Tag: state bank of india

Home loans set for a big boost this festive season, BFSI News, ET BFSI

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Home loans are set to get a boost this festive season as easing Covid curbs give buyers confidence and rates stay rock bottom due to ample liquidity

Buyers confident about the economy are set to cash in on low rates to buy homes.

Housing sales have jumped over two-fold during the July-September period at 62,800 units across seven major cities on better demand driven by low mortgage rates and hiring in IT/ITeS sector, according to property consultant Anarock.

Sales of residential properties stood at 29,520 units in the year-ago period and 24,560 units in the previous quarter.

Housing prices appreciated by 3 per cent across the seven cities to Rs 5,760 per square feet in Q3 of 2021 calendar year from Rs 5,600 per square feet in Q3, 2020.

The ongoing WFH (Work For Home) culture continues to influence residential sentiment on two major fronts – overall housing demand and unit sizes.

About 80 per cent of respondents to a survey by consultant JLL expected to make a purchase in the next three months.

Fierce competition

Competition among lenders in the home loan space is also set to boost home loans.

Kotak Mahindra Bank is offering home loans at a lower rate of 6.50 per cent is a festive period offer available only for two months till November 8, and the lowest offering is for those having the highest credit scores coming from the salaried segment.

In the past, its rivals which include HDFC and SBI, have responded to rate cuts by slashing their own offering. The rate cut comes at a time when demand for home loans is falling in the country and may spark similar offers from rivals.

Large banks like the State Bank of India already offer home loans at as low as 6.65 per cent and 6.75 per cent, respectively, while the interest rates for HFCs is between 7.45 per cent and 10 per cent.

Nirmal Bang Institutional Equities said in a note, “The demand momentum seen in housing loans last year has tapered off and organic growth for the housing finance industry has been softening,” the brokerage house said. The organic growth in the home loan segment for large banks has been slowing over the last 45-50 days.

Home loan AUM growth

Even as lenders jostle for home loan pie, the assets under management of the segment across banks and non-banks are likely to grow by 15% over the next three to five years, according to ICICI Securities.

This would be on the back of the rise in disbursements and improved affordability.

“Factors such as low interest rates, stamp duty cut, benign real estate prices, etc. have improved affordability to own a house. ‘Work from home’ has kindled incremental housing demand. Construction too was not adversely impacted during the second wave,” the brokerage said.

Home loan growth fell to 8% over the previous three financial years as compared to 17-18% earlier while disbursements fell to Rs 5.3-5.5 lakh crore due to the pandemic. However, it has now risen to a run-rate of Rs 7-8 lakh crore.



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Mispricing of risk due to excess liquidity: Dinesh Khara, chairman, State Bank of India

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“During Covid, demand has certainly got affected and hopefully with the revival of the economy, demand should be back on track.” (File image)

Corporate demand has to pick up in order for credit growth to pick up, Dinesh Khara, chairman, State Bank of India, tells Shritama Bose in an interview. There has been a tendency to misprice risk amid an excess of liquidity, he adds. Edited excerpts:

Credit growth has become a serious problem for the banking sector. What would it take for it to pick up from the current 6-6.5% levels?
The credit growth is also a reflection of the real economy. There are a couple of reasons which we have seen in the past. Almost about Rs 2 lakh crore worth of deleveraging has happened in the corporate sector and naturally, it has impacted credit growth. So even if we are growing at 12-14% in retail, it will not show up in the banking sector credit growth if corporate credit doesn’t grow.

We have also observed that for large corporates sanctioned limits have remained unutilised to the extent of about 30%. Similarly, for the mid-corporate sector, the credit limits have remained unutilised to the extent of about 25%. Even for term loans, etc that we sanction, the unutilised limits are as high as 25-30%. During Covid, demand has certainly got affected and hopefully with the revival of the economy, demand should be back on track.

In August, the government had said there would be a fresh round of credit outreach programmes in October. How are you planning that?
We are all working on the nitty-gritties of the outreach programme and very soon, we should be in a position to announce it under the aegis of IBA (Indian Banks’ Association).

The focus would be to encourage people to borrow and to generate demand with the convenience of the funds available in the form of loans. It will be for all segments.

Pricing has hit rock-bottom in the wholesale market. How are you strategising in such a market?
Naturally, one has to decide up to what level one should go. That is something on which we have already made up our mind. Pricing has multiple components — the cost of resources, the risk premium we assign, based on which we arrive at the price that should be offered. We are quite cognisant of the various price dynamics and accordingly we are quoting prices which should take care of all stakeholders’ interests.

What is your outlook on liquidity? Is it hurting margins?
The system is still in a surplus mode. For the foreseeable future, we don’t see any challenge in terms of liquidity. There is ample liquidity to take care of the credit needs of customers. I can very well see that there is some kind of mispricing of risk because of the excess liquidity, but eventually it’s a call taken by each bank based on their thinking around balance sheet growth. Those would be the reasons for them going for a particular kind of pricing.

How persistent is the Covid-induced stress in small accounts?
I would give the example of the first quarter of the current financial year when there was a containment announced for various cities and there were mobility restrictions for almost two months. That affected the ability of our people to carry out collections. But effective June 16, when the mobility restrictions were eased, our employees could reach out to customers and we saw a significant pullback. Collection efficiency has improved for the system as a whole as also for us. It isn’t weighing too much on our mind, but we need to be alert and active to ensure that the collection efficiency is the best.

With the high competition in the home loan segment, are you ensuring credit quality?
The lending is being done based on credit scores, which are quite reliable. Even otherwise, we have got sufficient margin in our loan-to-value, which takes care of the volatility seen in prices. So, we are not too worried about the risk complexion of the portfolio with the reduction in interest rates.

What are your plans for Yono and how much of the business is coming from there?
We have strengthened Yono over a period of time. It is not just for retail, we have Yono Business, Yono Agri and Yono Global. We are working on all these components and trying to see how best we can make the journeys easier for the customer and make the app more and more intuitive. During the current financial year, we have disbursed about Rs 9,000 crore worth of pre-approved personal loans to about 4.5 lakh-odd customers. We have sanctioned 8,000-odd home loans aggregating to about Rs 6,000 crore and more than 10 lakh agri gold loans aggregating to over Rs 15,000 crore. We have reviewed Kisan credit cards worth Rs 5,000 crore to about 3.5 lakh customers with the help of Yono. We have sold mutual funds worth Rs 4,700 crore and 1.28 lakh life insurance policies. We’ve also sold 21.72 lakh personal accident policies aggregating to Rs 123 crore worth of premium.

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SBI exploring ways to back startups with debt financing, BFSI News, ET BFSI

Banking & Finance

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State Bank of India is trying to work out a way to debt finance startups as current rules allow banks to fund only profitable companies.

Startups raise equity funds to run their business. Promoters are forced to dilute stake as debt funding is not available to them because their companies are loss-making in the initial years, a senior SBI official said.

“We are struggling to debt fund startups. Bank norms and rules allow debt funding to only profitable ones. As initially startups are loss-making, they are to be funded based on the viability of the idea only. We are trying a way out,” Ashwini Kumar Tewari, managing director – international banking (technology and subsidiaries) at State Bank of India, said at the annual general meeting of The Bengal Chamber on Wednesday.

He said the bank was doing equity funding through SBI Ventures and recognised that the country needs to support the startup culture.

The number of government-recognised startups under the ‘Startup India’ initiative, launched by Prime Minister Narendra Modi in January 2016, has grown nearly 85 times. Their number has increased from 504 in 2016 to 42,733 in 2020, according to commerce ministry data.

Speaking about the economy, Tewari said despite a healthy recovery the country’s growth will be lower than 2019 due to the pandemic. “Large businesses are doing well. The problem is in the SMEs and the small sector. Large corporations are repaying more. Credit growth is driven by retail,” he said.

Referring to gold loans, he said that they are not popular in India but there are a lot of them which indicate the pain the normal people have suffered. “If gold loans are increasing, it is good for business but it is also a sign of the helplessness of normal people,” Tewari said.

The Bengal Chamber launched its Ease of Doing Business app during the day for industry stakeholders. Subscriber members as well as non-members can now make queries and take the benefit of experts of the chamber in diverse areas.



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Auto debit instructions won’t work from tomorrow, banks ready new system, BFSI News, ET BFSI

Banking & Finance

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From tomorrow, your standing instructions for bill payments to your bank won’t be honoured, till the bank develops an alternate system.

A huge number of credit and debit card users set auto payment instructions for utility services ranging from electricity and gas and subscription services for music, movies and other media. The new rules may lead to lead to chaos for millions of users.

Dashing messages

Banks are sending communications to customers saying that they will not process the recurring payments and customers will have to make payments directly to merchants.

“Attention! From 1st Oct’21, as per RBI guidelines on e-Mandate on cards, we will decline Non Compliant recurring txn at Merchant Web/App on your Credit/Debit Card. Alternate Solution – Retry regular payment on Merchant Web/App authenticated via OTP or Pay via AutoPay in BillPay on our NetBanking for your Electricity /Water/Gas/ Landline/Postpaid mobile/Broadband/Insurance billers,” said a message to customers by HDFC Bank.

Banks and payment aggregators are rushing to meet the October 1 deadline for implementing a new system for standing instructions for recurring online transactions as RBI may not extend it.

“In compliance with the regulatory requirements, we are currently building a solution to seamlessly manage all your domestic standing instructions for recurring payments. This solution will be available soon for you. Starting October 1, any existing standing instruction for domestic and international recurring transactions on your card account will not be processed. We request you to make these payments directly to the service providers to avoid any interruptions,” American Express said in a recent message to customers.

How does the new system work?

Under the proposed system, as a risk mitigating and customer facilitation measure, the card-issuing bank will have to send a pre-transaction notification to the cardholder, at least 24 hours before the actual charge or debit to the card. While registering e-mandate on the card, the cardholder shall be given the facility to choose a mode among available options (SMS, email, etc.) for receiving the pre-transaction notification from the issuer. On receipt of the pre-transaction notification, the cardholder shall have the facility to opt-out of the particular transaction or the e-mandate. For transactions above Rs 5,000, banks will also be required to send one time passwords to customers.

What is a standing instruction?

A standing instruction is a service offered to customers of a bank, wherein regular transactions that the customer wants to make are processed as a matter of course instead of initiating specific transactions each time.

This service relates to transactions like renewing subscription to OTT platforms, newspapers and magazines, and utility bill payments.

The issue

Large lenders and payment entities including State Bank of India, ICICI, Citi, HDFC, Axis, HSBC, Visa and Mastercard had asked the Reserve Bank of India (RBI) to postpone the deadline for putting in place a new system to alert customers on ‘standing instruction’ transactions.

The banks were asked to set up the system by March 31, 2021.

The lenders also wanted RBI to exclude transactions against pre-existing standing instructions and those with international merchants from the new conditions for e-mandates on cards for recurring transactions.



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NARCL expects up to 32%, or Rs 64,000 crore, recovery from the first bad loan tranche, BFSI News, ET BFSI

Banking & Finance

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The National Asset Reconstruction Company (NARCL), or bad bank, hopes to between Rs 50,000 crore and Rs 64,000 crore through the resolution of bad loans amounting to Rs 2 lakh crore, according to a report.

The lowest recovery is seen at 25 per cent or Rs 50,000 crore while the highest recovery rate is pegged at 32 per cent, or Rs 64,000 crore. The most likely recovery has been pegged at 28 per cent or Rs 56,000 crore.

The NARCL will buy the assets around Rs 36,000 crore or, about 18 per cent of the book value of Rs 2 lakh crore assets. About 15 per cent of Rs 36,000 crore would be paid by NARCL to banks in cash and the remaining 85 per via security receipts guaranteed by the Centre.

Close to liquidation

Though banks have made 100% provision for these assets, even Rajkiran Rai, Chairman of Indian Banks Association, and MD & CEO of Union Bank of India does not expect more than 20-25 per cent recovery from these legacy accounts, he told a television channel.

The State Bank of India has identified NPAs with Rs 17,000-18,000 crore outstanding to be transferred to the NARCL while Punjab National Bank has identified Rs 8,000 crore worth of NPAs, Union Bank of India Rs 7,800 crore of NPAs to be transferred to the National ARC. The Bank of India has identified about Rs 5,500 crores of assets for transfer while Indian Bank about Rs 1,900 crore.

The assets

Banks have identified Rs 82,496 crores worth of bad loans that could be transferred to the NARCL, which names like Videocon’s VOVL (Rs 22,532 crores total exposure), Reliance Naval and Engineering Ltd (Rs 8,934 crore), Amtek Auto (Rs 9,014 crore), Jaypee Infratech (Rs 7,950 crore, Castex Technologies (Rs 6,337 crore), GTL Ltd (Rs 4,866 crore), Visa Steel (Rs 3,394 crore), Wind World India Ltd (Rs 3,161 crore), Lavasa Corporation (Rs 1,424 crore), Consolidated Construction Consortium Ltd (Rs 1,353 crores), among others.

Several assets such as Videocon have seen realisable value close to liquidation value in NCLT proceedings. Many big-ticket resolutions at IBC have seen haircuts over 90%. With most of the NPAs proposed to be transferred to the bad bank being old legacy NPAs, there has been an erosion in value, making them more likely to head to liquidation.

Lavasa Corporation has got bids worth Rs 700 crore for loan claims of over Rs 8,000 crore at NCLT.



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India needs 4-5 more large banks of SBI’s size: Finance minister Nirmala Sitharaman

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The minister asked the IBA to conduct a digitised mapping of bank branches in each district of the country. (File)

Finance minister Nirmala Sitharaman said on Sunday India requires at least 4-5 more large banks like State Bank of India (SBI) to support the growing credit appetite of a fast-recuperating economy in the post-Covid world.

Addressing the 74th annual general meeting of the Indian Banks’ Association (IBA) in Mumbai, the minister said the economy is on a reset mode after the devastation caused by the pandemic. Banks, being the backbone of the financial system, would have to continue to play a critical role in supporting the economy’s resurgence, the minister said. Non-food credit growth remained far from satisfaction and stood at 6.2% in July 2021, against 6.4% a year earlier.

Already, the wide-scale consolidation exercise in the public-sector banking space in recent years has created some large lenders with strong balance-sheet to lend to big projects. Thanks to the amalgamation exercise, the number of state-run banks has come down from 27 in 2017 to 12 now.

She also asked lenders to firm up models to better focus on exporters.

“Be nimble, agile, adaptive, it is a must for attaining $2-trillion export (both goods and services) target for 2030,” she told bankers.

As for funding infrastructure projects, the minister said the proposed development financial institution is coming up soon.

Banking activities need to be scaled up substantially to ensure all business centres in the country are covered with physical or digital banking presence.

In the post-pandemic world, banks need to change the way they undertake their businesses. Since digitisation has changed the way of doing businesses, banks will have to innovate and keep pace with evolving technology, she said.

The minister asked the IBA to conduct a digitised mapping of bank branches in each district of the country. This would help identify the areas that need greater banking presence.

Sitharaman said: “Not necessary to have physical banking presence everywhere. The country’s optic fibre network has covered two-third of about 7.5 lakh panchayats. This could be used to deliver banking services in unconnected areas as well.”

“If we look at post-Covid scenario, India’s banking contour will have to be very unique to India, where there has been an extremely successful adoption of digitization. While banks in many countries could not reach out to their clients during the pandemic, the level of digitization of Indian banks helped us to transfer money to small, medium and big account holders through DBT and digital mechanisms,” she said.

The minister appreciated the efforts of the public-sector banks in implementing the amalgamation exercise even during the pandemic period and completing it without causing any inconvenience to customers.

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Concerns on banks ‘mispricing’ risks: SBI Chief

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Dinesh Kumar Khara, Chairman, State Bank of India on Friday said that mispricing of risk by banks was a cause of concern. Though banks have tightened the underwriting standards, the surplus liquidity in the system may push banks to a situation where they end up mispricing the risk.

“There is temptation on bankers to go down the risk curve and misprice the risk……we are starting to see this,” Khara said at the Financial Market e-Conclave organised by the Bengal Chamber of Commerce & Industry here on Friday.

The SBI Chairman does not feel there is any concern regarding the underwriting standards as most banks have tightened norms following the previous experience of decline in asset quality and high NPAs.

The system is flush with liquidity given the low credit offtake due to slowdown in economy on the back of Covid-19 pandemic. The funds parked with the RBI, in its reserve repo window, is estimated to be around ₹7 trillion, while the government’s cash balances with the central bank is close to ₹3.4 trillion.

Credit offtake to pick up

According to Khara there are greenshoots visible in certain sectors including commodities, iron and steel and aluminium. Credit demand is expected to pick up once investments start flowing into these sectors. “We have started seeing traction (in credit demand) from public sector enterprises and some private sector companies are also coming for fresh investments,” he said.

He said there was some stress in the retail portfolios at the end of Q1FY-22 on account of the regional lockdowns. However, things have been improving since the beginning of Q2.

On reduction of rates on new home loans, he said that the mortgage market has started showing signs of growth and banks are trying to capture the same.

‘Status quo likely’

“Inflation is mainly on account of supply side disruptions and once that is addressed we may have elbow room for keeping the rates at current level and wait for growth to come back in full force and at that point of time the central bank might think of recalibrating interest rates. But at this point of time it looks like interest rates should remain as it is,” he said.

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Mispricing of risks cause for concern: SBI chairman Dinesh Kumar Khara

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Khara said there are “green shoots” visible in certain sectors, including commodities, iron & steel and aluminium. (File image)

State Bank of India chairman Dinesh Kumar Khara on Friday said mispricing of risks by banks is a reality of the banking sector and it is a cause for concern.

“Mispricing of risks is still a reality of the system and that is essentially when the credit-deposit ratio comes at a certain number, it becomes an anxiety on part of the lenders on how to deal with the stakeholders. So, I think this is where the real life situation is,” Khara said at an event organised by the Bengal Chamber of Commerce and Industry.

He said though banks have tightened the underwriting standards, the surplus liquidity in the system may push them to a situation where they end up mispricing the risk. “There is temptation on bankers to go down the risk curve and misprice the risk… we are starting to see this.”

He, however, does not feel that there is any concern regarding the underwriting standards, as most banks have tightened norms following the previous experience of the decline in the asset quality and high bad loans.

Khara said there are “green shoots” visible in certain sectors, including commodities, iron & steel and aluminium. There is lot of export opportunities in these sectors and people are cashing in on that. The credit demand is expected to start picking up once investments start flowing into these sectors through either brownfield or greenfield projects, he said.

“We have started seeing traction (in credit demand) from public sector enterprises and some private sectors are also coming for fresh investment,” he said.

On the retail portfolio of the banks, Khara said there was some stress at the end of the first quarter on account of regional lockdowns. “However, things have been improving since the beginning of the second quarter.”

On some major banks slashing interest rates on new home loans, Khara said the mortgage market has started showing signs of growth and banks are trying to capture the same.

According to Khara, the Reseve Bank of India is likely to maintain a status quo on interest rates during the monetary policy review in October. As there are some green shoots visible on the growth front, the RBI might refrain from increasing rates.

“Inflation is mainly on account of supply-side disruptions and once that is addressed, inflation may not raise its head as much as it was seen in last policy decision. So, if at all inflation gets addressed by supply chain readjustment, perhaps we may have elbow room for keeping the rates at current level and wait for growth to come back in full force. At that point of time, the central bank might think of recalibrating interest rates. But at this point of time, it looks like interest rates should remain as they are,” Khara said.

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Bank loans do not reflect credit risk adequately as RBI chases growth, BFSI News, ET BFSI

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The period of extended surplus liquidity is already witnessing fierce pricing wars across banks, some of which may not reflect credit risk adequately.

“However there is the risk of an Asset Liability mismatch if the liquidity is withdrawn quickly. As of now, the inflation numbers may not warrant such a decision from RBI, but if core inflation persists in the current range of 6% or above, that might act as a hindrance to continued liquidity abundance,” according to the State Bank of India’s economic research report Ecowrap.

The industry is replacing its long-term debts by very low-priced CP/working capital demand loan (ECDL) and this will obviously act as an enabler once the investment cycle revives

Margin pressure

Banks are now facing significant margin pressures despite surfeit of liquidity in the banking system, it said.

A back of envelope estimate suggests that the core funding cost of the banking system that includes cost of deposits, negative carry on Statutory Liquidity Ration (SLR) and Cash Reserve Ratio (CRR) and Return on Assets is currently at 6 per cent, while the reverse repo rate is at 3.35 per cent. Additionally, if the cost of provisions is added to the core funding cost, the total cost comes to around 12 per cent, the report said.

Credit risk

The report cited the example of 15 years loans, which are being priced at even lower than 6 per cent, linking with repo / treasury bill rates. It said that 10-year Government Security (G-Sec) is currently trading at 6.2 per cent and by the current pricing trends this could even gravitate towards 6 per cent again.

This anomaly not only negates the concept of tenor premium but may create a material risk with regard to sustainability of such rates in long term, on which borrowers and banks are basing their financial calculations, it said, adding that the only good thing is that such pricing war is mostly restricted to AAA borrowers.

According to the report, three year term loans are being quoted at close to 4 per cent repo rate and seven year term loans for borrowers below AAA are also quoting a risk premium of 15-20 basis points over the 10 year rates. Working Capital Loans (WCL) are currently being quoted at a notch above reverse repo rate at 3.35 per cent.

The report said that the concept of normally permitted lending limit (NPLL) for specified borrowers, meant to nudge them to move towards corporate bonds market, may lose its importance.

CP market

Ghosh observed that the commercial paper (CP) market is also witnessing significant churn with banks now almost absent.

Non-Banking participants like mutual funds who do not have access to RBI Reverse Repo window are creating pricing pressure in CP market as they are sometimes quoting below RBI reverse repo rate.

The CP market reflects the huge pricing gap between better and lower rated borrowers, it said.



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Bank lending hit as corporates head to bond St, fintech firms poach retail borrowers, BFSI News, ET BFSI

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Overall bank lending could drop during this fiscal as corporate loan demand slumps and other sources of borrowings emerge.

Bank credit flow during April to August has shrunk over the same period a year ago, according to data from the Reserve Bank of India. This is despite the private-sector lenders such as HDFC Bank and ICICI Bank reporting double-digit growth in lending in the first quarter.

The overall fund flow into the economy grew by 10% in FY21 despite the pandemic. However, the incremental bank lending shrank 1.6% in FY21, while non-bank sources grew 30%.

Corporates reluctant

Banks are hoping for a lending spurt with the revival of capital expenditure, but it remains doubtful due to uncertainty over Covid.

Also, corporates are looking at cheaper avenues for funds. They raised Rs 1.8 lakh crore from the bond market this fiscal so far. Foreign direct investment and ECB have been also been strong, which has been bad news for banks. The buoyant equities market has seen corporates raising over Rs 1 lakh crore from the avenue during this fiscal till August.

In July

The total outstanding loans to large industries by the banking sector has shrunk for the 11th straight month in July 2021 as companies continue to deleverage and shift to cheaper options such as bonds. Most of the bank credit is driven by the retail and agri segments as sanctioned limits of corporates remain unutilised to the extent of 25%. The credit to large industries shrank 2.9% in July.

The credit growth in the last two months is being led by is led by MSMEs, agriculture and retail as corporate lending stays tepid.

PSU banks hit

The deleveraging has led to a drop in corporate loan demand for banks, especially PSU ones.

The domestic corporate loans by the State Bank of India fell 2.23 per cent to Rs 7,90,494 crore in the quarter ended June 30, 2021, compared to Rs 8,09,322 crore in the same quarter last year. In the first quarter of FY21, SBI reported 3.41 per cent growth in corporate advances.

Union Bank of India‘s share of industry exposure in domestic advances dropped to 38.12 per cent at Rs 2,40,237 crore from 39.4 per cent at Rs 2,47,986 crore in the same quarter a year ago. Corporate loans dropped 3% at Indian Bank during the last quarter. At PNB, corporate loans fell 0.57 per cent at Rs 3,264,66 crore in June quarter 2021 compared to Rs 3,28,350 crore a year ago.

Retail front

Banks, which have been relying on the retail sector, are facing competition. Non-banking financial companies that were reeling after the collapse of IL&FS have bounced back and emerged out of the pandemic relatively less hurt. Banks are facing competition from fintech firms, which have made borrowing a seamlessly easy experience.

with the advent of account aggregators, transaction details of borrowers can be open to lender, which may lead to poaching of customers.



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