Tag: small finance banks

RBI paper, BFSI News, ET BFSI

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The newly created small finance banks (SFB) are serving the intended marginalised and under-served people, and doing so profitably, an analysis by RBI officials has revealed. This category of banks was started in 2017, and a bulk of the entities are microfinance institutions, which converted themselves into lenders, which gave them access to public deposits.

“The SFBs have been provided license with the objective to serve the under-served and marginalised sections of the society…preliminary analysis reveals SFBs to be leading in serving the priority sector,” the paper by Nitin Kumar and Sarita Sharma said.

The study contains an initial assessment of the performance of SFBs for early policy inputs, it said, stressing that its assessment should not be considered as the view of the central bank.

A basic examination reveals a relatively high credit deposit ratio of SFBs and most of them displayed healthy profitability with further improvements in recent quarters, it said.

The study went into operational financials between March 2017 and March 2020 and indicated that bank-level factors like efficiency, leverage, liquidity and banking business are significant in determining SFBs’ profitability during this early period of operation.

It can be noted that the first quarter of the FY22 was a difficult time for many of the SFBs, as the collection efficiencies declined because of the second wave of the pandemic.

Meanwhile, another paper in the RBI bulletin for August on the targeted long term repo operations said that non-bank lenders, which accessed funds through the route, have displayed an improvement in their short-term liquidity buckets compared to others.

As NBFCs were finding their footing after the IL&FS default, the COVID-19 pandemic started a chain of adverse reactions, which exacerbated their liquidity position, the paper by KM Neelima, Nandini Jayakumar, and Jibin Jose said.

The RBI and government swung into action to address the stress through a slew of measures, including the TLTRO scheme that aimed at providing targeted liquidity to sectors and entities, which were experiencing liquidity constraints and restricted market access, it added.

Banks were provided funds at the repo rate and were directed to invest in investment-grade papers of corporates, including NBFCs, it said.

The policy was beneficial in alleviating the liquidity stress faced by the treatment NBFCs in the period following COVID-19 and helped them navigate the tough times, the paper said, adding that this happened at a time when both banks and credit markets were averse to help such entities.

“The empirical exercise undertaken in this article, therefore, suggests that the Reserve Bank’s intervention for easing financial conditions proved to be timely and effective for the NBFC sector,” it noted.



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Equitas seeks to merge holding company with small finance bank

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Both the promoter entity EHL and Equitas Small Finance Bank are listed on the stock exchanges and EHL holds a 81.98 % stake in the bank.

Equitas Small Finance Bank (ESFB) on Saturday said the Reserve Bank of India (RBI) has permitted the Chennai-headquartered bank to apply to the banking regulator for approval of its scheme of amalgamation, that will facilitate the merger of the promoter entity Equitas Holdings (EHL) with the bank.

In accordance with the RBI small finance bank licensing guidelines and the RBI clarification issued on January 1, 2015, a promoter of small finance bank can exit or to cease to be a promoter after the mandatory initial lock-in period of five years, depending on the RBI’s regulatory and supervisory comfort and market regulator Sebi regulations in this regard at that time.

In the case of ESFB, the said initial promoter lock-in expires on September 4, 2021, and the bank had requested RBI if a scheme of amalgamation of the promoter and holding company, EHL, with the bank, resulting in exit of the promoter, could be submitted to RBI for approval, prior to the expiry of the said five years.

Both the promoter entity EHL and Equitas Small Finance Bank are listed on the stock exchanges and EHL holds a 81.98 % stake in the bank.

“Accordingly, we would be initiating steps to finalise the scheme of amalgamation, submit to the boards of the bank and EHL for approval and take further action thereafter in accordance with applicable regulations and guidelines,” it said.

ESEB, in a regulatory filing said that RBI in a communication on July 9, 2021, has permitted the bank to apply to RBI, seeking approval for scheme of amalgamation. RBI had also conveyed that any ‘no-objection’, if and when given on the scheme of amalgamation, would be without prejudice to the powers of RBI to initiate action, if any, for violation of any licensing guidelines or any terms and conditions of license, or any other applicable instruction.

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Microfinance loan portfolio grows 11.9% to ₹2,59,377 cr as on March-end: MFIN

Banking & Finance

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The overall microfinance industry’s gross loan portfolio (GLP) surged by 11.9 per cent to ₹2,59,377 crore as on March 31, 2021 from ₹2,31,787 crore as on March 31, 2020, says a report.

The growth was driven by an addition of four lakh borrowers during the pandemic-struck 12-month period ending March 2021, according to a report – Micrometer, released by Microfinance Institutions Network (MFIN).

Also read: In a boost to MFIs, FM hikes ECLGS limit by ₹1.5-lakh cr

MFIN is an industry association comprising 58 NBFC-MFIs and 39 associates, including banks, small finance banks (SFBs) and NBFCs. As on March 31, 2021, the microfinance industry served 5.93 crore unique borrowers, through 10.83 crore loan accounts, the report said.

It said 13 banks hold the largest share of the portfolio in micro-credit with a total loan outstanding of ₹1,13,271 crore, which is 43.67 per cent of total micro-credit universe.

Non-banking financial companies-microfinance institutions (NBFC-MFIs) are the second-largest provider of micro-credit with a loan amount outstanding of ₹80,549 crore, accounting for 31.05 per cent to total industry portfolio, the report showed.

SFBs have a total loan amount outstanding of ₹41,170 crore with a total share of 15.87 per cent.

NBFCs account for another 8.36 per cent, and other MFIs account for 1.05 per cent of the total microfinance universe, it said.

The report further showed that the gross loan portfolio of NBFC-MFIs increased by 11 per cent to ₹81,475 crore as on March 31, 2021, compared to ₹73,412 crore as on March 31, 2020.

This GLP on NBFC-MFIs includes owned portfolio of ₹68,894 crore and managed portfolio of ₹12,581 crore, it said.

The association said its NBFC-MFI members disbursed ₹57,891 crore of loans in fiscal 2020-21 through 1.70 crore accounts.

Also read: RBI proposes regulatory framework for microlenders

Average loan amount disbursed per account during FY20-21 was ₹35,726, an increase of around 20 per cent in comparison to last financial year, the report said.

During FY2020-21, NBFC-MFIs received a total of ₹40,797 crore in debt funding which is 9.2 per cent higher than in FY2019-20.

Total equity of the NBFC-MFIs grew by 15 per cent to ₹18,663 crore as on March 31, 2021.

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Small finance banks less prepared than private banks, BFSI News, ET BFSI

Banking & Finance

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Small finance banks (SFBs), which depended heavily on loan moratorium last year, are likely to be hit by delinquencies as Covid crimps the incomes of their mainstay borrowers.

However, they are inadequately prepared to face the barrage of asset quality issues that may hit them. In contrast, the top private sector banks are adequately prepared to face the crisis.

The provision coverage ratio, or amount set aside for bad loans, is less than 60% of total bad loans. for three listed banks—Equitas Small Finance Bank Ltd, Ujjivan Small Finance Bank Ltd and AU Small Finance Bank.

AU Small Finance Bank’s PCR fell to 50% in Q4 from 53% earlier, while Equitas Small Finance Bank, the most conservative among the SFBs, saw a 25% decline in the overall provision, compared with last year. Ut made additional provision to Rs 153 crore at the end of the fourth quarter.

Ujjivan Small Finance Bank’s PCR fell to 60% in the fourth quarter, from 80% in the year-ago period. The bank made a provision of Rs 170 crore as of March-end.

Private banks’ PCR

For HDFC Bank total provisions (comprising specific, floating, contingent and general provisions) were 153% of the gross non-performing loans as on 31 March 2021.

ICICI Bank had substantially increased its provision coverage ratio (PCR) to 86 per cent with pro forma PCR of 78 per cent, the highest in the industry.

Axis Bank’s provision coverage ratio, including write-offs, stood at 88% in the fourth quarter.

SLTRO boost

While the small finance banks did not get moratorium relief, the Reserve Bank of India (RBI) has announced a special long-term repo operation (SLTRO) for small finance banks. The central bank conducted the special operation of Rs 10,000 crore at repo rate, Das said.

“Small finance banks (SFBs) have been playing a prominent role by acting as a conduit for the last-mile supply of credit to individuals and small businesses,” Das said earlier this month announcing the relief measures.

“To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic, it has been decided to conduct special three-year long-term repo operations of Rs 10,000 crore at repo rate for the SFBs, to be deployed for fresh lending of up to Rs 10 lakh per borrower,” Das said, adding that the facility will remain open till October 31, 2021.

Priority loans

The RBI also has decided to allow the classification of priority sector lending for loans given by small finance banks (SFB) to micro-finance institutions (MFI) for on-lending to individuals.

The decision has been taken to address the liquidity issues of MFIs amid the severe Covid crisis.

RBI Governor Shaktikanta Das said: “In view of the fresh challenges brought on by the pandemic and to address the emergent liquidity position of smaller MFIs, SFBs are now being permitted to reckon fresh lending to smaller MFIs (with asset size of up to Rs 500 crore) for on-lending to individual borrowers as priority sector lending.” This facility will be available up to March 31, 2022.



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RBI to conduct SLTRO of Rs 10,000 crore for small finance banks on May 17, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank on Friday said it will conduct the first auction for special long-term repo operations (SLTRO) of Rs 10,000 crore for Small Finance Banks (SFBs) on May 17. To provide further support to small business units, micro and small industries, and other unorganised sector entities adversely affected during the current wave of the pandemic, the RBI has decided to conduct SLTRO of Rs 10,000 crore at the repo rate for the SFBs, to be deployed for fresh lending of up to Rs 10 lakh per borrower.

The facility will be available till October 31, 2021.

In a statement, the Reserve Bank of India said it will conduct one auction for SLTRO each month.

“The first auction will be conducted on May 17, 2021, for Rs 10,000 crore. The unutilised portion of notified Rs 10,000 crore will be carried forward in each subsequent auction until fully utilised or till the last auction, whichever is earlier,” it said.

The SFBs participating in the scheme will have to ensure that the amount borrowed from the RBI should at all times be backed by lending to the specified segments till the maturity of the SLTRO.

Further, SFBs should endeavour to lend within 30 days from the date of availing the funds from the RBI.

In case of over-subscription of the notified amount, the allotment will be done on a pro-rata basis, the central bank said.

The minimum bid amount would be Rs one crore and multiples thereof.



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Small finance banks see loan collections drop as Covid rages, BFSI News, ET BFSI

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With the Covid pandemic spreading fast into the hinterland, small finance banks are feeling the heat.

The second Covid wave is resulting in a delay in collections this month, though banks are much prepared than last time when they were caught unawares by the pandemic.

The impact is more in smaller towns rather than the rural areas which have seen good monsoon. Also, several bank employees are down with Covid, hampering collection efforts.

As per a report by Emkay Global, the first fortnight of April 2021 has been weak in terms of business activity which is down by 20% across various segments due to lower working days and onset of an aggressive second wave of Covid-19 infections. This is expected to fall further with far stricter enforcement of localised lockdowns.

Cautious lenders

According to experts, credit appetite is likely to remain intact but lenders may turn cautious, which could hurt growth in the near term.

The collection efficiencies were improving from August-September onwards on a month-on-month basis across asset classes. However, a year back, the restrictions announced so far are lower in trajectory or intensity. So while there will be an impact on collections and delinquencies, the impact should be lower than what we saw in Q1 of last year.

But if there was a rise in the intensity of cases accompanied by containment measures and restrictions, it could further impact collections.

The spread intensity and duration of the pandemic, how long the lockdown and curbs last and vaccine trajectory will decide the severity of hit to the SFBs.

Microfinance hit

The mainstay of small finance banks, the microfinance loans are likely to face asset quality pressures in the near term due to the recent surge in Covid infections.

However, a majority of microfinance institutions (MFIs) will be able to withstand any stress due to their improving collection efficiency and good on-balance sheet liquidity, Icra Ratings said.

“We estimate asset quality pressures for the MFI industry to continue in the near term and the same may get accentuated with the recent increase in Covid-19 infections and localised restrictions/lockdowns,” the agency’s Vice President and Sector Head (financial sector ratings) Sachin Sachdeva said.

The agency noted that even though the near-term outlook for MFIs is clouded given the Covid induced disruptions, the overall long-term growth outlook for the domestic microfinance industry, including MFIs and micro finance-focused small finance banks (SFBs), remains robust.

The collection efficiency (total collections/scheduled demand) of the sector improved to around 102 per cent in December 2020.

The disbursements also started picking up from Q2 FY2021 onwards, which is expected to help the MFI industry achieve growth of 9-11 per cent in its assets under management (AUM) in FY2021, it said.

Collection efficiency

Sachdeva said the improvement in collection efficiency and pickup in growth in AUM in H2 FY2021 has helped the industry witness marginal improvement in the overdue portfolio (0+ days past due (dpd)) to 16.7 per cent as on December 31, 2020, which had earlier increased to 18.1 per cent as on September 30, 2020 after the lifting of the moratorium.

There has been further improvement in Q4 FY2021 as well. However, overdues remain significantly higher than pre-Covid levels, he said.

“We estimate the credit costs to rise significantly to 6-7 per cent (spread over two years: FY2021-FY2022) from 1.5 per cent in FY2020, he said.



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RBI releases names of entities eyeing on-tap license for universal and small finance banks, BFSI News, ET BFSI

Banking & Finance

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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.

Applicants for Universal Banks

  • UAE Exchange and Financial Services Limited
  • The Repatriates Cooperative Finance and Development Bank Limited (REPCO Bank)
  • Chaitanya India Fin Credit Private Limited
  • Shri Pankaj Vaish and others

Applicants for Small Finance Banks

  • VSoft Technologies Private Limited
  • Calicut City Service Co-operative Bank Limited
  • Shri Akhil Kumar Gupta
  • Dvara Kshetriya Gramin Financial Services Private Limited

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Four applicants each apply for ‘on tap’ licenses to start universal banks, small finance banks

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The Reserve Bank of India (RBI) on Thursday said four applicants each have applied for “on tap” licenses to start Universal Banks and Small Finance Banks in the private sector.

The applicants under guidelines for ‘on tap’ licensing of Universal Banks are — UAE Exchange and Financial Services Ltd, The Repatriates Cooperative Finance and Development Bank Ltd (REPCO Bank), Chaitanya India Fin Credit Private Ltd and Pankaj Vaish and others, RBI said in a statement.

The applicants under guidelines for ‘on tap’ licensing of Small Finance Banks are — VSoft Technologies Private Ltd, Calicut City Service Co-operative Bank Ltd, Akhil Kumar Gupta and Dvara Kshetriya Gramin Financial Services Private Ltd, it added.

The guidelines for ‘on tap’ licensing of Universal Banks and Small Finance Banks in the private sector, were issued on August 1, 2016 and December 5, 2019 respectively.

The constitution and composition of the Standing External Advisory Committee for evaluating the applications received under the aforementioned guidelines was announced on March 22, 2021.

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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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Why IndusInd Bank FD is an attractive short-term choice

Personal Finance

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With fixed deposit (FDs) rates ruling at historical lows, investors using bank FDs for regular income or as an avenue to build a risk-free corpus are left with few choices.

In this backdrop, FDs from IndusInd Bank, are worth considering, given their reasonably competitive rates as well as improving financial parameters. At the height of the pandemic, IndusInd was witness to the fallout of the YES Bank crisis and it rubbed off on depositor sentiment, rise in delinquencies and significant moderation in loan growth. With Covid-19 threat beginning to dissipate, the problems at IndusInd are also beginning to disperse. Deposit growth has improved, loan growth is better, gross bad loans (GNPAs) have shrunk and provisioning has picked up. Plus, the recent capital injection from promoters last week is a boost.

Yes, some small finance banks offer better rates than IndusInd. If you already have exposure to small finance banks, considering the bettering financials of IndusInd, you can go for this option. Given the current low rates , investors are better off putting their money in shorter-tenure deposits and hence one-year FDs are a good choice.

Attractive rates

IndusInd Bank offers 6.5 per cent per annum on its one- to two-year tenure. For senior citizens, the rate is 7 per cent, that is, an extra 0.5 percentage points.

For similar one- to two-year deposits, public sector banks offer rates of 4.9-5.4 per cent and most private sector banks offer less than 6.5 per cent. As a thumb rule, senior citizens will get an additional 0.5 percentage points on the card rates from most banks.

Investors are better off putting their money in shorter-tenure deposits. This strategy will help them prevent their money from getting locked in longer tenures, and one can retain the flexibility to hunt for better returns once the rate cycle turns. Hence, one-year FDs of IndusInd Bank are a good option now. You can, of course, opt for deposits of below one year too, but the interest rates on these are lower.

Apart from booking an FD in person at the bank branch, investors can also book one online on the bank’s website. Do note the maximum deposit amount allowed online is ₹ 90,000 using Aadhaar eKYC.

In the event of premature withdrawal before the specified tenure, the interest rate applicable will be the rate corresponding to the withdrawn amount and basis the actual run period.

Improving financials

IndusInd’s bettering financials lend comfort.

The bank’s financial performance across last three quarters shows improvement in various metrics. Deposit growth is up by 8 per cent and 5 per cent, respectively, in the September and December quarters (quarter-on-quarter). Gross non-performing assets (GNPA) has steadily declined from 2.53 per cent in Q1, to 2.21 per cent in Q2 and now to 1.74 per cent in Q3. While proforma gross non-performing loans stands at 2.93 per cent as of December (this is on the lower side compared to other frontline banks), the overall restructuring pool was limited to 1.8 per cent.

The bank has improved Provision Coverage Ratio from 67 per cent in Q1 to 87 per cent in Q3 on reported GNPAs and maintained PCR at 77 per cent even after including proforma NPAs. It added ₹1,100 crore to Covid provisions taking total Covid provisions to ₹3,261 crore, and fully provided for unsecured retail and microfinance loans conservatively.

In Q3, IndusInd has reported improvement in collection efficiency (97 per cent in Dec-20) to near pre-Covid levels across segments. Retail loans are seeing healthy traction (up 5.8 per cent y-o-y), with disbursements in vehicles/micro-finance segment now at pre-Covid levels.

Its capital adequacy ratio including nine months of FY21 profits was at 16.93 per cent as of December 31, 2020 and this got augmented to a comfortable 17.68 per cent, with IndusInd on February 18 raising ₹2,021 crore of common equity capital via conversion of preferential warrants issued to promoter entities.

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