in April. We found our staff getting infected rapidly and we stopped going out on recovery calls. Most of the work was work-from-home. It is only in the month of June that we had the ability to start going out,” he said. In the second quarter, there has been a high level of vaccinations in the bank and staff have returned to the office for calling on borrowers.

According to Tata, the one product segment that has seen a non-Covid impact was diesel commercial vehicles (CVs), because they have not been able to pass on the sharp hike in fuel costs. He said that the bank was watching the portfolio as it would take two quarters for the price hike to be passed on. “We expect that by the festival season, things would have been brought back on an even keel, with cost increases passed on.”

On the cards business, Srinivasan said that HDFC Bank’s debit card issuance would not be hit because of the ban on Mastercard except for a couple of co-branded cards. He said that cards contribute between one-fourth to a third of the bank’s fee income in any quarter.



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RBI’s nod to SFBs and holding companies merger can unlock value for Ujjivan, BFSI News, ET BFSI

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Ujjivan Small Finance Bank said it would initiate steps for the amalgamation of the holding company Ujjivan Financial Services Ltd with the bank after RBI’s nod. Samit Ghosh, Founder, Ujjivan Financial Services, helps us understand how it may be good news for shareholders.

Now that, RBI has given nod to SFBs and respective holding companies to apply for a merger, help us understand how really does this help in unlocking share value for you?
This is extremely good news which we were expecting for quite some time and the first in the line of course is Equitas. Equitas and us, we worked earlier on this and we are very glad, it has come through. Basically, there is a holding company structure in which is the Ujjivan Financial Services Ltd. which owns the bank Ujjivan Small Finance Bank and we own 83% of the bank so, what the RBI has committed is that the holding companies can reverse merge into the bank and there will be one entity. Before that, there was the uncertainty of this and consequently, we are the holding company stock– UFSL stock was anywhere between 40% to 50% discount. Now, this discount will gradually narrow, so, there is a tremendous upside on the Ujjivan Financial services stock.The bank stock depends on how the bank actually performs in terms of business, but this is extremely good news for the Ujjivan Financial Services stock- the holding company stock, and that was the original shareholders. We have about 80,000 retail shareholders out of which there are at least 10,000-15,000 employee shareholders, who originally invested in the bank and this is extremely good news for them.

Our fifth year is in February 2022, and we can apply three months before that -for the reverse merger—with the RBI as per its new direction. RBI will evaluate the proposal and see whether we can go ahead, chances are that things are normal, we will be allowed to reverse merge. There is one issue which was there, by the fifth year the shareholding of the holding company was required to come down to 40% but we are quite confident that since RBI is allowing us to totally reverse, much of it- at the end of five years, going to be waved, so we do not think that is an issue at all. It is good news for the holding company shareholders.

When will this merger process be completed?
We will apply late October-early November and then RBI will give us the approval, I think the process cannot start before our fifth anniversary, which is early February 2022 and the whole legal and all that clauses NCLT etc. can take anywhere between eight to 12 months, so, that is the kind of time frame we are looking at.

Post the merger which entity will remain listed?
The bank will remain, the holding company will completely disappear so all the shareholders of the holding company will then become shareholders of the bank.

What has been the impact of the second wave on your business, are you now seeing faster recovery as compared to what we have witnessed last year and in light of that what would be the outlook on your growth disbursements for FY22?
I am not part of the bank, I think this question you should raise with Nitin Chugh, who is the managing director of the bank but what I can tell you overall in the industry-the second wave has receded to a certain extent, things are much better now, but this kind of crisis, which we are facing is an unprecedented crisis. We had faced an earlier crisis, demonetisation, which was like one shock kind of crisis and we overcame, but here, because of the multiple waves of the COVID crisis–it hits our customer and business in waves and the ultimate solution getting the population of India 70% or 80% vaccinated. Unfortunately today, the vaccine availability is still an issue, hopefully, in a couple of months from the production of the vaccine to the scheduling of the production in India, there will be abundant supply. There was a hesitancy even among our customer base before the second wave, but post the second wave that hesitancy has also gone. As as soon as the vaccines are available and we are able to vaccinate all our customer base or the entire population in India, then there is going to be a solution to this problem.

So, the most important thing to do is proactively help our customer base to get vaccinated, meanwhile RBI has given a lot of restructuring, opportunities for good customers and also to provide them additional cash, which is very important because people have either exhausted their savings or their working capital, and not only the restructuring but providing them the extra cash would help them but this has to be carefully done only for our good customers and that process is sort of a lengthy process. So, I think there is time till September, the bank is undertaking that and most micro finance institutions are undertaking that, it has to be done very carefully and I think that will help us to get out of the crisis.



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How savings were impacted by Covid second wave

Banking & Finance

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Faced with the surge of Covid-19 infections in recent months combined with lockdowns that led to job losses and drop in income, many households are understood to have started using their accumulated savings to fund expenditure.

This, in turn, has led to concerns over a decline in the savings rate that could hamper further recovery.

According to the Reserve Bank of India’s monthly bulletin for March, household net financial savings rose to 21 per cent of GDP in the first quarter of 2020-21 and fell to 10.4 per cent in the second quarter. A report by Motilal Oswal in April had said household net financial savings had likely fallen to 8.4 per cent of GDP in the third quarter last fiscal.

Anecdotal data as well as the slowdown in bank deposits indicate that household savings have been impacted by the second surge of Covid-19 infections.

Bank deposits

Deposits of commercial scheduled banks grew 9.7 per cent on an annual basis to ₹1,51,66,808.18 crore for the fortnight ended May 21, 2021 as against a 9.9 per cent growth in the fortnight ended May 7, 2021.

“Growth in deposits with scheduled commercial banks (a proxy for household saving, having about 50 per cent share in households’ overall savings portfolio), has declined starting April 2021. Last year, in contrast, deposit growth had moved up. This could be indicative of pressure on incomes and a simultaneous rise in medical expenditure given the heightened ferocity of the second wave,” said a recent report by Crisil.

People also seem to be withdrawing funds from retirement savings. By May 31, 2021, the EPFO had settled over 76.31 lakh claims under the Covid-19 advance scheme amounting to over ₹18,698.15 crore. The government has now allowed a second round of such withdrawals from the Employees’ Provident Fund.

Gold auction

Gold loan NBFCs are auctioning more gold in recent months indicating higher distress amongst borrowers. For instance, Manappuram Finance said it auctioned gold worth ₹404 crore in the fourth quarter of 2020-21 compared to ₹8 crore in the nine month period ended December 2020.

Sale of life insurance policies has also declined in recent months but there are expectations that it may revive in coming months.

“Equity markets have been performing well. It is expected that products such as mutual funds and ULIPs will continue to do well this fiscal as bank deposits have lost their sheen,” said an executive with a private insurer.

 

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With no cushion like last time, second Covid wave poses challenges for auto lenders

Banking & Finance

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The second Covid-19 wave will have a material impact on automobile lenders’ asset quality as borrowers are grappling with reduced capacity utilisation and increased operating costs due to rising fuel cost, which would reduce their ability to service debt, says a report of India Ratings.

The impact of the first covid wave was cushioned with multiple measures that boosted optimism and recovery. However, the outcome may be different during the second wave, due to the widescale impact, including rural areas and pent-up demand being absorbed already.

Collections hit

April 2021 collections for most of the lenders remained at a decent level since the first 15 days were broadly normal across the nation. Top public sector bank State Bank of India had 95-96 per cent collection efficiency in April 2021. However, increase in localised and regional lockdowns has impacted collections of the lenders for the month of May 2021, according to industry representatives.

India Ratings estimates that the collection efficiency for the first fortnight of May could be lower by 5-7 per cent on the top of a similar decline in April over March 2021.

With reduced cash flows and rising operating cost due to fuel inflation, the excess capacity had its offsetting impact on freight contract renewals or market freight rates, all impacting borrowers’ cash flows.

Early demand indicators such as the E-way bill, diesel consumption are showing signs of moderation and asset inflation (rising prices of raw materials such as steel and cement) would impact demand offtake and thus load availability. Thus, both demand and rising operating cost would moderate borrowers’ cash flows in FY22.

Restricted mobility

Lenders’ collection efficiency would also be affected by restricted mobility as the second wave has spread across all geographies. Thus, the rating agency has a negative outlook on commercial vehicle finance as an asset class.

There are emerging trends of rising loan tenures across vehicle lenders to reduce servicing burden for borrowers. Incrementally, all vehicle segments would be impacted by the pandemic as it gets widespread, hindering business activity and thus affecting borrowers’ cash flows.

Capacity utilisation levels have been significantly affected across the heavy commercial vehicle segment. The earlier estimate of replacement demand driving lenders’ growth would take a backseat, as normalisation would be a long-drawn process with borrowers looking at increasing utilisation on existing fleet rather than purchasing new vehicles.

Lenders would be impacted in the medium term due to restricted mobility and moderating borrowers’ cash flows. Collections have become difficult due to the surge in infected cases and would impact asset quality during the first half of this fiscal, said India Ratings.

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More Covid-hit companies may need recast of loans, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: Banks have told the Reserve Bank of India (RBI) that the extended restrictions due to the resurgence of the Covid pandemic have caused significant stress on businesses and a restructuring window may be required for more loans.

Although the RBI did allow lenders to restructure loans for borrowers earlier this month, the facility was restricted to loans of up to Rs 25 crore. Since the measures were announced, the second wave of Covid emerged across the country, resulting in most parts of the country observing some form of a lockdown.

On Wednesday, RBI governor Shaktikanta Das met with the CEOs of public sector banks (PSBs) through a video conference. Acknowledging the role played by PSBs in extending various banking services including credit facilities to individuals and businesses during the pandemic, the governor asked them to quickly implement the Covid relief measures already announced. He also reiterated the need for banks to raise capital to increase the resilience of their balance sheet should further shocks arise out of the pandemic.

The governor in the meeting sought feedback from banks on the state of the financial sector and credit flows to different sectors, including small borrowers and micro, small and medium enterprises. The governor also sought information on whether rate reductions by banks were in line with the RBI’s action to bring down the cost of funds.

Bankers said that, while the first quarter is traditionally a sluggish period for credit growth, this year loan pick-up was even lower because of the lockdown. They said that the extended lockdown, while necessary to contain the pandemic, is hurting a large segment of the economy. There is a clear indication of collection efficiency being hit. While earlier the banks were more concerned about the survival of small businesses, they are now worried that larger companies may also start facing liquidity related issues as economic activities in non-essentials have been significantly hit.

Non-banking finance companies (NBFCs) have already asked the RBI for a moratorium for their borrowers and their borrowings from banks. Bankers say that in 2020, NBFCs shrunk their books and reduced debt and obtained cheap finance because of targeted long-term repo operations announced by the RBI, which helped them tide last year’s lockdown. This year, no such package has been announced so far.



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How you can insure yourself from Covid

Personal Finance

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With the second wave of Covid raging across the country, many are looking to buy a health cover or enhance the same. According to data from Policybazaar.com, 90 per cent of their customers who have an existing health cover of about ₹5 lakh are porting to a higher sum insured of ₹10-15 lakh. While you must make it a point to follow all Covid protocols to avoid getting infected, here’s how you can financially shield yourself against Covid if you unfortunately fall sick.

 

Date extended for Covid-plans

In addition to taking toll on your health, Covid-19 infection can dent your savings as well.

Keeping this in mind, the insurance regulator, IRDAI has recently extended the validity for sale and renewal of short-term Covid specific health insurance policies – Corona Kavach and Corona Rakshak – till September 30, 2021. This was previously available up to March 31, 2021.

The insurance regulator in July 2020 had mandated that all general and standalone health insurers offer Corona Kavach health policy.

This (Corona Kavach) is an indemnity policy which pays for the hospitalisation of the insured affected due to Covid-19, provided he/she is hospitalised for a minimum period of 24 hours. It also offers cashless facility to its policyholders, provided hospitalisation is from the insurer’s list of network hospitals.

Hospitalisation cover includes expenses such as room rent, boarding, nursing, ICU, ambulance service up to ₹2,000, medical practitioner and consultant fees, operation theatres, PPE kit, gloves, etc.

It covers for home care treatment expenses as well, up to the sum insured (SI) for a maximum period of 14 days. All general and standalone health insurers offer this policy.

There are complaints that some hospitals are not granting cashless facility for treatment of Covid-19 despite policyholders being entitled for the same. The insurance regulator has recently clarified that wherever insurers have an arrangement with the hospitals for providing cashless facility, such hospitals are obligated to provide cashless service for all treatments including treatment for Covid-19. In the event of denial, policyholders can file a complaint with the insurer concerned.

Another plan introduced by IRDAI, but not mandatory to be offered by all insurers, is Corona Rakshak. It is a benefit policy, where the insurer will pay 100 per cent SI upon positive diagnosis and the policy shall terminate thereafter.

As both are standard policies, the coverages and exclusions across insurers will be the same, including the policy name. Both policies can be availed for a period of 105 days (3.5 months), 195 days (6.5 months) and 285 days (9.5 months) and can be renewed to ensure the benefit of the policy continues.

The minimum SI under both policies is ₹50,000; the maximum SI offered under Corona Kavach is ₹5 lakh and for Corona Rakshak ₹2.5 lakh. The minimum and maximum age of entry is 18 and 65 years respectively, and only single premium payment mode is allowed under both policies.

Regular health policies cover hospitalisation due to Corona virus among other diseases/accidents. At the beginning of the outbreak of the pandemic, there were problems over providing cover for associated costs such as personal protection equipment (PPE) kits.

These expenses formed part of consumables which were not usually covered by most insurers. Those who did cover, applied ‘proportionate deduction’ clause based on the type of hospital room availed.

In June last year, to reduce the burden of the policyholders and to standardise the claim settlement, IRDAI, ordered that medical expenses including cost of pharmacy, consumables, implants, medical devices and diagnostics to be covered as part of health policies without being subject to the ‘proportionate deduction’ clause. Covid-related expenses in the above-mentioned heads such as PPE kits will reap the benefit of this move.

Further, if you have a health policy which covers for out-patient (OPD) medical expenses – known as comprehensive cover – you can reimburse your Covid-19 related home treatment medical expenses too, if you are under home quarantine.

Making the choice

Your financial burden is likely to be reduced whether you have Covid-19 specific health covers or a comprehensive health cover. However, if you plan to sign up for one now, do note that all new health insurance policies come with a waiting period of 15 days, only after which your cover will kick in.

Covid specific plans as well as regular health cover have certain exclusions. Any unproven treatment will not be covered.

Coverage under both policies cease if the insured travels (outside the country) to a destination where India restricts travel to or the foreign country restricts entry of travellers from India.

So, if you are looking to buy a plan to protect against Covid, you can skip Corona Kavach if you have a regular health plan covering OPD expenses. Corona Rakshak can be useful if your regular plan does not cover OPD or if you are looking for additional cover. Since Rakshak is a benefit policy, this can come in handy to cover expenses for tests, scans, medicines, etc. for those who are home quarantined.

(This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online.)

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