Tag: supreme court

Securities & Appellate Tribunal says it can function without a technical member

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Can the Securities and Appellate Tribunal (SAT) hear matters in the absence of a technical member in the bench? In response to an objection raised by market regulator SEBI on SAT hearing cases without a technical member, the two member bench has ruled that it has the authority to run the tribunal.

In a rare instance, SAT has also marked its order copy to the Finance Ministry and the Supreme Court, and asked for it to be treated as a Public Interest Litigation (PIL) in the Apex court. SAT members were more amused when SEBI effectively questioned their ability to run the tribunal, lawyers present in the hearing said.

The members

SEBI questioned the current composition of SAT, which is currently presided by Justice Tarun Agarwala, the former Chief Justice of Meghalaya High Court, and Justice MT Joshi of the Bombay High Court.

Both Agarwala and Joshi have over three decades of experience of working with Indian judicial system. Third SAT member, CKG Nair who was the technical member retired earlier this year and SAT is awaiting another appointment in his place.

However, lawyers were of the view that in 2018, Nair was alone hearing matters for several years when appointment of the two legal members was delayed and then SEBI had no objections.

“In effect, the stand of SEBI, though it has not been stated in so many words, is that this tribunal should not hear appeals till such time technical member is appointed by the Central government. Similar assertion is being made by SEBI while filing their replies in other appeals and, therefore, it has become imminent to decide this issue,” the two member bench said.

SAT told SEBI that the the tribunals are established in aid of the constitutional courts and inclusion of technical members is only to bring specialised knowledge but that does not mean that it can substitute a judicial member nor can it mean that a judicial member does not possess specialised knowledge.

“SEBI has the option to take it in appeal to SC. SAT cannot remain defunct till the government appoints a technical member. If SAT had taken any other interpretation, it would have paralysed the appeal mechanism against SEBI Orders in India which is not desirable. It is perplexing why a regulator like SEBI had taken this stand while Depositories, Stock Exchanges, IRDAI, PFRDA did not talk like this,” said Sumit Agrawal, Founder, Regstreet Law Advisors.

Driven by rules

SAT observed that the contention of SEBI was driven by rules that state that every bench must have at least one technical member a mandatory provision and since the current bench are of judicial members, the constitution of the bench is defective and orders passed by this bench would be coram non judice (not before a judge)

“In light of section 15R of the SEBI Act, 1992, a temporary gap would not harm the quorum of the bench. In any case all the SC cases on tribunals deal with absence of a judicial member and that too, permanently. The tribunal must keep functioning with the current load of cases going up because of Covid,” said Sandeep Parekh, Finsec Law Advisors.

SAT said it would deal with the question of whether the vacancy in the SAT office of a technical member was fatal to the constitution of the tribunal?

Relying upon past SC orders and constitution of bench, the SAT observed that it had the right to hear the cases.

“The principle has been laid down by the SC that any proceedings taken before the tribunal cannot be questioned in any manner on the ground of any defect in the constitution of SAT. It protects the legality and validity of the orders passed by the Tribunal even if it is found that there was a defect in the constitution of the tribunal,” SAT said.

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Have IPL ads led to a fresh clampdown on Indian crypto exchanges?, BFSI News, ET BFSI

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When dogecoin turned to be the new sensation on the crypto street, many Indian investors could just marvel at the image of the dog on the coin, but not buy it.

The reason was their purchases are not going through as some banks have directed payment gateways not to process cryptocurrency­related transactions.

Since early this month, leading banks, notably private sector lenders ICICI Bank and IndusInd Bank, have asked payment gateway partners to stop processing such transactions.

Axis Bank, Kotak Mahindra Bank, Citibank, and others are limiting their exposure to the cryptocurrency market.

Banks, the industry sources said, have stopped issuing merchant IDs to payment gateways, and have asked these intermediaries to tighten scrutiny while dealing with cryptocurrency exchanges in India.

The issue started in late February and according to experts, the recent surge in the market, dogecoin frenzy and advertisements by crypto exchanges during IPL led to a fresh clampdown on the cryptocurrency.

The aggressive marketing push by crypto exchanges on TV during the IPL, OTT channels and through social media influencers has caused the regulator to clamp down as the industry is not licensed in India.

Dogecoin trading volumes from India have more than trebled since April and platforms have witnessed record-breaking transaction volumes.

Regulator against it

According to reports, the Reserve Bank of India, is informally urging lenders to cut ties with cryptocurrency exchanges and traders as the highly speculative market booms, despite a Supreme Court ruling that banks can work with the industry.

The guidance comes as the Indian government is drafting a law to ban cryptocurrencies and penalise anyone dealing in them, which would be among the most sweeping crackdowns on the new investing fad in the world. But with the COVID-19 crisis engulfing the country, no one is sure when such a bill may be passed, adding to investors` confusion.

The Reserve Bank of India (RBI) in 2018 had forbidden banks from dealing in all transactions related to bitcoin and other such assets. That diktat was challenged by the crypto exchanges and in March 2020, India`s top court overturned the RBI ban and allowed lenders to extend banking facilities to them.

With investors continuing to rush into the hot new asset class, however, regulators appear to be gearing up for another try.

Earlier this year, RBI Governor Shaktikanta Das said that they have “major concerns (around crypto) from the financial stability angle.”.

Growing frenzy

Thousands of new users are piling into the system every day at a time when the prices of major digital currencies have been on the rise. There are over 10 million crypto investors in India with total holdings of over Rs 10,000 crore, according to industry estimates. No official data is available.

Crypto platforms, for their part, are in the process of sending a communication to all major banks about the Supreme Court ruling of February 2020 that revoked the banking ban and declared that the central bank cannot issue any formal guidelines or directly regulate these exchanges.



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RBI tells lenders to re-consider ties with crypto exchanges, traders, BFSI News, ET BFSI

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India’s central bank is informally urging lenders to cut ties with cryptocurrency exchanges and traders as the highly speculative market booms, despite a Supreme Court ruling that banks can work with the industry, three sources told Reuters

The guidance comes as India is crafting a law to ban cryptocurrencies and penalize anyone dealing in them, which would be among the most sweeping crackdowns on the new investing fad in the world. But with the COVID-19 crisis engulfing the country, no one is sure when such a bill may be passed, adding to investors’ confusion.

The Reserve Bank of India (RBI) in 2018 had forbidden banks from dealing in all transactions related to bitcoin and other such assets. That diktat was challenged by the crypto exchanges and in March 2020, India’s top court overturned the RBI ban and allowed lenders to extend banking facilities to them.

With investors continuing to rush into the hot new asset class, however, regulators appear to be gearing up for another try.

Thousands of new users are piling into the system every day at a time when the prices of major digital currencies have been on the rise. There are over 10 million crypto investors in India with total holdings of over 100 billion rupees ($1.36 billion), according to industry estimates. No official data is available.

“The regulator has been unofficially asking us that why are we dealing in such business when it is ultra speculative. A lot of money flows overseas via this trade which the RBI is not comfortable with as it may lead to money laundering,” said a senior executive at one of the banks which was contacted.

RBI did not respond to a request for comment.

Private lender ICICI Bank has already asked payment service companies that it works with to stop all crypto-related payment transactions, three sources said, while other lenders are also following suit.

ICICI Bank did not respond to an email seeking comment.

None of the sources wanted to be identified as the discussions with RBI were private and no official order has been issued yet.

“Even though the discussions are informal that is enough. No one wants to go against the regulator,” said another source.

The central bank has often voiced its apprehension about digital currencies. Earlier this year, RBI Governor Shaktikanta Das said that they have “major concerns (around crypto) from the financial stability angle.”.

THE CRYPTO CONUNDRUM
With Indian banks increasingly wary of dealing with them, crypto exchanges are scrambling to find new business partners.

Axis Bank, Citibank, Kotak Mahindra Bank and others are limiting their exposure to the cryptocurrency market, sources said.

“Axis Bank has taken a fairly negative stance against crypto. They are citing internal policy and risk measures and have stopped transactions with crypto exchanges,” said the CEO of a global crypto exchange with presence in India.

IndusInd Bank is also in the process of stopping all crypto-related transasaction, said two sources.

Axis, Kotak and IndusInd did not reply to an email seeking comment while Citibank declined to comment.



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PNB report higher stress levels a year after merging two banks, BFSI News, ET BFSI

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Ahead of its plan to raise funds via qualified institutional placement, Punjab National Bank (PNB) has revealed a pile of stressed loans.

As of December, the lender had 13.2% of loans with repayment overdue for more than one month.

It had a gross bad loan ratio of over 14% for the December quarter with most stressed segments being corporate loans and small businesses. MSME dominated loans those where repayments are overdue for more than thirty days or SMA loans.

PNB’s ratio of loans that were in default for anywhere between one and 90 days stood at 20% of the overall book at the end of 2020, according to the offer document issued by the bank. It witnessed a sharp increase in its stressed loans during the moratorium period last year.

SMA accounts

The special mention account (SMA)-2 loans, where repayments are overdue for 61-90 days, rose to 8.8% as on December 31, 2020, from 2.74% as on September 30, 2020.

The SMA loans as of December 31, 2020, also include loans that were not being classified as non-performing assets (NPAs) in line with the Supreme Court’s interim stay on recognition of fresh bad loans after August 31, 2020.

With the stay vacated on March 23, these loans are likely to slip into NPAs as of the March quarter of FY21.

About 2.89% of MSME advances were classified as SMA 2 while 2.72% loans in the corporate sector were unpaid between 61 and 90 days.

In Bank of Baroda‘s offer document too, the bank’s SMA ratio surged to 21.57% as on December 31, 2020, from 8% on March 31, 2020.

These are likely to slip into the NPA bucket in the March quarter of FY21 as the stay was vacated on March 23.

while both banks had around 20% of their loans under SMA, PNB carried a much higher ratio of SMA 1 and 2 loans — 13% — compared to 9% for BoB. Segment-wise, SMA2 for PNB is nearly double that of BOB in the retail and corporate sector.

The QIP

PNB board has approved raising equity capital from qualified institutional investors to enhance its capital base. For the Qualified Institutional Placement (QIP) purposes, the bank has fixed the floor price at Rs 35.51 per equity share. The ”Relevant Date” for the purpose of the QIP is May 10, 2021 and accordingly the floor price in respect of the aforesaid QIP, based on the pricing formula as prescribed under SEBI ICDR Regulations is Rs 35.51 per equity share, PNB said in a regulatory filing.

The merger

Last year, Oriental Bank of Commerce (OBC) and United Bank of India (UBI) were merged into Punjab National Bank (PNB), making PNB India’s second-biggest public sector bank after State Bank of India (SBI).

In a first three-way amalgamation, Vijaya Bank and Dena Bank were merged with Bank of Baroda from April 1, 2019.



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Provisions for MFI loan write-offs lead Bandhan Bank to post 80% drop in Q4 net, BFSI News, ET BFSI

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Bandhan Bank on Saturday reported an 80 per cent dip in its March quarter net profit at Rs 103 crore, as it wrote off a huge portfolio of loans in the flagship microlending business by recognising stress upfront. The bank’s post-tax profit for FY21 also reduced by 27.1 per cent to Rs 2,205 crore as a result of the hit to the business in the last quarter.

Its managing director and chief executive C S Ghosh said the bank wrote off Rs 1,929 crore of loans, a bulk of them in the microfinance segment, in the March quarter because it wanted to start the new fiscal with a clean balance sheet.

As a result of the accelerated write-off, the bank’s overall provisions shot up to Rs 1,594 crore from the year-ago period’s Rs 827 crore, which had a direct impact on the profit line. Operating profit, which is arrived at by excluding the provisions, was up 13 per cent to Rs 1,729 crore.

Its chief financial officer Sunil Samdhani said performance of the last 3-6 months was assessed before taking a call on the write-offs, and added that most of these accounts are contact-based businesses like beauty parlour, gym, school bus owner.

The bnak had restructured less than Rs 200 crore of advances in the year-ago period, and most of the loans which were written-off in the reporting quarter were microloans, he said.

Additionally, Bandhan Bank also restructured over Rs 600 crore of advances, which were majorly from the home loan book, he said, adding that with such accounts, it has got greater possibility of an account normalizing if its defers the repayments.

The gross non performing assets ratio improved to 6.8 per cent as against 7.1 per cent in December, including the proforma NPAs.

If one were to include the impact of the write-offs and NPAs, the overall repayments for the bank stand at over 98 per cent, Ghosh said, pointing out that the troubles in two key markets of West Bengal and Assam, arising due to factors like the state elections, a local law in Assam and the second wave of the pandemic, have subsided, with both the states showing collection performance at over 90 per cent.

Ghosh said that Bandhan Bank will suffer some reductions in repayments over the next two months because of the second wave induced localised lockdowns in many states.

Samdhani, however, said that the reverses on the overall economic climate front will not impact its loan growth in FY22 because advances growth mostly happens in the second half of a fiscal starting October every year. The bank, which posted a 27 per cent rise in advances for FY21, did not share an advances growth target.

The core net interest income rose by only 4.6 per cent during the reporting quarter to Rs 1,757 crore despite the advances growth. Restricting the growth was a Rs 538 crore interest reversal on recognitions made in the past on assets which turned NPAs after the Supreme Court order on asset classification, which also reduced the net interest margins by 1 percentage point to 7.8 per cent.

The non-interest income grew 57.4 per cent to Rs 787.3 crore during the quarter.

From a business growth perspective, de-risking has been prime on the agenda with limited network expansion in West Bengal and Assam, Ghosh said.

The bank has turned 11 of its training centres into COVID-care facilities to accommodate 700 beds and is also donating 500 oxygen concentrators, he said.

The overall capital adequacy ratio of the bank stood at a healthy 23.5 per cent, and was down when compared with the 27.2 per cent in the year-ago period.

The bank scrip had gained 0.80 per cent to close at Rs 297 a piece on Friday’s trade on the BSE, as against gains of 0.52 per cent on the benchmark.



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Profit rises 13% to Rs 78 crore, BFSI News, ET BFSI

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Private lender DCB Bank on Saturday reported a 13 per cent increase in net profit to Rs 78 crore for the January-March quarter compared to that of Rs 69 crore in the year-ago quarter. Total income of the bank during the January-March quarter of 2020-21 fell to Rs 971 crore from Rs 1,012 crore in the same quarter of 2019-20, DCB Bank said in a regulatory filing. The income from interest as well as from investment fell during the reported quarter from a year ago.

For the FY2020-21, the bank’s net profit remained nearly flat at Rs 336 crore against Rs 338 crore in FY20. Income also was a tad down at Rs 3,917 crore in FY21 against Rs 3,928 crore in FY20.

The bank’s asset quality worsened with the gross non-performing assets (NPAs) spiking to 4.09 per cent of the gross advances as of March 31, 2021, as against 2.46 per cent by the end of March last year.

In value terms, the gross NPAs stood at Rs 1,083.44 crore, significantly higher than Rs 631.51 crore in the year-ago period.

Provisions for bad loans and contingencies in Q4FY21 came down to Rs 101.18 crore from Rs 118.24 crore a year earlier. Net NPAs stood at 2.29 per cent (Rs 594.15 crore) as against 1.16 per cent (Rs 293.51 crore).

On returning the compound interest to eligible borrowers post the Supreme Court final order in March and subsequent the RBI notification, the lender said it is in the process of account by account calculation of interest relief due to the eligible customers.

In the meantime, as of March 31, 2021, the bank has created liability towards estimated interest relief of Rs 10 crore and reduced the same from the interest income.

The bank said it held contingency provision of Rs 229.11 crore against the likely impact of Covid 19 regulatory package, impact of the conclusion of the interim order (of Supreme Court on not declaring accounts as NPAs till August 31, 2020 and after) and other contingencies.

On the impact of second wave of the pandemic, it said under the current circumstances the bank during March quarter, on a prudent basis, has made a contingency provision of Rs 124 crore towards further likely impact of Covid-19 on restructured and stressed assets.

“In addition to this contingency provision of Rs 124 crore, the bank also holds floating provision amounting to Rs 108.80 crore, besides, provisions for standard assets and specific non-performing assets,” it said.

Besides, the amount in overdue categories where the moratorium or deferment was extended as of March 31, 2020 was Rs 1,908.08 crore at end of March this year, it said. The provisions held on these by the end of September 2020 was Rs 68 crore and similar amount was kept as provisions adjusted against slippages (NPA and restructuring), DCB Bank said.

The lender also said that its board has not recommended any dividend for fiscal ended March 2021 in view of the situation developing around Covid-19 in the country and the related uncertainty that it creates.



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Banks provide for ‘interest on interest’ in Q4 after no signal from govt, BFSI News, ET BFSI

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After waiting for the government to burden the compound interest on loan waivers, top banks have provided for payment in the fourth-quarter results.

HDFC Bank has provided Rs 500 crore for interest on interest while ICICI Bank said it has kept Rs 175 crore aside for it, according to the Q4 results announced by these banks. Axis Bank has provided Rs 160 crore while Mahindra Finance has made a provision of Rs 32 crore.

Interest on interest waiver

Waiving compound interest on loans above Rs 2 crore could cost nearly Rs 4,000 crore to public sector banks, Rs 2,500 crore to private banks and another Rs 1,000 crore to non-bank lenders.

While ICICI Securities had put the total compound interest burden on loans above Rs 2 crore at Rs 11,700 crore, other analysts have put it between Rs 7,000 crore and Rs 10,000 crore. As per rating firm ICRA, compound interest for six months of moratorium across all lenders is estimated at Rs 13,500-14,000 crore.

The Indian Bank Association has recently finalised a methodology for the calculation of the interest on interest component.

Under the norms, borrower accounts which were standard as on February 29, 2020, including SMA­0, SMA­1 and SMA­2 will be eligible for the refund. All loans, working capital, trade products, outstanding during the moratorium period shall be considered for the compound interest waiver.

The government stand

The government has already reimbursed banks for forgoing compound interest, or interest on interest, on loans up to Rs 2 crore outstanding during March-August last year, when borrowers had the option to seek a moratorium on repayments.

Lenders have been charging compound interest on larger amounts, but the Supreme Court order means they must now refund it to borrowers. Banks were hoping that the government will take on the burden by enhancing the scope of the ex-gratia scheme to cover the additional refund after the apex court order.

The Supreme Court order

The Supreme Court in its order last month had directed the government and the RBI to waive penal interest charges on all loans, while rejecting the demand of borrowers to extend the repayment moratorium beyond August 31 and for a complete interest waiver. The loan moratorium scheme was aimed at giving temporary relief to borrowers.

In November last, the government decided to waive interest-on-interest for borrowers below loan exposure of Rs 2 crore. It paid nearly Rs 6,000 crore to lenders to compensate them for the income loss.



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SC rejects banks’ pleas for recall of 2015 verdict asking RBI to disclose info about them under RTI, BFSI News, ET BFSI

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In a major blow to banks, the Supreme Court on Wednesday refused to recall its 2015 judgment, which had held that the RBI will have to provide information about the banks and financial institutions (FIs) regulated by it under transparency law.

Several FIs and banks, including the Canara Bank, the Bank of Baroda, the UCO Bank and the Kotak Mahindra Bank had filed applications in the top court seeking a recall of the 2015 judgment in the Jayantilal N Mistry case, saying the verdict had far-reaching consequences and moreover, they were directly and substantially affected by it.

The banks had contended that the pleas for a recall of the judgment, instead of a review, is “maintainable” as there was a violation of the principles of natural justice in view of the fact that they were neither parties to the matter nor heard.

“A close scrutiny of the applications for a recall makes it clear that in substance, the applicants are seeking a review of the judgment in Jayantilal N Mistry. Therefore, we are of the considered opinion that these applications are not maintainable,” a bench of justices L Nageswara Rao and Vineet Saran said.

The order, written by Justice Rao, said in the instant case, the dispute relates to information to be provided by the Reserve Bank of India (RBI) under the Right to Information Act (RTI) and though the information pertained to banks, it was the decision of the RBI that was in challenge and decided by this court.

“No effort was made by any of the applicants (banks) in the miscellaneous applications to get themselves impleaded when the transferred cases were being heard by this court. The applications styled as recall are essentially applications for review. The nomenclature given to an application is of absolutely no consequence, what is of importance is the substance of the application…,” the top court said.

While dismissing the pleas, the bench, however, made it clear that it was not dealing with any of the submissions made by the banks on the correctness of the 2015 judgment in the Jayantilal N Mistry case.

“The dismissal of these applications shall not prevent the applicants (banks) to pursue other remedies available to them in law,” it said.

Earlier, the apex court had heard several matters pertaining to the orders of the Central Information Commission asking the RBI to provide information about banks to RTI applicants.

Several pleas were transferred to the top court at the request of the RBI and the judgment came to be pronounced in 2015.

In the judgment, the apex court had refused to accept the RBI’s contention that the information sought under the RTI Act could not be disclosed in view of its fiduciary relationship with the banks.

The court had observed that the RBI is not in any fiduciary relationship with the banks and that it has a statutory duty to uphold the interest of the public at large, the depositors, the country’s economy and the banking sector.

The top court was of the opinion that the RBI has to act with transparency and not hide information that might embarrass the banks and that it is duty-bound to comply with the provisions of the RTI Act and disclose the information sought.

Several banks sought a recall of the judgment by filing miscellaneous applications in the main petition filed by the State Bank of India (SBI) and the HDFC bank.

The top court de-tagged the main pleas of the SBI and the HDFC bank and dismissed the miscellaneous applications of the banks.



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Karnataka Bank aims to grow at 12 pc in FY22, BFSI News, ET BFSI

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New Delhi, Apr 24 () Karnataka Bank on Saturday said it is targeting to grow its business at 12 per cent to over Rs 1.42 lakh crore in the current fiscal year and will gradually increase the share of retail loan in its portfolio. In a communication to shareholders, the bank said it strives to see 2021-22 as a year of excellence on the back of its healthy business growth, ‘Cost-Lite’ liability portfolio and strengthened fundamentals.

“For the new Financial Year, the Bank is planning to grow its business at a moderate 12 per cent to take the total business turnover (i.e. total of Deposits and Advances) to around Rs 1,42,500 crore,” it said.

As a realignment strategy in its advances portfolio, the private sector lender said it has been eyeing credit exposure of minimum 50 per cent to retail, 35 per cent to mid corporates and not more than 15 per cent to large corporates.

The intent is to minimise the concentration on large corporate borrowers and to ensure continued sustainability, it said.

“The bank has been moving towards the said direction in a sustainable manner. Besides, the yield on the retail and mid corporate advances has been better than the large corporates and also, the risk is widespread across the portfolio than that of concentration in the case of large corporate exposure,” Mahabaleshwara M S, Managing Director & CEO, Karnataka Bank said.

He said COVID-19 came as a challenge in 2020-21 along with the “M-cap related misleading campaign against the private sector banks, including our bank by a section of media”.

Regarding the Supreme Court‘s order on not levying any interest on loans during March-August period of 2020, the lender said it already made ex-gratia payment of difference between compound interest and simple interest for these six months to the eligible borrowers in accordance with RBI directive.

In case of remaining accounts, the penal or compound interest charged on the borrower accounts may have to be refunded and adjusted towards next installment due within a reasonable time from the date of Supreme Court order dated March 23, 2021.

“Further, with the vacation of stay order, NPA marking has also resumed,” it said.

Mahabaleshwara said in spite of turbulent banking environment and unforeseen hurdles, the bank has been able to sail through 2020-21.

On the way forward, he said the bank is striving hard to see Karnataka Bank among the top three in the peer group by focussing on a healthy, consistent, sustainable and remunerative business and by continuing the efforts in recovery process. KPM ANU ANU



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Can banks weather the new second Covid wave?, BFSI News, ET BFSI

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Indian banks were gearing up for an upcoming credit boom in the second half, but they may have to look at the dire warning of RBI‘s fiscal stability report unveiled in January.

Most of the banks are set to report good fourth-quarter results, but the recovery may give way to despair in the coming months. An uncontrollable spike in Covid cases has raised the prospects of lockdowns and strict curbs being extended to May, at least. This may nip the nascent recovery and lead to the closure of many businesses, which are already reeling from revenue crunch. The lockdowns may also lead to unemployment, hit repayments and lead to defaults by companies and individuals out of job.

“In the first year we did not see any impact as 20% additional money was given. Guaranteed loans were given so no bank gave a second thought in giving the loans. In many cases, my customers went to other banks and got loans. Problems were not revealed on the first wave. In the second wave no such support is given so naturally, the impact of the second wave will be much larger on the bank,” a senior banker said on the condition of anonymity.

The unemployment rate in urban India is rising in the current months. From 7.21% on April 4, it jumped to 9.81% for the week ended April 11 and further to 10.72% for the week ended April 18, according to CMIE.

Early signs of rising stress are visible; HDFC Bank has reported a rise in cheque bounce cases in April. The rate is back to January level after improving in March.

Also, with lockdown in states like Maharashtra, which account for 24% of all loans, banks are in a double whammy. About 80 per cent of the new infections are being reported in six states which account for 45 per cent of banking sector loans.

Another banker said that credit growth is going to be muted. “Due to this unexpected wave, no investment is going to be placed right in any industry because of this uncertainty. Even though the government says there is not going to be a complete lockdown, like last time but still the impact can be easily known because of people’s fear,” the banker said.

“So those who want to invest, they’ll take a backseat that let’s wait and see. And the money circulation is going to be impacted. Moreover, the stay on NPA classification, which was lifted by Supreme Court, is going to add soon many NPAs to the banking sector. These things will definitely impact. Banks are kept out of the purview of this lockdown but people should come to banks you know and do their activity,” he added.

RBI stress test

Bank NPAs may rise to 13.5% under the baseline stress test scenario by September, the highest in more than 22 years, according to the RBI’ financial stability report in January this year.

The gross bad loan ratio of banks which stood at 7.5% as of 30 September, could almost double to 14.8% under a severe stress scenario, RBI warned. Under the severe stress scenario, RBI has assumed a 7.6% economic contraction in the six months to 31 March and a tepid 3.8% growth in the first half of the next fiscal. However, uncertainty over vaccines and the severity of the Covid wave hobbles the 3.8% growth projection.

The last time banks saw such stress was in 1996-97 when the bad loan ratio rose to 15.7%.

No cover this time

Banks, which got protection and support by a swift moratorium on loans when the pandemic first struck, have no such cover this time.

As the second wave intensifies, most of the relief measures and schemes announced by the government and Reserve Bank of India have expired. On top of it, the central bank is non-committal on moratoriums.

In today’s conditions, there is no need for a moratorium,” RBI governor Shaktikanta Das said after the central bank’s monetary policy review.

Also, a spike in overdue loans after the lifting of the moratorium has been worrying analysts.

“The level of loans in overdue categories has increased after the moratorium has been lifted and the impact on asset quality will be spread over FY2021 and FY2022 as various interventions and relief measures have prevented a large one-time hit on profitability and capital of banks,” rating agency Icra had said in a report.

On top of it, banks may have to foot the bill for compound interest waiver relief to borrowers. HDFC Bank has already provisioned Rs 500 crore for the waiver.



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