How the cookie crumbled for ABG Shipyard

By Rajesh Kurup

Rishi Kamlesh Agarwal, the former chairman and managing director of ABG Shipyard, must have been surprised by the developments over the last few days. After all, even he couldn’t have expected the investigating agencies to take nearly three years to close in on him since 2019, when his company’s forensic auditor EY found a diversion of funds, prompting State Bank of India (SBI) to approach the Central Bureau of Investigation (CBI).

But investigating agencies seem to be making up for the lost time with a vengeance. A day after the Enforcement Directorate filed a money laundering case (media reports suggest at least 100 shell companies were used to divert public money), the CBI, after first filing a first information report, questioned Agarwal on Thursday for allegedly defrauding a consortium of 28 banks of Rs 22,842 crore — the biggest bank fraud in the country so far.

The agency added that a majority of the disbursements took place between 2005 and 2012, when the Congress-led UPA government was in power, leading to a political war of words. While Congress chief spokesperson Randeep Surjewala hinted at the Narendra Modi government’s complicity in the “fraud”, a tweet from finance minister Nirmala Sitharaman’s office said the account became an NPA in November 2013. “Those making noise about it have dug holes into which they themselves fall,” the tweet read.

This is quite a fall for what was one of India’s largest shipbuilding companies, with an order book of Rs 16,600 crore. Until the end of 2012-13, the company had a net profit of Rs 107 crore. But the cookie crumbled thereafter, with losses mounting to Rs 3,704 crore by March 2016. In its heyday, it had the capacity to build vessels up to 18,000 dead weight tonnage (DWT) at the Surat shipyard and 1.20 lakh DWT at the Dahej shipyard.

The Gujarat-based firm, according to the FIR registered by CBI, invested the money taken as loans from banks in overseas subsidiaries, acquired assets through affiliated companies and transferred a portion to several related parties.

“The majority of this disbursement happened between 2005 and 2012, while ABG Shipyard’s account with SBI became a non-performing asset from November 2013. According to the FIR, the major period for the investigation would be 2005, while it will also extend up to 2017,” a banker, privy to the information, said on condition of anonymity.

Web of transactions

SBI has alleged that a portion of the loans were used to purchase properties by “related parties” linked to ABG Shipyard and its promoters. These were conducted through complex transactions, with money being routed through different accounts and entities, a source said. “Probe is on,” is all that the source was ready to disclose.

Private lender ICICI Bank has the maximum exposure of Rs 7,089 crore, followed by IDBI Bank at Rs 3,639 crore, State Bank of India at Rs 2,925 crore and Bank of Baroda at Rs 1,614 crore. The others in the list, according to the FIR, are Exim Bank of India (Rs 1,327 crore), Punjab National Bank (Rs 1,244 crore), Indian Overseas Bank (Rs 1,228 crore), Standard Chartered Bank (Rs 743 crore) and Bank of India (Rs 719 crore) among others.

An official said the banks’ exposure to the scam would be lower, as the total amount also includes interest components. ABG Shipyard, which was declared a non-performing asset in 2013, is currently undergoing bankruptcy proceedings and hence all these amounts are accounted for,” the official said.

Global crisis

In its complaint to the CBI, SBI had said a global crisis had led to a fall in cargo demand, which subsequently impacted the shipping industry. The demand for commercial vessels fell as the industry was going through a downturn even in 2015, which was exacerbated by the lack of orders from the defence sector. making it difficult for the company to maintain a repayment schedule, it said.

The shipping firm was also referred to the National Company Law Tribunal on August 1, 2017, by ICICI Bank under the corporate insolvency resolution process.

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Pralay Mondal named deputy MD of CSB Bank after RBI nod

CSB Bank on Friday said the Reserve Bank of India (RBI) has approved the appointment of Pralay Mondal as the bank’s deputy managing director for three years.

In January, MD & CEO C VR Rajendran decided to take an early retirement from the post to take care of his health, following the advice of his physicians. Rajendran will continue to lead the bank till March 31, 2022.

Accordingly, CSB board has decided to constitute a search committee to identify and evaluate internal and external candidates for the position of MD & CEO. It has also been decided to engage an independent search firm for the purpose.

CSB had announced Mondal’s name as deputy managing director subject to RBI’s approval in June last year.

Prior to this, Mondal has been with CSB as the president (retail, SME, operations and IT) since September 23, 2020.

The Kerala-based lender reported a 180 % year-on-year (y-o-y) increase in third quarter net profit to `148.25 crore largely due to an improvement in asset quality.

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National Asset Reconstruction Company begins search for senior executives

The National Asset Reconstruction Company (NARCL), operationalised in January, has begun its search for senior executives in investment and operational roles. The bad bank is looking to hire 13 full-time employees, including a chief investment officer (CIO) and a chief operating officer (COO).

All the positions will be based in Mumbai, according to a notice put out by the Indian Banks’ Association (IBA). The CIO will be responsible for leading the trust-level relationships with selling lenders to identify and acquire distressed assets to be transferred to the NARCL. They will collaborate with the chief executive officer (CEO) of India Debt Resolution Company (IDRCL) to implement board-approved policies for the resolution of acquired assets. The CIO will also be responsible for evaluating the recommendations received from IDRCL on resolutions of assets and for submitting the same to the asset resolution committee and the board of NARCL for approval.

Applicants for the role must be between 45 and 55 years of age, and have over 20 years of experience in the financial sector, and over 10 years in corporate relationships or resolution.

The COO will be responsible for leading multiple enabling functions such as finance, compliance, risk and legal as also for ensuring trust-level payout computations for distribution of consideration among security receipt (SR) holders. They will have to work in close coordination with the government for settlement and processing of government guarantee claims.

The NARCL intends to acquire assets from banks through structured deals with a 15% cash component and 85% as SRs backed by the government.

The CIO and the COO will report to the MD & CEO of NARCL, a post currently occupied by former State Bank of India (SBI) executive Padmakumar Nair.

In addition, NARCL also intends to hire three investment managers and three investment analysts, as well as managers for the human resources (HR), admin, legal, compliance and information technology (IT) functions. 

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National Asset Reconstruction Company begins search for senior executives

The National Asset Reconstruction Company (NARCL), operationalised in January, has begun its search for senior executives in investment and operational roles. The bad bank is looking to hire 13 full-time employees, including a chief investment officer (CIO) and a chief operating officer (COO).

All the positions will be based in Mumbai, according to a notice put out by the Indian Banks’ Association (IBA). The CIO will be responsible for leading the trust-level relationships with selling lenders to identify and acquire distressed assets to be transferred to the NARCL. They will collaborate with the chief executive officer (CEO) of India Debt Resolution Company (IDRCL) to implement board-approved policies for the resolution of acquired assets. The CIO will also be responsible for evaluating the recommendations received from IDRCL on resolutions of assets and for submitting the same to the asset resolution committee and the board of NARCL for approval.

Applicants for the role must be between 45 and 55 years of age, and have over 20 years of experience in the financial sector, and over 10 years in corporate relationships or resolution.

The COO will be responsible for leading multiple enabling functions such as finance, compliance, risk and legal as also for ensuring trust-level payout computations for distribution of consideration among security receipt (SR) holders. They will have to work in close coordination with the government for settlement and processing of government guarantee claims.

The NARCL intends to acquire assets from banks through structured deals with a 15% cash component and 85% as SRs backed by the government.

The CIO and the COO will report to the MD & CEO of NARCL, a post currently occupied by former State Bank of India (SBI) executive Padmakumar Nair.

In addition, NARCL also intends to hire three investment managers and three investment analysts, as well as managers for the human resources (HR), admin, legal, compliance and information technology (IT) functions. 

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Credit card spends ease a tad in January, February

Average monthly total credit card spend in the country in January and February is expected to be in the range of ₹84,000 crore to ₹88,000 crore, down from ₹94,700 crore in the December quarter, ICICI Securities has said in a note.

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IDFC FIRST Bank appoints Jaimini Bhagwati on board as additional director

Jaimini Bhagwati's appointment is for a period of three years with effect from February 18, 2022, subject to approval of shareholders.

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Gold auctions by lenders spike amid loan defaults

NBFCs auction mortgaged gold if customers fail to repay the loans in time. Many small businesses had taken gold loans soon after the withdrawal of the nationwide lockdown in 2020 to restart their businesses. However, before their businesses could recover fully, the second wave of the pandemic hit them. This forced many to falter on loan repayment. The spike in auction by gold loan companies shows that many small businesses are yet to recover from the impact of the pandemic.

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How LIC’s Senior management is burning midnight oil to ensure success of mega IPO

Roadshows now on with an aim to reach out to at least 200 global and domestic institutional investors and sovereign wealth funds

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Govt should consider offering “livelihood loans” to support rural economy: SBI’s Ecowrap

The loans will act as a big consumption booster at subsistent levels, says the report

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E-wallets will be interoperable within 6 weeks

Issuers of prepaid payment instruments (PPIs) will need to get their systems ready for interoperability in six weeks. The reason: The Reserve Bank of India (RBI) had set March 31, 2022 as the deadline for PPI interoperability.

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Banks to see 10% credit growth in FY23: Ind-Ra

After witnessing single-digit growth in recent years, the banking sector is likely to witness a 10% credit growth in FY23 on the back of a pick-up in economic activity, higher government spending in infrastructure sector and revival in retail demand, India Ratings and Research said in its banking sector outlook for the next fiscal. The rating agency, however, revised downwards its banking sector credit growth estimate for the current fiscal to 8.4% from 8.9%.

Companies will likely start leveraging in the next fiscal because of revival in capital expenditure, increased working capital demand due to higher output, higher exports and commodity inflation, the agency said. It expects Rs 2 lakh-crore primary investments in sectors linked to the Performance-Linked Incentive (PLI) scheme. “Most of this investment would be up-fronted in FY22-FY23 so as to maximise the period for which benefits could be availed by corporates. This could further boost secondary investments. Overall, the bank credit growth to the corporate segment could be around 8% YoY in FY23,” said Karan Gupta, director of financial institutions at India Ratings.

Lenders are likely to see improvement in the asset quality in FY23. As per India Ratings, gross NPAs of banks will likely improve to 6.1% by the end of the next fiscal, lower than estimated GNPAs of 6.3% as on March end. The stressed asset ratio in the retail asset segment is expected to almost double to 5.7% at March-end from 2.9% last year, while for the MSME segment, it could increase to 15.8% from 11.7%.

“Corporate segment’s stressed assets would slightly drop in FY22 to 10.4% from 10.8% in FY21 on account of recoveries from a couple of large accounts and ongoing recoveries and upgrades in other smaller accounts. For FY23, the agency expects stressed assets in retail to decline to 4.9% on account of recoveries, to increase to 16.7% for MSMEs on account of continuing stress in the segment and to decline to 10.3% for corporates on account of a continuing trend of recoveries. The analysis here does not factor in write-offs from GNPAs,” the report said.

Owing to the higher credit growth, healthy capital position and improvement in bad loan position, India Ratings has revised the FY23 outlook for banks to ‘improving’ from ‘stable’. Large private banks will likely continue gaining market share across assets and liabilities, the agency said, adding that old public sector banks will have to be more cautious on the asset quality as they have a larger proportion of small and medium enterprises loans.

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Rate hike: SBI hikes retail deposit rates for second time in 2 months

State Bank of India (SBI) has hiked interest rates on retail deposits of some maturities for the second time in as many months. The rate hikes come a week after the monetary policy committee (MPC) voted to keep key rates unchanged to allow the economic recovery to gain strength.

For deposits with balances of less than Rs 2 crore, SBI will now pay 5.2% per annum in the two-to-three-year bucket, up from 5.1%. Deposits maturing in three years to less than five years will now yield 5.45%, up from 5.3% earlier, and those maturing in five to 10 years will earn 5.5%, as against 5.4% earlier.

HDFC Bank has also made a small hike of five basis points (bps) in the three-year-to-five-year bucket, taking the rate to 5.45%. In January, most large lenders and a few mid-sized ones had raised deposit rates, but both bankers and analysts attributed those changes to technical adjustments necessitated by banks’ asset liability management (ALM) requirements.

Bankers said that the rate adjustments are also somewhat technical in nature, as lenders need to adjust their asset liability management (ALM) positions in keeping with regulatory norms.

The rise in deposit rates is driven in part by an improvement in credit demand. According to latest data from the Reserve Bank of India (RBI), non-food credit and bank deposits grew at an almost identical pace of 8.3% year-on-year (y-o-y) during the fortnight ended January 28.

At the same time, the abundance of system liquidity remains an overhang on any meaningful movement in deposit rates. Karan Gupta, director, India Ratings and Research, said, “Banks continue to accrue deposits at a very healthy pace. Credit growth, while improving, is still not back to double-digit levels. So as and when these things change and banks start to see that liquidity is declining, that is when the pace in deposit rate hikes is likely to pick up.” Gupta expects rate hikes to be small in the next three to four months.

Other analysts pointed to the fact that large banks typically see faster credit growth than the system. So a series of rate hikes could suggest that they are preparing for an improvement in credit demand.

To be sure, some large lenders like Bank of Baroda (BoB) have chosen to keep a tighter grip on margins and are therefore keeping term deposit rates unchanged. Sanjiv Chadha, MD & CEO, told FE earlier this month that the bank has focused on growing its current account savings account (CASA) portfolio, which rose 12% y-o-y in Q3FY22.

“Even when deposit rates start rising, the book which is low-cost for us now is significantly higher now than where it was two years back. From 37% it has risen to over 44%. Therefore, we are in a reasonable position where we can say that while there may be a secular uptrend in the offing, it may be some time before it gets reflected in elevated deposit costs,” Chadha said.

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UCO Bank eyeing Rs 600-crore bad loans recovery in Q4: Soma Sankara Prasad, MD & CEO

UCO Bank is expecting cash recovery and upgradation from bad loans accounts to the extent of Rs 600 crore in the fourth quarter, although an elevated level of stress is observed in the retail, agriculture and MSME (RAM) portfolio going forward. Soma Sankara Prasad, MD & CEO, told FE that the bank is expecting cash recovery of Rs 400 crore and upgradation of Rs 200 crore in Q4. In the third quarter, the cash recovery and upgradation were at Rs 363 crore and Rs 191 crore, respectively.

On slippages or fresh accretion to non-performing assets (NPAs) in the ongoing quarter, Prasad said, “We do not see much stress in the corporate segment, except in one major account which is under the FMCG space. But, we made sufficient provisions against this account in the third quarter itself.” Significantly, lenders to Future Retail have started classifying loans to the retailer as NPAs after the company missed payments to the banks.

Prasad said the bank observes an elevated level of stress in the RAM portfolio going forward. “This is especially so in case of the Kisan Credit Card portfolio under agriculture and in respect of accounts where moratorium accorded is coming to an end,” he said. “However, we are confident that we would be able to arrest slippages by close monitoring and recovery. Moreover, the bank is already holding more than adequate provisioning and this will cushion the impact of slippages on profitability.”  

UCO Bank’s fresh slippages in Q3 stood at Rs 579 crore. The lender said to contain slippages, it is “proactively” reassessing working capital facilities allowed to various borrowers in order to ensure that customers do not face liquidity and funding issues. “To strengthen the monitoring mechanism, particularly for the RAM segment, the bank is in the process of on-boarding a comprehensive software tool/solution for which the process has already been initiated,” Prasad said.

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Muthoot Finance lowers current FY guidance to 10-12%

NBFC Muthoot Finance has lowered its guidance for the current fiscal year to 10-12% from 15% with active loan base shrinking in the third quarter.

In Q3 of FY22, the number of loan accounts shrunk by 3% quarter on quarter (QoQ) while the number of active customers declined by 2% QoQ. Some customers have more than one loan account. New customer acquisition during the quarter stands at 4.2 lakh.

“More people took back their gold and closed loan accounts during Q3. Last fiscal year, in Q2 and Q3, there was a huge demand for loans right after the lockdown. Some of them abandoned their gold as the desired cash flow did not materialise and we had to auction some of them,” George Alexander Muthoot, managing director, Muthoot Finance, told FE.

“As the financial sector continues to be in the grip of Covid-19 pandemic in the aftermath of the second wave and the slowing down on account of the third wave, our focus was on the recovery of loans, especially the gold loan segment,” he added.

Auctions were also on the higher side for the gold loan lender at Rs 2,800 crore, the highest in four years, and the share of stage 3 assets in Q3 increased by 200 bps QoQ to 3.8%.

On a sequential basis, the loan assets under management of the gold loan division declined by 1% QoQ to Rs 54667 crore.

The NBFC does not expect NPA to increase further, and remain optimistic about growth in gold loans.

“Business is only limping and people are only spending for the essential. Things are getting better and we hope to see growth from Q1 of the next fiscal year,” he said.

The NBFC’s third quarter consolidated net profit increased 4% year on year (YoY) to Rs 1043.6 crore, largely owing to a good performance by the gold loan division.

The Kerala-based finance company, which also operates home loan, microfinance and insurance broking subsidiaries, said it is cautious regarding the non-gold business with NPA in the range of 5 to 6%, and expects growth only after three-four quarters.

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NBFCs to seek exemption of small-value accounts from new NPA norms

The non-banking financial company (NBFC) industry is planning to continue talks with the Reserve Bank of India (RBI) to seek an exemption of small-value loan accounts from the ambit of the new asset classification norms for the sector. On Tuesday, the RBI acceded to the industry’s requests for an extension and granted an additional six months – up to September 30, 2022 – to NBFCs to comply.

Under the guidelines outlined in a circular dated November 12, 2021, NBFCs will be allowed to upgrade a non-performing borrower account to ‘standard’ only if all outstanding dues are cleared. Industry sources told FE they will continue talking to the regulator and seek further exemptions for some specific categories of loan accounts. “We are in constant touch with RBI officials. Now that they have extended the implementation deadline, we will request them to exempt vehicle loans of up to Rs 25 lakh and micro, small and medium enterprises (MSME) loans from the ambit of the circular,” said a person privy to the developments.

In a letter to RBI chief general manager Manoranjan Mishra dated January 17, industry association Finance Industry Development Council had sought the deferment of the deadline for implementation by a year to March 31, 2023. Citing the impact of subsequent waves of the pandemic on borrowers, the letter sought an exemption for retail loans of up to Rs 2 crore from the ambit of the new guidelines “until situation returns to normal”.

The deferment of the deadline sent stocks of some NBFCs soaring on Wednesday. PNB Housing Finance gained the most, with its shares rising as much as 11% intra-day. Shares of Centrum Capital, Srei Infra Finance, M&M Financial Services and Reliance Capital rose 4-6%.

Most listed NBFCs have already complied with the RBI’s guidelines and accounted for the impact in Q3 results. YS Chakravarti, MD & CEO, Shriram City Union Finance, said, “We believe it could have been helpful if the measures extending the revised asset classification and provisioning norms had come along with the RBI circular issued on November 12, 2021. Most NBFCs have already absorbed the impact in their third-quarter results. The clarification by the RBI only defers the adoption of the new norms.”

Companies are unlikely to reverse the provisions they have already made in order to avoid accounting complexities, Chakravarti said. “For Shriram City Union Finance, there will be no impact since our loan book is already well provided for.”

India Ratings and Research had earlier said NPA accounting changes are likely to increase NPAs by around one third for NBFCs.

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Interest rates are unlikely to go any lower, signals RBI

The RBI’s statement that the pass-through of rates is complete means that banks have used all headroom for lowering interest rates. As the next interest rate revision by the central bank is expected to be a rate hike, it means this is as good as it gets for borrowers.

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NACH bounce rates fall to lowest in Q3 since start of Covid 19

ICICI Bank recorded the lowest bounce rates by volume while Kotak Mahindra Bank and IndusInd Bank posted higher bounce rates among peer private banks owing to large exposure to vehicle and self-employed loans. Other lenders like HDFC Bank, State Bank of India and Axis Bank recorded an improvement in bounce rates and were close to ICICI Bank's levels.

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Banks explore option of setting up panel to advise them on loan recast

The RBI had in 2016 as part of norms for resolution of large borrowers envisaged the constitution of an Overseeing Committee (OC), but its latest guidelines in 2019 on, 'Prudential Framework for Resolution of Stressed Assets,' did not mention such a requirement.

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ED files money laundering case in ABG Shipyard bank fraud case

The action comes days after the CBI registered an FIR in the case.

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RBI allows NBFCs time till September 30 to comply with new NPA norms

The Reserve Bank of India (RBI) on Tuesday extended the deadline for non-banking financial companies (NBFCs) to comply with new asset classification norms issued on November 12. Non-bank lenders will now be allowed to move to the new rules for recognising bad loans by September 30, 2022, as against March 31, 2022.

“Paragraph 10 of the (November 12) Circular stipulates that loan accounts classified as NPAs (non-performing assets) may be upgraded as ‘standard’ asset only if entire arrears of interest and principal are paid by the borrower. NBFCs shall have time till September 30, 2022, to put in place the necessary systems to implement this provision,” the central bank said in a notification.

The guidelines seek to harmonise income recognition and asset classification practices at banks and NBFCs. Analysts had predicted that the rule on upgradation of bad loans could lead to a rise in NPAs reported by some NBFCs. According to sector experts, most NBFCs have for long followed a practice of upgrading gross stage-3 loans, or NPAs, to gross stage-2 loans — or special mention account (SMA)-2 — upon payment of just a single instalment.

Earlier, NBFCs had sought an extension to comply with the terms of the November 12 circular as applied to micro, small and medium enterprises (MSME) accounts.

The RBI has also issued clarifications in response to queries it had received. The definition of ‘out of order’, it said, shall be applicable to all loan products being offered as an overdraft facility, including those not meant for business purposes and/ or which entail interest repayments as the only credits.

The ‘previous 90 days period’ for determination of ‘out of order’ status of a cash credit/ overdraft (CC/OD) account shall be inclusive of the day for which the day-end process is being run. In case of borrowers having more than one credit facility from a lending institution, loan accounts shall be upgraded from NPA to standard asset category only upon repayment of entire arrears of interest and principal pertaining to all the credit facilities.

The circular does not make any changes to the requirements related to reporting of information to CRILC, which will continue to be governed in terms of extant instructions for respective entities, the central bank said. It also does not interfere with the extant guidelines on implementation of Ind-AS by NBFCs.

Unlike banks, NBFCs follow the Ind-AS guidelines, under which delinquent loans are classified as gross stage-1 (loans overdue by up to 30 days), gross stage-2 (loans overdue between 31 and 89 days) and gross stage-3 (loans overdue for over 90 days). There is no categorisation of standard and bad loans for NBFCs under this system.

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Repco Home Finance net down 60% to Rs 31.47 crore for Q3

Repco Home Finance has posted a 60% drop in its net profit at Rs 31.47 crore for the third quarter of FY22 as compared to Rs 79.60 crore in the corresponding quarter of last fiscal.

Total income stood at Rs 325.45 crore as compared to Rs 359.75 crore, registering a decline of 9.5%. Net interest income of the company stood at Rs 149.16 crore as compared to Rs 154.36 crore resulting in healthy margins of 5.04%, said a company release.

The overall loan book stood at Rs 11,785.66 crore at the end of December 2021. Loans to the self-employed segment accounted for 51.30% of the outstanding loan book and loans against property product accounted for 18.16% of the same.

Loans sanctions stood at Rs 494.31 crore as compared to Rs 650.01 crore while loan disbursements stood at Rs 443.86 crore as compared to Rs 551.67 crore, it said.

Interest spread remained robust at 3.83% as compared to 3.88%. Return on assets stood at 1.06% resulting in a return on equity of 6.21% on a deleveraged balance sheet as compared to 2.64% and 17.33% respectively.

Gross non-performing assets (NPA) ratio stood at about 6.99% of the loan assets as on December 31, 2021. Net NPA ratio stood at about 4.99%.

The capital adequacy ratio stood provisionally at 31.31% as against the minimum capital adequacy ratio prescribed by the regulator of 14%. The company had a total network of 155 branches and 22 satellite centres spread across Tamil Nadu, Karnataka, Andhra Pradesh, Telangana, Kerala, Maharashtra, Odisha, Gujarat, West Bengal, Madhya Pradesh, Jharkhand, Rajasthan and the Union territory of Puducherry.

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Record IPOs in FY22 push up commercial papers issuances by NBFCs

By Manish M Suvarna

The rush of public offerings by companies this financial year has resulted in a sharp rise in fundraising by non-banking finance companies (NBFC) via ultra-short-term commercial papers (CPs) to finance high net worth individuals (HNIs) investing in the issues. This was even after the rates on these instruments rose 50-70 basis points compared to the previous financial year.

Non-bank lenders have raised Rs 5.12 lakh crore so far in FY22, compared to Rs 2.93 lakh crore in FY21, according to the data compiled by the Prime Database. NBFCs have raised Rs 4.53 lakh crore through seven-day papers and Rs 59,710 crore through eight-day papers so far in FY22. IPO-CPs are usually papers issued with a tenure of seven to 10 days and have high yields compared to three-month CPs.

“There was a rush among companies to come up with IPOs before March 2022. The borrowing cost of IPOs is a factor in the demand for that particular IPO. There were two-three IPOs simultaneously announced, which further pushed up CP rates,” said Rahul Singh, senior fund manager – fixed income, LIC Mutual Fund Asset Management.

The higher rate on these instruments has not stopped NBFCs from raising funds, due to increased demand from HNIs for back-to-back IPOs lined up in the past few months. The rates on these instruments went up after the Reserve Bank of India started normalising surplus liquidity in the banking system, which pushed up yields of CPs sharply. So far in FY22, yields on IPO-CPs have been in the range of 3.75-6.50%, compared to 3.20-6.00%.

Indian companies have raised Rs 1.08 lakh crore so far in the current financial year through the IPO route, which is multi-fold the amount in the previous year. Investment by the HNIs also increased to Rs 12,230 crore in FY22. Usually, NBFCs lend money to HNIs for a shorter period for IPOs and interest rates on these funds are typically higher.

Market participants said issuances of IPO-CP is expected to moderate in the next financial year because IPO issuances are expected to come down due to volatility in the markets. “Global liquidity would reduce which would further impact the equity market and IPO issuances,” Singh said.

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Public sector banks see operating profit decline in Q3FY22

The October-December quarter of FY22 may have been a strong one for the banking sector, but public sector banks (PSBs) may still have some distance to go in terms of operational improvement. Data sourced from Capitaline showed that the 12 PSBs’ aggregate operating profit fell 0.6% on a year-on-year (y-o-y) basis to Rs 49,596.41 crore, even as private banks as a group saw an improvement in the metric.

Five of the 12 PSBs saw their operating profits decline. Most of them attributed the downtrend to poor performance on the treasury front which, in turn, is a function of interest rate movements in the money markets. Q3FY22 saw yields shooting up across debt instruments which resulted in banks booking mark-to-market (MTM) losses on their investment portfolios.

While some lenders were able to offset the impact of MTM losses through a growth in net interest incomes (NIIs), others such as Punjab National Bank (PNB) and Bank of India (BoI) performed poorly on that parameter as well.

The management at PNB attributed the bank’s poor operational performance to the impact of a standstill on bad-loan recognition in the year-ago period, which resulted in interest reversals during subsequent quarters. PNB’s operating profit fell over 17% y-o-y to Rs 5,076.31 crore in Q3FY22.

BoI MD & CEO A K Das said that the 21% fall in operating profit at the bank was due to various factors, including lower treasury income due to the firming up of G-sec yields. “There has been a fall in interest income and NII. However, the fall appears magnified also on account of inclusion of one-off items during the previous periods,” Das said.

Union Bank of India saw its operating profit fall 3% y-o-y to Rs 5,098.19 crore. Its management also attributed the drop to losses in the treasury segment. Rajkiran Rai G, MD & CEO, Union Bank, said, “Treasury income is bound to go down because in the whole ecosystem, the interest rate is going up. So, we had that impact and because of that the operating profit has come down a bit.”

Rai added that treasury income will remain under pressure for some time, but improved NIIs will make up for those losses. “Whatever we lose in treasury, we will definitely make up in the interest income because the interest rate is moving up,” Rai said. He expects to make better use of money parked in T-bills and other investments by deploying them as loans.

Other bankers are also of the view that as yields rise, the contribution of treasury income and NII to the total income will get reversed. However, PSBs are not positioned as advantageously as their private-sector peers to gain from a sector-wide improvement in credit offtake.

In a recent report, Saswata Guha, senior director – banks at Fitch Ratings, pointed out that private banks reported an average loan growth of 10.8% as of H1FY22, much higher than 3.5% for PSBs, and are set to benefit from this momentum. “The absence of meaningful competition from state banks – state banks’ average loan growth was 3.5% in H1FY22 – means private banks will make disproportionate market-share gains as the economic recovery takes hold. We calculate that state banks would need $12 billion in additional CET1 to sustain compounded annual loan growth of 10% until FY25,” Guha wrote in the report.

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Reliance Capital's lenders agree on EoI document for bidders

The Reserve Bank of India had superseded the board of Reliance Capital on November 30 and brought in Nageswara Rao, a former executive director at Bank of Maharashtra, as its administrator. The administrator has admitted claims worth ₹24,000 crore of financial creditors so far.

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KKR affiliate entity set to acquire IL&FS’ stake in Bangalore Elevated Tollway

Galaxy Investments, a wholly owned subsidiary of KKR Asia Pacific Infrastructure Holdings, has entered into a definitive agreement with UK’s development finance institution CDC’s India Infrastructure Fund II to acquire a stake in the company.

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Govt, RBI on same page on crypto, says FM

The finance ministry and the Reserve Bank of India (RBI) are on the same page on cryptocurrencies and other issues and there is complete harmony between the two entities in the last few years, top policymakers said on Monday.

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Real estate sector GNPAs of non-bank lenders likely to exceed 9% in FY22: ICRA

Non-banking finance companies (NBFCs) and housing finance companies (HFCs) are likely to see their real estate sector gross non-performing asset (GNPA) ratio exceed 9% by March-end from 6.8% as of September 30, rating agency ICRA said in a report on Monday. Real estate GNPAs of non-bank lenders rose from 5.1% as of March 2020 to 6.2% as of March 2021, it said.

Non-bank lenders have been witnessing stress building up in the real estate portfolio since FY19 (April-March) with domestic real estate sector facing a prolonged slowdown, subdued sales and consequent inventory overhang, resulting in debt build-up. Business disruptions on account of Covid-19 further exacerbated the issues, ICRA said. While the real estate industry has witnessed some green shoots in recent quarters, particularly larger developers, a sustained pickup in sales across geographies and different segments would remain critical for a meaningful recovery in the sector, it added.

“ICRA expects an increase of 180-250 basis points (bps) in GNPAs in the real estate segment in FY2022. However, players with a diversified credit book across asset classes are likely to witness a relatively lower increase in NPAs. The asset quality would, however, remain dependent on the performance of the restructured book as well as any further disruptions caused by a surge in Covid-19 infections,” said Samriddhi Chowdhary, vice-president & sector head – financial sector ratings at ICRA.

The rating agency said that real estate assets under management (AUM) of non-bank lenders contracted by 17.6% to Rs 2.8 lakh crore as on March 2021 from Rs 3.4 lakh crore as on March 2019, and the contraction is expected to continue further by 5-10% more in the current fiscal. “Non-banks witnessed a significant slowdown in growth since H2 FY2019, following the liquidity crisis, and consequently moderated their disbursements. The impact was more pronounced on wholesale financiers with sizeable real estate exposures compared to their retail counterparts owing to a prolonged period of risk aversion by investors and other stakeholders. Given the fundraising challenges, real estate-oriented non-banks not only limited incremental disbursements to this sector but also attempted to scale down their portfolios through asset sell-down to shore up liquidity,” Chowdhary said.

The real estate AUM of NBFCs is likely to de grow 0-5% in the next fiscal, ICRA said, maintaining its negative outlook for real estate-oriented non-bank lenders.

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Yes Bank launches Agri Infinity program

The program will last up to six months

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Why it is important to strike a balance in your investment portfolio?

There are two main purposes to creating an investment portfolio. One is to grow your investments and two is to protect your investments.

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LIC equity investments touched ₹9.78-lakh crore by Sept 30, 2021: DRHP

About 90 per cent of the policyholders’ equity investments in India are held in stocks that are a part of the Nifty 200 and BSE 200

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Axis Bank set to buy Citigroup’s $2.5 billion India retail unit

An agreement for the consumer unit may be announced as soon as the next few weeks and is contingent on approval from the Reserve Bank of India, the people said, asking not to be identified as the information is private. The deal would include a cash component of less than $2 billion, accounting for the consumer business’s liabilities, the people said.

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The LIC IPO is a delicate business

The insurers dominance won’t fade immediately but the loss of competitive advantage may bite

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RBI cuts reverse repo’s relevance by new route

In a quiet move, the Reserve Bank of India (RBI) has managed to reduce the relevance of the reverse repo rate. Reverse repo is the rate at which the RBI borrows from banks and sets the floor for money markets.

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IL&FS group to resolve debt of Rs 55,000 cr by March

Some of this has already been completed while the rest is at different stages of resolution, it said in a brief snapshot on the progress made in the ongoing resolution process till December 7, 2021, and suggested estimates of progress to be made by March 2022.

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Govt to soon appoint 3 independent directors on NaBFID board

The government is in the process of appointment of three independent directors on the board of newly-incorporated Rs 20,000 crore National Bank for Financing Infrastructure and Development (NaBFID), a move that will clear the decks for commencing of operation of the Development Finance Institution critical for infra financing.

With the appointment of three independent directors, sources said, the formation of full board would be completed. In October last year, the government had appointed veteran banker K V Kamath as the Chairperson of the NaBFID for three years. It also appointed two government nominee directors on the board.

The Development Finance Institution (DFI) has been set up with a view to support the development of long-term non-recourse infrastructure financing in India, including development of the bonds and derivatives markets necessary for infrastructure financing and to carry on the business of financing infrastructure.

The Banks Board Bureau (BBB), the headhunter for state-owned banks and financial institutions, has already invited applications for the post of managing director (MD) of the DFI, which is preparing to commence business in the April-June quarter. The BBB has also started process for the selection of three deputy managing directors (DMDs) including Chief Finance Officer and Chief Risk Officer.

The last date for submission of application by eligible candidates for the three posts of DMDs is March 21. The salary and allowances of MD and DMDs will be guided by market and governed by regulations made by the board of NaBFID.

According to the NaBFID Act 2021, the institution will have one MD and not more than three DMDs. The MD and DMDs will not hold office after attaining the age of 65 years and 62 years, respectively. The DFI is planning to commence business in the April-June quarter and is targeting financial assistance of Rs 1 lakh crore in its first year of operations. This is going to give a massive push to infrastructure projects, which are part of the Rs 111 lakh crore National Infrastructure Pipeline (NIP). The government has committed a Rs 5,000-crore grant over and above Rs 20,000-crore equity capital.

The NaBFID has been established as a statutory body to address market failures that stem from the long-term, low margin and risky nature of infrastructure financing. It will help fund about 7,000 infra projects under the NIP, which envisages an investment of Rs 111 lakh crore by 2024-25.

Infra spending has a multiplier effect on the economy. This means that not only does the project contribute immediately through increased demand for labour and construction materials but also through the second order effects in terms of improved connectivity brings.

Various studies have estimated the multiplier to be between 2.5-3.5 times. So for every rupee spent by the government in creating infrastructure, GDP gains are worth Rs 2.5-3.5.

According to NITI Aayog, in times of economic contractions, this multiplier is larger than the one during times of economic expansion. This could imply that public investment if timed and targeted right, can actually ‘crowd-in’ private investment, rather than ‘crowd-out’.

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Government to soon appoint 3 independent directors on NaBFID board

In October last year, veteran banker K V Kamath was appointed as the Chairperson of the NaBFID for three years.

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SBI expects to recover Rs 8,000 cr from written-off accounts in FY22

Country’s largest lender State Bank of India (SBI) is expecting to recover around Rs 8,000 crore from written-off accounts, including from NCLT resolved cases, in the current fiscal year to be ending on March 31, 2022.

During the third quarter ended December 2021, SBI recovered Rs 1,500 crore from written-off accounts and for the nine months during April-December FY22, the recovery amount stands at Rs 5,600 crore, SBI said in a post Q3 FY22 earnings call with analysts. Bank’s net profit during the quarter surged by 62.27 per cent to Rs 8,432 crore.

“But overall, the bank is expecting recovery of about Rs 8,000 crore in this whole financial year,” the lender said during the call. This includes the amount recovered from tribunal resolved cases, as the bank said it will “not be differentiating between NCLT” resolved cases in terms of recovery from written-off accounts.

The public sector lender also brought down its bad loans proportion, with the gross non-performing assets (NPAs) falling down to 4.5 per cent at end of December 2021 from 4.9 per cent in the preceding quarter, September 2021. The net NPAs also fell quarter-on-quarter to 1.34 per cent from 1.52 per cent.

Chairman Dinesh Kumar Khara said the financial results during Q3FY22 validates that the performance of the bank is improving steadily. “Our slippage ratio for nine months of the financial year FY22 is at 1.16 per cent, while our slippage ratio in quarter three FY22 is 0.37 per cent. This is largely an outcome of the critical changes that have been made in our underwriting processes through the large cycles.

“The CET1 (common equity tier 1–measure of a bank’s core equity capital) ratio of the bank is at 9.38 per cent at the end of December 2021. And if we include the profit earned during the year, the ratio stands at 10.32 per cent. We believe that the internal accruals are adequate to support the credit growth through the financial year FY23,” Khara told the analysts. In the December 2021 quarter, the lender witnessed net slippages of Rs 2,334 crore.

However, it faced challenges in the June quarter of 2021-22 when the slippages were as high as Rs 15,666 crore. “We have recovered much of those slippages well in time. And now as the situation stands, we feel that our slippage is hardly any. And whatever little is seen, that also we are in a position to recover…slippages are not as much of a worry for us,” the bank said.

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SBI expects to recover Rs 8,000 cr from written-off accounts in FY22

During the third quarter ended December 2021, SBI recovered Rs 1,500 crore from written-off accounts and for the nine months during April-December FY22, the recovery amount stands at Rs 5,600 crore, SBI said in a post Q3 FY22 earnings call with analysts.

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Muthoot Finance net profit surges 4% in third quarter

NBFC Muthoot Finance on Saturday reported a 4% year-on-year (y-o-y) increase in its third quarter consolidated net profit to Rs 1,043.6 crore largely due to the good performance of the gold loan division.

The Kerala-based lender had reported a consolidated net profit of Rs 1,006.6 crore in the year-ago period and a net profit of Rs 1,002.9 crore in the preceding second quarter.

The finance company which also operates a home loan, microfinance and insurance broking subsidiaries said that net profit of the gold loan division increased 4% y-o-y to Rs 1,028.9 crore .

Consolidated loan assets under management of Muthoot increased by 9% y-o-y to Rs 54,687.6 crore. The gross loan assets under management declined quarter-on-quarter by 1%.

George Alexander Muthoot, managing director, said , “As the financial sector continue to be in grip of Covid pandemic in the aftermath of second wave and the slowing down on account of the third wave, our focus was on the recovery of loans especially the gold loan segment. Despite the situation, the quarter witnessed 22% increase in disbursements and 38% increase in recoveries in gold loans. During the quarter, we disbursed fresh loans to 3.81 lakh new customers amounting to Rs 4,007 crore and to 4.98 lakh inactive customers amounting to Rs 4,426 crore.”

“As regards our subsidiary, we continue to maintain a cautious stance. The collections across microfinance, vehicle finance and home loans have improved. Our subsidiaries in microfinance and in Sri Lanka registered a q-o-q growth in their loan portfolios of 14% and 8%, respectively. We expect our improved versions of our several digital initiatives like mobile app, POS, online gold loans, loan at home app, etc., to facilitate our loan growth and will continue to see our focus,”he added.

Loan assets of the gold loan division for the quarter stand at Rs 54,214.9 crore compared to Rs 49,622.5 crore in the comparable quarter of the previous year, which is an y-o-y growth of 9%.

Total weight of gold pledged with the company stands at 178 tonne at the end of the third quarter as against 166 tonne in the corresponding period of last fiscal.

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