Dhanlaxmi Bank case: Kerala High Court says petition against board maintainable

Issues related to Dhanlaxmi Bank are likely to drag further in the court, with the Kerala High Court on Wednesday ruling that the writ filed by a shareholder and two others against the board of the lender is maintainable. A shareholder and two others had approached the court against the board’s decision to reject their candidature for the office of director, to be placed before the members during the annual general meeting to be held on September 29, 2021.

The counsel for the bank opposed the prayer of the petitioners for an interim order, pointing out that the petitions are not maintainable because the bank being a private entity and not a statutory body or an instrumentality or an agency of the government is not amenable to the writ jurisdiction of the court. The counsel also said the bank is not one running on the government funding and its shares are held by private individuals.

Currently, the lender has six directors, including two RBI nominees, against the maximum strength of 11.

The Reserve Bank of India (RBI) had advised Dhanlaxmi Bank in June 2021 to ensure transparency in the nomination process of directors and follow the best corporate governance practices. The regulator, while pointing out that the bank has had a chequered history on the governance issues, directed it to expedite and complete the process of appointment of directors.

KN Madhusoodanan, a shareholder of the company, P Mohanan and Prakash DL had approached the court in September 2021, seeking a direction to the respondents – RBI and Dhanlaxmi Bank – to discharge their statutory responsibilities under Section 160 of the Companies Act to inform the members of the general body meeting of the candidature of the petitioner for the office of the director as mandated under Section 160(2) of the Companies Act.

The board of directors of arbitrarily rejected the applications of all five candidates, including prominent shareholder Ravi Pillai ( B Ravindran Pillai) and former independent director PK Vijaykumar, filed under Section 160 of the Companies Act.

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SBI to revamp Yono to prepare for an era of digital banks

Gearing up for an era of competition from digital banks, State Bank of India (SBI) is working on a revamp of its Yono mobile application to build it into a pure digital bank. Called ‘Only Yono’, the new platform will be enabled with cloud capability to handle high volumes and offer a superior customer experience.

SBI is the second major bank after HDFC Bank to have begun strategic planning for a likely round of digital bank licensing in the near future. A notice put out by the state-owned lender takes note of the Niti Aayog’s November 2021 draft discussion paper on licensing of digital banks, which may lead to formal guidelines by the regulator to establish various types of digital banks in India.

“Only Yono is envisaged as the next generation of Yono, which will make SBI ready to launch a complete digital bank with a leaner and modular architecture, more streamlined journeys, sleek and personalised customer-centric design and capturing value from ecosystems,” SBI said.

The bank has invited bids from consultants who will provide technical guidance for the architecture and design for Only Yono. SBI recently hired Nitin Chugh, who earlier led HDFC Bank’s digital banking division, in a similar role.

Yono, launched in 2017, is a digital banking application created to cater to the banking and lifestyle needs of SBI’s customers in an omni-channel format. Its original design consisted of a digital bank, a financial superstore and an online marketplace run in collaboration with merchant partners. Over the years, the app was updated to offer Kisan credit card (KCC) review services and agri gold loans to farmers, along with advisory related services and market linkages. It also offers services for SBI’s enterprise borrowers and global customers.

SBI’s investor presentation for Q3FY22 said Yono has acquired 4.54 crore customers since its inception. The app was used to open nearly 29,000 digital savings accounts on a daily basis during the quarter and disbursed pre-approved personal loans worth Rs 6,283 crore. Over two lakh KCCs were reviewed and agri gold loans worth Rs 8,551 crore were sanctioned through the app.

“Though Yono has been adopted by customers at a very high pace, in order to consolidate its leadership position, it has been decided by the bank to give Yono a revamp as ‘Only Yono’, not only in terms of features and functionality, but also in terms of ease of use and customer experience,” SBI said in its notice.

While former SBI chairman Rajnish Kumar was in favour of hiving off Yono as a separate subsidiary and listing it, current chairman Dinesh Kumar Khara has been reticent about the timeline for listing.

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EMI bounce rates fall further in February, but concerns persist

The share of failed auto-debit requests on the National Automated Clearing House (NACH) platform eased to 29.21% in volume terms in February, down 43 bps from January. In value terms, the bounce rate stood at 22.44%, down 99 bps from January. While these levels mark the lowest failure rates on EMI requests since the beginning of the pandemic in March 2020, sector experts say some pockets of retail loans are still showing high delinquency rates.

Analysts watching the sector attribute the improvement in EMI repayments to the impact of loan restructuring and the emergency credit line guarantee scheme (ECLGS) for small businesses. Some of them, however, believe that the improving bounce rates do not fully reflect the level of stress in small borrower accounts.

According to data released by the National Payments Corporation of India (NPCI), of 94.82 million debit requests made in February on the NACH platform, 27.69 million bounced. In terms of value, of the requests for Rs 90,056 crore, declines were to the tune of Rs 20,213 crore.

In a report dated March 8, analysts at Emkay Global Financial Services said EMI bounce rates are trending around pre-Covid levels due to an improving business and job environment and restructuring of loans. “Underlying asset quality of restructured loans will be visible once the moratorium expires over the next 12-24 months, but bankers expect a lower relapse rate in the current cycle (10-20%), excluding MFI (micro loans),” the report said.

Fresh delinquencies are trending down meaningfully, Emkay said, while collection efficiency in early to mid buckets, where loans have been overdue for fewer number of days, is trending even better than in Q3FY22. On the other hand, recoveries in accounts that have been overdue for longer, especially in unsecured and two-wheeler loans, may demand more robust field collection efforts or even settlements and write-offs.

Data from the NACH platform do not include intra-bank transactions and hence do not represent all debit requests made in the financial system. EMI payments to smaller NBFCs and fintechs account for a chunky share of requests made through the NACH platform.

India Ratings and Research said in a recent report that segments such as personal loans, business loans, school bus, taxi segment and heavy commercial vehicles are still witnessing lower collection efficiencies and higher bounce rates. “These have been restructured at a higher proportion and so the actual pain in these segments does not get reflected in the bounce rate data. Ind-Ra believes that credit cost would be elevated for FY22 and slippages from the restructured book can put pressure on the headline asset quality numbers,” the agency said.

Typically, the restructured book is provided for in the range of 10-20%, according to India Ratings, but slippages from this book will necessitate 15-30% of additional provisioning. As a result, the NBFC space will see moderate profitability for FY22 amid higher credit costs and operating expenses.

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