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According to the report, GVK defaulted on a $1-billion loan and a $35-million letter of credit facility given by banks in 2011, and a $160-million loan lent in 2014. Nine other GVK Group companies are also being sued in the case which opens Monday.
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BANK OF BARODA on Friday increased the marginal cost of funds-based lending rates (MCLR) by 10 to 20 basis points across tenures, effective June 12. With this increase, the bank’s one-year MCLR now stands at 7.50%, according to information on the lender’s website.
So far, ICICI Bank increased the marginal cost of funds-based lending rates (MCLR) by 30 basis points while HDFC Bank increased its MCLR rates by 35 basis points across tenures.
Axis Bank’s one-year MCLR is at 7.75%, IndusInd Bank’s one-year MCLR is at 8.75% while that of State Bank of India is at 7.2%.
With the Reserve Bank of India (RBI) signaling an uptrend in the rate cycle and also a tightening of liquidity, banks have started increasing their loan rates. While some lending rates are linked to external benchmarks like the repo rate, others depend on the cost of funds.
Although deposits are growing at a healthy pace, following the withdrawal of liquidity from the system by the central bank, lenders may need to attract more deposits by increasing interest rates on them. Deposits grew by 9% year-on-year to `165.7 trillion during the fortnight ended May 20.
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The Centre will likely invite expression of interest for strategic disinvestment of IDBI Bank by end-July, a top government official said on Friday.
The Department of Investment and Public Asset Management (Dipam), which held roadshows in the US in the last few days, will have a few more domestic roadshows before finalising the contours of the sale, the official said.
“We may need one more round of discussion with the Reserve Bank of India on IDBI strategic sale. Thereafter, we will decide what will be the consortium structure in case of joint bids and merger conditions (if the winning bidder wants to merge IDBI Bank with another existing lender),” the official said.
Besides banks, financial investors (other than corporate houses) are the potential bidders for IDBI Bank.
Currently, LIC (49.24%) and the government (45.48%) together hold 94.78% stake in IDBI Bank worth about Rs 38,000 crore at the current market prices. Both the government and LIC plan to sell majority stake to a buyer and handover the management control.
To make the deal attractive, the government has approached the RBI to consider giving the potential buyer of IDBI Bank some leeway on complying with the regulatory norms for private banks, including a time-bound reduction in promoter holdings. It has also urged the Securities and Exchange Board of India (Sebi) to give some flexibility to the strategic investor in IDBI Bank on the minimum public float norm for listed companies.
IDBI Bank shares ended at Rs 36.7 on Friday, down 2% from the previous closing on the BSE.
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EBLR is linked to the RBI's repo rate. The other system used by banks to determine the rates, Marginal Cost of Funds Based Lending Rate (MCLR), is decided internally by the banks based on their cost of funds including the prevalent deposit rates.
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In a meeting with the heads of small finance banks (SFBs) on Friday, the Reserve Bank of India (RBI) advised them to pay close attention to their business models and governance, in the light of recent developments in the sector. The meeting was led by RBI deputy governors MK Jain and M Rajeshwar Rao. “SFBs were advised to continue to evolve in tune with the differentiated banking licence given to them with proportionate growth in their capital base,” the RBI said in a statement.
Among other matters, asset quality concerns, including a viable portfolio mix and further strengthening of customer service and grievance redressal frameworks with commensurate information technology (IT) resilience, were discussed. The RBI also took note of suggestions and inputs from SFBs.
In the last few months, some SFBs have been in the news because of issues related to corporate governance and also problems on the credit quality front. In May, PN Vasudevan, MD & CEO, Equitas SFB, resigned, stating that he wished to focus on social and charitable commitments. In September 2021, Jaipur-headquartered AU SFB had seen senior executives resigning from its audit and risk departments. The bank had come in for criticism from the markets for lags in disclosing the resignations.
Earlier, in August 2021, then chief executive of Ujjivan SFB Nitin Chugh had stepped down from the role, citing personal reasons, amid speculation that there might have been differences between him and the older management. In January this year, the RBI approved the appointment of Ittira Davis as MD & CEO of Ujjivan SFB for a one-year period.
Historically, SFBs have had a sizeable portion of their loan books in the microfinance segment, which exposed them to asset quality risks during the pandemic. However, most of them improved their performance in Q4FY22.
In a post-results report on Ujjivan SFB, Kotak Institutional Equities wrote, “Ujjivan has weathered the twin issues of severe asset quality challenges during Covid and a confidence crisis due to CEO exit. Having gone through the pain (loss over FY 2021-22), the bank is now in a much better position with regards to asset quality, loan growth, deposit profile, margins and ultimately RoEs (return on equity).”
In an earlier meeting with heads of SFBs on August 27, 2021, the RBI had told them to work on the evolution of their business model and the need for enhancing board oversight and professionalism. They were also told to improve assurance functions and augment their IT infrastructure, taking into account the stress build-up due to Covid-19, along with requisite mitigation measures.
10:11 AM
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The monetary policy committee’s rate hikes worth a cumulative 90 basis points (bps) may not immediately translate into higher returns for savers. The presence of a significant amount of liquidity in the system could mean that hikes in deposit rates will be deferred.
However, some minor tweaks to deposit rates are already underway. Kotak Mahindra Bank on Thursday raised the interest rate on savings accounts with balances above Rs 50 lakh by 50 bps to 4% per annum. The lender also raised rates on fixed deposits with maturities of over 1 year by 10 to 25 bps.Surplus liquidity, as reflected in average daily absorption under the liquidity adjustment facility (LAF), stood at Rs 5.5 trillion during May 4-May 31, lower than Rs 7.4 trillion during April 8-May 3, Reserve Bank of India (RBI) governor Shaktikanta Das said on Wednesday. “Nevertheless, the overhang of excess liquidity has resulted in overnight money market rates, on an average, trading below the policy repo rate,” he added.
Bankers said that while loans linked to the repo will get repriced immediately as a result of the latest 50-bps rate hike, deposit rates will be subjected to a close review by each bank. Suresh Khatanhar, deputy managing director, IDBI Bank, said that system liquidity will have an impact on pricing decisions. “While the repo rate has been hiked, there is still a good deal of liquidity in the system. That may result in deposit rates being hiked in a calibrated manner,” he said.
Khatanhar pointed out that even before the first rate hike in May, some banks had raised deposit rates to adjust their asset liability management (ALM) requirements. Large banks like State Bank of India (SBI) and HDFC Bank had raised deposit rates in February for maturities of three years and above.A one-year deposit of under Rs 2 crore yields 5.1% at SBI as also at HDFC Bank. In April, the weighted average domestic term deposit rate for scheduled commercial banks stood at 5.03%, according to RBI data.
Banks’ marginal cost of funds based lending rates (MCLRs) will be slower to react in terms of quantum of change than repo-linked loans, Madan Sabnavis, chief economist, Bank of Baroda, said. “The same will hold for deposit holders who will receive higher rates depending on how banks adjust their rates based on their funding requirements. As there is surplus liquidity currently in the system which can go for lending, the immediate response may be slow,” Sabnavis added.
With the additional 50 bps hike, each bank’s asset liability committee (ALCO) will now decide need-based new rates, Khatanhar said.Das had indicated on Wednesday that the RBI expects banks to raise deposit rates. “Normally, transmission does take time. But, going forward, we do expect rate hikes to get transmitted also to the liability side. In any case, when there is credit offtake, banks need to mobilise more resources by way of offering higher deposit rates to the savers,” he said.
Credit growth has been outpacing deposit growth for the past few months. During the fortnight ended May 20, deposits with banks grew 9.3% year-on-year (y-o-y), while non-food credit grew 11.5%.
The healthy credit/deposit (C/D) ratio may also keep deposit rates for some time, Krishnan ASV and Deepak Shinde, institutional research analysts at HDFC Securities, said. “Banks have increased their term deposit rates by 10-25bps during the last couple of months and the incremental rate hike is also expected to be gradual,” they said in a report.
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HDFC (Housing Development Finance Corporation) and ICICI Bank have raised lending rates by up to 50 basis points (bps) days after the Reserve Bank of India increased the repo rate. HDFC and ICICI Bank’s move follows other lenders in recent days such as HDFC Bank, SBI (State Bank of India), and PNB (Punjab National Bank), which recently raised interest rates on loans by 35-50 bps. Earlier this week, the RBI’s MPC raised the key monetary policy rate by 50 bps to 4.9 per cent.
HDFC said in a stock exchange filing Thursday it has raised retail lending rate on housing loans by 50 basis points (bps), with effect from June 10. “HDFC increases its Retail Prime Lending Rate (RPLR) on Housing loans, on which its Adjustable Rate Home Loans (ARHL) are benchmarked, by 50 basis points, with effect from June 10, 2022,” it said in a filing.
ICICI Bank also said it has raised lending rates by 50 basis points as it is referenced to RBI policy rates. “ICICI Bank External Benchmark Lending Rate (I-EBLR) is referenced to RBI Policy Repo Rate with a mark-up over Repo Rate,” the lender said on its website. ICICI said effective June 8, I-EBLR is 8.60 per cent p.a.p.m. effective June 8, 2022.
The RBI of India has raised lending rates by 90 basis points in two months in order to fight the spiking inflation. RBI’s MPC voted unanimously this week to hike repo rates. Economists expect further front-loaded rate hikes in the upcoming August meeting from the RBI. Thereafter the central bank will decide on the course of policy action depending on how growth and inflation evolve, experts have said.
Moves by ICICI and HDFC come days after the country’s private private lender HDFC Bank hiked interest rates across all tenures and across categories such as housing, vehicle and personal loans by 35 bps from June 7. Punjab National Bank also said this week that with effect from June 9, the state-owned lender has increased its Repo Linked Lending Rate (RLLR) by 50 basis points. The RLLR has been raised from 6.90 percent to 7.40 percent. Earlier this month, the State Bank of India raised home loan external benchmark lending rate by 40 basis points to 7.05 percent + CRP and the increased interest rates are effective from June 1, 2022.
7:11 AM
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Shriram Transport Finance Company (STFC), one of the largest commercial vehicle financers, and part of the Shriram Group, secured a long-term funding of $250 million from the US International Development Finance Corporation (DFC) of the US. The $250- million external commercial borrowing (ECB) is a fixed-rate 10-year loan under STFC’s social finance framework. The funding will enable STFC to further its financial inclusion mission.
The funds raised from DFC will enable STFC to provide credit for the purchase of new and used vehicles throughout India. The proceeds from DFC can be used for vehicle finance for commercial purposes, alternate fuel-financing namely through CNG, LPG and electric vehicles and employment generation through MSME loans, specifically, finance women entrepreneurs. It will also be used for catering to laggard states of the country and empower and promote the social and economic status of the underserved communities in India, said STFC.
Besides the DFC loan, STFC has also raised $475 million through a 144A bond from the international market during the start of 2022, thereby continuing to diversify its funding profile. The fundraising is amid the merger process of Shriram Capital (SCL) and Shriram City Union Finance (SCUF) with STFC as a part of restructuring in Shriram Group.
Umesh Revankar, VC & MD, STFC, said, “STFC’s success in securing international funding from one of the world’s leading providers of development finance is a testament to our strength and stability, as well as an endorsement of our mission to further financial inclusion. We will help fund more individual operators to buy vehicles into new markets, provide funding towards employment generation in rural areas, and empower more communities to optimise their income and have a better quality of life.”
STFC is a leader in the organised financing of pre-owned trucks with a strategic presence in 5-10-year-old truck-lending. The company has assets on balance sheet of Rs 1.27 trillion (March 2022) and has a pan-India presence with a network of 1,854 branches, and employs 25,456 employees including 19,475 business teams. The company has built a strong customer base of around 2.11 million customers.
Andrew Herscowitz, chief development officer of DFC, said, “DFC’s investment in STFC is for helping boost economic growth, development, and financial inclusion across India. DFC’s financing helps increase access to finance for owner-operators and other small businesses to purchase commercial vehicles—including business owners from rural and underserved communities. With DFC’s loan, STFC will also help to Green India’s commercial transport sector, a notoriously difficult sector to decarbonise, by financing alternative fuel and lower-emissions vehicles.”
6:02 AM
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These banks raised their respective external benchmark lending rates (EBLR) by 50 basis points (bps), matching the latest increase in the repo, or the rate at which RBI lends short-term funds to commercial banks. One basis point is 0.01 percentage point.
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Out of the eight public sector banks operating in Hong Kong, four have already closed or are at different stages of closing. Three others are contemplating the future of their operations post-Covid. It is likely that the State Bank of India (SBI) will be the only public sector bank remaining in Hong Kong along with HDFC Bank and ICICI Bank.
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Indian Banks' Association chief executive Sunil Mehta confirmed the development and said this will bring more discipline among the borrowers. "Today, based on various parameters, including early warning signals (EWS), banks do such audits to take proactive action," he said.
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Besides, 1,14,05,116 digital devices, including inter-operable QR code-based payments such as UPI QR, Bharat QR, were deployed under the scheme.
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Each public-sector bank will have to firm up a three-year road map based on its business priorities under a revamped reform initiative launched by finance minister Nirmala Sitharaman on Wednesday.
EASENext, the latest and revamped version of the EASE (Enhanced Access and Service Excellence) reform programme for PSBs, will have two components: EASE 5.0, which is a common reforms agenda for all PSBs, and a bank-specific medium-term action plan.
Under the EASE 5.0, state-run banks will continue to invest in new-age capabilities and deepen the on-going reforms to respond to evolving customer needs, changing competition and the technology environment, the Indian Banks’ Association, which has been spearheading this initiative, said in a statement. It will also step up focus on digital customer experience, and integrated and inclusive banking, with emphasis on supporting small businesses and agriculture.
At the same time, all PSBs will also create a bank-specific 3-year strategic road map. This will entail strategic initiatives beyond EASE 5.0. The initiatives will be across diverse themes, including business growth, profitability, risk, customer service, operations, and capability building.
In a virtual address, Sitharaman called on banks to focus on customer-first strategy and employee development. PSBs must better engage with customers to understand their needs and expectations.
Financial services secretary Sanjay Malhotra called on PSBs, all of which turned profitable in FY22, to use their improved balance sheets to substantially enhance their competitiveness.
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The Reserve Bank of India said it will allow linking of credit cards to the UPI platforms. In the initial stage, only the RuPay credit cards will be linked to the UPI platform, the central bank said. The move will increase the acceptance infrastructure of credit cards as merchants can accept credit cards using UPI.
While the linking of the unified payments interface (UPI) with RuPay credit cards is seen as an advantage by major stakeholders, more clarity will be needed on some of the operational aspects, industry people said.
While the merchant discount rate (MDR) is levied by banks on merchants for card transactions on point-of-sale machines, MDR charges on UPI transactions is waived off. “Pricing is something that is not yet known. How will MDR pan out, how they will be able to charge are yet to be cleared out,” Dewang Neralla, CEO of NTT DATA Payment Services India, a payments aggregator, said. Clarity from the regulator on the issue of MDR is very important for the whole payments ecosystem, he added.
According to Aashay Choksey, assistant vice president – financial sector ratings, ICRA, the move can lead to a shift to credit cards, which, in turn, could drive higher card utilisation level and increase in spends per card for banks that operate a higher share of RuPay cards.
However, as RuPay-issued credit cards are still gaining market share, the overall credit outstanding against credit cards, which stood at around Rs 1.5 trillion as on April 22, is unlikely to grow materially in near term unless the enhancement in UPI linking is extended to other card platform operators as well,” he said.
Since more clarity is needed on the subject, it is not possible to comment on the issue, a spokesperson for a bank said. An e-mail sent to Bank of India did not evoke a response. “This is a welcome move, which will facilitate customers to gain the best of both worlds – payments and credit. This is expected to bolster spends in economy and is a very forward-looking step to improve the fiscal economy,” Shailendra Singh, MD & CEO of BOB Financial Solutions, said.
The move is aimed at providing additional convenience to users and enhance the scope of digital payments, the RBI said. “UPI has already proven its utility by its widespread adoption, and bringing the same convenience to access credit can be a watershed moment for credit penetration in India. Today, UPI is practically omnipresent, and I do not doubt that UPI-enabled credit cards will foster the next phase of credit-backed growth,” Gaurav Chopra, CEO of online credit marketplace platform IndiaLends, said.
UPI transactions have hit record highs in May as the platform doubled the transactions value to the tune of Rs 10 trillion during the month.
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Yes Bank on Wednesday said that it has initiated the process to form a new board as it exits from the reconstruction scheme devised for the rescue of the bank in 2020. The proposal for the constitution of a new board will be placed before the bank’s shareholders at its 18th annual general meeting (AGM) on July 15.
The process was started on the recommendation from State Bank of India (SBI), the largest shareholder in Yes Bank. SBI has proposed that MD & CEO Prashant Kumar continue in his position for another three years, along with the names of eight new appointees to the board.
Sunil Mehta, chairman, Yes Bank, said that by initiating the process of formation of the alternate board, Yes Bank has accomplished a significant milestone of coming out of the reconstruction scheme. “On behalf of the board, I assure all our stakeholders that the bank has built a strong ethos of integrity, trust and transparency which shall remain uncompromised. The bank now is fully ready to achieve its long term growth trajectory under the direction of the alternate board being formed,” Mehta said.
Apart from Mehta and chief executive Prashant Kumar, Yes Bank’s board is comprised of independent directors Mahesh Krishnamurti and Atul Bheda, the Reserve Bank of India’s (RBI) appointee directors R Gandhi and Ananth Narayan, and SBI nominee directors V S Radhakrishnan and Ravindra Pandey. Mehta, Krishnamurti and Bheda shall demit office with the formation of the new board. The terms of Gandhi and Narayan are valid up to March 23, 2023 or till further orders from the regulator.
Yes Bank returned to the black in FY22, posting a full-year profit of Rs 1,066 crore after two years of losses in FY20 and FY21. During the year, the lender’s loan book grew by 9%, with gross disbursements of Rs 70,000 crore. The deposit book grew 88% between FY20 and FY22 to Rs 1.97 trillion.
In March 2020, the RBI had superceded Yes Bank’s board amid fears that the bank’s capital levels would dip below regulatory requirements. SBI and other major financial institutions had infused capital into the bank under its reconstruction scheme, on the condition that they would lock in at least 25% of their investment for three years.
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Speaking at the event virtually attended by heads of public sector banks (PSBs), Financial Services Secretary Sanjay Malhotra said all PSBs are now profitable and have stronger balance sheets, and it is imperative that they leverage this position of strength to significantly increase their competitiveness.
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Parekh said that the home loan market in India is estimated at slightly over $ 300 billion, at a mortgage to GDP ratio of just 11% currently, but favourable conditions like rising income levels, improved affordability and fiscal support augur well for the demand for homes.
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Punjab National Bank will focus on improving credit offtake in its retail and MSME segments as it expects these sectors to drive the loan growth in the current financial year.
First of all, the bank will keep its focus on diversified credit growth as it is expected that the huge demand will erupt from the MSME and retail segments in FY23. With the expected pick-up in the credit growth, interest income may also see an uptick,” the bank said in its annual report for FY22.
The bank’s retail credit grew 6.7% year-on-year to Rs 1.3 trillion in Q4FY22 while MSME advances rose 1% to Rs 1.2 trillion.
The bank will also focus on improving its current account, savings account (CASA) ratio for higher profitability. It is planning to scale up collaborations and partnerships for better results. Domestic CASA share improved by 195 bps on year to 47.43% in Q4FY22.
Asset quality will continue to be the buzzword for us and the bank will take up action-oriented plans to keep NPAs low so that capital remains available for business growth,” PNB said. The bank will lay stress on credit monitoring through proactive steps on the basis of various early warning signals and address the stress upfront.
As on March 31, 2022, the gross NPA ratio improved by 234 bps to 11.78% while the net NPA ratio improved by 93 bps and stood at 4.80%.
The bank is planning to strengthen the PNB ONE app by offering digital lending, marketplace features, lifestyle offerings and wealth management services by revamping existing features.
The bank will also make efforts towards profit maximisation through increase in non-fund-based business and income from third party products and will rationalise branches and ATMs to cut costs.
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This move will enable life insurers to offer more policies under the scheme, and provide financial security to the bottom of the pyramid of the Indian population through life insurance, Irdai said in a statement. The easing of capital requirements by Irdai will accelerate the penetration of life insurance in India and will support the life insurers in achieving the target set by the government.
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The World Bank on Tuesday cut India's GDP growth forecast for 2022-23 to 7.5% from the earlier estimate of 8%, citing the impact of high inflation, supply chain disruptions and geopolitical tensions.
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State-run banks will conduct a massive credit outreach programme in all districts of the country on Wednesday and will enrol customers for various official schemes, especially in insurance.
The outreach programme is curated as part of a week-long celebration of the finance and corporate affairs ministry under the so-called Azadi Ka Amrit Mahotsav. It is also a part of the government’s efforts to ensure greater and easier credit flow, as the economy recovers from the damage caused by the pandemic.
In October 2021, public-sector banks (PSBs) were directed to launch a similar outreach programme for a longer period in the build-up to Diwali to take advantage of a potential rise in credit demand during the festive season. Banks had sanctioned loans of Rs 63,574 crore through the outreach drive between October 16 and 31 last year. Similarly, lenders had disbursed credit of as much as Rs 4.94 trillion through similar outreach programmes between October 2019 and March 2021.
Having remained subdued over most part of the last two years, credit growth has improved in recent months, and the government wants this momentum to accelerate further. Non-food bank credit grew 11.3% on year in April, compared with 9.7% in the previous month and 4.7% a year before. However, loans to industry grew at a slower pace of 8.1% even on a marginally-contracted base.
The finance ministry said on Tuesday that all state level bankers’ committees (SLBCs) have been asked to conduct the both the loan outreach programme and the enrolment for schemes like the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradahan Mantri Suraksha Bima Yojana (PMSBY) and Atal Pension Yojana. They will also seek to enhance customer awareness and financial literacy, while recognising the good work done by the branches, the ministry said.
The PMJJBY is a universal social security system, especially for the poor, while the PMSBY provides cover for death/disability due to accident. The government recently hiked the premium for the PMJJBY and the PMSBY by 32% and 67%, respectively, in a bid to make them economically viable. However, despite the increase, the premiums for the PMJJBY and the PMSBY still stand at just Rs 436 and Rs 20, respectively, per year.
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HDFC Bank has hiked its marginal cost of funds-based lending rates (MCLRs) by 35 basis points (bps) across tenures. The new rates come into effect on Tuesday.
MCLRs on loans from India’s largest private lender will now range between 7.5% and 8.05%. The one-year MCLR at HDFC Bank stands at 7.85%, against State Bank of India (SBI)’s 7.2% and Punjab National Bank (PNB)’s 7.4%.
PNB, ICICI Bank and Housing Development Finance Corporation (HDFC) went for a fresh round of hikes in lending rates in the previous week. Most lenders raised rates after the monetary policy committee (MPC) had hiked the repo rate by 40 bps on May 4.
The MPC’s June meeting is being held this week, with the policy statement coming on Wednesday. Markets expect the repo rate to be hiked by another 25-50 bps in the ongoing policy meeting. A fresh hike will result in an immediate re-pricing of external benchmark-linked loans given to retail and micro, small and medium enterprises (MSME) borrowers, as well as some corporates.
Some analysts are of the view that the regime of rising interest rates could affect some borrowers’ ability to pay. In a report dated June 1, India Ratings & Research said the sensitivity of the interest rate over aggregate demand has increased in a meaningful way. “Therefore, a faster and higher transmission of interest rate could become onerous for a section of borrowers. The situation will aggravate if real income does not improve,” the report said.
Banks are for now happy with the policy rate hike as it has boosted their pricing power, which had come under pressure during the last two years.
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HDFC Bank has hiked its marginal cost of funds-based lending rates (MCLRs) by 35 basis points across tenures, even as the market awaits another imminent RBI policy rate hike later this week. The new rates will be effective from today (Tuesday, 7 June 2022). MCLRs on loans from India’s largest private lender will now range between 7.5% and 8.05%. The one-year MCLR at HDFC Bank stands at 7.85%, as against SBI’s 7.2% and PNB’s 7.4%.
Punjab National Bank, ICICI Bank and Housing Development Finance Corporation (HDFC) went for a fresh round of hikes in lending rates last week. Most lenders had raised rates after the monetary policy committee (MPC) hiked the repo rate by 40 bps on May 4.
The MPC’s June meeting is being held this week, with the policy statement expected on Wednesday. Markets expect the repo rate to be hiked by another 25-50 bps in the ongoing policy meeting. A fresh repo rate hike will result in an immediate repricing of external benchmark-linked loans given to retail and micro, small and medium enterprises (MSME) borrowers, as well as some corporates.
Some analysts are of the view that the regime of rising interest rates could affect some borrowers’ ability to pay. In a report dated June 1, India Ratings & Research said that the sensitivity of interest rate over aggregate demand has increased in a meaningful way. “Therefore, a faster and higher transmission of interest rate could become onerous for a section of the borrowers. The situation will aggravate if real income does not improve,” the report said.
Banks have welcomed the policy rate hikes as it has boosted their pricing power, which had come under pressure during the last two years.
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The Reserve Bank of India on Monday specified the provisioning that non-banking financial companies (NBFCs), classified as the upper layer, must maintain for some categories of standard assets. According to the regulations, these NBFCs will need to make provision of 2% on standard assets for housing loans disbursed at teaser rates. The new norms on standard asset provisioning will come into effect from October 1. Currently, systemically important NBFCs make standard asset provision at a flat rate of 0.4%.
The RBI introduced provisioning for standard assets after 2011 and by March 2015, the provisioning needed to be 0.25% of outstanding assets.
Teaser loans attract lower interest rates in initial years after which rates are reset higher. The rate of provisioning will decline to 0.4% after a year from the date on which the rates are reset.
For commercial real estate loans for projects other than residential ones, provisions on standard assets have been set at 1% of the outstanding amount. Loans disbursed for office buildings, retail space, multi-purpose commercial premises, industrial or warehouse space, hotels or land acquisition will fall under this category.
Loans for which the recovery in the case of a default will depend on cash flows arising from such properties will also be included under this category.
The rate of provision for commercial real estate loans for residential housing stands at 0.75% of the outstanding amount. For projects which have commercial and residential parts, the commercial area must be less than 10% of the total floor space index (FSI).
For all individual housing loans and loans to small and micro enterprises (SMEs), such NBFCs will have to make provision of 0.25% for standard assets. For all other loans, the rate of provision is 0.4% of the outstanding amount.
The RBI has issued the rules on standard asset provisioning as part of the framework for scale-based regulation for NBFCs. In April, the central bank had tightened capital requirements norms and introduced rules on the large exposure framework.
In October 2021, the RBI introduced the scale-based regulatory structure for NBFCs. The structure consists of four layers based on size, activity and perceived riskiness – base layer, middle layer, upper layer and top layer. The intent behind these regulations is to bring more stability to the shadow banking sector.
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Launching a special series of coins that are ‘visually-impaired friendly’, Prime Minister Narendra Modi on Monday said it is necessary to focus on making domestic banks and currency an important part of the international supply chain and trade.
Inaugurating the week-long events by the ministry of finance and corporate affairs as part of ‘Azadi Ka Amrit Mahotsav (AKAM)’, to celebrate 75 years of independence, Modi released a special series of Re 1, Rs 2, 5, 10 and 20 coins. The coins will have the ‘AKAM’ design but are not commemorative coins and will be part of the circulation.
Modi also launched the Jan Samarth portal — a credit-linked portal of 13 government schemes.
“Earlier it was the responsibility of the people to go to the government for availing benefit of the schemes. Now the emphasis is on taking governance to people and free them from the rigamarole of doing rounds of different ministries and websites…this portal will improve the lives of students, farmers, businessmen and MSME entrepreneurs, and will help them in realising their dreams,” Modi said.
He said that the government is focused on simplification in reforms. “GST has now replaced the web of many taxes at the Centre and the states. The country is also seeing the result of this simplification,” he said, adding that it has become normal for the GST collection to cross Rs 1 trillion every month.
Modi said greater emphasis has been laid so that youth can easily open the company of their choice, set up their enterprises easily and run them easily. “Therefore, by reducing more than 30,000 compliances, abolishing more than 1,500 laws, decriminalising many provisions of the Companies Act, we have ensured that the companies of India not only grow but achieve new heights,” he said.
Speaking on the occasion, finance minister Nirmala Sitharaman said: “Jan Samarth is part of the Prime Minister’s Seva of the common people for enabling and facilitating the common citizen.”
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With an improvement in the credit growth, banks have been opting to park their surplus funds under the Reserve Bank of India (RBI)’s standing deposit facility (SDF), which is an overnight window, rather than 14-day variable rate reverse repo (VRRR) auctions.
As the 50-basis-point (bps) hike in the cash reserve ratio (CRR) kicked in on May 21, surplus liquidity in the system has been steadily falling. The June 3 VRRR auction attracted offers worth Rs 64,965 crore, compared with offers worth Rs 2.72 trillion received in the auction held on May 20. The notified amount in both the auctions was Rs 4 trillion.
Economists FE spoke to said given the current situation in credit markets, it makes more sense for banks to not lock in funds for 14 days, even though they earn more through the VRRR route.
Madan Sabnavis, chief economist at Bank of Baroda, explained that banks use VRRR when they think they are not going to need the funds for 14 days or a longer time period. “Ever since the SDF was launched, Rs 3.7 trillion has gone into it. Around two months back, a significant amount of money was going into VRRR. Then there was some last-minute demand for credit and banks actually had to go back to a special repo window opened by the RBI.”
Sabnavis estimates that so far the CRR hike may have sucked out about Rs 75,000-80,000 crore worth of liquidity and that could be the main reason behind the surplus in the system falling to Rs 4-4.5 trillion from Rs 6-7 trillion.
As a result, overall surpluses parked under both the SDF and VRRR windows have started to fall. Soumyajit Niyogi, associate director, core analytical group, India Ratings & Research, said the surplus liquidity has considerably come down because of the CRR hike, outflows from the equity markets and rising current account deficit.
Whatever surplus banks now have, they are parking under the SDF window. At this stage, when the policy is right around the corner, banks don’t want to lock in funds under the 14-day window,” he said.
In a report dated May 23, economists at Kotak Mahindra Bank said the outstanding VRRR decreased to Rs 3.06 trillion from Rs 3.88 trillion a week before, and the amount held under the SDF fell to Rs 1.39 trillion from Rs 2.22 trillion. System liquidity surplus has tightened further thereafter amid outflows towards GST collections and RBI auctions.
Both Sabnavis and Niyogi said another CRR hike in the June policy is unlikely, but the CRR could rise later in the year. “Whenever that happens, it will create room for open market operations (OMOs). So, the RBI can hike CRR and go for OMO purchases simultaneously. We can expect the CRR to go to 5% this year,” Niyogi said.
Going by the RBI’s commentary during the May policy, Sabnavis expects the monetary policy committee to go step by step and hike the repo by 25-35 bps in the June policy. “Rather than going for an odd number, they might make a 75-bps hike, including 40 bps in May. Eventually, the CRR could go up by another 50 bps, but it will be situation-based,” he said.
12:10 AM
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Participating virtually in the second BRICS Finance Ministers and Central Bank Governors (FMCBG) meeting under the China chairmanship, Sitharaman said BRICS should continue to serve as a platform to engage in dialogues and facilitate exchange of experiences, concerns and ideas for rebuilding a sustainable and inclusive growth trajectory.
7:11 AM
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With an uptick in demand for project finance from late last year, bankers believe need for long-term funds should rise by anywhere between 12-15% this year.
Bank credit deployed in the infrastructure segment rose 10.2% year-on-year in April 2022, with roads, telecommunications and power leading the pack. The outstanding credit to this space, towards the end of March was Rs 12 trillion, according to Reserve Bank of India (RBI).
Consequently, banks are now gearing up to meet demand for infrastructure projects in FY23, which they expect will be an even better year for the segment. Much of the demand in the infra segment is coming from large conglomerates in segments like roads, ports, airports, renewable energy, data centres and gas pipelines.
Projects where finance is being tied up are Mumbai International Airport, Noida Jewar International Airport, Ganga Expressway, hybrid annuity model (HAM) projects where the National Highways Authority of India (NHAI) has sought bids in the last four months, some solar projects and small port projects in Telangana, Odisha and Maharashtra.
Rajneesh Karnatak, executive director, Union Bank of India, said the government’s capex push and its intention to achieve 60% of the capex target by September 2022, suggests strong credit off take in FY23.The government has budgeted Rs 7.5 trillion as capital expenditure forFY23.
“We are looking at all sectors and projects and we are taking a share wherever the project is viable and the promoter is strong. There are also some refinance transactions happening in some thermal, renewable and road projects where there is demand for refinance after cash flows have commenced,” Karnatak said.
The spurt in demand has encouraged even large private banks to take a share of the pie. HDFC Bank, known for avoiding riskier bets, is participating in project finance transactions. For now, at least, the lender is sticking to the classic private-bank script of financing projects where cash flows have already started coming in rather than in ones where the commercial operation date (COD) is a few years away. Bankers say that the magnitude of demand is sizeable enough to accommodate all interested players.
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4:02 PM
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The government appointed A Manimekhalai has extensive experience as Director on the Board of five other companies namely Canbank Factors Ltd, Canbank Computer Services Ltd., Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd., General lnsurance Corporation of India, lndia Infrastructure Finance Company Ltd. and Trustee, Canara Robeco Asset Management Co.
3:02 PM
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The company closed FY22 with a Rs 13,911 crore balance sheet and expects 25-30 per cent growth in the current fiscal, TVS Credit CEO Venkatraman Gopalakrishnan said.
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11:10 AM
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While TCS, Infosys and ICICI Bank were the other gainers from the top-10 pack, HDFC Bank, HUL, LIC, SBI, HDFC and Bharti Airtel faced erosion from their market valuation. Their cumulative losses stood at Rs 68,140.72 crore.
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