Small finance banks, microlenders stay away from IPO party, BFSI News, ET BFSI

Banking & Finance

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Kolkata: While Nykaa, Paytm and Policybazaar are the toast of the primary equity market now, lenders to the bottom of the pyramid which had earlier lured investors for their capacity to earn high margins remain laggards.

Half-a-dozen entities in the small finance bank and microfinance space that have received approval for raising funds through initial public offerings appear to be going slow because of valuation issues, people familiar with the matter said.

Among small finance banks, ESAF, Jana, Fincare and Utkarsh are said to be weighing investor interest for their proposed IPOs. Utkarsh Small Finance Bank received Securities & Exchange Board of India’s approval for IPO in June, Jana SFB got it in July and Fincare in August. ESAF Small Finance Bank received the regulator’s approval in October for the second time, after the one-year validity on the first lapsed in March.

Microfinance firm Arohan Financial Services received Sebi approval in April but has yet to hit the market. Northern Arc Capital, a non-bank lender with exposure to the financial inclusion space, got the approval in September.

“Many Lenders including those in the microfinance industry are not getting the kind of investor interest or valuation seen for primary issues of fintech firms,” said Donald D’Souza, managing director & co-head (investment banking) at Equirus.

“Some of these firms have done a few roadshows but have failed to attract investors at higher valuation. That’s the reason why some of these lenders are not seen in the IPO market despite the bull run. Even some small finance banks, which need to be listed within a specified time frame to meet regulations, are yet to be seen in this space,” D’Souza said.

Investors are apparently exercising caution as micro lenders are saddled with concerns over asset quality, high credit cost and squeezed margin following the pandemic-led stress on their borrowers.

The portfolio at risk for 30 days (PAR30+) for the microfinance sector remained high at 10.18% at the end of September, even after showing a sharp improvement from 16.56% three months earlier.

“The new-age companies are mostly making merry in the season of IPOs since investors are ready to pay huge premiums for new business models and fresh ideas. The party is on at least till Christmas. The valuations however are relatively muted for lending companies as investors are comparing them with the existing secondary market prices in the same segment,” said Dinesh Arora, partner and leader (deals) at PwC India.

As many as 52 companies have mobilised Rs 1.08 lakh crore from primary issuances in 2021 so far compared with Rs 26,600 crore raised by 15 companies last year. Foreign portfolio investors are said to have invested more than Rs 46,000 crore in IPOs this year.

Microfinance association Sa-Dhan said the average collection efficiency has increased to more than 95% in the quarter through September from 85% in the preceding quarter, even as 13 states and union territories including Chhattisgarh, Kerala, Tamil Nadu and West Bengal have their PAR30+ value higher than the industry average.



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Private banks lead, overall NPA provisioning falls in Q2, BFSI News, ET BFSI

Banking & Finance

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The worst seems to be over for banks in the pandemic, going by the drop in bad loan provisioning numbers. The bad loan provisioning by banks fell sequentially for the second consecutive quarter in the three months ended September 2021, led by a significant drop in some of the private sector banks. The trend is likely to continue on account of improved collections and lower slippages.

The aggregate provisioning towards non-performing assets (NPA) or loan loss provision for a sample of 29 banks fell by 20.5 per cent sequentially and 10.9 per cent year-on-year to Rs 30,400 crore. It has softened over the past two quarters after peaking at Rs 65,986.9 crore in the March 2021 quarter when banks resumed accounting for slippages.

Private banks at the forefront

The fall in the September quarter was driven by a sharp 43.9 per cent drop in loan loss provisioning by the private sector banks at the aggregate level. Top banks including HDFC Bank, Axis Bank, Kotak Bank, and IndusInd Bank recorded a double-digit sequential drop in the NPA provisioning.

The public sector banks on the other hand reported a modest 1.6 per cent fall in the NPA provisioning. Their share in the sample’s NPA provisioning increased to 68.5 per cent from 55.3 per cent in the previous quarter.

Analysts expect the asset quality of banks to improve gradually in the coming quarters following a pick up in economic activity and recovery in collections.

“Banks slippage ratios reduced substantially by 100 basis points QoQ on an average in the September quarter. The asset quality situation is likely to improve further driven by a reduction in retail as well as SME nonperforming loans in the coming quarters,” a Macquarie Capital Securities (India) note said.

The banks’ net interest income increased by 3.7 per cent sequentially and 2.4 per cent year-on-year to Rs 1.3 lakh crore. The sequential growth was faster for PSU banks at 5 per cent compared with 2.1 per cent for the private sector banks.



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RBI, BFSI News, ET BFSI

Banking & Finance

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In the fortnight ended November 6, 2020, bank loans stood at Rs 104.19 lakh crore and deposits at Rs 144.03 lakh crore, according to the RBI‘s Scheduled Banks’ Statement of Position in India as on November 5, 2021, data released on Wednesday.

In the previous fortnight ended October 22, 2021, bank credit had grown by 6.84 per cent and deposits by 9.94 per cent. In FY2020-21, bank credit had risen by 5.56 per cent and deposits by 11.4 per cent.

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Punjab & Sind Bank adjusts net loss for FY21 at Rs 2,750 cr after divergence in asset classification, BFSI News, ET BFSI

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Public sector Punjab & Sind Bank (P&SB) on Wednesday said it has adjusted the net loss for fiscal ended March 2021 slightly higher at Rs 2,750 crore due to divergence in asset classification. The bank had reported a net loss of Rs 2,733 crore in 2020-21.

Whereas the bank reported gross non-performing assets (NPAs) at Rs 9,334 crore, the Reserve Bank assessed it at Rs 9,363 crore, thus leading to a divergence of Rs 29 crore.

Similarly, the net NPAs too had a divergence of Rs 29 crore.

Based on the difference of the provisions for NPAs reported by the bank and that assessed by the RBI, the divergence in provisioning for the financial year 2020-21 stood at Rs 17 crore.

The adjusted (notional) net profit after tax (PAT) for the year ended March 31, 2021, after taking into account the divergence in provisioning stood at Rs 2,750 crore, the bank said in a regulatory filing.

The bank published the divergence in asset classification and provisioning in accordance with RBI’s Risk Assessment Report as on March 31, 2021.

P&SB stock closed at Rs 17.25 apiece on BSE, down 1.43 per cent from previous close. PTI KPM SHW SHW



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Shares of PB Fintech likely to see limited upside in near term, says JM Financial, BFSI News, ET BFSI

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PB Fintech, the parent company of PolicyBazaar, made a positive stock market debut with a 17.35% gain on Monday. The listing pop came as a positive surprise to many experts and analysts, however, JM Financial Services expects limited scope for further gains in the stock.

The brokerage has set a price target of Rs 1,270, which implies a near 5 per cent downside from the current market price. “We initiate coverage with a ‘hold’ rating, solely due to premium valuations with significant upside risks in our ‘bull’ scenario that can drive share price to over Rs 2,200 by December 2024,” it said.

Though the brokerage firm sees limited near-term upside against CMP post the strong listing, they reckon there is a likely path for PB Fintech to grow to a valuation of $13.5 billion over the next couple of years against $7.3 billion currently. This is only if few incremental levers fall into place, which are unlikely in the very near-term, the brokerage said.

These levers consist of digital penetration reaching 5.5 per cent against 4.5 per cent.

Shares of PB Fintech likely to see limited upside in near term, says JM Financial

“Policybazaar is the dominant market leader in a large and growing industry with strong tailwinds such as increasing digital penetration, rising disposable income and insurance awareness. We do believe Policybazaar will be in the driving seat in enhancing insurance penetration in India,” JM Financial said

The brokerage firm is of the strong opinion that the company should continue deepening scale moats in light of new-found competition emerging from insurers’ direct channels and cross-sell by fin-tech players like PhonePe and Paytm.

JM Financial expects PB Fintech, PolicyBazaar’s parent, to grow revenues by 31 per cent annually over the next 10 years.

“While we expect slight market share loss in online distribution due to insurers’ investment in direct channel and newer competition, this loss will be aptly compensated by the company’s growth in physical distribution” it added.



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Payment channels show pick-up in Oct driven by festive spends

Banking & Finance

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However, the recovery in the economy is yet to become entrenched and broad-based, many believe.

Most digital payment channels recorded an increase in the value of transactions on a month-on-month basis in October as festive-season spending gave a boost to consumption.

According to data available on the Reserve Bank of India’s website, spends through the National Electronic Funds Transfer (NEFT) rose 2% MoM to Rs 24.76 lakh crore, Immediate Payment Service (IMPS) spends were up 14% to Rs 3.7 lakh crore, Unified Payments Interface (UPI) spends grew 18% to Rs 7.71 lakh crore, credit card spends rose 21% to Rs 76,274 crore and debit card spends grew 19% to Rs 61,416 crore. Electronic toll payments also recorded an increase. The value of transactions through prepaid payment instrument (PPI) cards, however, fell 16% MoM to Rs 2,498 crore.

Several indicators suggest a pick-up in consumption during October. The RBI said in its State of the Economy report for November that the outcome of improved mobility – both passenger and goods – was reflected in a surge in fuel consumption in October. The consumption of petrol touched pre-pandemic levels, while aviation turbine fuel (ATF) and diesel consumption exhibited sequential improvement.

Players in the payments ecosystem witnessed strong traction in volumes during the month. On Wednesday, PhonePe said it processed over two billion transactions on its platform in October on the back of rapid traction across tier II, tier III cities and beyond, which accounted for 80% of transactions. Banks, too, have reported an uptick in consumption. HDFC Bank said in an investor call that early results for the first 10 days of October showed a 42% growth in card spends over a similar time period in September, driven by festive spends.

However, the recovery in the economy is yet to become entrenched and broad-based, many believe. RBI governor Shaktikanta Das on Tuesday said that the Q1FY22 GDP data revealed that there still exists a significant gap in both private consumption and investment, relative to their pre-pandemic levels in FY20.

“Contributing the largest share of aggregate demand, around 56% of GDP, private consumption is critical for inclusive, durable and balanced growth of our country. Daily wage earners and workers at the lower rungs of the society have incurred significant losses of income and employment during the pandemic that will take time to repair,” Das said.

At the same time, he expressed confidence that consumption demand triggered by the festive season and the recent cut in levies on fuel by the central and state governments will augment purchasing power of people and create space for additional consumption.

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Reserve Bank of India – Press Releases

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The Reserve Bank of India (RBl) has imposed, by an order dated November 17, 2021, a monetary penalty of ₹10.50 lakh (Rupees Ten lakh Fifty Thousand only) on Shri Kanyaka Nagari Sahakari Bank Limited, Chandrapur (the bank) for contravention of/ non-compliance with Supervisory Action Framework issued by RBI under section 36 (1) read with section 56 of the Banking Regulation Act, 1949 (the Act), directions issued by the RBI to Urban Co-operative Banks on opening of On-site ATMs, Frauds – Classification and Reporting, Exposure Norms and Statutory/ Other Restrictions – UCBs and Board of Directors-UCBs. This penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47 A (1) (c) read with Section 46 (4) (i) and Section 56 of the Banking Regulation Act, 1949, taking into account the failure of the bank to adhere to the aforesaid directions issued by RBI.

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

Background

The inspection report of the bank based on its financial position as on March 31, 2018 and March 31, 2019, revealed, inter alia, that the bank had (i) given fresh loans to the real estate sector in violation of the operational instructions issued by RBI under the provisions of the Act, (ii) opened On-site ATMs without the required permission of RBI, (iii) delayed reporting of frauds on many occasions, and (iv) granted director related loans in contravention of/ non-compliance of directions issued by the RBI. Based on the same, a Notice was issued to the bank advising it to show cause as to why penalty should not be imposed for non-compliance with the directions.

After considering the bank’s replies, oral submissions made during the personal hearing and additional submissions made by the bank, RBI came to the conclusion that the aforesaid charges of non-compliance with RBI directions were substantiated and warranted imposition of monetary penalty.

(Yogesh Dayal)     
Chief General Manager

Press Release: 2021-2022/1217

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Reserve Bank of India – Press Releases

Press Releases

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April 14, 2015




Dear All




Welcome to the refurbished site of the Reserve Bank of India.





The two most important features of the site are: One, in addition to the default site, the refurbished site also has all the information bifurcated functionwise; two, a much improved search – well, at least we think so but you be the judge.




With this makeover, we also take a small step into social media. We will now use Twitter (albeit one way) to send out alerts on the announcements we make and YouTube to place in public domain our press conferences, interviews of our top management, events, such as, town halls and of course, some films aimed at consumer literacy.




The site can be accessed through most browsers and devices; it also meets accessibility standards.



Please save the url of the refurbished site in your favourites as we will give up the existing site shortly and register or re-register yourselves for receiving RSS feeds for uninterrupted alerts from the Reserve Bank.



Do feel free to give us your feedback by clicking on the feedback button on the right hand corner of the refurbished site.



Thank you for your continued support.




Department of Communication

Reserve Bank of India


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Reserve Bank of India – Press Releases

Press Releases

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The Reserve Bank of India (RBI) has imposed, by an order dated November 17, 2021, a monetary penalty of ₹2.50 lakh (Rupees two lakh fifty thousand only) on The Nizamabad District Co-operative Central Bank Ltd., Nizamabad, Telangana for non-adherence / violation of certain directions issued by RBI contained in the Master Circular on ‘Income Recognition, Asset Classification, Provisioning and Other Related Matters – UCBs’ and Section 9 read with Section 56 of Banking Regulation Act, 1949(AACS). This penalty has been imposed in exercise of powers vested in RBI under the provisions of Section 47 A (1) (c) read with Section 46 (4) (i) and Section 56 of the Banking Regulation Act, 1949, taking into account the failure of the bank to adhere to the aforesaid directions issued by RBI.

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

Background

The inspection report of the bank based on its financial position as on March 31, 2019 revealed inter alia, violation / non-compliance with aforesaid directions. Based on the same a Notice was issued to the bank advising it to show cause as to why penalty should not be imposed for non-compliance with the directions.

After considering the bank’s reply and oral submissions during the personal hearing, RBI came to the conclusion that the aforesaid charges of non-compliance with RBI directions were substantiated and warranted imposition of monetary penalty.

(Yogesh Dayal)     
Chief General Manager

Press Release: 2021-2022/1215

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RBI may pilot digital currency in Q1 of FY23

Banking & Finance

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The Reserve Bank of India may do a pilot of its central bank digital currency (CBDC) in the first quarter of the next fiscal year.

“We are on the job and looking into the various issues and nuances related to CBDC. It’s not a simple thing to just say that CBDC can be a habit from tomorrow on,” said P Vasudevan, chief general manager at the RBI’s Department of Payment and Settlement, at a banking event here on Wednesday.

“The banking system has been taking the lead in terms of currency distribution as a tiered model, whether the same model should be accepted for CBDC as well, we will have to see,” Vasudevan added.

As now being explored by the RBI for retail and international trade payments, the CBDC could have a much larger impact on the financial ecosystem, according to industry experts. It will be instrumental in promoting grassroots-level financial inclusivity and modernising the banking sector apart from creating a cashless economy.

Digital replica

While many see CBDCs as a legalised replacement of cryptocurrencies, in reality, CBDCs could just be a digital replica of the physical cash in circulation.

Russia, Japan and China are already working on the same.

According to a 2021 BIS survey, quoted in the RBI report, 86 per cent of the central banks surveyed are actively researching the potential for CBDCs, 60 per cent were experimenting with the technology and 14 per cent were deploying pilot projects.

A major use case for CBDCs will likely be in the insurance and lending space and also for managing non-performing assets. Using digital currencies will bring in more transparency and traceability across levels for the financial services sector, according to experts.

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